After careful consideration and upon the unanimous recommendation of the Special Committee, the Board unanimously (but with Mr. Roche abstaining) authorized and approved the Merger Agreement and recommends that you vote FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

The Proxy Statement provides detailed information about the Merger and the extraordinary general meeting. We encourage you to read the entire document and all of the attachments and other documents referred to or incorporated by reference therein carefully. You may also obtain more information about the Company from documents the Company has filed with the U.S. Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website at www.sec.gov.

Regardless of the number of Shares or ADSs that you own, your vote is very important. The Merger cannot be completed unless the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, are authorized and approved by a special resolution representing an affirmative vote of shareholders holding two-thirds or more of the votes represented by the Shares (including Shares represented by ADSs) present and voting in person or by proxy as a single class at the extraordinary general meeting.

Voting at the extraordinary general meeting will take place by poll voting, as the Executive Chairman of the Board has undertaken to demand poll voting at the meeting. Whether or not you plan to attend the extraordinary general meeting, please complete the enclosed proxy card, in accordance with the instructions set forth on the proxy card, as promptly as possible. The deadline to lodge your proxy card is                 , 2020 at                  (Shanghai time). Under our amended and restated memorandum and articles of association, holders of our Shares are entitled to one vote per Share.

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are held of record by a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in your name. If you submit a signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

As the record holder of the Shares represented by ADSs, the ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) the Shares it holds on deposit at the extraordinary general meeting in accordance with the voting instructions timely received (or deemed received) from holders of ADSs at the close of business in New York City on                 , 2020 (the “ADS Record Date”). The ADS Depositary must receive such instructions no later than                  (New York City time) on                 , 2020. The ADS Depositary has advised us that, pursuant to Section 4.10 of the Deposit Agreement, it will not itself vote or attempt to exercise the right to vote any Shares represented by ADSs other than in accordance with signed voting instructions from the relevant ADS holder and, accordingly, Shares represented by ADSs for which no timely voting instructions are received by the ADS Depositary will not be voted. Notwithstanding the foregoing, pursuant to the Deposit Agreement, if the ADS Depositary timely receives voting instructions from a holder of ADSs that fail to specify the manner in which the ADS Depositary is to vote the Shares represented by such ADSs, the ADS Depositary will deem such holder to have instructed the ADS Depositary to vote in favor of the items set forth in the voting instructions. If you hold your ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.

Holders of ADSs will not be able to attend the extraordinary general meeting unless they cancel their ADSs and become holders of Shares prior to the close of business in the Cayman Islands on                 , 2020, (the “Share Record Date”). ADS holders who wish to cancel their ADSs need to make arrangements to deliver the ADSs (or to the extent ADSs are certificated, the certificates evidencing such ADSs) to the ADS Depositary for cancellation before                 (New York City time) on                 , 2020, together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will be the registered holder of such Shares), (b) payment of the ADS Depositary’s fees associated with such cancellation (US$0.05 per ADS to be cancelled) and any applicable taxes payable pursuant to the Deposit Agreement and (c) a certification that the ADS holder either (i) held the ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled, or has given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertakes not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS Depositary will arrange for Citibank Hong Kong, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the registrar of Shares, Suntera Corporate Services Limited, to issue and mail a certificate to your attention.

If the Merger is not completed, the Company would continue to be a public company in the United States. Shares are not listed and cannot be traded on any stock exchange other than the NYSE, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, the Company’s consent to the deposit of Shares into the Company’s ADS program, the physical movement of Shares to the custodian for the Company’s ADS program not being impeded by events or circumstances (e.g. civil unrest and pandemic restrictions), the ADS Depositary’s books not being closed to ADS issuances, the availability of ADSs for issuance under the existing ADS F-6 registration statement(s), and payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued) and applicable share transfer taxes (if any) and related charges payable pursuant to the Deposit Agreement.

Shareholders who elect to dissent from the Merger will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote for the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, a copy of which is attached as Annex D to the Proxy Statement. The fair value of your Shares as determined under that statute could be more than, the same as or less than the merger consideration you would receive pursuant to the Merger Agreement if you do not exercise dissenters’ rights with respect to your Shares.

ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE                 (NEW YORK CITY TIME) ON ___________, 2020 AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO

THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED STATES. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NYSE, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSs TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (US$0.05 PER ADS ISSUED) AND APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PAYABLE PURSUANT TO THE DEPOSIT AGREEMENT.

Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this letter or in the accompanying notice of the extraordinary general meeting or Proxy Statement. Any representation to the contrary is a criminal offense.

If you have any questions or need assistance voting your Shares or ADSs, you can contact Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

Thank you for your cooperation and continued support.

ACORN INTERNATIONAL, INC.

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON                 , 2020

Dear Shareholder:

Notice is hereby given that an extraordinary general meeting of the shareholders of Acorn International, Inc. (referred to herein alternately as the “Company,” “us,” “we” or other terms correlative thereto), will be held on [•], 2020 at [•] (Shanghai time) at the offices of Hogan Lovells International LLP, Suite 1804-1808, Park Place, 1601 Nanjing Road West, Jing An District, Shanghai 200040, People’s Republic of China.

Only registered holders of ordinary shares of the Company, par value US$0.01 per share (each, a “Share”), at the close of business in the Cayman Islands on [•], 2020 (the “Share Record Date”) or their proxy holders are entitled to vote at this extraordinary general meeting or any adjournment thereof. At the extraordinary general meeting, you will be asked to consider and vote upon the following resolutions:

•        as special resolutions:

THAT the execution, delivery and performance of the agreement and plan of merger, dated October 12, 2020 (the “Merger Agreement”), among the Company, First Ostia Port Ltd., a Cayman Islands exempted company (“Parent”), and Second Actium Coin Ltd., a Cayman Islands exempted company and a wholly-owned subsidiary of Parent (“Merger Sub”) (the Merger Agreement being substantially in the form attached as Annex A to the accompanying proxy statement (the “Proxy Statement”) and to be produced and made available for inspection at the extraordinary general meeting) and the plan of merger (the “Plan of Merger”) that is required to be registered with the Registrar of Companies in the Cayman Islands (the Plan of Merger being substantially in the form attached hereto as Annex B to the Proxy Statement and to be produced and made available for inspection at the extraordinary general meeting) in order to give effect to the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation (the “Surviving Corporation”) and becoming a wholly-owned subsidiary of Parent (the “Merger”), and the consummation of the transactions contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”), including the Merger, be authorized and approved; and

THAT each of the directors and officers of the Company be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.

•        if necessary, as an ordinary resolution:

THAT the extraordinary general meeting be adjourned in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

Please refer to the Proxy Statement, which is attached to and made a part of this notice. A list of the Company’s shareholders will be available at its principal executive offices at 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, during ordinary business hours for the two business days immediately prior to the extraordinary general meeting.

After careful consideration and acting upon the unanimous recommendation of a special committee of the Board (the “Special Committee”), consisting of three members of the Board of the Company that are not affiliated with Parent or Merger Sub and are not members of the Company’s management, the Board unanimously (but with Mr. Roche abstaining) (a) determined the Merger is fair to, and in the best interests of, the Company and its Unaffiliated Security Holders and it is advisable for the Company to enter into the Merger Agreement and the Plan of Merger and consummate the Transactions, including the Merger, (b) authorized and approved the execution, delivery and performance of the Merger Agreement, the Merger and the Transactions, including the Merger, and (c) resolved to recommend the approval and authorization of the Merger Agreement to the holders of Shares and directed that the Merger Agreement be submitted to the holders of Shares for their approval and authorization. The Board unanimously (but with Mr. Roche abstaining) recommends that you vote:

•        FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger;

•        FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger; and

•        FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

Regardless of the number of Shares that you own, your vote is very important. The Merger cannot be completed unless the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, are authorized and approved by a special resolution representing an affirmative vote of shareholders holding two-thirds or more of the votes represented by the Shares (including Shares represented by ADSs) present and voting in person or by proxy as a single class at the extraordinary general meeting.

Each of Parent and Merger Sub was formed solely for the purpose of the Merger. At the Effective Time (as defined below) of the Merger, Parent will be owned by certain persons and entities affiliated with Robert W. Roche, our co-founder and Executive Chairman (“Mr. Roche”), including (a) Ritsuko Hattori-Roche, his wife (“Ms. Hattori-Roche”); (b) Catalonia Holdings, LLC (“Catalonia”); (c) Bireme Limited (“Bireme” and, together with Parent, Merger Sub, Mr. Roche, Ms. Hattori-Roche, and Catalonia, collectively, the “Buyer Group”).

As of the date of the Proxy Statement, Parent is Company’s largest shareholder and owns in the aggregate [38,967,937] Shares (including Shares represented by the Company’s American Depositary Shares (“ADSs”), each representing 20 Shares), which represent approximately [75.8%] of the total issued and outstanding Shares of the Company.

Even if you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card as promptly as possible. To be valid, your proxy card must be completed, signed and returned to the Company’s offices at 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, Attention: Lei Li, no later than               , 2020 at                (Shanghai time). The proxy card is the “instrument of proxy” as referred to in the Company’s amended and restated articles of association. Voting at the extraordinary general meeting will take place by poll voting as the Executive Chairman of the Board has undertaken to demand poll voting at the meeting. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card.

Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are registered in the name of a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in your name.

If, as a shareholder, you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to your broker, bank or other nominee, your vote will not be counted.

When proxies are properly dated, executed and returned by holders of Shares, the Shares they represent will be voted at the extraordinary general meeting in accordance with the instructions of the shareholders. If no specific instructions are given by such shareholders, such Shares will be voted FOR the proposals described above, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

If you own ADSs as of the close of business in New York City on               , 2020 (the “ADS Record Date”) (and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below), you cannot attend and vote at the extraordinary general meeting directly (whether in person or by proxy), but you may instruct Citibank, N.A., in its capacity as the ADS depositary (the “ADS Depositary”) and the holder of the Shares underlying your ADSs how to vote the Shares underlying your ADSs. The ADS Depositary must receive your instructions no later than                (New York City time) on               , 2020 in order to ensure the Shares

underlying your ADSs are properly voted at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.

Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you cancel your ADSs and become a registered holder of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on               , 2020, the Share Record Date. If you wish to cancel your ADSs for the purpose of voting Shares directly, you need to make arrangements with your broker or custodian to deliver your ADSs to the ADS Depositary for cancellation before __________ (New York City time) on               , 2020 together with (a) delivery instructions for the corresponding Shares represented by such ADSs (including, if applicable, the name and address of the person who will be the registered holder of such Shares), (b) payment of the ADS Depositary fees associated with such cancellation (US$0.05 per ADS to be cancelled) payable pursuant to the terms of the Deposit Agreement, dated as of May 2, 2007, as amended by Amendment No.1 to Deposit Agreement, dated as of November 30, 2015, among the Company, the ADS Depositary and the holders and beneficial owners of ADSs issued thereunder (the “Deposit Agreement”) and any applicable taxes and (c) a certification that you either (i) held the ADSs as of the ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled or have given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to cancel the ADSs on your behalf.

Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, a copy of which is attached as Annex D to the Proxy Statement. The fair value of their Shares as determined under that statute could be more than, the same as or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.

ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT EXERCISE OR ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE              (NEW YORK CITY TIME) ON _________, 2020 AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED STATES. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NYSE, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSs TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING,

AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (US$0.05 PER ADS ISSUED) AND APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PAYABLE PURSUANT TO THE DEPOSIT AGREEMENT.

PLEASE DO NOT SEND YOUR SHARE CERTIFICATES OR CERTIFICATES EVIDENCING ADSs AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR SHARE OR ADS CERTIFICATES.

If you have any questions or need assistance voting your Shares or ADSs, you can contact Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

The Merger Agreement, the Plan of Merger and the Merger are described in the Proxy Statement. Copies of the Merger Agreement and the Plan of Merger are included as Annex A and Annex B, respectively, to the Proxy Statement. We urge you to read the entire Proxy Statement carefully.

Notes:

(1)    In the case of joint holders, the vote of the senior holder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the joint holders. For this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company.

(2)    The instrument appointing a proxy must be in writing under the hand of the appointer or of his or her attorney duly authorized in writing or, if the appointer is a corporation, either under seal or under the hand of an officer or attorney duly authorized.

(3)    A proxy need not be a member (registered shareholder) of the Company.

(4)    The chairman of the extraordinary general meeting may at his or her discretion direct that a proxy card will be deemed to have been duly deposited where sent by email or telefax upon receipt of email or telefax confirmation that the signed original thereof has been sent. A proxy card that is not deposited in the manner permitted will be invalid.

(5)    Votes given in accordance with the terms of a proxy card will be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share or Shares in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer was received by the Company at the principal executive offices of the Company at 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China at least two hours before the commencement of the extraordinary general meeting, or adjourned meeting at which such proxy is used.

PROXY STATEMENT

Dated               , 2020

SUMMARY VOTING INSTRUCTIONS

Ensure that your shares of Acorn International, Inc. can be voted at the extraordinary general meeting by submitting your proxy or contacting your broker, bank or other nominee.

If your shares are registered in the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares are voted at the extraordinary general meeting.

If your shares are registered in your name: submit your proxy as soon as possible by signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope, so that your shares can be voted at the extraordinary general meeting unless you appoint a person other than the chairman of the meeting as proxy, in which case the shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

If you submit your signed proxy card without indicating how you wish to vote, the shares represented by your proxy will be voted in favor of the resolutions to be proposed at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as proxy, in which case the shares represented by your proxy will be voted (or not submitted for voting) as your proxy determines.

If your ADSs are registered in the name of a broker, bank or other nominee: check the ADS voting instructions card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that the shares represented by your ADSs are voted at the extraordinary general meeting.

If your ADSs are registered in your name: submit your ADS voting instructions card as soon as possible in accordance with the instructions printed on such card, so that the shares represented by your ADSs can be voted at the extraordinary general meeting by the ADS Depositary, as the registered holder of the shares represented by your ADSs.

If you submit your ADS voting instructions card without indicating how you wish to vote, the shares represented by your ADSs will be voted in favor of the resolutions to be proposed at the extraordinary general meeting.

If you have any questions or need assistance voting your Shares or ADSs, you can contact Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY
GENERAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the extraordinary general meeting and the Merger. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this Proxy Statement, the annexes to this Proxy Statement and the documents referred to or incorporated by reference in this Proxy Statement.

Q:     Why am I receiving this Proxy Statement?

A:     On October 12, 2020, we entered into the Merger Agreement with Parent and Merger Sub. You are receiving this Proxy Statement in connection with the solicitation of proxies by the Board in favor of the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, at an extraordinary general meeting or at any adjournment of such extraordinary general meeting.

Q:     When and where will the extraordinary general meeting be held?

A:     The extraordinary general meeting will take place on             , 2020, at (Shanghai time) at the offices of Hogan Lovells International LLP, Suite 1804-1808, Park Place, 1601 Nanjing Road West, Jing An District, Shanghai 200040, People’s Republic of China.

Q:     What am I being asked to vote on?

A:     You will be asked to consider and vote on the following proposals:

•        as a special resolution, to authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger;

•        as a special resolution, to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger;

•        if necessary, as an ordinary resolution, to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

Q:     What is the Merger?

A:     The Merger is a “going-private” transaction pursuant to which Merger Sub will merge with and into the Company. Once the Merger Agreement is authorized and approved by the shareholders of the Company and the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into the Company, with the Company continuing as the Surviving Corporation after the Merger. If the Merger is completed, the Company will be a privately held company beneficially owned by the Buyer Group, and as a result of the Merger, the ADSs will no longer be listed on the NYSE, and the Company will cease to be a publicly traded company.

Q:     What will I receive in the Merger if I own Shares or ADSs and am not a member of the Buyer Group?

A:     If you own Shares (other than Shares represented by ADSs) and the Merger is completed, at the Effective Time of the Merger, you will be entitled to receive the Per Share Merger Consideration, in cash, without interest and net of any applicable withholding taxes, for each Share (other than Shares represented by ADSs) you own immediately prior to the Effective Time of the Merger (unless you validly exercise and have not effectively withdrawn or lost your dissenters’ rights under Section 238 of the Cayman Islands Companies Law with respect to the Merger, in which event you will be entitled to receive fair value of each Share (other than Shares represented by ADSs) as determined pursuant to Section 238 of the Cayman Islands Companies Law).

If you own ADSs and the Merger is completed, you will be entitled to receive the Per ADS Merger Consideration (less any applicable ADS Depositary fees (US$0.05 per ADS cash distribution fee) payable pursuant to the terms of the Deposit Agreement), in cash, without interest and net of any applicable withholding taxes, for each ADS

you own when the merger consideration is paid by the ADS Depositary unless you (a) surrender your ADS to the ADS Depositary, pay the ADS Depositary’s fees associated with such cancellation of ADSs, provide instructions for the registration of the corresponding Shares (other than Shares represented by ADSs), and certify that you have not given, and will not give, voting instructions as to the ADSs (or, alternatively, you will not vote the Shares (other than Shares represented by ADSs) before the close of business in New York City on             and become a registered holder of Shares (other than Shares represented by ADSs) by the close business in the Cayman Islands on             and (b) validly exercise and have not effectively withdrawn or lost your dissenters’ rights under Section 238 of the Cayman Islands Companies Law with respect to the Merger, in which event you will be entitled to receive fair value of each Share as determined pursuant to Section 238 of the Cayman Islands Companies Law).

Please see “Special Factors — Material PRC Income Tax Consequences,” “Special Factors — Material Cayman Islands Tax Consequences,” and “Special Factors — Material U.S. Federal Income Tax Consequences” beginning on page 53, page 54 and page 54 for a more detailed description of tax consequences of the Merger. You should consult your own tax advisor for a full understanding of how the Merger will affect your U.S. federal, state, local, non-U.S. and other taxes.

Q:     What vote of the Company’s shareholders is required to authorize and approve the Merger Agreement and the Plan of Merger?

A:     In order for the Merger to be completed, the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, must be authorized and approved by a special resolution of the Company’s shareholders, which requires an affirmative vote of shareholders holding two-thirds or more of the votes represented by the Shares (including Shares represented by ADSs) present and voting in person or by proxy as a single class at the extraordinary general meeting. Under our amended and restated memorandum and articles of association, holders of our Shares are entitled to one vote per Share. Holders of our Shares will vote as a single class on all matters described in the accompanying Proxy Statement. At the close of business in the Cayman Islands on,             , 2020, the record date for voting Shares at the extraordinary general meeting (the “Share Record Date”), Shares are expected to be issued and outstanding and entitled to vote at the extraordinary general meeting.

As of the date of this Proxy Statement, Parent is Company’s largest shareholder and owns an aggregate of [38,967,937] Shares (including Shares represented by ADSs), representing approximately [75.8%] of the Company’s issued and outstanding Shares that are entitled to vote at the extraordinary general meeting.

Q:     What vote of the Company’s shareholders is required to approve the proposal to adjourn the extraordinary general meeting, if necessary, to solicit additional proxies?

A:     The proposal to adjourn the extraordinary general meeting, if necessary, to solicit additional proxies must be authorized and approved by an affirmative vote of shareholders holding a majority of the votes represented by the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting. Under our amended and restated memorandum and articles of association, holders of our Shares are entitled to one vote per Share. Based on the number of Shares we expect to be issued and outstanding and entitled to vote on the Share Record Date, and assuming all issued and outstanding Shares are present in person or by proxy and voting at the meeting, approximately             Shares must be voted in favor of the proposal to adjourn the extraordinary general meeting to allow us, if necessary, to solicit additional proxies.

Q:     How does the Board recommend that I vote on the proposals?

A:     After careful consideration and acting upon the unanimous recommendation of the Special Committee, the Board unanimously (but with Mr. Roche abstaining) recommends that you vote:

•        FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger;

•        FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger; and

•        FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

You should read “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 25 for a discussion of the factors that the Special Committee and the Board considered in deciding to recommend the approval of the Merger Agreement. In addition, in considering the recommendation of the Special Committee and the Board with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the Company’s shareholders generally. See “Special Factors — Interests of Certain Persons in the Merger” beginning on page 50.

Q:     Who is entitled to vote at the extraordinary general meeting?

A:     The Share Record Date is            , 2020. Only shareholders entered in the register of members of the Company at the close of business in the Cayman Islands on the Share Record Date or their proxy holders are entitled to vote at the extraordinary general meeting or any adjournment thereof.

The record date with respect to ADSs is            , 2020 (the “ADS Record Date”). Only ADS holders of the Company at the close of business in New York City on the ADS Record Date are entitled to instruct the ADS Depositary to vote at the extraordinary general meeting. Alternatively, you may vote at the extraordinary general meeting if you cancel your ADSs by the close of business in New York City on            , 2020 and become a holder of Shares by the close of business in the Cayman Islands on the Share Record Date.

Q:     What constitutes a quorum for the extraordinary general meeting?

A:     The presence, in person, by proxy or by corporate representative, of one or more shareholders present in person or by proxy that represent not less than one-third of the voting rights represented by the issued and outstanding Shares will constitute a quorum for the extraordinary general meeting.

Q:     What effects will the Merger have on the Company?

A:     As a result of the Merger, the Company will cease to be a publicly traded company and will be beneficially owned solely by the Buyer Group. You will no longer have any interest in the future earnings or growth of the Company. Following the consummation of the Merger, the registration of the Shares and the reporting obligations with respect to the Shares under the Exchange Act will be terminated upon application to the SEC. In addition, upon the consummation of the Merger, the ADSs will no longer be listed or traded on any stock exchange, including the NYSE, and the ADS program for the Shares will terminate.

Q:     When do you expect the Merger to be completed?

A:     We are working toward completing the Merger as quickly as possible and currently expect the Merger to close during the fourth quarter of 2020, after all conditions to the Merger have been satisfied or waived. In order to complete the Merger, we must obtain shareholder approval of the Merger at the extraordinary general meeting and the other closing conditions under the Merger Agreement must be satisfied or waived in accordance with the Merger Agreement.

Q:     What happens if the Merger is not completed?

A:     If the Company’s shareholders do not authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, or if the Merger is not completed for any other reason, the Company’s shareholders will not receive any payment for their Shares or ADSs pursuant to the Merger Agreement. In addition, the Company will remain subject to the reporting obligations of the U.S. Securities and Exchange Commission (the “SEC”). However, there is no assurance that the ADSs will continue to be listed and traded on the NYSE, unless the Company regains compliance with the NYSE’s listing requirements. See “Special Factors — Effect on the Company if the Merger is Not Completed.”

Under specified circumstances, the Company may be required to pay Parent or its designees a termination fee and/or reimburse Parent and its affiliates for their expenses in connection with the Transactions, or Parent may be required to pay the Company a termination fee and/or reimburse the Company and its affiliates for certain expenses in connection with the Transactions, in each case as described in “The Merger Agreement — Termination Fees” beginning on page 73.

Q:     After the Merger is completed, how will I receive the merger consideration for my Shares?

A:     If you are a registered holder of Shares immediately prior to the Effective Time and are not a member of the Buyer Group, promptly after the Effective Time (and in any event within five business days, a payment agent appointed by Parent will mail you (a) a letter of transmittal for the purpose of specifying that delivery shall be effected, and risk of loss and title to the share certificates shall pass, only upon delivery of the share certificates (or affidavits of loss in lieu of the share certificates) and (b) instructions for effecting the surrender of any issued share certificates representing Shares (or affidavits of loss in lieu of share certificates) in exchange for the merger consideration. If your Shares are represented by share certificates, unless you validly exercise and have not effectively withdrawn or lost your dissenters’ rights in accordance with Section 238 of the Cayman Islands Companies Law, upon your surrender of the share certificates (or affidavits of loss in lieu of the share certificates) together with a duly completed letter of transmittal, the payment agent will send you the merger consideration, in cash, without interest and net of any applicable withholding taxes, for each Share represented by the share certificates in exchange for the cancellation of your share certificates after the completion of the Merger. If you hold Shares in book-entry form (that is, without a share certificate), unless you validly exercise and have not effectively withdrawn or lost your dissenters’ rights in accordance with Section 238 of the Cayman Islands Companies Law, the payment agent will send you the merger consideration, in cash, without interest and net of any applicable withholding taxes, for each Share represented by the share certificates in exchange for the cancellation of your share certificates after the completion of the Merger.

In the event of a transfer of ownership of Shares that is not registered in the register of members of the Company, the merger consideration in respect of such Shares may be paid to such transferee upon delivery of evidence to the satisfaction of Parent (or its agent) of such transferee’s entitlement to such Shares and evidence that any applicable share transfer taxes has been paid or are not applicable.

The Per Share Merger Consideration may be subject to backup withholding taxes if the paying agent has not received from you a properly completed and signed U.S. Internal Revenue Service (“IRS”) Form W-8 or W-9, as applicable.

Q:     After the Merger is completed, how will I receive the merger consideration for my ADSs?

If you are a registered holder of ADSs that are evidenced by certificates, also referred to as American depositary receipts (“ADRs”) and you are not a member of the Buyer Group, unless you have surrendered your ADRs to the ADS Depositary for cancellation prior to the Effective Time, upon your surrender of the ADRs (or affidavits of loss in lieu of ADRs) together with a duly completed letter of transmittal (which will be supplied to you by the ADS Depositary after the Effective Time), the ADS Depositary will send you a check for Per ADS Merger Consideration, without interest and net of any applicable ADS cash distribution fee (US$0.05 per ADS held) and U.S. withholding taxes, for each ADS evidenced by the ADRs, in exchange for the cancellation of your ADRs after the completion of the Merger. If you hold your ADSs in un-certified form (that is, without an ADR) and you are not a member of the Buyer Group, the ADS Depositary will automatically send you a check for the Per ADS Merger Consideration, without interest and net of any applicable ADS cash distribution fee (US$0.05 per ADS held) and U.S. withholding taxes, in exchange for the cancellation of your ADRs after the completion of the Merger. The ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary and government charges (including withholding taxes if any) incurred by the ADS Depositary, in its capacity as the ADS Depositary, in connection with the distribution of the merger consideration to holders of ADSs, including applicable ADS cash distribution fees (US$0.05 per ADS held).

In the event of a transfer of ownership of ADSs that is not registered in the register of ADS holders maintained by the ADS Depositary, the check for any cash to be exchanged upon cancellation of the ADSs will be issued to such transferee only if the ADRs, if applicable, are presented to the ADS Depositary, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable ADS transfer taxes have been paid or are not applicable.

The Per ADS Merger Consideration may be subject to backup withholding taxes if the ADS Depositary has not received from you a properly completed and signed IRS Form W-8 or W-9, as applicable.

If your ADSs are held in “street name” by your broker, bank or other nominee at the Depositary Trust Company (“DTC”), you will not be required to take any action to receive the merger consideration for your ADSs as the ADS Depositary will arrange for the surrender of the ADSs and the remittance of the merger consideration (net of any applicable ADS Depositary fees pursuant to the terms of the Deposit Agreement, any applicable withholding taxes and other governmental charge) to DTC (the clearance and settlement system for the ADSs) for distribution by DTC to your broker, bank or other nominee on your behalf. If you have any questions concerning the receipt of the merger consideration, please contact your broker, bank or other nominee.

Q:     How will our directors and executive officers vote on the proposal to authorize and approve the Merger Agreement?

A:     Each of our directors and executive officers who beneficially owns Shares (including Shares represented by ADSs) has informed us that, as of the date of this Proxy Statement, he or she intends to vote all of his or her Shares in favor of approval and authorization of the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger. As of the date of this Proxy Statement, our directors and executive officers, beneficially owned, in the aggregate, [•] Shares, including [•] Shares represented by ADSs, which in aggregate represent approximately [•] of the total issued and outstanding Shares. See “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 82 for additional information.

Q:     What do I need to do now?

A:     We urge you to read this Proxy Statement carefully, including its annexes, exhibits, attachments and the other documents referred to or incorporated by reference herein and to consider how the Merger affects you as a shareholder. After you have done so, please vote as soon as possible.

Q:     How do I vote if my Shares are registered in my name (that is, I do not hold ADSs)?

A:     If Shares are registered in your name (that is, you do not hold ADSs) as of the Share Record Date for shareholder voting, you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the accompanying return envelope as soon as possible. The deadline to lodge your proxy card so that your Shares may be represented and voted at the extraordinary general meeting is            , 2020 at __________ (Shanghai time).

Alternatively, you can attend the extraordinary general meeting and vote in person. To attend the extraordinary general meeting, you must present certain documents to verify your identity, such as your identification part or passport and your share certificate. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, Shares represented by your proxy will be voted FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as proxy, in which case Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

If your Shares are held by your broker, bank or other nominee, please see below for additional information.

Q:     How do I vote if I own ADSs?

A:     If you own ADSs as of the close of business in New York City on the ADS Record Date (and do not cancel such ADSs and become a registered holder of the Shares underlying your ADSs as explained below), you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS Depositary (as the holder of Shares underlying your ADSs) how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible.

The ADS Depositary must receive such instructions no later than            (New York City time) on            , 2020 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting. The ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) the Shares it holds on deposit at the extraordinary general meeting in accordance with the voting instructions timely received (or deemed received) from holders of ADSs. The ADS Depositary has advised us that, pursuant to Section 4.10 of the Deposit Agreement, it will not itself vote or attempt to exercise the right to vote any Shares represented by ADSs other than in accordance with signed voting instructions from the relevant ADS holder and, accordingly, Shares represented by ADSs for which no timely voting instructions are received by the ADS Depositary will not be voted. Notwithstanding the foregoing, pursuant to the Deposit Agreement, if the ADS Depositary timely receives voting instructions from a holder of ADSs that fail to specify the manner in which the ADS Depositary is to vote Shares represented by such holder’s ADSs, the ADS Depositary will deem such holder to have instructed the ADS Depositary to vote in favor of the items set forth in the voting instructions. If you hold your ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.

Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you cancel your ADSs and become a holder of the Shares underlying your ADSs prior to the close of business in the Cayman Islands on the Share Record Date. If you wish to cancel your ADSs for the purpose of voting Shares, you need to make arrangements to deliver your ADSs to the ADS Depositary for cancellation before            New York City time on ___________, 2020 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will be the registered holder of such Shares), (b) payment of the ADS Depositary fees associated with such cancellation (US$0.05 per ADS to be cancelled) and any applicable taxes payable pursuant to the Deposit Agreement and (c) a certification that you either (i) held the ADSs as of the ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled, or have given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS Depositary will arrange for Citibank Hong Kong, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the registrar of Shares, Suntera Corporate Services Limited, to issue and mail a certificate to your attention. If the Merger is not completed, the Company would continue to be a public company in the United States and the ADSs would continue to be listed on the NYSE. Shares are not listed and cannot be traded on any stock exchange other than the NYSE, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued) and applicable share transfer taxes (if any) and related charges payable pursuant to the Deposit Agreement.

Q:     If my Shares or ADSs are held in a brokerage, bank or other nominee account, will my broker, bank or other nominee vote my Shares or ADSs on my behalf?

A:     Your broker, bank or other nominee will only vote your Shares on your behalf or give voting instructions with respect to the Shares underlying your ADSs if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or other nominee regarding how to instruct it to vote your Shares or ADSs. If you do not instruct your broker, bank or other nominee how to vote your Shares that it holds, those Shares or ADSs may not be voted.

Q:     What will happen if I abstain from voting or fail to vote on the proposal to authorize and approve the Merger Agreement?

A:     If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to the ADS Depositary, your broker, bank or other nominee, your vote will not be counted.

Q:     May I change my vote?

A:     Yes. If you are a holder of Shares, you may change your vote in one of the following three ways:

•        First, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting at least two hours before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to Acorn International, Inc., 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, The People’s Republic of China, Attention: Lei Li.

•        Second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company no later than ____________ (Shanghai time) on            , 2020, which is the deadline to lodge your proxy card.

•        Third, you may attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the shareholder actually votes at the extraordinary general meeting.

If you hold Shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee to vote your Shares, you must follow directions received from the broker, bank or other nominee to change your instructions.

Holders of ADSs may revoke their voting instructions by notification to the ADS Depositary in writing at any time prior to ____________ (New York City time) on ____________, 2020. A holder of ADSs can do this in one of two ways:

•        First, a holder of ADSs can revoke its voting instructions by written notice of revocation timely delivered to the ADS Depositary.

•        Second, a holder of ADSs can complete, date and submit a new ADS voting instruction card to the ADS Depositary bearing a later date than the ADS voting instruction card sought to be revoked.

If you hold ADSs through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you must follow the directions of your broker, bank or other nominee to change those instructions.

Q:     What should I do if I receive more than one set of voting materials?

A:     You may receive more than one set of voting materials, including multiple copies of this Proxy Statement or multiple proxy or voting instruction cards. For example, if you hold your Shares or ADSs in more than one brokerage, bank or other nominee account, you will receive a separate voting instruction card for each brokerage, bank or other nominee account in which you hold Shares or ADSs. If you are a holder of record and your Shares or ADSs are registered in more than one name, you will receive more than one proxy or voting instruction card. Please submit each proxy card that you receive.

Q:     Should I send in my Share certificates or my ADRs now?

A:     No. After the Merger is completed, you will be sent a form of letter of transmittal with detailed written instructions for exchanging your Share certificates for the merger consideration. Please do not send in your certificates now. Similarly, you should not send in the ADRs that represent your ADSs at this time. Promptly after the Merger is completed, the ADS Depositary will call for the surrender of all ADRs for delivery of the merger consideration. ADR holders will be receiving a similar form of letter of transmittal and written instructions from the ADS Depositary relating to the foregoing.

All holders of uncertificated Shares and uncertificated ADSs (i.e., holders whose Shares or ADSs are held in book entry) will automatically receive their merger consideration shortly after the Merger is completed without any further action required on the part of such holders.

If your Shares or your ADSs are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your Shares or ADSs in exchange for the merger consideration.

Q:     What happens if I sell my Shares or ADSs before the extraordinary general meeting?

A:     The Share Record Date for voting at the extraordinary general meeting is earlier than the date of the extraordinary general meeting and the date that the Merger is expected to be completed. If you transfer your Shares after the Share Record Date for voting but before the extraordinary general meeting, you will retain your right to vote at the extraordinary general meeting unless you have given, and not revoked, a proxy to the person to whom you transfer your Shares, but will transfer the right to receive the Per Share Merger Consideration in cash without interest to such person, so long as such person is registered as the owner of such Shares when the Merger is completed. In such case, your vote is still very important and you are encouraged to vote.

The ADS Record Date is the close of business in New York City on ____________, 2020. If you transfer your ADSs after the ADS Record Date but before the extraordinary general meeting, you will retain your right to instruct the ADS Depositary to vote at the extraordinary general meeting, but will transfer the right to receive the Per ADS Merger Consideration in cash without interest to the person to whom you transfer your ADSs, so long as such person owns such ADSs when the Merger is completed. In such case, your vote is still very important and you are encouraged to vote.

Q:     Am I entitled to dissenters’ rights?

A:     Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, a copy of which is attached as Annex D to this Proxy Statement. The fair value of their Shares as determined under that statute could be more than, the same as, or less than the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.

ADS holders will not have the right to exercise dissenters’ rights and receive payment of the fair value of the Shares underlying their ADSs. The ADS Depositary will not exercise or attempt to exercise any dissenters’ rights with respect to any of the Shares that it holds, even if an ADS holder requests the ADS Depositary to do so. ADS holders wishing to exercise dissenters’ rights must surrender their ADSs to the ADS Depositary, pay the ADS Depositary’s fees required for the cancellation of their ADSs, provide instructions for the registration of the corresponding Shares in the Company’s register of members, and certify that they have not given, and will not give, voting instructions as to their ADS (or, alternatively, that they will not vote the corresponding Shares) before ____________ (New York City time) on ____________, 2020, and become registered holders of Shares by the close of business in the Cayman Islands on the Share Record Date. Thereafter, such former ADS holders must comply with the procedures and requirements for exercising dissenters’ rights with respect to the Shares under Section 238 of the Cayman Islands Companies Law. If the Merger is not completed, the Company would continue to be a public company in the United States and ADSs would continue to be listed on the NYSE. Shares are not listed and cannot be traded on any stock exchange other than the NYSE, and in such case only in the form of ADSs. As a result, if a former ADS holder has cancelled his, her or its ADSs to exercise dissenters’ rights and the Merger is not completed and such former ADS holder wishes to be able to sell his, her or its Shares on a stock exchange, such former ADS holder would need to deposit his, her or its Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued) and applicable Share transfer taxes (if any) and related charges payable pursuant to the Deposit Agreement.

We encourage you to read the section of this Proxy Statement entitled “Dissenters’ Rights” beginning on page 75 as well as “Annex D — Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) — Section 238” to this Proxy Statement carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.

Q:     If I own ADSs and seek to exercise dissenters’ rights, how do I convert my ADSs to Shares, and when is the deadline for completing the conversion of ADSs to Shares?

A:     If you own ADSs and wish to exercise dissenters’ rights, you must deliver the ADSs (or to the extent ADSs are certificated, the ADRs) to the ADS Depositary for cancellation before ____________ (New York City time) on ____________, 2020 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will be the registered holder of such Shares), (b) payment of the ADS Depositary fees associated with such cancellation (US$0.05 per ADS to be cancelled) and any applicable taxes payable pursuant to the Deposit Agreement and (c) a certification that you either (i) held the ADSs as of the ADS Record Date and have not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled, or have given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting.

You must become a registered holder of the Shares underlying your ADSs and deliver to the Company, before the vote is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law, a copy of which is attached as Annex D to this Proxy Statement, for the exercise of dissenters’ rights.

We encourage you to read the section of this Proxy Statement entitled “Dissenters’ Rights” beginning on  page 75 as well as “Annex D — Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) — Section 238” to this Proxy Statement carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.

Q:     Will any proxy solicitors be used in connection with the extraordinary general meeting?

A:     No. The Company does not plan to engage a proxy solicitor.

Q:     Who can help answer my questions?

A:     If you have any questions about the Merger or if you need additional copies of this Proxy Statement or the accompanying proxy card, you should contact Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

In order for you to receive timely delivery of any additional copy of this Proxy Statement or the accompanying proxy card in advance of the extraordinary general meeting, you must make your request no later than five business days prior to the date of the extraordinary general meeting.

On January 23, 2020, representatives of Sheppard Mullin and Buyer Group Counsel had a meeting by telephone to discuss the initial draft of the Merger Agreement.

On February 14, 2020, Mr. Roche delivered a letter (“February 2020 Letter”) to the Special Committee informing the Special Committee that in light of the uncertainties regarding the impact that the 2019 novel coronavirus outbreak would have on the economy, the Buyer Group was not prepared to pursue the acquisition of the Company at a purchase price of $0.975 per ordinary share or $19.50 per ADS as set out in the Preliminary Proposal, but remained interested in continuing negotiations with the Special Committee regarding the proposed transaction.

On February 18, 2020, the Company issued a press release regarding its receipt of the February 2020 Letter, and furnished the press release and the February 2020 Letter to the SEC as exhibits to a Current Report on Form 6-K.

The negotiations and discussions regarding the Merger Agreement between Sheppard Mullin and Buyer Group Counsel were suspended due to the February 2020 Letter.

On May 4, 2020, the Company adopted a repurchase plan (the “Repurchase Plan”) based upon a form approved by the Company’s Board in accordance with guidelines specified by Rule 10b5-1 under Exchange Act, as amended, as well as Acorn’s insider trading policy. Pursuant to such Repurchase Plan, the Company may repurchase up to US$2.5 million worth of its ADSs over a 12-month period. On the same day, the Company issued a press release regarding such Repurchase Plan and furnished the press release to the SEC as an exhibit to a Current Report on Form 6-K.

On May 9, 2020, Sheppard Mullin sent to Duff & Phelps a proposed draft amendment to the engagement letter dated January 9, 2020 by and between the Company and Duff & Phelps to clarify certain provisions in light of the February 14 Letter.

In July, the Buyer Group concluded that the effects of COVID-19 were being brought under control in China and this would be an opportune time to make a new offer for the Company.

On July 22, 2020, the Company issued a press release (that was furnished to the SEC as an exhibit to a Current Report on Form 6-K) announcing that it had terminated the Repurchase Plan due to questions and information the Company received suggesting that a new take private offer for the Company may be forthcoming soon. As of July 20, 2020, the Company had purchased approximately 10,000 ADSs at an average price of US$14.34 per ADS.

On or about July 24, 2020, the Special Committee determined to retain Hogan Lovells as its US legal counsel instead of Sheppard Mullin since the representative of Sheppard Mullin who was primarily responsible for this proposed transaction contemplated by the Preliminary Proposal had joined Hogan Lovells on July 1.

On or about July 27, the Company informed Hogan Lovells that it believed a new offer from the Buyer Group would be forthcoming in the near future.

From August 7, 2020 to August 19, 2020 Bireme Limited transferred 129,770 ordinary shares and 993,511 ADSs to Parent, Catalonia LLC transferred 77,250 ADSs to Parent, and Ms. Hattori-Roche transferred 13,899,267 ordinary shares and 176,184 ADSs to Parent.

On July 31, 2020, Hogan Lovells sent an updated draft Merger Agreement to Buyer Group Counsel.

On August 2, 2020, Buyer Group Counsel sent Hogan Lovells its initial comments to the updated draft Merger Agreement.

On August 7, 2020, Buyer Group Counsel updated Hogan Lovells on the status of the debt financing and counsel also discussed the revised timetable and next steps for the proposed going-private transaction.

On August 11, 2020, representatives of Hogan Lovells and Buyer Group counsel had a conference call to go through and discuss its comments on the Merger Agreement.

On August 14, 2020, Parent and East West Bank entered into a loan and security agreement (the “Debt Financing Agreement”). Pursuant to the Debt Financing Agreement, East West Bank has agreed, upon Parent’s request, to provide Parent with a term loan in an amount equal to $10,000,000, or such lesser amount as Parent shall designate to fund the Merger. However, funding under the Debt Financing Agreement is subject to the satisfaction of the conditions set forth in the Debt Financing Agreement.

On August 17, 2020 (US time), the Board received a second non-binding proposal letter from Mr. Roche, proposing a transaction to acquire all of the outstanding shares of the Company not already owned by the Buyer Group (through the buyer vehicle formed for the purpose of pursuing the proposed transaction) at an offer price of US$15.22 per ADS (each ADS representing twenty ordinary shares) or US$0.761 per ordinary share in cash, subject to certain conditions (the “Second Proposal”). According to the Second Proposal, it was anticipated that the buyer vehicle or its shareholders would control approximately 75% of the outstanding ordinary shares of the Company. The Second Proposal also stated that an agreement had been entered into for third party financing to provide substantially all of the capital for the acquisition, subject to certain terms and conditions.

On August 21, 2020, the Special Committee convened its sixth meeting via teleconference with representatives of Hogan Lovells and Duff & Phelps. During the meeting, the representatives of Hogan Lovells and Duff & Phelps provided an update regarding the status of the take private transaction, including with respect to timing and next steps. At the same meeting, the representative of Hogan Lovells gave the Special Committee an overview regarding certain open issues in the draft Merger Agreement. Thereafter, the Special Committee then determined to revisit these issues once it had obtained preliminary input from Duff & Phelps regarding the price offered in the Second Proposal.

Later on the same day, Duff & Phelps signed an amendment to the engagement letter dated January 9, 2020, the purpose of which was to clarify and confirm no additional fee would be payable by the Company in connection with the Second Proposal, as well as related changes to take into account that Second Proposal.

On August 27, 2020, Hogan Lovells sent a revised draft timetable and checklist for the take private transaction to the Company. With the Company’s input, Hogan Lovells revised such timetable and checklist and then sent to Duff & Phelps on September 4, 2020.

Between September 4, 2020 and September 7, Hogan Lovells and Duff & Phelps discussed on the proposed timetable and checklist for the take private transaction. Thereafter, Hogan Lovells further revised such timetable and checklist in line with the discussions and then sent a revised version to the Special Committee and Duff & Phelps on September 10, 2020.

On September 7, 2020, Duff & Phelps sent the Company’s financial projections received from the CEO of the Company to the Special Committee with a summary of key information, which are described in this proxy statement in the section entitled “Certain Financial Projections” beginning on page 34.

On September 10, 2020, the Special Committee convened its seventh meeting via teleconference with representatives of Hogan Lovells and Duff & Phelps. During the meeting, the Special Committee raised questions and discussed the Company’s financial projections received from Duff & Phelps, and also sought advice from Duff & Phelps.

On September 16, 2020, Buyer Group Counsel sent Hogan Lovells its comments on the Merger Agreement.

Later on the same day, the representative of Hogan Lovells had a teleconference with certain members of the Special Committee to discuss the status of negotiations with respect to the Merger Agreement.

On September 17, 2020, the Special Committee convened its eighth meeting via teleconference with representatives of Hogan Lovells and Duff & Phelps. During the meeting, a representative of Hogan Lovells discussed with the Special Committee the key issues raised in the revised updated draft Merger Agreement received from Buyer Group Counsel, and, based on the Special Committee’s input, suggested certain positions to be taken by the Special Committee in the negotiations, including: (i) retaining the “majority of Unaffiliated Security Holders” shareholder vote condition; (ii) reinstating the mutual termination on passage of a law making Merger illegal; (iii) reinstating the Board’s “fiduciary out” allowing a Change of Recommendation and the Company’s related fiduciary termination right; (iv) insisting on broader responsibility for any reverse termination fee that may be payable; (v) potentially compromising on the financing failure reverse termination fee; (vi) accepting deletion of reimbursement of the Company’s expenses where there was also a termination fee payable; and (vii) extending the drop dead date. Furthermore, the representatives of Duff & Phelps orally provided an update on their assessment of the valuation of the Company and certain related factors, which valuation is described beginning on page 36. Duff & Phelps confirmed that the current purchase price offered in the Second Proposal was insufficient regarding the Company’s market value, however, pending completion of their valuation exercise, Duff & Phelps was not able to provide further information to the Special Committee.

On September 23, 2020, the representatives of Hogan Lovells and Buyer Group Counsel had a teleconference to discuss the open issues of the Merger Agreement. On September 24, 2020, Hogan Lovells sent Buyer Group Counsel a revised Merger Agreement reflecting the positions discussed with the Special Committee previously.

Later on the same day, Buyer Group Counsel sent her comments back to Hogan Lovells, and stated that she needed to discuss certain issues in the revised draft with the Buyer Group.

On September 25, 2020, Hogan Lovells sent Buyer Group Counsel a further revised draft of the Merger Agreement reflecting a proposed resolution, subject to Special Committee approval, of the remaining open issues, and concurrently sent the same to the Special Committee for its review. On the same day, representatives of Hogan Lovells discussed this draft Merger Agreement with Buyer Group Counsel, who agreed to some aspects of the proposal and indicated she would discuss others with the Buyer Group.

On October 1, 2020, Hogan Lovells and Buyer Group Counsel exchanged communications regarding the status of their respective undertakings to obtain input from their clients.

On October 2, 2020, the Special Committee convened its ninth meeting via teleconference with representatives of Hogan Lovells and Duff & Phelps. During the meeting, representatives from Duff & Phelps orally discussed their preliminary valuation analysis, including the methodologies employed to determine their preliminary valuation of the Company, the preliminary conclusions of which were later confirmed by the final valuation analysis described beginning on page 36 below, and answered questions from members of the Special Committee. Representatives of Hogan Lovells also discussed the status of merger agreement negotiations. The Special Committee approved the proposed resolution of the remaining open issues in the Merger Agreement, subject to reaching a satisfactory agreement with the Buyer Group with respect to price.

Later on October 2, 2020, Hogan Lovells communicated the Special Committee’s position on the remaining open issues in the Merger Agreement to Buyer Group counsel.

On October 3, 2020, Buyer Group Counsel confirmed that the Buyer Group accepted the Special Committee’s proposal to resolve the remaining open issues, subject to agreement on price.

On October 5, 2020, representatives of the Special Committee spoke with representatives of the Buyer Group regarding price, and reached a tentative agreement on $21.00 per ADS, subject to agreement on the terms of the Merger Agreement.

On October 6, 2020, Buyer Group Counsel confirmed agreement with the terms of the latest Merger Agreement, subject to an extension of the end date for which East West Bank would make the loan available to March 31, 2021. On October 7, 2020, Buyer Group Counsel indicated East West Bank had agreed to this extension of the loan.

On October 8, 2020, Hogan Lovells and Buyer Group Counsel agreed to further clean up changes to the Merger Agreement.

On October 10, 2020, the Special Committee convened its tenth meeting via teleconference with representatives of Hogan Lovells and Duff & Phelps. During the meeting, representatives from Duff & Phelps delivered a written “Fairness Analysis” document to the Special Committee and provided their oral opinion that as of October 10, the US$21.00 per ADS to be received by the Company’s shareholders other than holders of Excluded Shares, i.e., the members of the Buyer Group, and holders of Dissenting Shares as merger consideration in the proposed transaction under the Merger Agreement is fair, from a financial point of view, to such holders. The Special Committee then unanimously determined it to be advisable and in the best interests of the Company and the Unaffiliated Security Holders to enter into the Merger Agreement and recommended that the board of the directors: (i) determine that the execution of the Merger Agreement and consummation of the transactions contemplated thereby are fair to, and in the best interests of, the Company and the Unaffiliated Security Holders, and declare that it is advisable for the Company to enter into the Merger Agreement; (ii) resolve to recommend the authorization and approval of the Merger Agreement by the Company’s shareholders at a meeting of the shareholders of the Company; and (iii) direct that the Merger Agreement be submitted to a vote of the Company’s shareholders for authorization and approval.

Later on October 10, 2020, the Company and the Buyer Group traded their respective drafts of the disclosure schedule and negotiated the provisions thereof, and Duff & Phelps delivered its written fairness opinion concluding as set forth above to the Special Committee.

Also on October 10, 2020, it was agreed that the Note Shares owned by our Lead Director, Pierre Cohade, our Chief Executive Officer, Jacob A. Fisch, and Harry Hill, will be exchanged for the Notes (having face value equal to the merger consideration that these shareholders would otherwise have been entitled to receive in the form of cash) rather than cash.

On October 12, 2020, the Company’s Board convened a meeting at which it (i) determined that it was advisable and in the best interest of the Company and the Unaffiliated Security Holders to enter into the Merger Agreement and conduct the transactions contemplated thereby; (ii) recommended that the stockholders approve and adopt the Merger Agreement; (iii) authorized the filing of all reports, schedules, statements, documents and information required to be filed pursuant to the Exchange Act, the Securities Act, and the rules and regulations promulgated thereunder in connection with any of the transactions contemplated by the Merger Agreement, including, without limitation, Current Reports on Form 6-K, a Schedule 13E-3 and a preliminary and definitive proxy statement (the “Proxy”) and any amendments thereto; and (iv) authorized a special meeting of the stockholders of the Company be held for the purpose of approving the Merger Agreement following clearance of the Proxy with the Securities and Exchange Commission. Thereafter, the Company, Parent, and Merger Sub executed the Merger Agreement.

On the same day, the Company issued a press release announcing the execution of the Merger Agreement, and furnished the press release and the executed Merger Agreement to the SEC as exhibits to a Current Report on Form 6-K.

Reasons for the Merger and Recommendation of the Special Committee and the Board

At a meeting on October 10, 2020, the Special Committee, after consultation with its financial advisor and legal counsel and due consideration, unanimously (i) determined that the execution of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to and in the best interests of the Company and its Unaffiliated Security Holders; (ii) recommended that the Board (a) determine that the execution of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to and in the best interests of the Company and its Unaffiliated Security Holders, and declare that it is advisable for the Company to enter into the Merger Agreement and the Plan of Merger and consummate the Transactions, including the Merger, (b) authorize and approve the execution, delivery, and performance of the Merger Agreement, the Plan of Merger and consummation of Transactions, including the Merger, and (c) resolve to recommend the authorization and approval of the Merger Agreement, the Plan of Merger and consummation of the Transactions, including the Merger, by the Company’s shareholders at a meeting of the shareholders of the Company and direct that the Merger Agreement, the Plan of Merger and Transactions, including the Merger, be submitted to a vote of the Company’s shareholders for authorization and approval.

At a meeting on October 12, 2020, the Board, after carefully considering all relevant factors and, acting upon the unanimous recommendation of the Special Committee, unanimously (but with Mr. Roche abstaining) (a) determined the Merger is fair to, and in the best interests of, the Company and its Unaffiliated Security Holders and it is advisable for the Company to enter into the Merger Agreement, the Plan of Merger and consummate the Transactions, including the Merger, (b) authorized and approved the execution, delivery and performance of the Merger Agreement, the Merger and the Transactions, including the Merger, and (c) resolved to recommend the approval and authorization of the Merger Agreement to the holders of Shares and directed that the Merger Agreement be submitted to the holders of Shares for their authorization and approval.

In the course of reaching these determinations, the Special Committee and the Board considering the following factors and potential benefits of the Merger, each of which the Special Committee and the Board believe supported their decisions to recommend the Merger Agreement and that the Merger is fair to the Company’s Unaffiliated Security Holders. These factors and potential benefits, which are not listed in any relative order of the importance, are discussed below:

•        the Special Committee’s knowledge of the Company’s business, financial condition, results of operations, prospects and competitive position and its belief that the Merger is financially more favorable to the Unaffiliated Security Holders than any other alternative reasonably available to the Company and the Unaffiliated Security Holders;

•        managements’ view of the Company’s financial condition, results of operations, business, prospects and competitive positions;

•        significant competition and rapidly evolving markets that the Company is facing;

•        relatively low trading volume of ADSs of the Company and the fact that there is no U.S. research analyst coverage on the Company;

•        the costs of complying with United States federal securities laws;

•        the recognition that, as a SEC-reporting Company, the Company’s management and accounting and reporting staff must devote significant time to SEC reporting and compliance;

•        the recognition that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s long-term financial performance without the pressure created by the public equity market’s emphasis on short-term period-to-period financial performance;

•        the recognition that, as a SEC-reporting company, the Company is required to disclose a considerable amount of business information to the public, some of which would otherwise be considered competitively sensitive and would not be disclosed by a non-reporting company and which potentially may help its actual or potential competitors compete against the Company or make it more difficult for the Company to negotiate favorable terms with its customers, lenders and vendors;

•        the consideration payable in the Merger is in cash, which will allow the Unaffiliated Security Holders to immediately realize liquidity for their investment and provide them with certainty of the value of their Shares or ADSs;

•        the current and historical market prices of ADSs and the fact that the Per Share Merger Consideration and the Per ADS Merger Consideration represents a premium of 44.1% over the closing price of US$14.57 per ADS as quoted by the NYSE on August 17, 2020, the last trading day prior to the Company’s announcement on August 18, 2020 regarding the receipt of the second “going private” proposal, and a premium of 31.6% and 37.6%, respectively, over the Company’s 30- and 60- trading day volume-weighted average price as quoted by the NYSE prior to August 17, 2020;

•        the fact that the Per Share Merger Consideration and the Per ADS Merger Consideration represents an increase of approximately 38.0% over the US$15.22 per ADS offered in the Second Proposal;

•        the relative likelihood that the trading price of ADSs would at any time in the foreseeable future, or ever, reach and sustain a level equal to or greater than the Per ADS Merger Consideration of US$21.00, as adjusted for present value;

•        the likelihood that the Merger would be completed based on, among other things (not in any relative order of importance):

•        the fact that Parent had obtained debt financing necessary to complete the Merger, the conditions to the debt financing and the due diligence on the creditworthiness of the debt financing source;

•        the absence of a financing condition to Parent’s obligations to close in the Merger Agreement;

•        the likelihood and anticipated timing of completing the Merger in light of the scope of the conditions to closing; and

•        the Company’s ability, as set forth in the Merger Agreement, to be entitled to an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specially the terms and provisions of the Merger Agreement.

•        the Merger Agreement provides that, in the event that the Company decides to terminate the Merger Agreement in accordance with the following termination provisions: (a) breaches of representations and warranties by Parent or Merger Sub, (b) (i) all of the conditions to the obligations of Parent and Merger Sub (other than those conditions that by nature are only to be satisfied by actions taken at the closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the closing conditions solely for the benefits of the Company (other than those conditions that by their nature are only to be satisfied by actions taken at the closing) have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that the Company is ready, willing and able to consummate the Merger and (iii) Parent and Merger Sub fail to complete the Merger within 15 business days, then the responsible member or members of Parent shall promptly but in no event later than five business days after the date of such termination, pay the Company a termination fee in an amount of $2.25 million (see “The Merger Agreement — Termination Fee” beginning on page 73);

•        the low probability of any transaction with a third party in view of Parent’s ownership in the Company, which was sufficient to prevent the consummation of any transaction with a third party that required shareholder approval;

•        following the formation, the Special Committee’s independent control of the sale process with the advice and assistance of Duff & Phelps as its financial advisor and Hogan Lovells as it legal advisor, reporting solely to the Special Committee; and

•        the financial analysis reviewed and discussed with the Special Committee by representatives of Duff & Phelps, as well as the written opinion of Duff & Phelps rendered to the Special Committee on October 10, 2010 as to the fairness, from a financial point of view, of the Per Share Merger Consideration and the Per ADS Merger Consideration to be paid to the Company’s shareholders other than holders of Excluded Shares, i.e., the members of the Buyer Group, and holders of Dissenting Shares in the Merger, as of the date of the opinion, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing their opinion.

Duff & Phelps, under the direction of the Special Committee, did not conduct a market check of parties deemed to be potentially interested in and capable of acquiring the Company for reasons as below:

•        since the announcement of the Preliminary Proposal on November 5, 2019, no party other than the members of the Buyer Group has contacted the Company or the Special Committee expressing an interest in exploring an alternative transaction with the Company; and

•        the Special Committee’s belief that it was unlikely that any transaction with a third party could be completed at this time given that the Buyer Group, specifically Parent, holds approximately 75.8% of the outstanding ordinary shares of the Company, which would only vote in favor of the Merger and will vote against any transaction involving a third party.

In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the Merger is procedurally fair to the Unaffiliated Security Holders and to permit the Special Committee and the Board to represent effectively the interests of such Unaffiliated Security Holders, which procedural safeguards include the following, which are not listed in any relative order of importance:

•        the consideration and negotiation of the Merger Agreement was conducted entirely under the control and supervision of the Special Committee, which consists of three independent directors, each of whom is an outside, non-employee director, and that no limitations were placed on the Special Committee’s authority;

•        in considering the transaction with the Buyer Group, the Special Committee acted solely to represent the interests of the Unaffiliated Security Holders, and the Special Committee had independent control of the extensive negotiations with the Buyer Group and their respective legal and financial advisors on behalf of the Unaffiliated Security Holders;

•        all the members of the Special Committee during the entire process were and are independent directors and free from any affiliation with the Buyer Group; in addition, none of such Special Committee members is or ever was an employee of the Company or any of its subsidiaries or affiliates and none of such directors has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than the Special Committee members’ receipt of Board and Special Committee compensation (which is not contingent upon the completion of the Merger or the Special Committee’s or the Board’s recommendation of the Merger) and their indemnification and liability insurance rights under the Merger Agreement;

•        the Special Committee was assisted in negotiations with the Buyer Group and in its evaluation of the Merger by Duff & Phelps as its financial advisor, Hogan Lovells as its legal advisor;

•        the Special Committee was empowered to consider, attend to and take any and all actions in connection with the written proposals from the Buyer Group in connection with the Transactions from the date the Special Committee was established, and no evaluation, negotiation or response regarding the Transactions in connection therewith from that date forward was considered by the Board for approval until the Special Committee had recommended such action to the Board;

•        the terms and conditions of the Merger Agreement were the product of extensive negotiations between the Special Committee and its advisors, on the one hand, and the Buyer Group and its Advisors, on the other hand;

•        the Special Committee was empowered to exercise the full power and authority of the Board in connection with the Transactions and related process;

•        the Special Committee held a total of ten in person and telephonic meetings to consider and review the terms of Merger Agreement and the Transactions, including the Merger;

•        the recognition by the Special Committee and the Board that the Special Committee has no obligation to recommend the Merger or any other transaction;

•        the recognition by the Special Committee and the Board that, under the terms and conditions of the Merger Agreement, the Company has the ability to consider any Acquisition Proposal if, at any time prior to the Requisite Company Vote (as defined in the Merger Agreement), the Board reasonably determines in good faith, after consultation with the Company’s outside legal counsel and financial advisor, that (i) such Acquisition Proposal may constitute or is reasonably expected to become to a Superior Proposal (as defined in the Merger Agreement and further explained under the caption “The Merger Agreement — No Solicitation of Acquisition Proposals; No Adverse Recommendation Changes” beginning on page 66) and (ii) failure to furnish certain information with respect to the Company and its subsidiaries and engage in or otherwise participate in discussions or negotiations with the person(s) making such Acquisition Proposal would be reasonably likely to be inconsistent with its fiduciary duties to the Company and the shareholders under the applicable laws;

•        the Company’s ability, subject to (i) compliance with all material respects with Section 6.2 of the Merger Agreement and (ii) under certain circumstances, making payment of the Termination Fee in immediately available funds required to be paid pursuant to the Merger Agreement, to terminate the Merger Agreement and abandon the Merger at any time, whether before or after the Requisite Company Vote to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger; and

•        the availability of dissenters’ rights to shareholders who comply with all of the required procedures under the Cayman Islands Companies Laws for exercising dissenters’ rights, which allow such shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands.

The Special Committee and the Board also considered a variety of potentially negative factors concerning the Merger Agreement and the Merger, including the following, which are not listed in any relative order of importance:

•        the fact that authorization and approval of the Merger Agreement by the Unaffiliated Security Holders is not required to complete the Merger, given that the Buyer Group holds approximately 75.8% of the issued and outstanding shares as of the date of this proxy statement, the Buyer Group has the ability to authorize and approve the Merger Agreement at the extraordinary general meeting even if a substantial majority, or all, of the Unaffiliated Security Holders vote against the proposal to authorize and approval the Merger Agreement, the Plan of Merger, and the Transactions, including the Merger;

•        the Unaffiliated Security Holders will have no on-going equity participation in the Company following the Merger, and they will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of Shares, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company, which could include a dividend to shareholders;

•        the restrictions on the conduct of the Company’s business prior to the completion of the Merger, which may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending completion of the Merger;

•        the risks and costs to the Company if the Merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Company’s business and customer relationships, as well as negative impact of a public announcement on the Company’s business and operating results and the Company’s ability to attract and retain key management and other personnel;

•        the Company may be required, under certain circumstances, to pay the Buyer Group a termination fee of US$1.7 million in connection with the termination of the Merger Agreement;

•        the fact that the monetary remedy of the Company in connection with a breach of the Merger Agreement by Parent or Merger Sub is limited, under certain circumstances, to receipt of a reverse termination fee of US$2.25 million from Parent and Merger Sub, and under certain circumstances the Company may not be entitled to a reverse termination fee or expenses at all;

•        the terms of the Buyer Group’s participation in the Merger and the fact that the Buyer Group may have interests in the Merger that are different from, or in addition to, those of the Unaffiliated Security Holders;

•        the fact that certain key management members may have interests in the Merger that are different from, or in addition to, those of the Unaffiliated Security Holders;

•        that while the Special Committee expects to complete the Merger, there can be no assurance that all conditions to the parties’ obligations to complete the Merger under the Merger Agreement will be satisfied and, as a result, it is possible that the Merger may not be completed even if the Company’s shareholders approve it;

•        if the Merger is not completed, the disruption to businesses of the Company that may result from the announcement of the Merger (including loss of demand for services and negative impacts on operating results, ADS prices and ability to retain key personnel), the fact that officers and other employees of the Company will have expended extensive efforts and have experienced significant distractions from their work in attempting to complete the transaction, the fact that substantial transaction costs will have been incurred in connection with the transaction and other potential consequences to the Company related to an announced transaction not being consummated; and

•        the likely taxability of an all-cash transaction to the Unaffiliated Security Holders.

The foregoing discussion of information and factors considered by the Special Committee and the Board is not intended to be exhaustive, but includes a number of the factors considered by the Special Committee and the Board. In view of the wide variety of factors considered by the Special Committee and the Board, neither the Special Committee nor the Board found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Special Committee and the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee unanimously recommended that the Board authorize and approve, and the Board authorized and approved, the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, based upon the totality of the information presented to and considered by it.

In reaching its conclusion regarding the fairness of the Merger to the Company’s Unaffiliated Security Holders and its decision to recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, the Special Committee considered financial analyses presented by Duff & Phelps. These analyses included, among others, discounted cash flow analysis, selected public companies analysis, selected merger and acquisition transactions analysis and other analyses. All of the material analyses as presented to the Special Committee on October 10, 2020 are summarized below under the caption “Special Factors — Opinion of Duff & Phelps, Special Committee’s Financial Advisor” beginning on page 36. The Special Committee and the Board believe that it is reasonable and appropriate to consider the opinion from Duff & Phelps in their determination as to the fairness, from a financial point of view, of the consideration payable in the transaction to the Unaffiliated Security Holders of the Company, because the opinion addressed the fairness, from a financial point of view, of such consideration to holders of Shares and ADSs other than the Excluded Shares and the Dissenting Shares. Specifically, the opinion carve-out relates only to holders of Excluded Shares, i.e., the members of the Buyer Group, and holders of Dissenting Shares. To the extent that an affiliated security holder may exist other than Parent and its affiliates, the consideration to be received by such affiliated security holder is identical in all respects as the consideration to be received by Unaffiliated Security Holders (ignoring the Notes, which are themselves to be received by both an Unaffiliated Security Holder and two affiliated security holders). The Special Committee expressly adopted these analyses and opinions, among other factors considered, in reaching its determination as to the fairness of the Transactions, including the Merger.

Neither the Special Committee nor the Board considered the liquidation value of the Company’s assets as a key determinant of Acorn’s value because each considers the Company to be a viable going-concern business where value is derived from its continuing operations. In addition, the Special Committee and the Board believe that the value of

the Company’s assets that might be realized in a liquidation would be significantly less than its going-concern value on the following grounds: (i) the realization of value in a liquidation would involve selling multiple distinct operating entities and such a process would likely be complex and time consuming, as buyers for each asset would need to be found, agreements negotiated and various regulatory approvals would be required, which might delay or impede such a process, (ii) a liquidation of some (but not all) assets would risk leaving unattractive, orphaned assets that would be difficult to monetize, (iii) the tax implications in a liquidation are difficult to quantify, and could be significant relative to a sale of the Company as a going concern, (iv) neither the Special Committee nor the Board were aware of any precedents of US-listed PRC companies liquidating their entire business and returning the proceeds to shareholders and (v) liquidation value analysis does not take into account any value that may be attributed to the Company’s ability to attract new business. Each of the Special Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going-concern value.

Each of the Special Committee and the Board also considered the historical market prices of our ADSs as described under the section entitled “Market Price of the Company’s ADSs, Dividends and Other Matters — Market Price of the ADSs” beginning on page 57. Each of the Special Committee and the Board considered the purchase prices paid in previous purchases as described under “Transactions in Shares and ADSs” beginning on page 80. Almost all of the historical market closing prices of ADSs since July 1, 2019 were lower than the Per ADS Merger Consideration of US$21.00. The Special Committee and the Board therefore considered these to be positive factors and potential benefits of the Merger. Neither the Special Committee nor the Board, however, considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the Company’s shareholders, as a factor. The Special Committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern as it does not take into account the future prospects of the Company, market conditions, trends in the industry or the business risks inherent in competing with other companies in that industry. As a result, the Special Committee and the Board believe book value overstates the value of the Company, and accordingly it would not be possible to obtain book value on a sale of the Company’s assets. This is consistent with book value being an accounting concept, not a material indicator of the value of the Company as a going concern, which is indicative of historical costs and therefore not dispositive measure in the determination of the Company’s value. The Company’s net book value per Share as of June 30, 2020 was US$1.15 based on 51,419,058 issued and outstanding Shares as of that date. Except as set forth under “Special Factors — Background of the Merger” beginning on page 20, the Company is not aware of any firm offers made by any unaffiliated person, other than the Buyer Group, during the past two years for (i) the merger or consolidation of the Company with or into another company, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

In reaching its determination that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to, and in the best interests of, the Company and its Unaffiliated Security Holders and its decision to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, by the Company’s shareholders, the Board, on behalf of the Company, considered the analysis and recommendation of the Special Committee and the factors examined by the Special Committee as described above under this section and under the caption “Special Factors — Background of the Merger,” and adopted such recommendations and analysis. During its consideration of the Merger Agreement and the Transactions, including the Merger, the Board was also aware that some of the Company’s directors and shareholders have interests with respect to the Merger that are, or may be, different from, and/or in addition to those of the Company’s Unaffiliated Security Holders generally, as described under the caption “Special Factors — Interests of Certain Persons in the Merger” beginning on page 50.

In reaching its conclusion regarding the fairness of the Merger to the Unaffiliated Security Holders, the Special Committee and the Board considered various substantive factors as discussed above on pages 25-28, and 28-31. The Special Committee and the Board concluded that approval by a majority of the Unaffiliated Security Holders is not necessary for authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, as it is not required by Cayman Islands law nor is it typical in going private transactions involving similarly situated Cayman Islands companies. In addition, the Special Committee and Board believes that the Merger is procedurally fair to the Unaffiliated Security Holders because various safeguards and protective steps have been adopted to ensure the procedural fairness of the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger, including the safeguards discussed on pages 25-31 above.

Except as set forth under “Special Factors — Background of the Merger” beginning on page 20, “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 25 and “Special Factors — Opinion of Duff & Phelps, Special Committee’s Financial Advisor” beginning on page 36, no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of Unaffiliated Security Holders for purposes of negotiating the terms of the Transaction and/or preparing a report concerning the fairness of the Transaction.

Position of the Buyer Group as to the Fairness of the Merger

Under SEC rules governing going-private transactions, each member of the Buyer Group is required to express its belief as to the fairness of the Merger to the Unaffiliated Security Holders. The Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to approve the Merger and to approve and adopt the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. Buyer Group has interests in the Merger that are different from, and/or in addition to, those of the other shareholders of the Company by virtue of its continuing interests in the Surviving Corporation after the completion of the Merger. These interests are described under “Special Factors — Interests of Certain Persons in the Merger — Interests of the Buyer Group” beginning on page 50.

The Buyer Group believes that the interests of the Company’s Unaffiliated Security Holders were represented by the Special Committee, which negotiated the terms and conditions of the Merger Agreement with the assistance of its independent legal and financial advisors. None of the Buyer Group members or their respective affiliates participated in the deliberations of the Special Committee regarding, nor received any advice from the Special Committee’s independent legal or financial advisors as to, the fairness of the Merger to the Company’s Unaffiliated Security Holders.

Based on their knowledge and analysis of available information regarding the Company, discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Special Committee and the Board discussed under “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 25, and based on the following factors, which are not listed in any relative order of importance, the Buyer Group believes that the Merger is both substantively and procedurally fair to the Unaffiliated Security Holders of the Company:

•        the Merger Consideration that will equal US$1.05 per Share and US$21.00 per ADS represents a premium of 44.1% over the closing price of US$14.57 per ADS as quoted by the NYSE on August 17, 2020, the last trading day prior to the Company’s announcement in connection with the receipt of the second “going private” proposal, and a premium of 31.6% and 37.6%, respectively, over the Company’s 30- and 60- trading day volume-weighted average price as quoted by the NYSE on and prior to August 17, 2020;

•        the lowest closing price of the Company’s ADSs during the 52-week period prior to October 12, 2020, the date that the Company announced the execution of the Merger Agreement, was US$7.96;

•        the Merger Consideration that will equal US$1.05 per Share and US$21.00 per ADS represents a premium of approximately 38.0% over the offering price per ADS of US$15.22 in the second “going private” proposal on August 18, 2020;

•        notwithstanding that the fairness opinion of Duff & Phelps was delivered to the Special Committee only and none of the Buyer Group members or any of their affiliates was entitled to rely or relied on such opinion, the fact that the Special Committee received an opinion from Duff & Phelps to the effect that, as of the date of the opinion and based upon and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps set forth in its written opinion, the merger consideration to be paid to the Company’s shareholders other than holders of Excluded Shares, i.e., the members of the Buyer Group, and holders of Dissenting Shares was fair, from a financial point of view;

•        the consideration to be paid to the Company’s Unaffiliated Security Holders in the Merger is all cash, allowing the Company’s Unaffiliated Security Holders to immediately realize a certain and fair value for all of their Shares and/or ADSs;

•        all of the members of the Special Committee during the Company’s sale process were and are independent directors and were and are unaffiliated with any member of the Buyer Group; in addition, none of such Special Committee members is or ever was an employee of the Company or any of its subsidiaries or affiliates, other than (i) the directors’ receipt of Board compensation in the ordinary course; (ii) the Special Committee members’ compensation in connection with its valuation of the Merger and other strategic alternatives of the Company (which compensation is not contingent upon the consummation of the Merger or the Special Committee’s or Board’s recommendation of the Merger) and (iii) the directors’ indemnification and liability insurance rights under the Merger Agreement;

•        the Special Committee was established and given authority to, among other things, review, evaluate and negotiate the terms of the Merger and to recommend to the Board what action should be taken by the Company, including not to engage in the Merger;

•        the Special Committee retained and was advised by its legal and financial advisors who are experienced in advising committees such as the Special Committee in similar transactions;

•        the Special Committee met regularly to consider and review the terms of the Merger Agreement and the Transactions;

•        the terms and conditions of the Merger Agreement were the product of extensive negotiations between the Special Committee and its advisors, on the one hand, and the Buyer Group and its advisors, on the other hand; over the course of approximately eleven months;

•        the Special Committee was empowered to exercise any power or authority of the Board that the Special Committee determined was necessary or advisable in carrying out and fulfilling its duties and responsibilities;

•        the Special Committee and the Board had no obligation to recommend the approval and authorization of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger;

•        none of the Buyer Group members participated in or sought to influence the deliberative process of, or the conclusions reached by, the Special Committee or the negotiating positions of the Special Committee;

•        the Special Committee and the Board was fully informed about the extent to which the interests of certain shareholders of the Company who are also members of the Buyer Group in the Merger differed from those of the Unaffiliated Security Holders;

•        the Merger was unanimously approved by the Special Committee;

•        the Special Committee and, acting upon the unanimous recommendation of the Special Committee, the Board determined that the Merger Agreement and the Transactions, including the Merger, are in the best interests of the Unaffiliated Security Holders;

•        under the terms and conditions of the Merger Agreement, the Company has the ability to consider any Acquisition Proposal if, at any time prior to the Requisite Company Vote, the Board reasonably determines in good faith, after consultation with the Company’s outside legal counsel and financial advisor, (i) such Acquisition Proposal may constitute or is reasonably expected to become to a Superior Proposal (as defined in the Merger Agreement and further explained under the caption “The Merger Agreement — No Solicitation of Acquisition Proposals; No Adverse Recommendation Changes” beginning on page 66) and (ii) failure to furnish certain information with respect to the Company and its subsidiaries and engage in or otherwise participate in discussions or negotiations with the person(s) making such Acquisition Proposal would be reasonably likely to be inconsistent with its fiduciary duties to the Company and the shareholders under the applicable laws;

•        the Board’s ability (upon the recommendation of the Special Committee), under certain circumstances, to change, withhold, withdraw, qualify or modify the Company Recommendation or approve, recommend, or otherwise declare advisable any Superior Proposal not knowingly solicited, entered into or agreed to in breach of the Merger Agreement and made after the date of the Merger Agreement;

•        the Company has the ability, under certain circumstances, to specifically enforce the terms of the Merger Agreement;

•        the Merger Agreement requires, in the event that the Company decides to terminate the Merger Agreement in accordance with the following termination provisions: (a) breaches of representations and warranties by Parent or Merger Sub, (b) (i) all of the conditions to the obligations of Parent and Merger Sub (other than those conditions that by nature are only to be satisfied by actions taken at the closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the closing conditions solely for the benefits of the Company (other than those conditions that by their nature are only to be satisfied by actions taken at the closing) have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that the Company is ready, willing and able to consummate the Merger and (iii) Parent and Merger Sub fail to complete the Merger within 15 business days, then the responsible member or members of Parent shall promptly but in no event later than five business days after the date of such termination, pay the Company a termination fee in an amount of $2.25 million;

•        the Company may be required, under certain circumstances, to pay the Buyer Group a termination fee of US$1.7 million in connection with the termination of the Merger Agreement

•        under the law of the Cayman Islands, shareholders have the right to dissent from the Merger and to receive payment of the fair value of their Shares, which if not agreed will be determined by the Grand Court of the Cayman Islands.

•        The Buyer Group obtained Debt Financing necessary to complete the Transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger, as well as the limited number and nature of conditions to the debt financing; and

•        the Board may terminate the Merger Agreement at any time, whether before or after the Requisite Company Vote if the Board has effected a Change of Recommendation; provided that, (i) the Company shall have complied in all material respects with the provisions regarding Acquisition Proposal as set forth in the Merger Agreement, and (ii) the Company pays the termination fee required under the Merger Agreement.

In its consideration of the fairness of the Merger, the Buyer Group noted that the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions contemplated thereby, including the Merger, is not subject to the majority-of-the-minority voting requirement. Nevertheless, the Buyer Group believes the Merger is procedurally fair to the Unaffiliated Security Holders because (i) the Cayman Islands laws do not require a merger to be conditioned upon a majority-of-the-minority voting requirement and this condition is not customary in going-private transactions involving Cayman Islands companies, and (ii) various safeguards and protective steps have been adopted to ensure the procedural fairness of the Merger Agreement, the Plan of Merger and the Transactions contemplated thereby, including the Merger, including without limitation (a) the formation of and the Board authority granted to the Special Committee in reviewing, evaluating and negotiating (and ultimately authorizing and approving) the terms of the Merger Agreement, (b) the Special Committee retained and was advised by competent and experienced independent legal counsels and independent financial advisor, (c) the rights of the Company regarding the Superior Proposal, and (d) the availability of dissenters’ rights to the Unaffiliated Security Holders.

The Buyer Group’s consideration of the factors described above reflects its assessment of the fairness of the Per Share Merger Consideration and Per ADS Merger Consideration payable in the Merger to the Unaffiliated Security Holders in relation to the going-concern value of the Company on a stand-alone basis. The Buyer Group implicitly considered the value of the Company in a sale as a going concern by taking into account the Company’s current and anticipated business, financial condition, results and operations, prospects and other forward-looking matters. The Buyer Group did not, however, explicitly calculate a stand-alone pre-Merger going-concern value of the Company as a public company because the Company will have a significantly different capital structure following the Merger. Therefore, the Buyer Group does not believe that the going-concern value of the Company is an appropriate indicator to determine the fairness of Per Share Merger Consideration and Per ADS Merger Consideration payable in the Merger to the Unaffiliated Security Holders. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement price of the Company’s Shares, the Merger Consideration of US$21 per ADS or US$1.05 per Share represented a premium to the going concern value of the Company.

The Buyer Group did not view as dispositive the liquidation value of the Company because it considers the Company to be a viable going concern and views the trading history of the ADSs as an indication of the Company’s going concern value and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the Merger.

The Buyer Group did not view as dispositive net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and therefore not a relevant measure in the determination as to the fairness of the Merger. The Company’s net book value per Share as of June 30, 2020 was US$1.15 based on 51,419,058 issued and outstanding Shares as of that date.

Except as set forth under “Special Factors — Background of the Merger” beginning on page 20, the Buyer Group is not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person, other than the Buyer Group, during the past two years for (a) the merger or consolidation of the Company with or into another company, or vice versa, (b) an acquisition of the Company, (c) a tender offer or other acquisition of any class of the Company’s securities, (d) the sale or other transfer of a material amount of the assets of the Company or (e) a purchase of the Company’s securities that would enable the purchaser to exercise control over the Company.

The foregoing is a summary of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the Merger to the Company’s Unaffiliated Security Holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the Merger to the Company’s Unaffiliated Security Holders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.

The Buyer Group believes these factors provide a reasonable basis for its belief that the Merger is both substantively and procedurally fair to the Company’s Unaffiliated Security Holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any shareholder of the Company as to how such shareholder should vote with respect to the approval and adoption of the Merger Agreement.

Certain Financial Projections

The Company does not as a matter of course make public projections as to future sales, earnings, or other results. However, in connection with their due diligence review of the Company and Duff & Phelps’ financial analysis of the consideration to be paid in the Merger, the management of the Company has prepared certain preliminary financial projections for the fiscal year ended December 31, 2020 through the fiscal year ending December 31, 2024 for internal use, which was summarized by Duff & Phelps in a one-page PDF version as a summary of key information for the Special Committee’s convenience (with all such data and information contained and covered in the below tables on page 35). These preliminary financial projections were approved by the Special Committee for use by Duff & Phelps in connection with their financial analyses related to the Merger and opinion provided to the Special Committee. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information or U.S. generally accepted accounting principles (“U.S. GAAP”), but, in the view of the Company’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this document are cautioned not to place undue reliance on the prospective financial information.

The financial projections are not a guarantee of performance. In compiling the projections, the Company’s management took into account historical performance, combined with estimates regarding revenues, gross profit, net income and capital expenditure. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by the Company’s management that the management believed were reasonable at the time the projections were prepared. This information is not, however, fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such as industry performance, the market for the Company’s existing and new products, the competitive environment,

expectations regarding future acquisitions or any other transaction and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of the management, may cause actual future results to differ materially from the results forecasted in these financial projections. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared. For instance, the projections do not give effect to the Merger or any changes to the Company’s operations or strategy that may be implemented after the time the projections were prepared. We cannot assure you that the projections will be realized or that actual results will not be significantly different from those contained in the projections.

Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The Company’s independent auditor’s report accompanying the Company’s audited consolidated financial statements included in the Company’s annual report on Form 20-F for the year ended December 31, 2019 incorporated by reference in this proxy statement refers exclusively to the Company’s historical financial statements and does not cover any other information in this proxy statement and should not be read to do so. The financial projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the Special Committee’s financial advisor and are not included for the purpose of influencing any shareholder to make any investment decision with respect to the Merger, including whether or not to seek appraisal for his, her or its Shares pursuant to Section 238 of the Cayman Islands Companies Law.

The following table sets forth the financial projections prepared by the Company’s management (the “Management Projections”) and considered by the Special Committee and its financial advisor in connection with their analysis of the Merger:

In preparing these projections, the Company’s management necessarily made certain assumptions about future financial factors affecting the Company’s business, including, primarily, that (i) the popularity of the Company’s products would remain stable in the geographic markets in which the Company operated, (ii) the Company would be able to successfully implement its business plan to compete effectively in both its traditional business and emerging business, (iii) material costs and expenses would increase in connection with the Company’s revenue increase. The Company’s management also assumed that the overall economy in China will remain stable, and that there will be no material change in competition affecting the Company.

Duff & Phelps, as the Special Committee’s financial advisor, orally reviewed with the Special Committee certain financial analyses, as described beginning on page 36, that were based, in part, on the financial projections above. For additional information regarding the analyses by the Special Committee’s financial advisor, see “Special Factors — Opinion of Duff & Phelps, the Special Committee’s Financial Advisor” beginning on page 36.

NONE OF THE COMPANY OR ITS AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY SHAREHOLDER OR OTHER PERSON REGARDING THE ULTIMATE PERFORMANCE OF THE COMPANY COMPARED TO THE INFORMATION CONTAINED IN THE PROJECTIONS OR THAT PROJECTED RESULTS WILL BE ACHIEVED.

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAW.

Opinion of Duff & Phelps, the Special Committee’s Financial Advisor

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

•        reviewed the Company’s annual reports and audited financial statements on Form 20-F filed with the SEC for the years ended December 31, 2016 through December 31, 2019 and the Company’s unaudited interim financial statements for the six months ended June 30, 2018, June 30, 2019 and June 30, 2020 included in the Company’s Form 6-K filed with the SEC;

•        reviewed unaudited segment financial information for the Company for the years ended December 31, 2017 through December 31, 2019 and for the six months ended June 30, 2018, June 30, 2019 and June 30, 2020, provided by the management of the Company;

•        reviewed information regarding the Company’s investments in Shanghai Yimeng Software Technology Co., Ltd. (the “Yimeng Investments”), including, among other information, the unaudited book value recorded by the Company as of June 30, 2020 and recent sale transaction details, provided by the management of the Company;

•        reviewed Management Projections for the Company for the years ending December 31, 2020 through December 31, 2024, prepared and provided to Duff & Phelps by the management of the Company, upon which Duff & Phelps has relied, with the Company’s and the Special Committee’s consent, in performing its analysis;

•        reviewed other internal documents relating to the history, past and current operations, financial conditions, and probable future outlook of the Company, provided to Duff & Phelps by the management of the Company;

•        reviewed a letter dated October 7, 2020 from the management of the Company, which made certain representations as to certain historical financial information for the Company, the Yimeng Investments the Management Projections and the underlying assumptions of such projections (the “Management Representation Letter”);

•        reviewed documents related to the merger, including a draft of the Merger Agreement dated October 8, 2020;

•        discussed the information referred to above and the background and other elements of the Proposed Transaction with the management of the Company;

•        discussed with the management of the Company its plans and intentions with respect to the management and operation of the Company’s business;

•        reviewed the historical trading price and trading volume of the ADSs and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

•        performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant, as further described beginning on page 36; and

•        conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

In performing its analyses and rendering this opinion with respect to the merger, Duff & Phelps, with the Company’s and the Special Committee’s consent:

•        relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the management of the Company, and did not independently verify such information;

•        relied upon the fact that the Special Committee, the Board of Directors and the Company have been advised by counsel as to all legal matters with respect to the merger, including whether all procedures required by law to be taken in connection with the merger have been duly, validly and timely taken;

•        assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps, including, without limitation, the Management Projections, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expresses no opinion with respect to such estimates, evaluations, forecasts or projections or the underlying assumptions;

•        assumed that information supplied and representations made by the management of the Company are substantially accurate regarding the Company, the Yimeng Investments and the merger;

•        assumed that the representations and warranties made in the Merger Agreement and the Management Representation Letter are substantially accurate;

•        assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

•        assumed that there has been no material change in the assets, liabilities, financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

•        assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the Merger Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

•        assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived in the merger.

To the extent that any of the foregoing assumptions or any of the facts on which the opinion is based prove to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger.

Duff & Phelps prepared its opinion effective as of the date thereof. Its opinion was necessarily based upon market, economic, financial and other conditions as they existed and can be evaluated as of the date thereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date thereof. The credit, financial and stock markets have been experiencing unusual volatility and Duff & Phelps expresses no opinion or view as to any potential effects of such volatility on the Company or the merger.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, businesses or operations of the Company, or any alternatives to the merger, (ii) negotiate the terms of the merger, and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the merger, or (iii) advise the Special Committee or any other party with respect to alternatives to the merger. Duff & Phelps did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.

Duff & Phelps is not expressing any opinion as to the market price or value of the Shares or ADSs (or anything else) after the announcement or the consummation of the merger. Duff & Phelps’ opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the Merger Consideration, or with respect to the fairness of any such compensation.

Duff & Phelps’ opinion was furnished solely for the use and benefit of the Special Committee in connection with its consideration of the merger and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent. Duff & Phelps has consented to the inclusion of the opinion in its entirety and the description hereof in this proxy statement and any other filing the Company is required to make with the SEC in connection with the Merger if such inclusion is required by the applicable law. The opinion (i) does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the merger; (iii) is not a recommendation as to how the Special Committee, the Board of Directors or any other person (including security holders of the Company) should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction; and (iv) does not indicate that the Merger Consideration is the best possibly attainable under any circumstances; instead, it merely states whether the Merger Consideration is within or above a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

Duff & Phelps’ opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with the opinion shall be limited in accordance with the terms set forth in the engagement letter among Duff & Phelps, DPS, the Company, and the Special Committee dated January 9, 2020, and the amendment thereto dated August 21, 2020 (the “Engagement Letter”). Duff & Phelps’ opinion is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in the Engagement Letter.

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

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.

Discounted Cash Flow Analysis

Duff & Phelps performed a discounted cash flow analysis of the estimated future unlevered free cash flows attributable to the Company for the fiscal years ending December 31, 2020 through December 31, 2024, with unlevered “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps utilized and relied upon the Management Projections, which are described in this proxy statement in the section entitled “Certain Financial Projections” beginning on page 34. The costs associated with the Company being a publicly listed company, as provided by the management of the Company, were excluded from the financial projections because such costs would likely be eliminated as a result of the merger.

Duff & Phelps estimated the net present value of all cash flows attributable to the Company after fiscal year 2024 (the “Terminal Value”) using a perpetuity growth formula assuming a 5.00% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the Chinese economy and the Company’s business. Duff & Phelps used discount rates ranging from 15.00% to 17.00%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and the Terminal Value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles.

Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in an estimated enterprise value for the Company of US$0.90 million to US$2.10 million. Duff & Phelps further estimated the range of equity value of the Company to be US$50.78 million to US$51.98 million by:

•        adding cash of US$29.20 million;

•        adding E-surer loan receivable of US$3.63 million;

•        adding held-for-sale assets of US$0.80 million;

•        adding long-term investments of US$1.94 million;

•        adding Cachet loan receivable of US$14.69 million;

•        adding investments in affiliates of US$0.09 million;

•        subtracting dividend payable of US$0.13 million;

•        subtracting non-controlling interest of US$0.33 million.

Based on the foregoing analysis, Duff & Phelps’ discounted cash flow analysis resulted in an estimated ADS range of US$19.78 to US$20.25.

Selected Public Companies and Merger and Acquisition Transactions Analyses

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

The companies utilized for comparative purposes in the following analysis were not directly comparable to the Company, and the transactions utilized for comparative purposes in the following analysis were not directly comparable to the merger. Duff & Phelps does not have access to non-public information of any of the companies

used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and selected merger and acquisition transactions analysis is subject to certain limitations.

Selected Public Companies Analysis.    Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the internet and direct marketing retail industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. The nine companies included in the selected public company analysis in the internet and direct marketing retail industry were:

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

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2020, 2021 and 2022 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the Company’s fiscal year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) and earnings before interest, taxes (“EBIT”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses).

CAGR = Compound Annual Growth Rate

LTM = Latest Twelve Months

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

Enterprise Value = (Market Capitalization) + (Debt + Preferred Stock + Non-Controlling Interest) — (Cash & Equivalents) — (Net Non-Operating Assets)

EBIT = Earnings Before Interest and Taxes

Source: Capital IQ, Bloomberg, Company filings, press releases

Selected M&A Transactions Analysis.    Duff & Phelps compared the Company to the target companies involved in the selected merger and acquisition transactions listed in the tables below. The selection of these transactions was based on, among other things, the target company’s industry, the relative size of the transaction compared to the merger and the availability of public information related to the transaction.

The Company is not directly comparable to the target companies in the selected M&A transactions analysis given certain characteristics of the transactions and the target companies, including business and industry comparability and lack of recent relevant transactions. Therefore, although reviewed, Duff & Phelps did not select valuation multiples for the Company based on the selected M&A transactions analysis.

Summary of Selected Public Companies / M&A Transactions Analyses

In order to estimate a range of enterprise values for the Company, Duff & Phelps applied valuation multiples to the Company’s LTM Revenue ending June 30, 2020. Duff & Phelps’ selected valuation multiples were as follows: LTM Revenue multiple ranged from 0.09x to 0.26x. Valuation multiples were selected taking into consideration historical and projected financial performance metrics of the Company relative to such metrics of the selected public companies. Rather than applying the average or median multiple from the public company set, Duff & Phelps selected multiples that, in its judgement, reflected the Company’s size, growth outlook, capital requirements, profit margins, revenue mix, and other characteristics relative to the comparable group. Duff & Phelps noted that while it reviewed the selected M&A transactions, it did not select valuation multiples for the Company based on the Selected M&A Transactions Analysis for the reasons described in the section titled “Selected M&A Transactions Analysis” above.

Based on these analyses, Duff & Phelps’ selected public companies analysis resulted in an estimated enterprise value for the Company of US$3.30 million to US$9.40 million. Duff & Phelps further estimated the range of equity value of the Company to be US$53.18 million to US$59.28 million by:

•        adding cash of US$29.20 million;

•        adding E-surer loan receivable of US$3.63 million;

•        adding held-for-sale assets of US$0.80 million;

•        adding long-term investments of US$1.94 million;

•        adding Cachet loan receivable of US$14.69 million;

•        adding investments in affiliates of US$0.09 million;

•        subtracting dividend payable of US$0.13 million;

•        subtracting non-controlling interest of US$0.33 million.

Based on the foregoing analysis, Duff & Phelps’ selected public companies analysis resulted in an estimated ADS range of US$20.68 to US$23.06.

Summary of Financial Analysis

Duff & Phelps noted that the per Share Merger Consideration to be received by the holders of the Shares (other than the Excluded Shares and Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of the ADSs (other than ADSs representing the Excluded Shares) in the merger was within the range of the per Share and ADS value indicated by its analyses.

Duff & Phelps’ opinion was only one of the many factors considered by the Special Committee in its evaluation of the merger and should not be viewed as determinative of the views of the Special Committee.

Fees and Expenses

As compensation for Duff & Phelps’ services in connection with the rendering of its opinion to the Special Committee, the Company agreed to pay Duff & Phelps a fee of US$430,000, consisting of a nonrefundable retainer of US$200,000 payable upon engagement, US$180,000 payable upon Duff & Phelps rendering the opinion at the request of the Special Committee and US$50,000 payable upon the Company’s receipt of shareholders’ approval of the merger.

No portion of Duff & Phelps’ fee is refundable or contingent upon the consummation of a transaction, including the merger, or the conclusion reached in the opinion.

The terms of the fee arrangements with Duff & Phelps, which the Company believes are customary in transactions of this nature, were negotiated at arm’s length, and the Special Committee and the Company’s Board are aware of these fee arrangements.

Disclosure of Prior Relationships

During the two years preceding the date of Duff & Phelps’ opinion, in matters unrelated to the Merger, Duff & Phelps provided valuation services to Cachet Hotel Group, an affiliate of Parent and received fees of US$50,000 for such engagement.

Purposes of and Reasons for the Merger

The Buyer Group

Under the SEC rules governing “going private” transactions, the members of the Buyer Group are required to express their reasons for the Merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act, which consist of the Unaffiliated Security Holders. The Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Buyer Group, the purpose of the Merger is to enable Parent to acquire 100% ownership and control of the Company, in a transaction in which the holders of the Shares and the ADSs (other than the Excluded Shares) will be cancelled in exchange for US$1.05 per Share or US$21.00 per ADS (less any applicable ADS Depositary fees (US$0.05 per ADS cash distribution fee) payable pursuant to the terms of the Deposit Agreement), respectively, without interest and net of any applicable withholding taxes, so Parent will bear the rewards and risks of the sole ownership of the Company after the ADSs and Shares are cancelled, including any increases in value of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses.

The Buyer Group believes the operating environment has changed in a significant manner since the Company’s initial public offering, and in particular in relation to the Company’s prior direct TV marketing model. These changes have increased the uncertainty and volatility inherent in the business model of companies similar to the Company. As a result, the Buyer Group is of the view that there is potential for considerably greater short- and medium-term volatility in the Company’s earnings. Responding to current market challenges will require tolerance for volatility in the performance of the Company’s business and a willingness to make business decisions focused on improving the Company’s long-term profitability. The Buyer Group believes that these strategies would be most effectively implemented in the context of a private company structure. As a privately held entity, the Company’s management will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the public market’s valuation of the Company and its emphasis on short-term period-to-period performance. Moreover, the Buyer Group believes the stock market has continually undervalued the Company’s business.

Further, as a privately held entity, the Company will be relieved of many of the expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002, as amended.

The Buyer Group decided to undertake the “going private” transaction at this time because it wants to take advantage of the benefits of the Company being a privately held company as described above. In the course of considering the “going private” transaction, the Buyer Group did not consider alternative transaction structures because the Buyer Group believed the Merger was the most direct and effective way to enable the Buyer Group to acquire ownership and control of the Company.

The Company

The Company’s purpose for engaging in the Merger is to enable its shareholders and ADS holders to receive US$1.05 per Share or US$21.00 per ADS (less any applicable ADS Depositary fees (US$0.05 per ADS cash distribution fee) payable pursuant to the terms of the Deposit Agreement) in cash, without interest and net of any applicable withholding taxes, which represents (a) a premium of 44.1% over the closing price of the ADSs as quoted by the NYSE on August 17, 2020, the last trading day immediately prior to the Company’s announcement that it had received a “going-private” proposal, (b) a premium of approximately 31.6% over the average closing price of the ADSs during the 30 trading days prior to, and including, August 17, 2020, and (c) a premium of approximately 37.6% over the average closing price of the ADSs during the 60 days prior to, and including, August 17, 2020. The Company believes its long-term objectives can best be pursued as a private company.

The Company has determined to undertake the Merger at this time based on the analyses, determinations and conclusions of the Special Committee and the Board described in detail above under “— Reasons for the Merger and Recommendation of the Special Committee and the Board.”

Effects of the Merger on the Company

Private Ownership

The Company’s ADSs are currently listed on the NYSE under the symbol “ATV.” It is expected that, immediately following the completion of the Merger, the Company will cease to be a publicly traded company and will instead become a privately held company beneficially owned directly by the Buyer Group.

Following the completion of the Merger, the ADSs will cease to be listed on any securities exchange or quotation system, including the NYSE, and price quotations with respect to sales of the ADSs in the public market will no longer be available. In addition, registration of the Company’s ADSs and the underlying Shares under the Exchange Act may be terminated upon the Company’s application to the SEC if such shares are not listed on a national securities exchange and there are fewer than 300 record holders of such shares. Ninety days after the filing of Form 15 in connection with the completion of the Merger or such shorter period as may be determined by the SEC, registration of the ADSs and the underlying Shares under the Exchange Act will be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002, as amended, applicable to public companies. As a result, the Company will no longer incur the costs and expenses of complying with such requirements. After the completion of the Merger, the Company’s shareholders will no longer enjoy the rights or protections that the U.S. federal securities laws provide, including reporting obligations for directors, officers and principal security holders of the Company. Furthermore, the ADS program for Shares will terminate.

If the Merger is completed, Merger Sub will be merged with and into the Company, with the Company continuing as the Surviving Corporation and becoming a wholly-owned subsidiary of Parent. Under the terms of the Merger Agreement, each Share issued and outstanding immediately prior to the Effective Time of the Merger (including Shares represented by ADSs) will be cancelled in consideration for the right to receive US$1.05 per Share or US$21.00 per ADS, in each case, in cash, without interest and net of any applicable withholding taxes, except for the Excluded Shares and the Note Shares.

We have attached the Merger Agreement to this Proxy Statement as Annex A. We encourage you to read the entire Merger Agreement carefully, because it is the legal document that governs the Merger.

Directors and Management of the Surviving Corporation

If the Merger is completed, the current memorandum of association and amended and restated articles of association of the Company will be replaced in their entirety by the memorandum of association and amended and restated articles of association of Merger Sub, as in effect immediately prior to the Effective Time (except that, at the Effective Time, Article I of the articles of association of the Surviving Corporation will be amended to read as follows: “The name of the corporation is “Acorn International, Inc.”). In addition, the directors and officers of Merger Sub immediately prior to the Effective Time (identified below in “Annex E — Directors and Executive Officers of Each Filing Person”) will become the directors and officers of the Surviving Corporation, unless otherwise determined by Parent prior to the Effective Time.

Benefits and Detriments of the Merger

The benefits of the Merger to the Unaffiliated Security Holders include the following:

•        the receipt by Unaffiliated Security Holders of a merger consideration of US$1.05 per Share or US$21.00 per ADS represents a premium of 44.1% over the closing price of the Company’s ADSs on August 17, 2020, the last trading date immediately prior to the Company’s announcement that it had received the

second “going private” proposal, a premium of 31.6% over the average closing price of its ADSs during the 30 trading days prior to August 17, 2020 and a premium of 37.6% over the average closing price of its ADSs during the 60 trading days prior to August 17, 2020; and

•        risks to Unaffiliated Security Holders in connection with any possible decrease in the Company’s future revenues, free cash flow, growth or value following the Merger will be avoided.

The detriments of the Merger to the Unaffiliated Security Holders include the following:

•        Unaffiliated Security Holders will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends, if any; and

•        in general, the receipt of cash pursuant to the Merger or through the exercise of dissenters’ rights will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws. See “— Material U.S. Federal Income Tax Consequences” and “— Material PRC Income Tax Consequences” beginning on page 53 for additional information.

The benefits of the Merger to the Buyer Group include the following:

•        if the Company executes its business strategies successfully, the value of the Buyer Group’s equity interests in the Company could increase due to possible increases in future revenues, free cash flow and the underlying value of the Company or the payment of dividends, if any, that will accrue to Parent;

•        the Surviving Corporation will be relieved from pressure exerted by the public market’s valuation and the emphasis on short-term period-to-period performance, which may not maximize the long-term equity value of the Company, and as a result the Company’s management will have greater flexibility to focus on long-term strategic planning in a highly competitive business and on improving long-term profitability;

•        the Surviving Corporation’s management will have more freedom to change its capital spending strategies without public market scrutiny or analysts’ quarterly expectations;

•        the Surviving Corporation will be able to develop and introduce new products and services or change its pricing strategies to attract customers without public market scrutiny or the pressure to meet short-term forecasts; and

•        the costs and administrative burden resulting from operating the Company as a publicly traded company will be reduced, including the costs in connection with regulatory filings and compliance requirements.

The detriments of the Merger to the Buyer Group include the following:

•        all of the risks associated with any possible decrease in the Company’s revenues, free cash flow or value following the Merger will be borne by Parent and its affiliates;

•        the business risks facing the Company such as increased competition will be borne by Parent and its affiliates;

•        the debt of an aggregate amount up to US$10 million under the Debt Financing Agreement necessary to consummate the Merger and related transaction will increase the debt of Parent; and

•        following the Merger, there will be no trading market for the Surviving Corporation’s equity securities and Parent’s equity investment in the Surviving Corporation following the Merger will bear material risks resulting from such limited liquidity.

The benefits of the Merger to the Company’s directors and executive officers (other than the members of the Buyer Group) include the following:

•        the continuation of service of certain executive officers of the Company with the Surviving Corporation in positions that are substantially similar to their current positions;

•        continued indemnification rights, rights to advancement of fees and directors and officers liability insurance to be provided by the Surviving Corporation to former directors and officers of the Company; and

•        the compensation of members of the Special Committee in exchange for their services in such capacity in an amount of $50,000 per member, the payment of which is not contingent upon the completion of the Merger or the Special Committee’s or the Board’s recommendation of the Merger.

The detriments of the Merger to the Company’s directors and executive officers (other than the members of the Buyer Group) include the following:

•        certain directors and executive officers of the Company who are no longer shareholders of the Company, will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the shares, if any; and

•        in general, the receipt of cash pursuant to the Merger will be taxable transaction for U.S. federal income tax purposes. See “Special Factors — Material U.S. Federal Income Tax Consequences” beginning on page 54.

In connection with the Merger, some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the shareholders of the Company generally, as described in more detail under “— Interests of Certain Persons in the Merger” beginning on page 50.

The Company’s Net Book Value and Net Earnings

The table below sets out the indirect interest in the Company’s net book value and net earnings for the Buyer Group prior to and immediately after the Merger, based on the historical net book value and net earnings of the Company as of June 30, 2020. The Company does not consider net book value, which is an accounting concept, as a material indicator of the value of the Company as a going concern but rather that it is indicative of historical costs and therefore not a dispositive measure in the determination of the Company’s value.

Plans for the Company after the Merger

Following the completion of the Merger, Parent will own 100% of the equity interest in the Surviving Corporation. The Buyer Group anticipates that the Company will continue to conduct its operations substantially as they are currently being conducted, taking into account the factors described above in the section entitled “Effects of the Merger on the Company,” except that the Company will (a) cease to be a publicly traded company and will instead be a wholly-owned subsidiary of Parent and (b) have substantially more debt than it currently has.

Except as set forth in this Proxy Statement and transactions already under consideration by the Company, the Buyer Group does not have any current plans, proposals or negotiations that relate to or would result in any of the following:

•        an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries;

•        the sale or transfer of a material amount of the assets of the Company or any of its subsidiaries; or

•        any other material changes in the Company, including with respect to the Company’s corporate structure or business.

However, the Buyer Group will continue to evaluate the Company’s entire business and operations from time to time, and may propose or develop plans and proposals which it considers to be in the best interests of the Company and its shareholders, including the disposition or acquisition of material assets, alliances, joint ventures and other forms of cooperation with third parties or other extraordinary transactions, including the possibility of relisting the Company or a substantial part of its business on another internationally recognized stock exchange. The Buyer Group expressly reserves the right to make any changes they deem appropriate to the operation of the Surviving Corporation in light of such evaluation and review as well as any future developments. Subsequent to the completion of the Merger and the anticipated deregistration of the ADSs, the Company will no longer be subject to the Exchange Act and the NYSE compliance and reporting requirements and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.

Alternatives to the Merger

The Board did not independently determine to initiate a process for the sale of the Company. The Special Committee was formed on November 7, 2019, in response to the receipt of the Preliminary Proposal on November 4, 2019.

Considering the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent entity and the perceived risks of that alternative), the range of potential benefits to its shareholders of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, the Special Committee determined that none of these alternatives were reasonably likely to present superior opportunities for the Company or to create greater value for its shareholders than the proposed sale of the Company to Parent, taking into account risks of execution as well as business, financing, regulatory approval, competitive, industry and market risks.

The Special Committee also took into account that the Company, subject to compliance with the terms and conditions of the Merger Agreement, can terminate the Merger Agreement in order to enter into an alternative acquisition agreement with respect to a Superior Proposal, subject to the payment to Parent of a termination fee of US$1.7 million. In this regard, the Special Committee recognized that it has flexibility under the Merger Agreement to respond to an alternative transaction proposed by a third party that is or is reasonably likely to result in a Superior Proposal, including the ability to provide information to and engage in discussions and negotiations with such party (and, if such proposal is a Superior Proposal, recommend such proposal to the Company’s shareholders).

In addition, the Special Committee also considered, as an alternative to the Merger, that the Company remain as a public company. However, the Special Committee did not believe such options to be equally or more favorable in enhancing shareholder value, after considering factors such as the projections of future financial performance prepared by management, the risks of the Company’s business, the offer premium implied by the merger consideration, the costs of regulatory compliance for public companies and the challenges to the Company’s efforts to increase shareholder value as a publicly-traded company. Moreover, in light of Parent’s stated intention not to sell its Shares to any third party and its beneficial ownership of approximately 75.5% of the voting rights of the entire issued and outstanding Shares (as of the date of this proxy statement), the Special Committee determined that there was unlikely to be a viable alternative to the proposed sale of the Company to the Buyer Group, other than remaining a public company.

Except as set forth above, no other alternatives were considered by the Special Committee.

Effects on the Company if the Merger Is Not Completed

If the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are not authorized and approved by the shareholders of the Company or if the Merger is not completed for any other reason, the shareholders or ADS holders of the Company will not receive any payment for their Shares or ADSs pursuant to the Merger Agreement. In addition, the Company will remain a publicly traded company, the ADSs will continue to be listed and traded on the NYSE, provided that the Company continues to meet NYSE’s listing requirements, and the Company will remain subject to SEC reporting obligations. Therefore, the Company’s shareholders and ADS holders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of the Shares and ADSs. Accordingly, if the Merger is not completed, we cannot assure you as to the effect of these risks and opportunities on the future value of the Shares or ADSs, including the risk that the market price of the ADSs may decline to the extent that the current market price reflects a market assumption that the Merger will be completed.

The availability of the Term Loan is subject to the condition precedent that the Bank shall have received, in form and substance reasonably satisfactory to the Bank, the following (the Bank acknowledges and agrees that it has received and approved items (b) through (h)): (a) the Debt Financing Agreement, (b) the automatic debit authorization form attached to the Debt Financing Agreement, (c) a director’s certificate with respect to incumbency and resolutions of Parent, authorizing the execution and delivery of the Debt Financing Agreement and other loan related documents, (d) UCC Financing Statement (Parent), (e) the Unconditional Guaranty, (f) duly certified true copies of the organizational documents for Parent, (g) a certificate of good standing for Parent issued by the Companies Registrar, (h) evidence of the creation of the PRC Bank Account and the Hong Kong Bank Account, (i) payment of the applicable Bank fees and expenses, (j) a Cayman Islands law legal opinion of counsel to Parent, (k) a certified copy of the annotated register of members of the Company, (l) if applicable, a control agreement with each securities intermediary holding any of the Parent’s Shares, (m) the Company has filed its From 6-K with the SEC including the signed Merger Agreement, (n) the Company has filed its From 13E-3 regarding the proposed Merger with attached proxy statement, (o) the SEC has completed its review, the Company shareholders have approved the proposed Transaction, and the Company has filed its final amendment to Schedule 13E-3 showing that the Merger was approved by the shareholders, (p) Parent has executed the Federal Reserve Form U-1 (Regulation U) previously provided by Bank, and (q) other documents and completion of such other matters, as the Bank reasonably and in good faith, deems necessary. For the purpose of the Debt Financing Agreement, the “Hong Kong Bank Account” means the account of China DRTV, with Bank in Hong Kong, with deposits in an amount equal to or greater than US$9 million, or during the Facility 2 Loan, and amount equal to or greater than the amount of the Facility 2 Loan.

The Merger Agreement provides that Parent will use commercially reasonable efforts to satisfy the conditions for obtaining financing under the Debt Financing Agreement. The Company is required to reasonably cooperate in connection with the arrangement of financing as may be reasonably requested by Parent.

In the event that any portion of the financing becomes unavailable in the manner or from the sources contemplated in the Debt Financing Agreement despite Parent’s commercially reasonable efforts to obtain the financing, Parent must use its commercially reasonable efforts to arrange to obtain any such portion of the financing from alternative sources, on terms that are no less favorable to Parent, as promptly as practicable following the occurrence of such event, including entering into definitive agreements with respect thereto.

Obtaining the financing under the Debt Financing Agreement, or any alternative financing, is not a condition to Parent or Merger Sub’s respective obligations to complete the Merger. However, if Parent is unable to obtain the financing of the Merger, it is likely that the Merger will not close, and if Parent has satisfied its obligation to use commercially reasonable efforts to obtain the financing and its other obligations under the Merger Agreement, all the conditions to Parent and Merger Sub’s respective obligations to close have been satisfied or waived, and all the conditions to the Company’s obligation to close have been satisfied or waived, our sole remedy if the transaction does not close within fifteen business days other than specific performance will be Parent’s obligation to pay us a $2.25 million termination fee.

Unconditional Guaranty

Concurrently with the execution of the Debt Financing Agreement, each of Ms. Hattori-Roche, Mr. Roche, and Mr. Roche as the trustee under the Robert W. Roche 2009 Declaration of Trust (each a “Guarantor”) entered into an unconditional guaranty (the “Unconditional Guaranty”), pursuant to which, each Guarantor unconditionally, jointly and severally, and irrevocably guarantees the prompt and complete payment of all amounts that Parent owes to the Bank and performance by Parent of the Debt Financing Agreement.

In addition, pursuant to the Debt Financing Agreement, within 10 days following the Merger, the Company will execute and deliver an unconditional guaranty to the Bank to guarantee repayment of Term Loan and Facility 2 Loan.

Remedies and Limitations on Liability

The Company is entitled to an injunction, specific performance and other equitable relief to prevent breaches of Merger Agreement by the Buyer Group and to specially enforce the terms thereof against the Buyer Group, which remedies are in addition to any other remedy to which they are entitled at law or in equity, except the Company will not be entitled to seek specific performance of Parent’s obligation to cause the Debt Financing to be funded to fund the Merger unless all conditions as set forth in certain provisions of the Merger Agreement have been satisfied (or with respect to certificates to be delivered at Closing, are capable of being satisfied upon the Closing) or waived at the time of the Closing would have occurred but not for the failure of the Debt Financing to be funded.

In the event that the Buyer Group fails to effect the Closing when required under the Merger Agreement for any reason or for no reason after (i) all of conditions to the obligations of Parent and Merger Sub (other than those conditions that by nature are only to be satisfied by actions taken at the closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the closing conditions solely for the benefits of the Company (other than those conditions that by their nature are only to be satisfied by actions taken at the closing) have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that the Company is ready, willing and able to consummate the Merger, or they otherwise breach the Merger Agreement or otherwise fail to perform under the Merger Agreement, then except for an order of specific performance as and only to the extent expressly permitted by the Merger Agreement, the Company’s termination of Merger Agreement and receipt of the Buyer Termination Fee from Parent, will be the sole and exclusive remedy of the Company Parties against the Buyer Group for any loss or damage suffered as a result of the failure of the Merger to be consummated or for a breach or failure to perform hereunder or otherwise, and upon payment of the Buyer Termination Fee, none of the Buyer Group shall have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions contemplated thereby (subject to certain circumstances).

If the Company pays the Termination Fee pursuant to the terms of the Merger Agreement, then such payment shall be the sole and exclusive remedy of the Buyer Group against the Company Parties for any loss or damage suffered as a result of the failure of the Merger to be consummated or for a breach or failure to perform hereunder or otherwise, and upon payment of the Termination Fee, none of the Company Parties shall have any further liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby (subject to certain circumstances).

Interests of Certain Persons in the Merger

In considering the recommendation of the Special Committee and the Board with respect to the Merger, you should be aware that the Buyer Group has interests in the transaction that are different from, and/or in addition to, the interests of the Company’s shareholders generally. In particular, the wife of Mr. Roche, our co-founder and Executive Chairman, Ms. Hattori-Roche, owns Parent, the vehicle holding the Buyer Group’s Shares. The Board and Special Committee were aware of such interests and considered them, among other matters, in reaching their decisions to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and recommend that the Company’s shareholders vote in favor of authorizing and approving the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. Except as set forth in the section entitled “— Background of the Merger,” no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of Unaffiliated Security Holders for purposes of negotiating the terms of the Transactions and/or preparing a report concerning the fairness of the Transactions.

Interests of the Buyer Group

In considering the recommendation of the Special Committee and the Board with respect to the Merger, you should be aware that the Buyer Group has interests in the transaction that are different from, and/or in addition to, the interests of the Company’s shareholders generally. The Special Committee and the Board were aware of such interests and considered them, among other matters, in reaching their decisions to approve the Merger Agreement.

As a result of the Merger, the Buyer Group will own 100% of the equity interest in the Surviving Corporation immediately following the completion of the Merger. Because of their equity interest in the Surviving Corporation, each member of the Buyer Group will directly or indirectly enjoy the benefits from any future earnings and growth of the Company after the Merger which, if the Company is successfully managed, could exceed the value of their original investments in the Company. The Buyer Group will also bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Company. Parent’s investment in the Surviving Corporation will be illiquid, with no public trading market for the Surviving Corporation’s shares and no certainty that an opportunity to sell its shares in the Surviving Corporation at an attractive price, or that dividends paid by the Surviving Corporation will be sufficient to recover its investment.

The Merger may also provide additional means to enhance shareholder value for the Buyer Group, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance requirements; increased flexibility and responsiveness in management of the business to achieve growth and respond to competition without the restrictions of short-term earnings comparisons; and additional means for making liquidity available to the Buyer Group, such as through dividends or other distributions.

Treatment of Shares Held by Directors and Executive Officers

Our directors and executive officers who are Unaffiliated Security Holders will be treated the same as other Unaffiliated Security Holders, except that, in lieu of receiving the Per Share Merger Consideration and Per ADS Merger Consideration in the form of cash, our Lead Director, Pierre Cohade, and our Chief Executive Officer, Jacob A. Fisch, will each receive the merger consideration for their Note Shares in the form of Notes.

Indemnification; Directors’ and Officers’ Insurance

Pursuant to the Merger Agreement, Parent agreed that:

•        For a period of six years after the effective time of the Merger, the memorandum and articles of association of the Surviving Corporation will contain provisions with respect to indemnification of present and former directors and officers of the Company that are no less favorable than presently set forth in the Company’s amended and restated memorandum and articles of association.

•        From and after the Effective Time of the Merger, the Surviving Corporation will comply with all of the Company’s obligations and will cause its subsidiaries to comply with their respective obligations to indemnify (a) the present and former directors against liabilities arising out of or in connection with any acts or omissions occurring before or at the Effective Time of the Merger to the extent provided under the Company and its subsidiaries’ respective organizational and governing documents or agreements effective on the date of the Merger Agreement and to the fullest extent permitted by Cayman Islands Companies Law or any other applicable law; and (b) such persons against all liabilities arising out of acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of its subsidiaries.

•        The Surviving Corporation will maintain the Company’s and its subsidiaries’ directors and officers liability insurance for a period of six years after the effective time of the Merger on terms with respect to coverage and amount no less favorable than the existing insurance. However, at no time will the Surviving Corporation be required to expend in any one year an amount in excess of 300% of the current annual premium paid by the Company for such insurance. Alternatively, the Surviving Corporation may purchase a six-year “tail” prepaid policy prior to the effective time of the merger on terms and conditions no less advantageous to such persons than the existing directors’ and officers’ liability insurance.

The Special Committee

On November 7, 2019, the Board established the Special Committee to consider the proposal from Mr. Roche and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The Special Committee is composed of independent directors Urs P. Zimmerman (who serves as chairman), Eric Haibing Wu and Jenny Wu. All such directors are free from any affiliation with the Buyer Group, and none of such directors is or was ever an employee of the Company or any of its subsidiaries or has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than (a) the director’s receipt of Board compensation in the ordinary course, (b) Special Committee members’ compensation in connection with its evaluation of the Merger (which is not contingent upon the completion of the Merger or the Special Committee’s or the Board’s recommendation of the Merger), and (c) the director’s indemnification and liability insurance rights under the Merger Agreement. The Board did not place any limitations on the authority of the Special Committee regarding its investigation and evaluation of the Merger.

The Company has compensated the members of the Special Committee in exchange for their service in such capacity at a rate of $50,000 for the chairman of the Special Committee and $50,000 for each other member of the Special Committee, the payment of which is not contingent upon the completion of the Merger or the Special Committee’s or the Board’s recommendation of the Merger.

Position with the Surviving Corporation

The directors and officers of Merger Sub immediately prior to the Effective Time, including Mr. Roche, will become the directors and officers of the Surviving Corporation, unless otherwise determined by Parent prior to the Effective Time.

Related-Party Transactions

We have adopted an audit committee charter, which requires the audit committee to review and approve all related-party transactions as defined in Item 404 of Regulation S-K on an ongoing basis. In addition to the arrangements in connection with the Merger discussed elsewhere in this Proxy Statement, for a description of significant related-party transactions for the years ended December 31, 2019 and 2018, see Item 7. “Major Shareholders and Related-Party Transactions” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019, incorporated by reference into this Proxy Statement. See “Where You Can Find More Information” beginning on page 86 for a description of how to obtain a copy of our Annual Report.

These fees and expenses (other than the ADS cancellation fees pursuant to the terms of the Deposit Agreement) will not reduce the aggregate merger consideration to be received by the Company’s shareholders and ADS holders. If the Merger is consummated, the party incurring any costs and expenses in connection with the Merger and the Merger Agreement will pay such costs and expenses except as otherwise provided in the Merger Agreement.

Voting by the Buyer Group at the Extraordinary General Meeting

The Buyer Group has agreed to vote the [38,967,937] Shares owned by them, which as of the date of this Proxy Statement represent approximately [75.8%] of the Company’s issued and outstanding Shares that are entitled to vote, in favor of the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, at the extraordinary general meeting.

Litigation Related to the Merger

We are not aware of any lawsuit that challenges the Merger Agreement, the Plan of Merger or any of the Transactions, including the Merger.

Accounting Treatment of the Merger

The Merger is expected to be accounted for as a business combination by Parent in accordance with Accounting Standards Codification 805 “Business Combinations.”

Regulatory Matters

The Company does not believe that any material governmental regulatory approvals, filings or notices are required in connection with effecting the Merger other than the Company Approvals and the approvals, filings or notices required under the United States federal securities laws and the filing of the Plan of Merger (and supporting

documentation as specified in the Cayman Islands Companies Law) with the Cayman Registrar and, in the event the Merger becomes effective, a copy of the Certificate of Merger being given to the shareholders and creditors of the Company and Merger Sub as at the time of the filing of the Plan of Merger and notice of Merger published in the Cayman Islands Gazette.

Dissenters’ Rights

Shareholders who exercise dissenters’ rights will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, a copy of which is attached as Annex D to this Proxy Statement. The fair value of their Shares as determined under that statute could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares. These procedures are complex and you should consult your Cayman Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the Cayman Islands Companies Law, you will lose your dissenters’ rights (as described under the section entitled “Dissenters’ Rights” on page 75).

Material PRC Income Tax Consequences

Under the Enterprise Income Tax Law (the “EIT Law”), which took effect on January 1, 2008, and was amended on December 29, 2018, enterprises established outside of China whose “de facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council adopted the Regulation on the Implementation of Enterprise Income Tax Law, as amended on April 23, 2019, which defines the “de facto management body” as an establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (“Circular 82”) on April 22, 2009, and as amended on December 29, 2017. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Under the EIT Law and its implementation regulations, the PRC enterprise income tax at the rate of 10% is applicable to any gain recognized on receipt of consideration by a “non-resident enterprise” from transfer of its equity in a PRC resident enterprise, provided that the “non-resident enterprise” does not have a de facto management body in the PRC and also (a) does not have an establishment or place of business in the PRC or (b) has an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business, to the extent such gain is derived from sources within the PRC. Under the Individual Income Tax Law, an individual who disposes a capital asset in China is subject to PRC individual income tax at the rate of 20%. Reduction of or relief from these taxes may be sought by PRC non-resident enterprises under applicable tax treaties with China.

The Company does not believe it is a resident enterprise defined and regulated by the aforesaid regulations or that the gain recognized on the receipt of consideration for your Share should otherwise be subject to PRC income tax to holders of such Shares that are not PRC residents, however, as there has not been a definitive determination of the Company’s status by the PRC tax authorities, the Company cannot confirm whether it would be considered a PRC resident enterprise under the EIT Law or whether the gain recognized on the receipt of consideration for Shares would otherwise be subject to PRC tax to holders of such Shares that are not PRC tax residents.

In addition, under Bulletin 7 issued by the State Administration of Taxation, which became effective on February 3, 2015, unless certain conditions are met, if a non-resident enterprise transfers PRC taxable assets indirectly by disposing of equity interests in an overseas holding company directly or indirectly holding such PRC taxable assets without any reasonable commercial purpose, the non-resident enterprise may be subject to a 10% PRC income tax on the gain allocable to the PRC taxable assets from such equity transfer. According to Bulletin 7, where a non-resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, a list of factors set out by Bulletin 7 should be taken into consideration to assess whether the transfer arrangement would be deemed as having a reasonable commercial purpose. Where non-resident enterprises indirectly transfer PRC resident enterprises’ equity and avoid obligations to pay enterprise income tax through arrangement without a reasonable commercial purpose, PRC taxation authorities have the power to recharacterize and deem the transaction as a direct transfer of PRC resident enterprises’ equity and impose a 10% enterprise income tax on the gain allocable

to the PRC taxable assets from such offshore share transfer. Pursuant to Bulletin 37, where the party responsible to withhold such income tax did not withhold, and non-resident enterprises receiving such income failed to declare and pay the taxes that should have been withheld to the relevant tax authority, both the transferor and the transferee may be subject to penalties under PRC tax laws. Bulletin 7 may be determined by the PRC tax authorities to be applicable to the Merger where non-PRC resident corporate shareholders or ADS holders were involved, if the Merger is determined by the PRC tax authorities to lack reasonable commercial purpose. The Company does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 7, and, as a result, any person that has a payment obligation pursuant to the Merger Agreement will not withhold any PRC tax (under Bulletin 7) from the Merger consideration to be paid to holders of Shares or ADSs. However, if PRC tax authorities were to invoke Bulletin 7 and impose tax on the receipt of consideration for Shares or ADSs, then any gain recognized on the receipt of consideration for such Shares or ADSs pursuant to the Merger by the Company’s non-PRC-resident shareholders could be treated as PRC-source income and thus be subject to PRC income tax at a rate of 10% (subject to applicable treaty relief).

You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.

Material Cayman Islands Tax Consequences

The Government of the Cayman Islands will not, under existing legislation, impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax upon the Company or its shareholders. No taxes, fees or charges will payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of the Merger or the receipt of cash for Shares and ADSs under the terms of the Merger. This is subject to the qualifications that (i) Cayman Islands stamp duty may be payable if any original transaction documents are brought into or executed or produced before a court in the Cayman Islands (for example, for enforcement), (ii) registration fees will be payable to the Registrar of Companies in the Cayman Islands to register the Plan of Merger, the Variation of Capital and the Amendment of the M&A and (iii) fees payable to the Cayman Islands Government Gazette Office to publish the notice of the merger in the Cayman Islands Government Gazette.

Material U.S. Federal Income Tax Consequences

The following is a discussion of U.S. federal income tax consequences to U.S. Holders (as defined below) that exchange Shares for cash pursuant to the Merger Agreement. For purposes of this discussion, except as otherwise noted, references to Shares include ownership interests in Shares through ADSs. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final and temporary U.S. Treasury Regulations promulgated thereunder, the income tax treaty between the United States and the PRC (the “Treaty”), administrative pronouncements, and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and to differing interpretation, which may result in tax consequences different from those described below. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”), and the IRS or a court in the event of an IRS dispute may challenge any of the conclusions set forth below.

This discussion does not address any U.S. federal estate, gift, or other non-income tax, or any state, local, or non-U.S. tax consequences of the Merger. This discussion is a summary for general information purposes only and does not consider all aspects of U.S. federal income taxation that may be relevant to particular shareholders in light of their individual investment circumstances or to certain types of shareholders subject to special tax rules, including (i) holders that are banks, financial institutions, or insurance companies, regulated investment companies, mutual funds, or real estate investment trusts, brokers or dealers in securities or currencies or traders in securities that elect to apply a mark-to-market accounting method, or tax-exempt organizations, (ii) holders that own Shares as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated investment, (iii) holders that acquired Shares in connection with the exercise of employee share options or otherwise as compensation for services, (iv) holders that have a “functional currency” other than the U.S. dollar, (v) retirement plans, individual retirement accounts, or other tax-deferred accounts, (vi) U.S. expatriates, (vii) holders that are subject to alternative minimum tax, (viii) holders that actually or constructively own 10% or more of our voting stock, (ix) S corporations, (x) partnerships or other entities classified as partnerships for U.S. federal income tax purposes, or (xi) holders that dissent from the Merger. This discussion assumes that Shares are held as “capital assets” (generally, property held for investment) under the Code.

As used herein, a “U.S. Holder” is any beneficial owner of Shares that is (i) an individual citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust which (a) is subject to the primary jurisdiction of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions, or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes.

If a partnership (including any entity classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of Shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A U.S. Holder that is a partner of a partnership holding Shares is urged to consult its own tax advisor.

ALL HOLDERS OF SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR SITUATIONS, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER LAWS.

Consequences of Participation in the Merger

The receipt of cash pursuant to the Merger, will be a taxable transaction for U.S. federal income tax purposes, and a U.S. Holder who so exchanges Shares for cash will generally recognize gain or loss in an amount equal to the difference between (i) the amount of cash received and (ii) such U.S. Holder’s adjusted tax basis in the Shares exchanged therefor. Subject to the discussion under “Passive Foreign Investment Company” below, such recognized gain or loss will generally be capital gain or loss, and will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the Shares exchanged is greater than one year at the Effective Time. If a U.S. Holder acquired different blocks of Shares at different times and different prices, such U.S. Holder must determine the adjusted tax basis and holding period separately with respect to each such block of Shares.

Long-term capital gains of non-corporate U.S. Holders are currently subject to U.S. federal income tax at a reduced rate. The ability to use any capital loss to offset other income or gain is subject to certain limitations under the Code.

Any gain or loss recognized by U.S. Holders will generally be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. However, in the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law and gain from the disposition of Shares is subject to tax in the PRC (see “— PRC Tax Consequences”) or you are subject to PRC income tax pursuant to Bulletin 7 as described below under the “— PRC Tax Consequences,” you may be eligible to elect to treat such gain as PRC source gain under the Treaty. If we or you are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the exchange of Shares pursuant to the Merger against your U.S. income tax liability on such gain unless such credit can be applied (subject to applicable limitations such as the US foreign tax credit requirement to classify re-sourced income to in a separate basket) against tax due on other income treated as derived from non-U.S. sources. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax is imposed on gain on a disposition of the Shares, including the availability of the foreign tax credit under their particular circumstances.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as the Company, will be classified as a passive foreign investment company or “PFIC” in any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles are generally taken into account in determining the Company’s asset value. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. The Company will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of the stock.

The Company believes it was classified as a PFIC for our taxable year ended December 31, 2019 and certain previous taxable years and believes it is likely to be a PFIC in the current taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder held Shares and the U.S. Holder has not made a valid mark-to-market election (as discussed below), the U.S. Holder will generally be subject to special tax rules on any gain realized on the disposition of the Shares (including in the Merger). Under the PFIC rules (a) the gain will be allocated ratably over the U.S. Holder’s holding period for the Share, (b) the amount allocated to the current year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we were a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income and (c) the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC that made a mark-to-market election with respect to the ADSs, would generally have (i) included as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deducted as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the amounts previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs (including in the Merger) in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable United States Treasury regulations. The ADSs are listed on the New York Stock Exchange, which is an established securities market in the United States. Consequently, we expect that the mark-to-market election would be available to a U.S. Holder that holds the ADSs were we to be or become a PFIC.

Similarly, if you had made a qualified electing fund or “QEF” election to include annually your pro rata share of our earnings and net capital gains currently in income each year, the foregoing PFIC rules would not have applied, and your basis in your Shares will be increased to reflect the amount of the taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the Shares. Either or both would affect your basis in the Shares and increase or reduce your taxable gain depending on your individual situation.

If the Company is a PFIC for any taxable year in which a U.S. Holder held Shares, a U.S. Holder generally would be required to file IRS Form 8621 with respect to the disposition of Shares. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors regarding the applicable consequences of the Merger to such U.S. Holder if the Company is a PFIC or has been a PFIC during any prior year in which a U.S. Holder held Shares.

U.S. Information Reporting and Backup Withholding Rules

In general, dividend payments with respect to the Shares and the proceeds received on the sale or other disposition of Shares (including the Merger) may be subject to information reporting to the IRS and to backup withholding (currently imposed at a rate of 24%). Backup withholding will not apply, however, if you provide a taxpayer identification number, certify as to no loss of exemption from backup withholding and otherwise comply with the applicable backup withholding rules. To establish your status as an exempt person, you will generally be required to provide certification on IRS Form W-9. Any amounts withheld from payments to you under the backup withholding rules that exceed your U.S. federal income tax liability will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that you timely furnish the required information to the IRS. Certain individuals holding Shares other than in an account at a U.S. financial institution may be subject to additional information reporting requirements.

THE EXTRAORDINARY GENERAL MEETING

We are furnishing this Proxy Statement to you, as a holder of the Shares, as part of the solicitation of proxies by the Board for use at the extraordinary general meeting described below.

Date, Time and Place of the Extraordinary General Meeting

The extraordinary general meeting will be held on             , 2020 at              (Shanghai time). The meeting will be held at the offices of Hogan Lovells International LLP, Suite 1804-1808, Park Place, 1601 Nanjing Road West, Jing An District, Shanghai 200040, People’s Republic of China.

Proposals to be Considered at the Extraordinary General Meeting

At the meeting, you will be asked to consider and vote upon:

•        as special resolutions:

THAT the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, be authorized and approved; and

THAT each of the directors and officers of the Company be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.

•        if necessary, as an ordinary resolution:

THAT the extraordinary general meeting be adjourned in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.

At the Effective Time, all Shares will be cancelled and cease to exist. If the Merger is consummated, each issued and outstanding Share and ADS, other than the Excluded Shares (including such Shares represented by ADSs) and the Dissenting Shares, will be cancelled in exchange for the right to receive the Per Share Merger Consideration and Per ADS Merger Consideration, respectively, in each case, in cash (except the Note Shares, which will receive Notes), without interest and net of any applicable withholding taxes, in accordance with the terms and conditions as set forth in the Merger Agreement. The Excluded Shares and ADSs representing the Excluded Shares will be cancelled without payment of any consideration or distribution therefor. The Dissenting Shares will thereafter represent only the right to receive the fair value of each Share as determined under Section 238 of the Cayman Islands Companies Law.

The Board’s Recommendation

The Board, acting upon the unanimous recommendation of the Special Committee, unanimously (but with Mr. Roche abstaining):

•        determined that that the execution of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, are fair to and in the best interests of the Company and its Unaffiliated Security Holders, and that it is advisable for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions;

•        authorized and approved the execution, delivery and performance of the Merger Agreement and the Plan of Merger, and the consummation of the Transactions, including the Merger; and

•        resolved to direct that the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, be submitted to a vote at an extraordinary general meeting of the shareholders with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.

Record Date; Shares and ADSs Entitled to Vote

You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the Cayman Islands on the Share Record Date. If you own Shares at the close of business in the Cayman Islands on the Share Record Date, the deadline for you to lodge your proxy card and vote is             , 2020 at              (Shanghai time).

If you own ADSs as of the close of business in New York City on the ADS Record Date (and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs, as explained below), you cannot vote directly nor are you able to attend the extraordinary general meeting, but you may instruct the ADS Depositary (as the holder of the Shares underlying your ADSs) on how to vote the Shares underlying your ADSs. The ADS Depositary must receive your voting instructions no later than              (New York City time) on             , 2020 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting.

Holders of Shares are entitled to one vote per Share and will vote as a single class on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share Record Date, there will be __________Shares entitled to be voted at the extraordinary general meeting. See “— Procedures for Voting” below for additional information.

Quorum

A quorum of the Company’s shareholders is necessary to have a valid shareholders’ meeting. The required quorum for the transaction of business at the extraordinary general meeting is the presence, in person or by proxy or by corporate representative, of one or more shareholders entitled to vote that represent in person or by proxy that represent not less than one-third of the voting rights represented by the issued and outstanding Shares. In the event that a quorum is not present at the extraordinary general meeting, we currently expect that we will adjourn the extraordinary general meeting to solicit additional proxies in favor of the authorization and approval of the Merger Agreement.

Vote Required

Under the Cayman Islands Companies Law and the Merger Agreement, in order for the Merger to be completed, the Merger Agreement and the Plan of Merger must be approved by a special resolution passed by the affirmative vote of shareholders holding two-thirds or more of the voting power represented by the Shares (including Shares represented by ADSs) present and voting in person or by proxy as a single class at the extraordinary general meeting. If this vote is not obtained, the Merger will not be completed.

As of the date of this Proxy Statement, there are [•] Shares (including Shares represented by ADSs) issued and outstanding, all of which are entitled to vote on the proposals at the extraordinary general meeting, subject to the procedures described below under “— Procedures for Voting.” We expect that, as of the Share Record Date, there will be              Shares (including Shares represented by ADSs) issued and outstanding, all of which will be entitled to vote on the proposals at the extraordinary general meeting, subject to the procedures described below under “— Procedures for Voting.” Holders of Shares are entitled to one vote per share. Based on the number of Shares expected to be issued and outstanding and entitled to vote as of the close of business in the Cayman Islands on the Share Record Date, votes must be cast in favor of the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, in order for the proposal to be authorized, approved and adopted, assuming all shareholders will be present and voting in person or by proxy at the extraordinary general meeting. If less than all issued and outstanding Shares are present in person or by proxy and voting at the meeting, a smaller number of Shares will be required to approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.

Procedures for Voting

Shares

Only shareholders entered in the register of members of the Company at the close of business in the Cayman Islands on the Share Record Date will receive the final Proxy Statement and proxy card directly from the Company. Shareholders registered in the register of members of the Company as of the Share Record Date or their proxy holders are entitled to vote and may participate in the extraordinary general meeting or any adjournment thereof.

Shareholders who have acquired Shares after the close of business on the Share Record Date may not attend the extraordinary general meeting unless they receive a proxy from the person or entity who had sold them the Shares. Holders of Shares are entitled to one vote per share.

Shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and return to the Company’s offices at 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, Attention: [•], no later than             , 2020 at              (Shanghai time), the deadline to lodge the proxy card. Shareholders can also attend the extraordinary general meeting and vote in person.

Shareholders who have questions or requests for assistance in completing and submitting proxy cards or need additional copies of this Proxy Statement or the accompanying proxy card should contact Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

ADSs

Holders of ADSs as of the close of business in New York City on the ADS Record Date will receive the final Proxy Statement and ADS voting instruction card either directly from the ADS Depositary (in the case of registered holders of ADSs) or from a third-party service provider (in the case of beneficial owners of ADSs who are not registered holders of ADSs). Holders of ADSs as of the close of business on             , 2020 (who do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs, as explained in the following paragraph) cannot attend or vote at the extraordinary general meeting directly, but may instruct the ADS Depositary how to vote the Shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the ADS Depositary and returning it in accordance with the instructions printed on such card. The ADS Depositary must receive the ADS voting instruction card no later than              (New York City time) on __________, 2020. The ADS Depositary will endeavor, in so far as practicable, to vote or cause to be voted the Shares represented by ADSs in accordance with your voting instructions. The ADS Depositary has advised us that, pursuant to Section 4.10 of the Deposit Agreement, it will not itself vote or attempt to exercise the right to vote any Shares represented by ADSs other than in accordance with signed voting instructions from the relevant ADS holder and, accordingly, Shares represented by ADSs for which no timely voting instructions are received by the ADS Depositary will not be voted. Notwithstanding the foregoing, if the ADS Depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the ADS Depositary is to vote, the Shares represented by the holder’s ADSs, the ADS Depositary will deem such holder to have instructed the ADS Depositary to vote in favor of the items set forth in the voting instructions. If you hold your ADSs in a brokerage, bank or other nominee account, you must follow the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.

Holders of ADSs will not be able to attend the extraordinary general meeting unless they cancel their ADSs and become holders of Shares prior to the close of business in the Cayman Islands on the Share Record Date. ADS holders who wish to cancel their ADSs need to make arrangements to deliver the ADSs (or to the extent ADSs are certificated, the ADRs) to the ADS Depositary for cancellation before              (New York City time) on             , 2020 together with (a) delivery instructions for the corresponding Shares (including the name and address of the person who will be the registered holder of such Shares), (b) payment of the ADS Depositary fees associated with such cancellation (US$0.05 per ADS to be cancelled) and any applicable taxes payable pursuant to the Deposit Agreement and (c) a certification that the ADS holder either (i) held the ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being cancelled or has given voting instructions to the ADS Depositary as to the ADSs being cancelled but undertake not to vote the corresponding Shares at the extraordinary general meeting or (ii) did not hold the ADSs as of the ADS Record Date and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other nominee account, please contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS Depositary will arrange for Citibank Hong Kong, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the registrar of Shares, Suntera Corporate Services Limited, to issue and mail a certificate to your attention. If the Merger is not completed, the Company would continue to be a public company in the United States. Shares are not listed and cannot be traded on any stock exchange other than the NYSE, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not completed and you wish to be

able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued) and applicable share transfer taxes (if any) and related charges payable pursuant to the Deposit Agreement.

Persons holding ADSs in a brokerage, bank or other nominee account should consult with their broker, bank or other nominee to obtain directions on how to provide such broker, bank or other nominee with instructions on how to vote their ADSs.

Proxy Holders for Registered Shareholders

Shareholders registered in the register of members of the Company as of the Share Record Date who are unable to participate in the extraordinary general meeting may appoint as a representative another shareholder, a third party or the Company as proxy holder by completing and returning the form of proxy in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, the Company as proxy holder will vote in favor of the resolutions proposed at the extraordinary general meeting according to the recommendation of the Board. If new proposals (other than those on the agenda) are put forth before the extraordinary general meeting, the Company as proxy holder will vote in accordance with the position of the Board.

Voting of Proxies and Failure to Vote

All Shares represented by valid proxies will be voted at the extraordinary general meeting in the manner specified by the holder. If a shareholder returns a properly signed proxy card but does not indicate how the shareholder wants to vote, Shares represented by that proxy card will be voted FOR the proposal to authorize and approve the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, FOR the proposal to authorize each of the directors and officers of the Company to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and FOR the proposal to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the resolutions proposed at the extraordinary general meeting, unless the shareholder appoints a person other than the chairman of the meeting as proxy, in which case the Shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. If a shareholder fails to vote by proxy or in person, it will be more difficult for the Company to obtain the necessary quorum to transact business at the extraordinary general meeting and to obtain the required votes described in “— Vote Required.”

Brokers, banks or other nominees who hold Shares in “street name” for customers who are the beneficial owners of such Shares may not give a proxy to vote those customers’ Shares in the absence of specific instructions from those customers. If proxies are properly dated, executed and returned by holders of Shares and no specific instructions are given by such holders, such Shares will be voted FOR the proposals and in the proxy holder’s discretion as to other matters that may properly come before the extraordinary general meeting. Abstentions by holders of Shares are included in the determination of the number of Shares present and voting but are not counted as votes for or against a proposal. If no proxy is given by such holders of Shares, broker non-votes will be counted toward a quorum but will not be treated as voted on any proposals at the extraordinary general meeting.

The ADS Depositary has advised us that, pursuant to Section 4.10 of the Deposit Agreement, it will not itself vote or attempt to exercise the right to vote any Shares represented by ADSs other than in accordance with signed voting instructions from the relevant ADS holder and, accordingly, Shares represented by ADSs for which no timely voting instructions are received by the ADS Depositary will not be voted. Notwithstanding the foregoing, if the ADS Depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the ADS Depositary is to vote the Shares represented by the holder’s ADS, the ADS Depositary will deem such holder to have instructed the ADS Depositary to vote in favor of the items set forth in the voting instructions.

Brokers, banks and other nominees who hold ADSs in “street name” for their customers do not have discretionary authority to provide the ADS Depositary with voting instructions on how to vote the Shares underlying the ADSs with respect to the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions

from the beneficial owner of ADSs, they may not provide the ADS Depositary with voting instructions on how to vote the Shares underlying the ADSs with respect to the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.

Revocability of Proxies

Registered holders of our Shares may revoke their proxies in one of three ways:

•        First, a registered shareholder can revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting at least two hours before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to Acorn International, Inc., 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, The People’s Republic of China, Attention: Lei Li.

•        Second, a registered shareholder can complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company no later than _________ (Shanghai time) on _________, 2020, which is the deadline to lodge your proxy card.

•        Third, a registered shareholder can attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the shareholder actually votes at the extraordinary general meeting.

If you hold ADSs through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you must follow the directions of your broker, bank or other nominee to change those instructions.

Holders of ADSs may revoke their voting instructions by notification to the ADS Depositary in writing at any time prior to _________ (New York City time) on _________, 2020. A holder of ADSs can do this in one of two ways:

•        First, a holder of ADSs can revoke its voting instructions by written notice of revocation timely delivered to the ADS Depositary.

•        Second, a holder of ADSs can complete, date and submit a new ADS voting instruction card to the ADS Depositary bearing a later date than the ADS voting instruction card sought to be revoked.

If you hold your ADSs through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you must follow the directions of your broker, bank or other nominee to change those instructions.

Rights of Shareholders Who Object to the Merger

Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Law for the exercise of dissenters’ rights, a copy of which is attached as Annex D to this Proxy Statement. The fair value of their Shares as determined under that statute could be more than, the same as, or less than the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.

ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR ADSs, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES IN THE COMPANY’S REGISTER OF MEMBERS, AND CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR ADSs

(OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING SHARES) BEFORE _________ (NEW YORK CITY TIME) ON_________, 2020, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON THE SHARE RECORD DATE. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED STATES. SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NYSE, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSs TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (US$0.05 PER ADS ISSUED) AND APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PAYABLE PURSUANT TO THE DEPOSIT AGREEMENT.

Whom to Call for Assistance

If you have any questions about the Merger or if you need additional copies of this Proxy Statement or the accompanying proxy card, you should contact our Ms. Elaine Ketchmere of Compass Investor Relations at (310) 528-3031 or Eketchmere@compass-ir.com.

In order for you to receive timely delivery of any additional copy of this Proxy Statement or the accompanying proxy card in advance of the extraordinary general meeting, you must make your request no later than five business days prior to the date of the extraordinary general meeting.

Solicitation of Proxies

We do not plan to engage a proxy solicitor to assist in the solicitation of proxies. Instead, proxies may be solicited by mail, in person, by telephone, by internet or by facsimile by certain of our officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this Proxy Statement to the beneficial owners of Shares and in obtaining voting instructions from those owners. We will pay all expenses of filing, printing and mailing this Proxy Statement.

Other Business

We are not currently aware of any business to be acted upon at the extraordinary general meeting other than the matters discussed in this Proxy Statement.

THE MERGER AGREEMENT

The following summary describes material provisions of the Merger Agreement. This summary may not include all of the information about the Merger Agreement and the Plan of Merger that is important to you. This summary is subject to, and qualified in its entirety by reference to, the Merger Agreement and the Plan of Merger, which are attached as Annex A and Annex B, respectively, and incorporated by reference into this section of this Proxy Statement. You are urged to read each of the Merger Agreement and the Plan of Merger carefully and in its entirety, as they are the legal documents governing the Merger.

The summary of the Merger Agreement below is included in this Proxy Statement only to provide you with information regarding the terms and conditions of the Merger Agreement, and not to provide any other factual information regarding the Company, Parent, Merger Sub, or their respective businesses. The summary of the Merger Agreement below is included in this Proxy Statement only to provide you with information regarding the terms and conditions of the Merger Agreement, and not to provide any other factual information regarding the Company, Parent, Merger Sub, or their respective businesses. Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this Proxy Statement and in the documents incorporated by reference into this Proxy Statement. See “Where You Can Find More Information” beginning on page 86.

Structure and Completion of the Merger

The Merger Agreement provides for the merger of Merger Sub with and into the Company, with the Company continuing as the Surviving Corporation, as a wholly-owned subsidiary of Parent from and after the Closing, upon the terms, and subject to the conditions, of the Merger Agreement. If the Merger is completed, the Company will cease to be a publicly-traded company.

We currently expect that the Merger will be completed during the fourth quarter of 2020, after all conditions to the Merger have been satisfied or waived. We cannot specify when, or assure you that, all conditions to the Merger will be satisfied or waived, however, we intend to complete the Merger as promptly as practicable.

Memorandum and Articles of Association; Directors and Officers of the Surviving Corporation

Upon consummation of the Merger, the memorandum and articles of association of Merger Sub as in effect at the Effective Time of the Merger will be the memorandum and articles of association of the Company as the Surviving Corporation. The directors and officers of Merger Sub at the Effective Time of the Merger will become the directors and officers of the Surviving Corporation, unless otherwise determined Parent prior to the Effective Time.

Merger Consideration

Each Share issued and outstanding immediately prior to the Effective Time of the Merger (other than the Excluded Shares and the Note Shares) will be cancelled in exchange for the right to receive $1.05 in cash per Share ($21.00 per ADS) without interest and less any applicable taxes. Each Note Share will be cancelled in exchange for the right to receive Notes having face value equal to the merger consideration that these shareholders would otherwise have been entitled to receive in the form of cash. Each Excluded Share will be cancelled and cease to exist and no consideration shall be delivered or deliverable in exchange therefor. Each Dissenting Share will be cancelled and cease to exist in exchange for the right to receive the fair value of such Dissenting Share as determined in accordance with Section 238 of the Cayman Islands Companies Law.

After the Effective Time, each holder of any of our Shares (other than Shares for which appraisal rights have been duly and validly exercised and not withdrawn or lost) will no longer have any rights with respect to the Shares, except for the right to receive the Per Share Merger Consideration.

Exchange Procedures

At the Effective Time, Parent will deposit, or shall cause to be deposited, with a paying agent selected by Parent with the Company’s prior approval (such approval not to be unreasonably withheld, conditioned or delayed) (the “Paying Agent”), for the benefit of the holders of Shares (other than the Excluded Shares, Note Shares and Dissenting Shares), a cash amount in immediately available funds sufficient for the Paying Agent to make payments under the Merger Agreement.

Promptly after the Effective Time (and in any event within (x) five business days in the case of record holders and (y) three business days in the case of the Depository Trust Company (“DTC”) on behalf of beneficial holders holding through brokers, nominees, custodians or through a third-party), the Surviving Corporation shall cause the Paying Agent to mail (or in the case of DTC, deliver) to each registered holder of Shares (other than holders of Excluded Shares, Note Shares and Dissenting Shares) immediately prior to the Effective Time (i) a letter of transmittal in customary form specifying that delivery shall be effected, and risk of loss and title to the Share Certificates and Book-Entry Shares shall pass, only upon delivery of the Share Certificates (or affidavits of loss in case that the Share Certificates have been lost, stolen or destroyed) and Book-Entry Shares to the Paying Agent, such letter of transmittal to be in such form and have such other provisions as Parent and the Company may reasonably agree, and (ii) instructions for effecting the surrender of the Share Certificates (or affidavits of loss in case that the Share Certificates have been lost, stolen or destroyed) and Book-Entry Shares in exchange for the Per Share Merger Consideration, as applicable. Upon surrender of a Share Certificate (or affidavit of loss in case that the Share Certificates have been lost, stolen or destroyed) or Book-Entry Shares to the Paying Agent in accordance with the terms of such letter of transmittal, duly executed, the holder of such Share Certificate or Book-Entry Shares shall be entitled to receive in exchange therefor a cheque, in the amount (after giving effect to any required tax withholdings) equal to (x) the number of Shares represented by such Share Certificate (or affidavit of loss in case that the Share Certificates have been lost, stolen or destroyed) or the number of Book-Entry Shares multiplied by (y) the Per Share Merger Consideration, and the Share Certificate or Book-Entry Shares so surrendered shall forthwith be marked as cancelled.

The Surviving Corporation shall make arrangements for the ADS Depositary to distribute the Per ADS Merger Consideration to ADS holders (net of any applicable withholding taxes) pro rata to their holdings of ADSs upon surrender by them of the ADSs. The Surviving Corporation will pay any applicable fees, charges and expenses of the ADS Depositary and government charges (other than withholding taxes if any) due to or incurred by the ADS Depositary in connection with distribution of the Per ADS Merger Consideration to ADS holders. No interest will be paid or accrued on any amount payable upon due surrender of the Share Certificates or Book-Entry Shares.

In the event of a transfer of ownership of Shares that are not registered in the register of members of the Company, a cheque for any cash to be exchanged upon due surrender of the Share Certificate or Book-Entry Shares may be issued to such transferee if the Share Certificates or Book-Entry Shares formerly representing such Shares is presented to the Paying Agent, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable share transfer taxes have been paid or are not applicable.

No Solicitation of Acquisition Proposals; No Adverse Recommendation Changes

Non-Solicitation.    We have agreed not to, directly or indirectly, initiate, solicit or knowingly encourage any inquiries or the making of any proposal or offer that constitutes or could reasonably be expected to lead to, any Acquisition Proposal, or engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information to any person relating to, any Acquisition Proposal, or otherwise knowingly facilitate any effort or attempt to make an Acquisition Proposal.

Prior to obtaining Requisite Company Vote of the Merger Agreement, the Company may, however, furnish information to and engage and participate in discussions or negotiations with persons making an Acquisition Proposal if:

•        the Board believes in good faith that such Acquisition Proposal is bona fide; and

•        the Board reasonably determines in good faith, after consultation with its outside legal counsel and financial advisor, that (a) such Acquisition Proposal constitutes or is reasonably expected to become a Superior Proposal and (b) failure to take action with respect to the Acquisition Proposal would be reasonably likely to be inconsistent with its fiduciary duties.

In the cases described above, we are not permitted to disclose any non-public information to a person without entering into an appropriate confidentiality agreement. In addition, we will substantially currently (and, in any event, within 48 hours) provide to Parent any non-public information provided to such other person which was not previously provided to Parent, as well as copies of the confidentiality agreement and determination of the Board.

We have agreed to promptly as reasonably practicable (and, in any event, within 48 hours) notify Parent if any proposals or offers with respect to an Acquisition Proposal are received by, any such information is requested from, or any such discussions or negotiation are sought to be initiated or continued with, us or any of our representatives

indicating the name of such person, the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) and if the Company has any intention to provide confidential information to such person, and to keep Parent informed, on a reasonably current basis, of the status and terms of any such proposals or offers (including any material changes and amendments).

No Adverse Recommendation Change.    The Board has unanimously (but with Mr. R. Roche abstaining) resolved to recommend that our shareholders adopt the Merger Agreement. However, if the Board determines in good faith, after consultation with outside legal counsel, that the failure to take such action would be inconsistent with the Board’s fiduciary duties to our shareholders under applicable law, it may, at any time prior to, but not after, the adoption of the Merger Agreement by our shareholders:

•        withhold, withdraw, qualify or modify, or publicly propose to withhold, withdraw, qualify or modify, in a manner adverse to Parent, its recommendation that our shareholders adopt the Merger Agreement; or

•        cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement relating to any acquisition proposal.

However, in order to enter into an agreement relating to an Acquisition Proposal, the Board must also have determined in good faith, after consultation with its financial advisors, that such acquisition proposal is a Superior Proposal and remains so after the Board follows the procedures described below.

To the extent the Board proposes to take the foregoing actions with regard to its recommendation, it may only do so if:

•        we have not materially breached our obligations under the no solicitation provision of the Merger Agreement;

•        we have given Parent at least three business days’ notice of our intention to change our recommendation or terminate the Merger Agreement; and

•        prior to terminating the Merger Agreement, the Board has taken into account any changes to the terms of the Merger Agreement proposed by Parent and other information provided by Parent during such three business day period.

Any material amendment to an Acquisition Proposal will be deemed a new Acquisition Proposal that will entitle Parent to an additional three business day period to propose changes to the Merger Agreement and provide additional information.

In addition, we are not entitled to enter into any agreement with respect to a Superior Proposal unless we have concurrently paid to Parent the applicable termination fee as described in further detail in “— Termination Fees” beginning on page 73.

Representations and Warranties

In the Merger Agreement, the Company makes representations and warranties relating to, among other things:

•        the corporate organization, good standing and qualification of the Company and its subsidiaries;

•        its capital structure;

•        its corporate power and authority to enter into the Merger Agreement;

•        required regulatory filings, consents and approvals of governmental entities;

•        the receipt of a fairness opinion from Duff & Phelps, as the financial advisor to the Special Committee;

•        absence of (i) breach or violation or default of governing documents of the company and any of its subsidiaries, (ii) a material breach or violation of any applicable law, (iii) a breach or violation of, a termination, cancellation or modification (or right of termination, cancellation or modification) or default under, the payment of additional fees, the creation or acceleration of any obligations under or the creation

of a Lien on any of the assets of the Company or any of its Subsidiaries pursuant to any contract, (iv) a breach or violation of or a termination, cancellation or modification (or right of termination, cancellation or modification) or default of right of first refusal or similar right, or (v) any change in the rights or obligations of any party under any contract, in each case as a result of the execution, delivery and performance of the Merger Agreement by Parent and Merger Sub, except, with respect to clauses (iii), (iv) or (v) above, for any such breach, violation, termination, default, creation, acceleration or change that is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect or prevent or materially impair the consummation of the Transactions;

•        the Company’s financial statements filed with the SEC and related matters;

•        compliance with the Sarbanes — Oxley Act of 2002, as amended;

•        absence of certain changes since December 31, 2019;

•        absence of litigation and unknown liabilities of the Company;

•        employee benefits;

•        compliance with laws;

•        material contracts and the absence of any breach or default of any material contracts;

•        properties of the Company and its subsidiaries;

•        lack of applicability of takeover statutes to the Merger;

•        environmental matters;

•        taxes;

•        labor matters;

•        intellectual property;

•        insurance;

•        the absence of any broker’s and finder’s fees, other than with respect to the Company’s Financial Advisor; and

•        the absence of any other representations and warranties by the Company to Parent and Merger Sub, other than the representations and warranties made by the Company in the Merger Agreement.

In the Merger Agreement, Parent and Merger Sub each makes representations and warranties relating to:

•        the corporate organization, good standing and qualification of Parent and Merger Sub;

•        corporate power and authority to enter into and consummate the transactions contemplated by the Merger Agreement;

•        required regulatory filings, consents and approvals of governmental entities;

•        absence of (i) breach or violation or default of governing documents of Parent, the Merger Sub or any of their respective subsidiaries, (ii) a material breach or violation of any applicable law, (iii) a breach or violation of, a termination, cancellation or modification (or right of termination, cancellation or modification) or default under, the payment of additional fees, the creation or acceleration of any obligations under or the creation of a Lien on any of the assets of the Company or any of its Subsidiaries pursuant to any contract, in each case as a result of the execution, delivery and performance of the Merger Agreement by Parent and Merger Sub, except with respect to clause (iii), for any such breach, violation, termination, default, creation, acceleration or change that is not, individually or in the aggregate, reasonably likely to prevent or materially impair the ability of Parent or Merger Sub to consummate the Transactions, including the Merger;

•        the availability of the funds necessary to perform their obligations under the Merger Agreement;

•        the capitalization of Merger Sub;

•        the absence of any broker’s and finder’s fees;

•        the accuracy of the information supplied for this proxy statement and the related Schedule 13E-3;

•        solvency of the Surviving Corporation immediately after the Effective Time of the Merger;

•        the absence of undisclosed contracts between Parent or Merger Sub, and any member of the Company’s management, directors or stockholders, in each case relating to the Company or the Merger;

•        their title of our Shares.

Conduct of Business Prior to Closing

We have agreed in the Merger Agreement that, until the Effective Time of the Merger, except as expressly contemplated by the Merger Agreement or required by applicable law, we and our subsidiaries will:

•        operate our businesses in all material respects in the ordinary and usual course of business; and

•        to the extent consistent with the above, use commercially reasonable efforts to preserve our business organizations and maintain existing relations and goodwill with governmental entities, customers, suppliers, licensors, licensees, distributors, creditors, lessors, employees and business associates.

We have also agreed that, until the consummation of the Merger, except as expressly contemplated by the Merger Agreement or required by applicable law or consented to in writing by Parent (which consent will not be unreasonably withheld or delayed) or set forth in the disclosure schedule that we delivered to Parent in connection with the execution of the Merger Agreement, we and our subsidiaries will not:

•        adopt or propose any change in our organizational or governing documents;

•        merge or consolidate the Company or any of its subsidiaries (except for transactions with wholly-owned subsidiaries);

•        restructure, reorganize, liquidate or otherwise enter into any contracts imposing material changes or restrictions on our assets, operations or businesses, other than in the ordinary course;

•        acquire stock or assets other than in the ordinary course of business or, if outside the ordinary course of business, in an amount not to exceed $1 million for any transaction or related series of transactions;

•        issue, sell, pledge, transfer or otherwise dispose of any Shares of capital stock of the Company and its subsidiaries or any rights to acquire the Company’s securities (other than issuances of Shares pursuant to outstanding awards under the Company’s equity award plans);

•        reclassify, split, combine, subdivide or redeem, purchase or otherwise acquire, any Company capital stock;

•        declare or pay dividends (except for dividends paid by any subsidiaries in the ordinary course consistent with past practice) or enter into any contract with respect to the voting of the Company’s capital stock;

•        create or incur any lien on intellectual property owned or exclusively licensed by the Company or its subsidiaries or on other material intellectual property or on assets having a value in excess of $1 million;

•        make any loans, advances, guarantees or capital contributions or investments (other than to the Company or its wholly-owned subsidiaries) in excess of $1 million in the aggregate, except pursuant to contracts in effect as of the date of the Merger Agreement which have been either filed as exhibits to the company reports filed with the SEC or identified in the disclosure schedule;

•        incur, alter, amend or modify any indebtedness for borrowed money or guarantee of a third party’s indebtedness (other than ordinary course borrowing consistent with past practice that does not exceed $1 million in the aggregate, including any borrowings under the existing credit facilities and such other actions taken in the ordinary course of business consistent with past practice);

•        issue or sell any debt securities or warrants or other rights to acquire any debt security of the Company or any of its subsidiaries;

•        make or authorize capital expenditures in excess of $300,000 per project or related series of projects of $1 million in the aggregate, other than expenditures necessary to maintain existing assets in good repair and expenditures contemplated by the Company’s budget and approved development plans as of the date of the Merger Agreement;

•        make material changes in accounting policies or procedures, except as required by changes in United States generally accepted accounting principles (“U.S. GAAP”) or applicable law;

•        settle any action before a governmental authority or any obligation or liability of the Company above a certain threshold amount;

•        enter into, amend or modify in any material respect or terminate, or waive any material rights under, any material contract, intellectual property contract or material manufacturing or supply agreement that is reasonably expected to result in a material adverse effect;

•        make any tax election, amend any tax return, settle any controversy with respect to taxes or change any method of tax accounting;

•        transfer, sell or otherwise dispose of (a) any of the Company’s material intellectual property, other than pursuant to non-material contracts granted in the ordinary course of business or (b) any of the Company’s material assets, product lines or businesses, except for dispositions in the ordinary course of business and sale of obsolete assets or other dispositions of less than $500,000 in the aggregate; and

•        except pursuant to written, binding plans or as required by applicable law, grant or provide any severance or termination payments or benefits to any director, officer or employee other than normal payments and benefits in the ordinary course of business consistent with past practice ; increase the compensation, bonus or benefits of, pay any bonus to, or make any new equity awards to any director, officer or employee (except to non-officer employees in the ordinary course of business consistent with past practice); establish, adopt, amend or terminate any Company benefit plan (except as required by law) or amend the terms of any outstanding equity-based awards; accelerate vesting or payment, or fund or secure payment, of compensation or benefits under any Company benefit plan (if not already contemplated by such plan); materially change any actuarial or other assumptions used to calculate funding obligations with respect to any Company benefit plan or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as required by U.S. GAAP; and forgive any loans made to directors, officers or employees of the Company or its subsidiaries.

Parent and Merger Sub have agreed not to take any action that is reasonably likely to prevent or materially impair the consummation of the Merger.

Financing

As of the date of the Merger Agreement, Parent delivered to the Company a copy of the executed Debt Financing Agreement pursuant to which, subject to satisfaction or waiver of the conditions set forth therein, East West Bank, an unaffiliated third-party lender, has agreed to provide debt financing to Parent, the proceeds of which must be used to consummate the Merger.

The Merger Agreement requires Parent to use its commercially reasonable efforts to take all actions and to do all things reasonably necessary, proper or advisable to satisfy the disclosed conditions to the Debt Financing Agreement, and to consummate the financing on the terms and conditions described in the Debt Financing Agreement (or on other terms that would not adversely impact the ability of Parent to timely consummate the Merger), including using commercially reasonable efforts to satisfy on a timely basis all covenants, terms and conditions applicable to Parent in the Debt Financing Agreement that are within its control, including the disclosed conditions. In the event that all conditions in the Debt Financing Agreement required to be satisfied by Parent (other than any condition waived by East West Bank) have been satisfied, or upon funding, will be satisfied, in Parent’s good faith judgment, Parent must use its commercially reasonable efforts to cause the lenders to fund the financing at the Effective Time of the Merger (“Financing Date”) and otherwise enforce its rights under the Debt Financing Agreement. Parent has agreed that it

is not permitted to, without the prior written consent of the Company, and it will not take or fail to take, any action or enter into any transaction that could reasonably be expected to materially impair, delay or prevent obtaining the financing. Parent has agreed to give the Company prompt notice of any material breach by any party under the Debt Financing Agreement of which Parent becomes aware or any communications from any lender to the effect that it may not provide any portion of the financing contemplated by the Debt Financing Agreement. In the event that any portion of the financing becomes unavailable in the manner or from the sources contemplated in the Debt Financing Agreement despite Parent’s commercially reasonable efforts to obtain the financing, Parent must (a) promptly notify the Company, and (b) use its commercially reasonable efforts to arrange to obtain any such portion of the financing from alternative sources, on terms that are no less favorable to Parent, as promptly as practicable following the occurrence of such event, including entering into definitive agreements with respect thereto. Parent must keep the Company reasonably informed of the status of Parent’s efforts to arrange the financing.

The Merger Agreement requires the Company to reasonably cooperate in connection with the arrangement of the financing as may be reasonably requested by Parent (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company and its subsidiaries). Such cooperation by the Company and its subsidiaries includes, at the reasonable request of Parent, (a) making the Company’s executive officers and other relevant employees reasonably available for participation in meetings, due diligence sessions and presentations to assist the lenders providing the financing; (b) delivering such officer’s and other certificates as required by the Debt Financing Agreement and as are, in the good faith determination of the persons executing such certificates, accurate; (c) entering into such agreements and arrangements as required by the Debt Financing Agreement; (d) using its commercially reasonable efforts to cause its independent registered public accountants to deliver such comfort letters as required by the Debt Financing Agreement; (e) providing Parent and its financing sources as promptly as practicable with financial and other pertinent information with respect to the Company and its subsidiaries as required by the Debt Financing Agreement; and (f) taking all corporate actions, subject to the occurrence of the closing under the Merger Agreement, to permit consummation of the financing and the direct borrowing or incurrence of all proceeds of the financing by the Surviving Corporation immediately following the Effective Time of the Merger. Upon any request by the Company, Parent will reimburse the Company and its subsidiaries for all reasonable and documented out-of-pocket costs and expenses incurred in connection with their cooperation and will indemnify and hold harmless the Company and its subsidiaries from all losses, damages, claims, costs or expenses incurred in connection with the arrangement of the financing, except as provided for in the Merger Agreement.

Conditions to the Merger

Conditions to Each Party’s Obligations.    Each party’s obligation to complete the Merger is subject to the satisfaction or waiver at or prior to the closing date of each of the following conditions:

•        the Merger Agreement shall have been duly adopted by holders of a majority in number representing at least two-thirds in value of the Shares present and voting together as one class in person or by proxy at the shareholders meeting of the Company;

•        all governmental and third party consents required to be obtained prior to the Effective Time of the Merger by the Company or Parent shall have been obtained; and

•        no court or other governmental entity shall have enacted, issued, promulgated, enforced or entered any law (temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Merger.

Conditions to Parent and Merger Sub’s Obligations.    The obligations of Parent and Merger Sub to complete the Merger is subject to the satisfaction or waiver at or prior to the closing date of each of the following additional conditions:

•        as of the date of the Merger Agreement and as of the closing date, our representations and warranties must be true and correct (unless such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date);

•        we must have performed in all material respects all obligations required to be performed under the Merger Agreement at or prior to the closing date;

•        since the date of the Merger Agreement, there must not have been any change, event, circumstance or development that has had, or would be reasonably likely to have, a material adverse effect on the Company;

•        we must deliver to Parent at closing a certificate with respect to the satisfaction of the foregoing conditions relating to representations, warranties and obligations; and

•        the holders of more than 5% of the Shares shall not have validly served a notice of dissent under Section 238(5) of the Cayman Islands Companies Law.

Conditions to the Company’s Obligations.    Our obligation to complete the Merger is subject to the satisfaction or waiver at or prior to the closing date of each of the following additional conditions:

•        as of the date of the Merger Agreement and as of the closing date (unless such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date), representations and warranties of Parent and Merger Sub must be true and correct in all material respects;

•        Parent and Merger Sub must have performed in all material respects all obligations required to be performed by them under the Merger Agreement at or prior to the closing date;

•        Parent and Merger Sub must deliver to us at closing a certificate with respect to the satisfaction of the foregoing conditions relating to representations, warranties and obligations; and

•        East West Bank shall have deposited the amount of the debt financing with the Paying Agent.

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the consummation of the Merger, whether before or after shareholder approval has been obtained, by mutual written consent of the Company and Parent, or by the Company, if:

•        prior to obtaining shareholder approval, the Company terminates the Merger Agreement in order to enter into an agreement with respect to a superior proposal and, concurrently with such termination, pays Parent the required termination fee;

•        either of Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the Merger Agreement, or any such representation or warranty made by them shall have become untrue, such that certain conditions to closing would not be satisfied and such breach or condition is not curable, or if curable, is not cured, within the earlier of 30 days after written notice of such breach or the Termination Date; or

•        (i) all of the conditions to the obligations of Parent and Merger Sub (other than those conditions that by nature are only to be satisfied by actions taken at the closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the closing conditions solely for the benefits of the Company (other than those conditions that by their nature are only to be satisfied by actions taken at the closing) have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that the Company is ready, willing and able to consummate the Merger and (iii) Parent and Merger Sub fail to complete the Merger within 15 business days;

The Merger Agreement may be terminated at any time prior to the consummation of the Merger:

•        by either the Company or Parent if:

•        the Merger is not completed on or before March 31, 2021 (the “Termination Date”), so long as the failure of the Merger to be completed by such date is not the result of, or caused by, the failure of the terminating party to comply in all material respects with the covenants and agreements set forth in the Merger Agreement;

•        our shareholders do not adopt the Merger Agreement at the extraordinary general meeting or any adjournment or postponement thereof; or

•        any order, decree or ruling permanently restraining, enjoining or otherwise prohibiting consummation of the Merger shall become final and non-appealable;

•        or by Parent, if:

•        the Board adversely changes or withdraws its recommendation that our shareholders adopt the Merger Agreement;

•        the Board approves, endorses or recommends an acquisition proposal other than the Merger with Merger Sub; or

•        we have breached any of our representations, warranties, covenants or agreements under the Merger Agreement, or any such representation or warranty made by us shall have become untrue, such that certain conditions to closing would not be satisfied and such breach or condition is not curable, or if curable, is not cured, within the earlier of 30 days after written notice of such breach or the Termination Date.

Termination Fees

In the event that (a) a bona fide acquisition proposal is made to the Company or any person shall have publicly announced an intention (whether or not conditional) to make a bona fide acquisition proposal with respect to the Company (and such acquisition proposal or publicly announced intention is not publicly withdrawn without qualification a specified number of days prior to the date of the shareholders meeting) and thereafter the Merger Agreement is terminated by either Parent or the Company, (b) the Merger Agreement is terminated by (i) Parent due to a change in the recommendation of the Board or our breach of representations, warranties or covenants set forth in the Merger Agreement or (ii) the Company due to the failure to obtain the requisite shareholder approval of the merger at the extraordinary general meeting and, on or prior to the date of the shareholders meeting any event giving rise to Parent’s right to terminate shall have occurred or (c) the Merger Agreement is terminated by the Company due to the Board effecting a change of recommendation, then, in each case, the Company shall promptly, but in no event later than five business days after the date of such termination, pay Parent and Merger Sub an aggregate termination fee of $1.7 million.

In the event that the Company terminates the Merger Agreement in accordance with the following termination provisions: (a) a breach of any representations, warranties, covenants or agreements made by Parent or Merger Sub, or (b) (i) all of the conditions to the obligations of Parent and Merger Sub (other than those conditions that by nature are only to be satisfied by actions taken at the closing) have been satisfied, (ii) the Company has delivered to Parent an irrevocable confirmation in writing that all of the closing conditions solely for the benefits of the Company (other than those conditions that by their nature are only to be satisfied by actions taken at the closing) have been satisfied (or that the Company is willing to waive any unsatisfied conditions) and that the Company is ready, willing and able to consummate the Merger and (iii) Parent and Merger Sub fail to complete the Merger within 15 business days, then in each case, Parent and Merger Sub shall promptly but in no event later than five business days after the date of such termination, pay the Company a termination fee in the amount of $2.25 million.

Modification or Amendment; Waiver of Conditions

The Merger Agreement may be amended with the approval of the respective boards of directors of the parties at any time, provided that (a), in the case of the Company, the Board of the Company and the Special Committee have approved such amendment in writing, and (b) after any such adoption of the Merger Agreement by the requisite shareholder vote, no amendment shall be made which by law requires further approval of the shareholders of the Company without the further approval of such shareholders.

At any time before the consummation of the Merger, each of the parties to the Merger Agreement may waive compliance with any of the agreements or conditions contained in the Merger Agreement to the extent permitted by applicable law.

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

No provision has been made to (a) grant the Company’s shareholders or ADS holders access to corporate files of the Company and other parties to the Merger or any of their respective affiliates or (b) obtain counsel or appraisal services at the expense of the Company or any other such party or affiliate.

DISSENTERS’ RIGHTS

The following is a brief summary of the rights of holders of the Shares to dissent from the Merger and receive payment of the fair value of their Shares (“dissenters’ rights”) as determined by the Grand Court of the Cayman Islands (the “Grand Court”) in accordance with the Section 238 of the Cayman Islands Companies Law. This summary is not a complete statement of the law, and is qualified in its entirety by the complete text of Section 238 of the Cayman Islands Companies Law, a copy of which is attached as Annex D to this Proxy Statement. If you are contemplating the possibility of dissenting from the Merger, you should carefully review the text of Annex D, particularly the procedural steps required to perfect your dissenters’ rights. These procedures are complex and you should consult your Cayman Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the Cayman Islands Companies Law, you will lose your dissenters’ rights.

Requirements for exercising dissenters’ rights

A dissenting shareholder of the Company is entitled to payment of the fair value of its, his or her Shares as determined by the Grand Court upon dissenting from the Merger in accordance with Section 238 of the Cayman Islands Companies Law.

The valid exercise of your dissenters’ rights will preclude the exercise of any other rights by virtue of holding Shares in connection with the Merger, other than the right to participate fully in proceedings to determine the fair value of Shares held by such persons and to seek relief on the grounds that the Merger is void or unlawful. To exercise your dissenters’ rights, the following procedures must be followed:

•        You must give written notice of objection (“Notice of Objection”) to the Company prior to the vote to authorize and approve the Merger. The Notice of Objection must include a statement that you propose to demand payment for your Shares if the Merger is authorized by the vote at the extraordinary general meeting.

•        Within 20 days immediately following the date on which the vote authorizing the Merger is made, the Company must give written notice of the authorization (“Authorization Notice”) to all dissenting shareholders who have served a notice of objection.

•        Within 20 days immediately following the date on which the Authorization Notice is given (the “Dissent Period”), any dissenting shareholder who elects to dissent must give a written notice of its, his or her decision to dissent (a “Notice of Dissent”) to the Company stating its, his or her name and address and the number and class of the Shares with respect to which it, he or she dissents and demanding payment of the fair value of its, his or her Shares. A dissenting shareholder who dissents must do so in respect of all the Shares which it, he or she holds. Upon giving of the Notice of Dissent, the Dissenting Shareholder shall cease to have any of the rights of a shareholder except the right to be paid the fair value of its, his or her Shares, the right to participate fully in proceedings to determine the fair value of such Shares and the right to seek relief on the grounds that the Merger is void or unlawful.

•        Within seven days immediately following (a) the date of expiry of the Dissent Period or (b) the date on which the Plan of Merger is filed with the Cayman Registrar, whichever is later, the Company, as the Surviving Corporation, must make a written offer (a “Fair Value Offer”) to each dissenting shareholder to purchase its, his or her Shares at a price determined by the Company to be the fair value of such Shares.

•        If, within 30 days immediately following the date of the Fair Value Offer, the Company and the dissenting shareholder fail to agree on a price at which the Company will purchase the dissenting shareholder’s Shares, then, within 20 days immediately following the date of the expiry of such 30-day period, the Company must, and the dissenting shareholder may, file a petition with the Grand Court for a determination of the fair value of the Shares held by all dissenting shareholders who have served a Notice of Dissent, which petition by the Company must be accompanied by a verified list containing the names and addresses of all members who have filed a Notice of Dissent and who have not agreed with the Company as to the fair value of such Shares (if a dissenting shareholder files a petition, the Company must file such verified list within 10 days after service of such petition on the Company).

•        If a petition is timely filed and served, the Grand Court will determine at a hearing at which shareholders are entitled to participate, (a) the fair value of such Shares held by those shareholders as the Grand Court finds are involved with a fair rate of interest, if any, to be paid by the Company upon the amount determined to be the fair value and (b) the costs of the proceeding and the allocation of such costs upon the parties.

All notices and petitions must be executed by or for the shareholder of record or a person duly authorized on behalf of that shareholder, fully and correctly, as such shareholder’s name appears on the register of members of the Company. If Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If Shares are owned by or for more than one person such notices and petitions must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the notices or petitions for a shareholder of record. The agent must, however, identify the record owner and expressly disclose the fact that, in exercising the notice, he or she is acting as agent for the record owner. A person having a beneficial interest in Shares held of record in the name of another person, such as a broker or other nominee, must act promptly to cause the record holder to follow the steps summarized above and in a timely manner to perfect whatever dissenters’ rights attached to such Shares.

You must be a registered holder of Shares as of              on             , 2020 in order to exercise your dissenters’ rights. A holder of ADSs who wishes to dissent must surrender his, her or its ADSs to the ADS Depositary for conversion into Shares and pay the applicable taxes and fees of the ADS Depositary to cancel his, her or its ADSs and then become a record holder of such Shares and comply with the procedures described above in order to exercise the dissenters’ rights with respect to the Shares prior to the extraordinary general meeting. The ADS Depositary will not exercise dissenters’ rights on behalf of a holder of ADSs and any Notice of Dissent delivered to the ADS Depositary will not be effective under the Cayman Islands Companies Law. If you wish to cancel your ADSs, please contact your broker or custodian to make the necessary arrangements, or otherwise contact the ADS Depositary’s office at 388 Greenwich Street, New York, New York, 10013.

If you do not satisfy each of these requirements and comply strictly with all precedents required by the Cayman Islands Companies Law with regard to the exercise of dissenters’ rights, you cannot exercise dissenters’ rights and will be bound by the terms of the Merger Agreement and the Plan of Merger. Submitting a proxy card that does not direct how the Shares represented by that proxy are to be voted will give the proxy discretion to vote as it determines appropriate. In addition, failure to vote your Shares, or a vote against the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, will not alone satisfy the notice requirement referred to above. You must send all notices to the Company to 5/F, YueShang Plaza, 1 South Wuning Road, Shanghai 200042, People’s Republic of China, Attention: Lei Li, General Counsel.

If you are considering dissenting, you should be aware that the fair value of your Shares as determined by the Grand Court under Section 238 of the Cayman Islands Companies Law could be more than, the same as, or less than $1.05 per Share in cash, without interest and net of any applicable withholding taxes, for each Share of the Company that you would otherwise receive as consideration pursuant to the Merger Agreement if you do not exercise dissenting rights with respect to your Shares. You may also be responsible for the cost of any appraisals proceedings.

The provisions of Section 238 of the Cayman Islands Companies Law are technical and complex. If you fail to comply strictly with the procedures set forth in Section 238, you will lose your dissenters’ rights. You should consult your Cayman Islands legal counsel if you wish to exercise dissenters’ rights.

FINANCIAL INFORMATION

Selected Historical Financial Information

The following selected consolidated statements of operations data for the three years ended December 31, 2017, 2018 and 2019, and the selected consolidated balance sheet data as of December 31, 2018 and 2019, have been derived from our audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, and are included elsewhere in our Annual Report on Form 20-F for the year ended December 31, 2019. Our selected consolidated statements of operations data for the years ended December 31, 2015 and 2016, and our consolidated balance sheet data as of December 31, 2015, 2016, and 2017 have been derived from our audited consolidated financial statements that are not included in our Annual Report on Form 20-F. Our selected consolidated financial statements are prepared and presented in accordance with U.S. GAAP.

In 2017, we reached an agreement to sell a majority stake in our HJX electronic learning products business, or the HJX Business, to a third-party investor and operator, allowing us to focus on existing businesses and brands with higher profit margins, and on achieving profitable growth of new, potentially high margin businesses. We maintain a 37.5% stake in a joint venture established with this third party. As a result of this transaction, we are required by applicable accounting rules to treat the historical operations of the wholly-owned HJX Business as discontinued operations and the minority stake in the HJX Business as equity in losses of affiliates in the consolidated statements of operations for all periods presented, subject to the consolidation of the HJX Business into the joint venture entity. The financial data presented herein reflect HJX Business as discontinued operations.

In the third quarter of 2019, we completed closing of our call center in Wuxi, China. As a result, we are required by applicable accounting rules to treat the historical operations of the call center operations as discontinued operations for all periods presented. The financial data derived from our audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, presented in our Annual Report on Form 20-F, present call center operations as discontinued operations.

Our historical results for any period are not necessarily indicative of results to be expected for any future period. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes and Item 5. “Operating and Financial Review and Prospects” included in our Annual Report on Form 20-F for the year ended December 31, 2019. See “Where You Can Find More Information” on page 86 for a description of how to obtain a copy of such Annual Report on Form 20-F.