SYUT Synutra International, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant ☒     Filed by a Party other than the Registrant ☐

Check the appropriate box:

☐

Preliminary Proxy Statement.

​

☐

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).

​

☒

Definitive Proxy Statement.

​

☐

Definitive Additional Materials.

​

☐

Soliciting Material Pursuant to §240.14a-12.

​

Synutra International, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

☐

No fee required.

​

☒

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

​

(1)

Title of each class of securities to which transaction applies:

​

Common stock, par value US$0.0001 per share, of Synutra International, Inc. (the “ Common Stock ”)

(2)

Aggregate number of securities to which transaction applies:

​

56,690,400 shares of the Common Stock outstanding as of December 8, 2016.

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11(b)(1) (set forth the amount on which the filing fee is calculated and state how it was determined):

​

The maximum aggregate value of the transaction was calculated based upon the 20,690,400 shares of the Common Stock issued and outstanding as of December 8, 2016 (being the remainder of the 56,690,400 shares of the Common Stock outstanding as of December 8, 2016 minus the 36,000,000 shares of the Common Stock beneficially owned by the buyer group) multiplied by US$6.05 per share merger consideration.

(4)

Proposed maximum aggregate value of transaction: US$125,176,920

​

(5)

Total fee paid: US$14,508.01

​

☒

Fee paid previously with preliminary materials.

​

☐

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

​

(1)

Amount Previously Paid:
   

​

(2)

Form, Schedule or Registration Statement No.:
   

​

(3)

Filing Party:
   

​

(4)

Date Filed:
   

​

SYNUTRA INTERNATIONAL, INC.

March 9, 2017​

Dear Stockholder:

On behalf of the board of directors of Synutra International, Inc. (the “ Company ”), we cordially invite you to attend a special meeting of stockholders of the Company, to be held on April 28, 2017 at 11:00 a.m., Beijing time, at the Synutra International Building, 106 Dong Lu Yuan, Tongzhou District, Beijing 101101, China.

On November 17, 2016, the Company entered into an agreement and plan of merger (the “ merger agreement ”) with Beams Power Investment Limited, a company with limited liability incorporated under the laws of the British Virgin Islands (“ Parent ”), and Beams Power Merger Sub Limited, a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”). Pursuant to the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent (the “ merger ”). Mr. Liang Zhang (“ Mr. Zhang ”), our chairman and chief executive officer, Ms. Xiuqing Meng (“ Ms. Meng ”), the spouse of Mr. Zhang, Parent, a company wholly-owned by Ms. Meng, and Merger Sub, are collectively referred to as the “ buyer group .” At the special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement.

If the merger is completed, you will be entitled to receive US$6.05 in cash, without interest, subject to any applicable withholding taxes, for each share of our common stock (the “ Common Stock ”) owned by you immediately prior to the effective time of the merger as described in the merger agreement (unless you have properly exercised your statutory rights of appraisal in respect of your shares of the Common Stock in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “ DGCL ”)). Shares held by (i) any of Parent, Merger Sub and any other direct or indirect subsidiary of Parent and (ii) the Company ((i) and (ii) collectively, the “ excluded shares ”) will be cancelled and cease to exist and no payment or distribution will be made to the holders of such excluded shares. If certain conditions are met, shares owned by stockholders of the Company who have properly validly perfected and have not effectively withdrawn or lost their appraisal rights pursuant to Section 262 of the DGCL (the “ dissenting shares ”), will be cancelled for the right to receive the fair value of such shares as determined in accordance with the provisions of the DGCL.

A special committee (the “ special committee ”) of the Company’s board of directors, consisting entirely of independent directors, reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger. The special committee unanimously (i) determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, fair to, and in the best interests of, the Company and its stockholders (other than members of the buyer group and the directors and officers of the Company, and their respective affiliates), whom we refer to as the “ unaffiliated stockholders ,” (ii) recommended that our board of directors adopt, approve, and declare the advisability of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and (iii) recommended that our board of directors submit the merger agreement to the stockholders for adoption and resolve to recommend the stockholders adopt the merger agreement and the transactions contemplated thereby, including the merger.

After carefully considering the unanimous recommendation of the special committee and other factors, the Company’s board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders, and adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger. Our board of directors recommends that you vote “FOR” the proposal to adopt the merger agreement, and “FOR” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

In considering the recommendation of the Company’s board of directors, you should be aware that some of the Company’s directors and officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. Mr. Zhang, our chairman and chief executive officer, beneficially owns approximately 63.5% of the total outstanding shares of the Common Stock. As of November 17, 2016, the buyer group beneficially owned 36,000,000 shares of the Common Stock, which represented approximately 63.5% of the total outstanding shares of the Common Stock. The accompanying proxy statement includes additional information regarding certain interests of the Company’s directors and officers that may be different from, or in addition to, the interests of our stockholders generally.

Adoption of the merger agreement requires the affirmative vote (in person or by proxy) of  (i) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (ii) the holders of at least a majority of the issued and outstanding shares of the Common Stock (other than the excluded shares), in each case in accordance with the Company’s certificate of incorporation and bylaws and the DGCL. Your vote is very important. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of the Common Stock will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

If your shares of the Common Stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of the Common Stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of the Common Stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of the Common Stock “FOR” the proposal to adopt the merger agreement will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

The accompanying proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and its annexes, including the merger agreement, carefully. You may also obtain additional information about the Company from documents we have filed with the Securities and Exchange Commission.

If you have any questions or need assistance voting your shares of the Common Stock, please call MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, toll free at (800) 322-2885 (or +1-212-929-5500 call collect outside of the United States) or by email at proxy@mackenziepartners.com.

On behalf of the board of directors and management of the Company, we thank you for your support.

The proxy statement is dated March 9, 2017, and is first being mailed to our stockholders on or about March 15, 2017.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

SYNUTRA INTERNATIONAL, INC.

2275 Research Boulevard, Suite 500
Rockville, Maryland 20850

Stockholders of the Company who do not vote in favor of the proposal to adopt the merger agreement will have the right to seek appraisal and receive the fair value of their shares of the Common Stock in lieu of receiving the per share merger consideration if the merger closes, but only if they perfect their appraisal rights by complying with applicable provisions of Section 262 of the DGCL. In order to perfect and exercise appraisal rights, stockholders must make a written demand for appraisal of their shares before the taking of the vote on the merger at the special meeting, must hold shares of the Common Stock on the date the demand is made and continuously hold such shares through the effective time of the merger, must not vote in favor of the merger, and must comply strictly with the other requirements of applicable Delaware law, including Section 262 of the DGCL. A copy of Section 262 of the DGCL is included as Annex D to the accompanying proxy statement, and a summary of these provisions can be found under “Rights of Appraisal” in the accompanying proxy statement.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

By Order of the Board of Directors,

SUMMARY VOTING INSTRUCTIONS

Ensure that your shares of the Common Stock can be voted at the special meeting by submitting your proxy or contacting your bank, brokerage firm or other nominee.

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

If your shares of the Common Stock are registered in your name:    submit your proxy as soon as possible by telephone, via the Internet or by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of the Common Stock can be voted at the special meeting.

Instructions regarding telephone and Internet voting are included on the proxy card.

The failure to vote will have the same effect as a vote “ AGAINST ” the proposal to adopt the merger agreement. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted “ FOR ” the proposal to adopt the merger agreement and the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

The failure to instruct your bank, brokerage firm or other nominee to vote your shares of the Common Stock “ FOR ” the proposal to adopt the merger agreement will have the same effect as a vote “ AGAINST ” the proposal to adopt the merger agreement.

If you have any questions, require assistance with voting your proxy card, or need additional copies of proxy material, please call MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, toll free at (800) 322-2885 (or +1-212-929-5500 call collect outside of the United States) or by email at proxy@mackenziepartners.com.

i

1

2

3

4

5

​

6

7

​

8

​

9

10

11

12

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the special meeting and the merger. These questions and answers may not address all questions that may be important to you as a stockholder 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:

What is the proposed transaction?

​

A:

Under the merger agreement entered into by and among the Company, Parent and Merger Sub as of November 17, 2016, the proposed transaction provides for the merger of Merger Sub with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent. Parent is directly owned by the buyer group and the merger is a going-private transaction involving Mr. Zhang, our chairman and chief executive officer, his spouse, Ms. Meng, Parent and Merger Sub.

​

Q:

What matters will be voted on at the special meeting?

​

A:

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

​

•

approval of the adoption of the merger agreement; and

​

•

approval of the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

​

Q:

As a stockholder, what will I receive in the merger?

​

A:

If the merger is completed, you will be entitled to receive US$6.05 in cash, without interest thereon and subject to any applicable withholding taxes, for each share of the Common Stock that you own immediately prior to the effective time of the merger as described in the merger agreement, unless you have properly exercised your appraisal rights with respect to the merger and have not failed to perfect, withdrawn, or otherwise lost your right to appraisal, and certain other conditions and statutory requirements associated with Section 262 of the DGCL are met, in which case, you will receive the fair value of your shares of the Common Stock in accordance with the provisions of Section 262 of the DGCL.

​

Q:

Is the merger a taxable transaction to the Company’s stockholders for U.S. federal income tax purposes?

​

A:

The exchange of shares of the Common Stock for cash pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. If you are a U.S. Holder (as defined under the caption “ Special Factors — Material U.S. Federal Income Tax Consequences of the Merger ”), the exchange of the Common Stock for cash in the merger generally will require you to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received by you in the merger and your adjusted tax basis in the shares of the Common Stock surrendered in the merger. If you are a Non-U.S. Holder (as defined under the caption “ Special Factors — Material U.S. Federal Income Tax Consequences of the Merger ”), you generally will not be subject to U.S. federal income tax with respect to the exchange of the Common Stock for cash in the merger unless you have certain connections to the United States. See “ Special Factors — Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 69 for a more detailed description of the U.S. federal income tax consequences of the merger. You are encouraged to consult your own tax advisor for a full understanding of the U.S. federal income tax consequences relating to the merger in light of your own particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction.

​

For a description of the PRC tax consequences of the merger, please see “ Special Factors — Material PRC Tax Consequences of the Merger ” beginning on page 71.

13

Q:

When will I receive the merger consideration for my shares of the Common Stock?

​

A:

After the merger is completed, you will receive written instructions, including a letter of transmittal, that will explain how to exchange your shares for the merger consideration. When you properly complete and return the required documentation described in the written instructions, you will promptly receive from the paying agent payment of the merger consideration for your shares of the Common Stock.

​

Q:

When and where is the special meeting of our stockholders?

​

A:

The special meeting of stockholders will be held on April 28, 2017, starting at 11:00 a.m. (Beijing time), at the Synutra International Building, 106 Dong Lu Yuan Tongzhou District, Beijing 101101, China.

​

Q:

What vote of our stockholders is required to adopt the merger agreement and the other proposal?

​

A:

Adoption of the merger agreement by our stockholders requires the affirmative vote (in person or by proxy) of  (i) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (ii) the holders of at least a majority of the issued and outstanding shares of the Common Stock (other than the excluded shares), in each case in accordance with the Company’s certificate of incorporation and bylaws and the DGCL.

​

The adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement will be approved if holders of the majority of the voting power of the outstanding shares of the Common Stock entitled to vote at the special meeting that are represented at the special meeting vote in favor of such proposal.

Abstentions and broker non-votes will have the same effect as a vote “ AGAINST ” the proposal to adopt the merger agreement or the proposal to adjourn or postpone the special meeting.

As of the date of this proxy statement, 56,690,400 shares of the Common Stock are outstanding.

At the close of business in New York on March 14, 2017, the record date, 56,690,400 shares of the Common Stock are expected to be outstanding and entitled to vote at the special meeting. On the record date, the buyer group is expected to own 36,000,000 shares of the Common Stock, which represent approximately 63.5% of the total outstanding shares of the Common Stock. Accordingly, due to the “majority of the minority stockholders” vote requirement described in clause (ii) above, based on the 56,690,400 shares of the Common Stock expected to be outstanding on the record date, more than 10,345,200 shares of the Common Stock owned by the minority stockholders (representing greater than 50% of the total outstanding shares of the Common Stock owned by the minority stockholders and, together with all the shares beneficially owned by the buyer group, 81.8% of the total outstanding shares of the Common Stock) must be voted in favor of the proposal to adopt the merger agreement for it to be approved.

Q:

Who can attend and vote at the special meeting?

​

A:

All stockholders of record as of the close of business in New York on March 14, 2017, the record date for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any postponement or adjournment thereof. Stockholders may vote by attending the special meeting and voting in person.

​

In order to attend the special meeting in person, arrive at the meeting time at the address listed above with your proxy card and a form of valid photo identification. Specific directions to the Synutra International Building, the location of the special meeting, are attached as Annex E to this proxy statement. If you are a beneficial owner of shares held in “street name” and you want to vote in person at the special meeting, you must contact the bank, brokerage firm or other nominee that holds your shares of the Common Stock in its name prior to the meeting and obtain from it a valid proxy issued by it in your name giving you the right to vote the shares of the Common Stock registered in its name. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

14

Q:

How does our board of directors recommend that I vote?

​

A:

After carefully considering the unanimous recommendation of the special committee and other factors, the Company’s board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, the Company and its stockholders (other than the holders of the excluded shares), and adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommends that you vote “ FOR ” the proposal to adopt the merger agreement, and “ FOR ” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

​

Please see “ Special Factors — Recommendation of the Board of Directors and the Special Committee and Their Reasons for the Merger ” beginning on page 35 for a discussion of the factors that the special committee and our board of directors considered in deciding to recommend the approval of the proposal to adopt the merger agreement. In addition, in considering the recommendation of the special committee and the board of directors with respect to the merger agreement, you should be aware that some of the Company’s directors and executive officers may have interests that are different from, or in addition to, the interests of our stockholders generally. See “ Special Factors — Interests of Certain Persons in the Merger ” beginning on page 66 for additional information.

Q:

How will our directors and executive officers vote on the proposal to adopt the merger agreement?

​

A:

As of March 14, 2017, the record date of the special meeting, Mr. Zhang is expected to beneficially own 36,000,000 shares of the Common Stock entitled to vote at the special meeting, or approximately 63.5% of the outstanding shares of the Common Stock, which represent 36,000,000 shares of the Common Stock directly held by Parent. Ms. Meng is the sole shareholder and director of Parent.

​

As of March 14, 2017, the record date, the directors and executive officers of the Company (other than Mr. Zhang) are expected to beneficially own and be entitled to vote, in the aggregate, 400 shares of the Common Stock. The directors and executive officers (other than Mr. Zhang) have informed the Company that they currently intend to vote all of their shares of the Common Stock “ FOR ” the proposal to adopt the merger agreement and “ FOR ” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. Please see “ The Special Meeting ” beginning on page 74 for additional information.

Q:

Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of the Common Stock?

​

A:

Stockholders who do not vote in favor of the proposal to adopt the merger agreement and who collectively satisfy certain ownership requirements described further herein, who continuously hold such shares from the date of making demand through the effective time of the merger, and who otherwise comply with applicable requirements of Section 262 of the DGCL are entitled to statutory appraisal rights under Delaware law in connection with the merger. This means that if you comply with the requirements of Section 262 of the DGCL and certain other conditions and statutory requirements are met, you are entitled to have the “fair value” (as described in Section 262 of the DGCL) of your shares of the Common Stock determined by the Delaware Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the merger consideration, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the Delaware Court of Chancery of the State of Delaware (subject, in the case of interest payments, to any voluntary cash payments made by the Company pursuant to subsection (h) of Section 262 of the DGCL, as described in more detail below). The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement. To exercise your appraisal rights, you must comply with the requirements of the DGCL,

​

15

including Section 262 of the DGCL and certain other requirements must be met. Any holder of record of shares of the Common Stock intending to exercise appraisal rights, among other things, must submit a written demand for appraisal to us prior to the vote on the proposal to adopt the merger agreement, must not vote in favor of the proposal to adopt the merger agreement, must continue to hold the shares from the date of demand through the effective time of the merger and comply with all of the procedures required by Section 262 of the DGCL. See “ Rights of Appraisal ” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex D to this proxy statement.

Q:

How do I cast my vote if I am a holder of record?

​

A:

If you were a holder of record as of the close of business in New York on March 14, 2017, you may submit your proxy or vote your shares of the Common Stock on matters presented at the special meeting in any of the following ways: by telephone, via the Internet, by mail or by voting in person at the meeting.

​

If you properly sign your proxy card but do not mark the boxes showing how your shares of the Common Stock should be voted on a matter, the shares of the Common Stock represented by your properly signed proxy will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Q:

How do I cast my vote if my shares of the Common Stock are held in “street name” by a bank, brokerage firm or other nominee?

​

A:

If your shares of the Common Stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of the Common Stock held in “street name.” You will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of the Common Stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

​

Q:

What will happen if I abstain from voting or fail to vote on the proposal to adopt the merger agreement?

​

A:

If you fail to submit a proxy or vote in person at the special meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of the Common Stock will not be voted on the proposal to adopt the merger agreement, which will have the same effect as a vote “ AGAINST ” the proposal to adopt the merger agreement.

​

Q:

Can I change my vote after I have delivered my proxy?

​

A:

Yes. If you are a stockholder of record, you have the right to revoke a proxy (whether delivered over the Internet, by telephone or by mail) at any time before it is voted at the special meeting by (i) submitting a new proxy by telephone or via the Internet after the date of the earlier voted proxy, (ii) signing another proxy card with a later date and returning it to us prior to the special meeting, or (iii) attending the special meeting and voting in person. Any such new or later-dated proxy should be delivered (over the Internet or by mail) to our corporate secretary. If delivered by Internet, please email szhang@synutra.com. If sent by mail, please send it to Synutra International, Inc., 2275 Research Boulevard, Suite 500, Rockville, Maryland 20850, Attn.: Corporate Secretary. Any such new or later-dated proxies must be received by the Company prior to the special meeting. Receipt by the Company of such new or later-dated proxy prior to the special meeting is, in itself, sufficient to revoke a prior proxy by that stockholder. If you hold your shares of the Common Stock in “street name,” you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

​

16

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 of the Common Stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of the Common Stock. If you are a holder of record and your shares of the Common Stock are registered in more than one name, you will receive more than one proxy card. Please submit each proxy and voting instruction card that you receive .

​

Q:

If I am a holder of certificated shares of the Common Stock, should I send in my stock certificates now?

​

A:

No. Promptly after the merger is completed, each holder of record as of the time of the merger will be sent written instructions for exchanging their stock certificates for the merger consideration. These instructions will tell you how and where to send in your stock certificates for your cash consideration. You will receive your cash payment after the paying agent receives your share certificates and any other documents requested in the instructions. Please do not send in your stock certificates with your proxy.

​

Holders of uncertificated Common Stock represented by book-entry interests will receive a check or wire transfer without such holder being required to deliver a stock certificate or an executed letter of transmittal to the paying agent, provided an “agent’s message” has been previously delivered to the paying agent with respect to such shares.

Q:

What constitutes a quorum for the special meeting?

​

A:

The presence, in person or by proxy, of the holders of a majority of the shares of the Common Stock outstanding and entitled to vote on the record date is necessary to constitute a quorum for the transaction of business at the special meeting. Abstentions and broker non-votes are included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned.

​

Q:

Will any proxy solicitors be used in connection with the special meeting?

​

A:

Yes. To assist in the solicitation of proxies, the Company has engaged MacKenzie Partners, Inc.

​

Q:

What happens if the merger is not completed?

​

A:

If the merger agreement is not adopted by our stockholders, or if the merger is not completed for any other reason, you will not receive any payment for your shares of the Common Stock pursuant to the merger agreement. Instead, we will remain as a publicly traded company and the Common Stock will continue to be registered under the Exchange Act and listed and traded on the NASDAQ Global Select Market. Under certain circumstances specified in the merger agreement, we may be required to pay Parent a termination fee of US$3.13 million or US$2.5 million, or Parent may be required to pay us a termination fee of US$6.26 million. See “ The Agreement and Plan of Merger — Termination Fee ” beginning on page 93 for additional information.

​

Q:

When is the merger expected to be completed?

​

A:

We are working to complete the merger as quickly as possible and expect the merger to close no later than the termination date under the merger agreement, subject to all conditions to the merger having been satisfied or waived. However, we cannot assure you that all conditions to the merger will be satisfied or waived by then or at all.

​

Q:

What is householding and how does it affect me?

​

A:

The SEC permits companies to send a single set of certain disclosure documents to any household at which two (2) or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. As a result of

​

17

householding, certain stockholders who share an address are being delivered only one copy of this proxy statement unless the Company or one of its mailing agents has received contrary instructions. Upon the written or oral request of a stockholder at a shared address to which a single copy of this proxy statement was delivered, the Company will promptly deliver a separate copy of this proxy statement to such stockholder. Written requests should be made to Synutra International, Inc., Attention: Investor Relations and oral requests may be made by calling the Company at (301) 840-3888.

Q:

Who can help answer my questions?

​

A:

If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, toll-free at (800) 322-2885 (or +1-212-929-5500 call collect outside of the United States) or by email at proxy@mackenziepartners.com.

​

18

SPECIAL FACTORS

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

Overview of the Transaction

The Company, Parent and Merger Sub entered into the merger agreement on November 17, 2016. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent. The Company, as the surviving corporation, will continue to do business under the name “Synutra International, Inc.” following the merger. At the effective time of the merger, the following will occur in connection with the merger:

•

each share of the Common Stock issued and outstanding immediately prior to the effective time of the merger (other than the excluded shares and the dissenting shares) will be converted into the right to receive the per share merger consideration of US$6.05 without interest and subject to any applicable withholding taxes;

​

•

each of the excluded shares will be automatically cancelled and cease to exist and no payment or distribution will be made to the holders of such excluded shares; and

​

•

each of the dissenting shares will be cancelled, and each holder of the dissenting shares will cease to have any rights with respect thereto, except for the right to receive the fair value of such shares as determined in accordance with the provisions of the DGCL.

​

Following and as a result of the merger:

•

the unaffiliated stockholders will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

​

•

shares of the Common Stock will no longer be listed on the NASDAQ Global Select Market, and price quotations with respect to shares of the Common Stock in the public market will no longer be available; and

​

•

the registration of shares of the Common Stock under the Exchange Act will be terminated.

​

Background of the Merger

Our board of directors and senior management periodically review the Company’s long-term strategic plans, industry trends and potential opportunities, the goals of which include enhancing shareholder value. As part of this ongoing process, our board of directors and senior management have, from time to time, considered potential strategic alternatives that may be available to the Company.

On January 14, 2016, Mr. Zhang and Parent submitted a preliminary non-binding proposal to our board of directors (the “ January 14 Proposal ”) to acquire all of the issued and outstanding shares of the Common Stock not already beneficially owned by the buyer group for US$5.91 per share in cash, which represented a premium of approximately 63.0% to the closing price per share on January 13, 2016, and a premium of approximately 30.0% to the volume-weighted average closing price per share during the last twenty trading days prior to such date. Mr. Zhang and Parent proposed the price of US$5.91 per share in cash because they determined it would represent a fair and attractive opportunity for the minority stockholders to exit their investment in the Company based on a number of factors, including but not limited to the recent trading prices of the Common Stock, the recent negative public attention toward China-based companies listed on U.S. stock exchanges, U.S. investor skepticism toward China-based companies, and the uncertain business conditions and substantial competition that the Company faced in the Chinese market. At the time the January 14 Proposal was submitted, the buyer group collectively owned approximately 62.95% of the total issued and outstanding shares of the Common Stock (based on the number of shares of the Common Stock issued and outstanding as of November 9, 2015, as reported in the

19

Company’s quarterly report on Form 10-Q filed with the SEC on November 9, 2015). In the January 14 Proposal, Mr. Zhang and Parent indicated, among other things, that (i) they intended to finance the proposed transaction with a combination of debt and equity capital and that debt financing would be expected to be provided by loans from third party financial institutions; (ii) they would conduct customary business, legal and financial due diligence for the proposed transaction; (iii) they had engaged Davis Polk & Wardwell LLP (“ Davis Polk ”) as their U.S. legal counsel and they were prepared to negotiate and finalize the definitive agreements for the proposed transaction promptly; (iv) they were interested only in acquiring the outstanding shares of the Common Stock that the buyer group did not already own, and they did not intend to sell their shares to any third party; and (v) the January 14 Proposal was not a binding offer, agreement or agreement to make a binding offer or agreement.

On January 15, 2016, the Company issued a press release regarding its receipt of the January 14 Proposal and the transactions proposed therein, and filed the press release as an exhibit to its current report on Form 8-K. On the same day, Mr. Zhang, Ms. Meng and Parent filed an amendment to their Schedule 13D to disclose the terms of the January 14 Proposal. To avoid any conflict of interest arising from the role of Davis Polk, the then-outside U.S. legal counsel to the Company, in the transactions contemplated in the January 14 Proposal, the Company decided to engage separate U.S. legal counsel. Therefore, on January 15, 2016, Ms. Ning Cai, the chief financial officer of the Company, approached Wilson Sonsini Goodrich & Rosati (“ WSGR ”) for potential retention as the Company’s U.S. legal counsel in connection with the transactions contemplated in the January 14 Proposal. The Company’s decision to approach and eventually engage WSGR was based upon, among other things, WSGR’s qualifications and experiences representing China-based public companies and advising on mergers and acquisitions transactions (including going-private transactions) and the fact that WSGR had not been engaged by or received fees from the buyer group.

On January 21, 2016, our board of directors held a special meeting via teleconference, which was also attended by Ms. Ning Cai, and representatives of Davis Polk, in its capacity as the then-outside U.S. legal counsel to the Company. Although our board of directors understood that Davis Polk was representing the buyer group in connection with the January 14 Proposal, it requested the attendance at the meeting of representatives of Davis Polk who had frequently advised our board of directors because those representatives were not involved in Davis Polk’s representation of the buyer group and the Company was still evaluating, and had not yet engaged, other U.S. legal counsel. Furthermore, our board of directors agreed that it would not substantively evaluate the January 14 Proposal at this meeting and that Davis Polk’s advice to our board of directors would be limited to reminding the directors of their fiduciary duties under Delaware law and advising our board of directors on establishing a special committee to evaluate and, if appropriate, negotiate the January 14 Proposal, which committee would be composed solely of independent directors and would be advised by outside legal and financial advisors to be selected by it. Based on this understanding, the Company signed a waiver of Davis Polk’s conflicts and Davis Polk agreed that these representatives would attend the board meeting. The waiver of Davis Polk’s conflicts was negotiated and agreed by Ms. Cai on behalf of the Company before the Company’s board meeting, and neither Mr. Zhang nor any other members of the buyer group participated in the Company’s decision to have Davis Polk attend this board meeting or to waive Davis Polk’s conflicts.

At the board meeting, our board of directors first discussed appointing a new independent director. As disclosed in the Company’s current report on Form 8-K dated November 9, 2015, Ms. Min Zhang resigned from her position as an independent director on the board of directors of the Company, effective November 6, 2015. In early December 2015, Mr. Yalin Wu was referred by a personal friend to Mr. Zhang as a potential candidate as an independent director of the Company. Mr. Wu had not worked with the Company before, but Mr. Zhang was impressed by the credentials of Mr. Wu, and recommended to Ms. Ning Cai that our board of directors consider Mr. Wu as a candidate for the independent director. In early December 2015, Ms. Ning Cai started to conduct a background check on Mr. Yalin Wu. On January 19, 2016, Ms. Ning Cai nominated Mr. Yalin Wu as an independent director of our board of directors. At the board meeting, our board of directors unanimously elected Mr. Yalin Wu as an independent director of our board of directors based on, among other things, his extensive experience in financial and strategic consulting, including his roles as the chief executive officer of Northern Investment & Financial Consultants Ltd. Co., director of Deloitte Corporate Finance (HK) Ltd. and deputy executive CEO of Deloitte Consultants (Shanghai) Ltd. Mr. Yalin Wu then joined the meeting as an independent director and

20

discussed the terms of the January 14 Proposal together with the other directors present at the meeting. Representatives of Davis Polk advised the directors as to their fiduciary duties under Delaware law in considering and evaluating the January 14 Proposal and further stated that it would be advisable for our board of directors to consider forming a special committee solely consisting of independent and disinterested directors to ensure that unaffiliated stockholders would be adequately protected during the board’s evaluation of the January 14 Proposal and any other alternative offers involving the Company. Following discussion of the benefits of establishing a special committee and the composition of and the powers to be delegated to such special committee, our board of directors unanimously resolved that it was in the best interests of the Company to form a special committee comprised of three independent directors, Ms. Jinrong Chen, Mr. Lei Lin and Mr. Yalin Wu, with Ms. Jinrong Chen acting as the chairperson of the special committee, to consider and attend to all matters in connection with the January 14 Proposal and any other alternative proposals, and to ensure that the unaffiliated stockholders would be adequately protected during the Company’s consideration and evaluation of the proposed transaction. Although Mr. Zhang participated in the meeting, he abstained from voting upon the formation of the special committee and any other related matters due to his interest in the January 14 Proposal and affiliation with the other members of the buyer group. Our board of directors authorized the special committee to, among other things, retain its own legal counsel, financial advisor or other agents relating to the transaction contemplated under the January 14 Proposal; and authorized the special committee members to receive reasonable compensation for their time and work and be reimbursed for all their expenses relating to their duties as members of the special committee. Our board of directors further resolved that (a) the special committee would pass resolutions by majority vote, and the presence of a majority of the special committee members (in person or by teleconference or other telecommunication facilities) would constitute a quorum; and (b) the Company’s officers, advisors and employees would be directed to provide any information and assistance to the special committee or its advisors that would be helpful in discharging the duties of the special committee.

On January 22, 2016, the Company issued a press release announcing the appointment of Mr. Yalin Wu as an independent director of our board of directors and the formation of the special committee.

Between January 21, 2016 and February 1, 2016, the special committee and Ms. Ning Cai met with four law firms, including Cleary Gottlieb Steen & Hamilton LLP (“ Cleary ”). On January 23, 2016, the special committee and Ms. Ning Cai had a meeting with a representative of Cleary, during which a representative of Cleary introduced Cleary’s qualifications and experience in mergers and acquisitions transactions.

On January 29, 2016, Mr. Yalin Wu and Ms. Ning Cai met with representatives of Cleary in person again, with Ms. Jinrong Chen, Mr. Lei Lin and a team of Cleary representatives based in its New York office participating in the meeting by teleconference. During this meeting, Cleary further introduced its practice and expertise, and specifically explained the fiduciary duties of the special committee in connection with the proposed transaction. On the same day, WSGR began to take on the role of the Company U.S. legal counsel by reviewing the Company’s periodic filings.

On January 30, 2016, before having any negotiations with the Company’s board or special committee regarding the January 14 Proposal, either directly or through their advisors, Mr. Zhang and Parent submitted a letter to the special committee (the “ January 30 Letter ”), in which the buyer group reiterated its interest in acquiring all of the outstanding shares of the Common Stock not already beneficially owned by them for US$5.91 per share in cash, and confirmed that (i) they would not proceed with the proposed transaction unless it was approved by the special committee, which was composed entirely of independent directors, taking into account the advice of its independent advisors, and (ii) the proposed transaction would be subject to a non-waivable condition requiring the approval by holders of a majority of the shares of the Common Stock not beneficially owned by the buyer group.

On February 1, 2016, Mr. Zhang, Ms. Meng and Parent amended their Schedule 13D to reflect the terms of the January 30 Letter. On the same day, the special committee held a telephonic meeting with Ms. Ning Cai and representatives of Cleary participating. During this meeting, the special committee determined to retain Cleary as its independent U.S. legal counsel with respect to the proposed transaction and any alternative transaction proposals. The special committee’s decision to engage Cleary was based on,

21

among other factors, Cleary’s qualifications, its extensive experience with mergers and acquisitions transactions, including going-private transactions, its extensive experience working with China-based companies, its ability to easily communicate in both English and Mandarin, and the fact that Cleary had not been engaged by or received fees from the Company or the buyer group. At the meeting, Cleary provided advice on the key issues and implications with respect to a going-private transaction, including the special committee’s evaluation of the fairness of the proposed transaction to the Company’s unaffiliated stockholders and the directors’ fiduciary duties under Delaware law. The special committee then proceeded to discuss with Cleary the next steps of the proposed transaction, including the process for engaging an independent financial advisor to the special committee and the functions of such financial advisor, and the appropriate compensation for each member of the special committee. Cleary reiterated the fiduciary duties of the special committee in connection with the proposed transaction. At the end, the special committee resolved (i) to initiate the process of engaging an independent financial advisor to assist its evaluation of the proposed transaction; and (ii) that each member of the special committee would receive US$12,500 per month for his or her service on the special committee, the payment of which would not be contingent upon the completion of the proposed transaction or the special committee’s recommendation of the proposed transaction to our board of directors.

Following the meeting, as instructed by the special committee, Ms. Ning Cai and Cleary contacted three investment banks, which had experience serving as financial advisor to special committees in going-private transactions, to solicit their interest in submitting their qualifications and proposals to act as the independent financial advisor to the special committee.

On February 2, 2016, the Company issued a press release announcing the special committee’s receipt of the January 30 Letter and filed the press release as an exhibit to its current report on Form 8-K. On the same day, the special committee interviewed three investment banks and asked each of them to disclose any potential conflicts of interest such investment bank might have, and held a telephonic meeting with representatives of Cleary to discuss, among other things, the proposed terms of engagement received from these three financial advisors, including Houlihan Lokey. After comparing the proposed terms of engagement, credentials, experience, team composition and commitment to the proposed transaction of the selected investment banks, the special committee decided to further evaluate the capacity of two investment banks and instructed Cleary to begin negotiating the terms of engagement letters with them as appropriate. The special committee also decided to appoint Ms. Xuan Xie as the coordinator of the special committee based on, among other things, her communication skills and her familiarity with the administration of the Company, including her role as a U.S. GAAP manager in the financial department and the secretary to the board of directors of the Company, and the fact that she had no connection to the buyer group. The duties and responsibilities of the coordinator of the special committee mainly included, among others, provision of administrative support to the special committee (e.g., meeting scheduling, logistics, budget management), internal and external communication in connection with the proposed transaction, and supervision of the communication and provision of information by the directors and employees of the Company in connection with the proposed transaction. The special committee then instructed Cleary to draft a letter to the directors and employees of the Company informing them that (i) the special committee had engaged Cleary as its independent U.S. legal counsel and had appointed Ms. Xuan Xie as the coordinator of the special committee, and that the directors and employees of the Company were not permitted to (a) have contact, discussions or agreements with any person, including the buyer group or any representative thereof, in connection with the proposed transaction without the prior approval of the special committee or (b) provide any information or respond to any requests other than through, and with the approval and under the supervision of, Ms. Xuan Xie; (ii) the directors and employees of the Company were required to keep the proposed transaction in strict confidence; and (iii) the existence of, and discussions regarding, the proposed transaction might be considered material non-public information regarding the Company and consequently that the directors and employees of the Company were instructed to refrain from purchasing, selling or otherwise trading in the shares of the Company during this time. The Company then provided such letter to the directors and employees of the Company on February 3, 2016.

On February 3, 2016, our board of directors held a meeting with representatives of WSGR in attendance, during which our board of directors (except Mr. Zhang, who abstained from voting at this meeting) delegated to the special committee the exclusive power and authority to, among other things (i) formulate, establish, oversee and direct a process for the identification, solicitation, evaluation and

22

negotiation of any potential sale transaction involving the Company; (ii) negotiate the terms and conditions of any potential sale transaction involving the Company; (iii) communicate with relevant parties in respect of any potential sale transaction involving the Company; (iv) make recommendations to our board of directors in respect of any potential sale transaction involving the Company, including any recommendation not to proceed with or to recommend that the Company’s stockholders reject such transaction; (v) make recommendations to our board of directors that the board shall take other actions or consider other alternatives that the special committee deemed necessary or appropriate; (vi) exercise the power and authority as our board of directors would exercise regarding any potential sale transaction involving the Company; and (vii) take any and all actions in connection with any litigation, investigation or other proceeding relating to the special committee or its members in connection with any potential sale transaction involving the Company. Our board of directors further resolved that it would not approve or recommend the proposed transaction without the favorable recommendation of the special committee.

On February 4, 2016, after considering Houlihan Lokey’s expertise in mergers and acquisitions transactions, experience in advising special committees in going-private transactions involving China-based target companies, ability to communicate in both English and Mandarin and the fact that based on a review of its records, Houlihan Lokey had not been engaged by or received fees from the Company or the buyer group, the special committee decided to engage Houlihan Lokey as its independent financial advisor and executed an engagement letter with Houlihan Lokey on the same day. Please see “ Special Factors — Opinion of the Special Committee’s Financial Advisor ” beginning on page 42 for further details.

On February 5, 2016, the Company issued a press release announcing (i) the special committee’s engagement of Cleary and Houlihan Lokey as its U.S. legal counsel and independent financial advisor in connection with its review and evaluation of the January 14 Proposal and the January 30 Letter, and the proposed transaction contemplated therein and (ii) the Company’s engagement of WSGR as its U.S. legal counsel in connection with such proposed transaction. Davis Polk had ceased to advise the Company in connection with the proposed transaction following the Company’s initial board meeting on January 21, 2016 and had advised the Company to select new counsel. Davis Polk continued to represent the Company on securities law matters unrelated to the proposed transaction until March 5, 2016.

From time to time, Mr. Zhang discussed with various investment firms and banks with possible financing opportunities to refinance Parent’s existing US$55 million debt facility executed in February 2014 and due to mature in March 2016 (the “ Nomura Facility ”), as disclosed in the Company’s current report on Form 8-K dated March 5, 2014. On February 16, 2016, Cleary received a request from Davis Polk on behalf of the buyer group that the special committee facilitate a proposed transaction (the “ Refinancing ”) between Parent and Forebright Capital (or one of its affiliates, “ Forebright ”) to refinance the Nomura Facility. In its request, the buyer group stated that although they did not believe that the Refinancing would implicate Section 203 of the DGCL or cause any party (including Forebright) to be deemed an “interested stockholder” thereunder, they sought approval of the special committee and our board of directors to facilitate the timely execution of the Refinancing, as well as in the interest of transparency and good corporate governance. The buyer group believed that the Refinancing would be in the best interest of the Company, because: (i) it would remove the risk of Parent, the Company’s majority stockholder, being exposed to a default under the Nomura Facility, which risk would result in negative effects and instability for the Company; (ii) it would allow the buyer group to focus its attention on negotiating a possible transaction with the special committee and its advisors, increasing the possibility of a value-maximizing transaction for the unaffiliated stockholders; and (iii) the terms of the Refinancing would not negatively affect the unaffiliated stockholders because, under the proposed terms of the Refinancing, equity of Parent would only be issued to Forebright after the Company consummated the proposed transaction or three years after the Refinancing if the proposed transaction was not consummated. Along with such request, the buyer group provided a summary of the key terms of the Refinancing, including, among other things, that (a) Parent would issue a three-year convertible exchangeable note (the “ Forebright Note ”) to Forebright, the net proceeds of which would be used to repay the existing loan under the Nomura Facility; (b) if the Company consummated a going-private transaction and ceased to be listed on Nasdaq or if the Company remained listed on Nasdaq at the maturity of the Forebright Note, Forebright would have the right to convert the Forebright Note (in whole or in part) into preferred shares to be issued by Parent representing an approximately 20% stake in Parent; (c) at the maturity of the Forebright Note, if the Company remained listed on Nasdaq, Forebright would have the right to exchange the Forebright Note (in whole or in part) for

23

shares of the Company owned by Parent; and (d) Mr. Zhang and Ms. Meng would guarantee the obligations of Parent in connection with the Refinancing. All of the issued shares of Parent and all of the shares of the Company owned by Parent would be pledged to Forebright.

On February 18, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. At the meeting, upon the request of the special committee, representatives of Cleary and Houlihan Lokey discussed with the special committee the anticipated process, structure and timetable for the special committee’s consideration of the proposed transaction. The special committee then discussed with Houlihan Lokey and Cleary the request from the buyer group with respect to the Refinancing. After such discussion, the special committee determined that the Refinancing would be in the best interest of the Company given the risk of default by Parent under the Nomura Facility and the fact that the Refinancing would not adversely affect the proposed transaction or any other potential sale transaction if conducted on the terms provided by Davis Polk on February 16, 2016, because equity of Parent would only be issued to Forebright after the Company consummated the proposed transaction or three years after the Refinancing if the proposed transaction was not consummated, and the special committee unanimously resolved that Parent was approved to continue its discussions and negotiations with Forebright regarding the Refinancing; provided that (i) the special committee’s approval with respect to the Refinancing, and its recommendation of such approval to our board of directors, would be subject to (a) the special committee’s review of the definitive transaction documents for the Refinancing (the “ Refinancing Documents ”); (b) the Refinancing Documents containing terms consistent with the summary of the key terms provided by Davis Polk on February 16, 2016 and no other material terms; and (c) each of Mr. Zhang, Ms. Meng, and Forebright having entered into a confidentiality agreement with the Company in the form and substance as agreed by the special committee, which would contain, among other things, standstill and non-collusion provisions, and (ii) any other agreements, arrangements or understandings between Parent, Mr. Zhang and Ms. Meng, on the one hand, and Forebright, on the other hand, would be subject to separate consideration and approval by the special committee. The special committee instructed Cleary to discuss with Davis Polk to ensure that the Refinancing would not adversely affect the proposed transaction, including that the buyer group should not be restricted from working with any third parties other than Forebright in connection with the proposed transaction or any other potential sale transaction. The special committee further unanimously resolved that (1) Potter Anderson & Corroon LLP (“ Potter Anderson ”) be engaged as the special committee’s Delaware legal counsel based on its qualifications and experience in representing special committees in going-private transactions involving Delaware-incorporated companies; and (2) the Company was authorized to provide information to Houlihan Lokey for purposes of facilitating its financial analysis with respect to the Company.

On February 19, 2016, upon the request of the special committee, Cleary informed Davis Polk of the special committee’s decisions regarding the Refinancing, and delivered a form of the confidentiality agreement.

On February 22, 2016, the Company and Forebright entered into a confidentiality agreement based on the form agreed by the special committee. On February 24, 2016, the Company, Parent, Mr. Zhang and Ms. Meng entered into a confidentiality agreement based on the form agreed by the special committee.

Between February 23, 2016 and March 2, 2016, Davis Polk circulated to Cleary various drafts of the Refinancing Documents and Cleary reported to and advised the special committee on key terms from time to time.

On February 24, 2016, Cleary, acting on the instructions of the special committee, held a telephonic meeting with Davis Polk to clarify certain key terms in the Refinancing Documents, during which Cleary requested that (i) the share pledge to be granted by Parent in favor of Forebright in connection with the Refinancing should carve out the proposed transaction, such that Parent should not be restricted from transferring or rolling over its shares of the Company to participate in the proposed transaction; and (ii) the share charge to be granted by Ms. Meng in favor of Forebright in connection with the Refinancing should be subordinated to the indebtedness to be incurred by Parent in connection with the proposed transaction. On the same day, Davis Polk circulated to Cleary the revised drafts of the Refinancing Documents.

On February 25, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. At the meeting, representatives of Cleary provided to the special committee updated information on the Refinancing and a summary of the key terms of the Refinancing Documents

24

circulated by Davis Polk on February 24, 2016, which were generally consistent with the terms summarized in the buyer group’s request of February 16, 2016. The key terms included, among other things, that (i) after the completion of the proposed transaction and on or prior to the maturity date of the Forebright Note ( i.e. , three years after the issuance date of the Forebright Note), the outstanding amount of the Forebright Note could be converted into shares of Parent; (ii) if the proposed transaction was not completed, the outstanding amount of the Forebright Note, plus certain interest, could be exchanged into certain shares of the Company held by Parent; (iii) Mr. Zhang and Ms. Meng would provide personal guarantees to Forebright to secure the obligations of Parent under the Refinancing Documents; (iv) all of the issued shares of Parent and all of the shares of the Company owned by Parent would be pledged to Forebright, and such share pledges would be subordinated to any additional share pledges to be incurred by the buyer group in connection with the proposed transaction; and (v) Parent, Mr. Zhang and Ms. Meng would enter into a securities holders’ agreement upon the issuance of the Forebright Note, which would set forth the corporate governance of Parent following the completion of the Refinancing and include certain standard provisions on transfer restrictions. The memorandum and articles of association of Parent would be amended and restated to reflect the terms in the securities holders’ agreement. The special committee discussed the implications of the Refinancing on the proposed transaction. After discussion, the special committee unanimously resolved to approve the Refinancing, and unanimously resolved to recommend that our board of directors approve the Refinancing, subject to the following conditions: (i) the definitive Refinancing Documents, which were to be submitted to the special committee for review once available, would contain terms that were substantially similar to the terms included in, and no other material terms that were not contained in, the drafts of the Refinancing Documents that the buyer group submitted to the special committee on February 24, 2016; (ii) the amended and restated memorandum and articles of association of Parent to be adopted in connection with the Refinancing, which were to be submitted to the special committee for review once available, would contain terms that were substantially similar to the terms included in, and no other material terms that were not contained in, the draft of the securities holders’ agreement to be entered into by and among the buyer group and Forebright that the buyer group submitted to the special committee; and (iii) any other agreements, arrangements or understandings between the buyer group, on the one hand, and Forebright, on the other hand, would be subject to separate consideration and approval by the special committee.

On February 26, 2016, our board of directors held a special meeting via teleconference, which was attended by all members of our board of directors except Mr. Zhang, who abstained from participating in this meeting, and representatives of WSGR and Cleary. During the meeting, representatives of Cleary introduced the background information of the Refinancing and a summary of the key terms of the Refinancing Documents and a representative of WSGR provided advice regarding the implication of the Refinancing upon the Company under the applicable U.S. securities laws. After discussion among the members of our board of directors, they decided that additional time should be provided to the board members to further consider the Refinancing. On the same day, Davis Polk circulated the revised drafts of the Refinancing Documents, which were substantially similar to the drafts circulated by Davis Polk on February 24, 2016.

On February 29, 2016, our board of directors adopted a unanimous written consent to approve the Refinancing. Subsequently, Cleary delivered a consent letter on behalf of the special committee to Davis Polk, in which the special committee approved the Refinancing subject to conditions that were substantially similar to the conditions adopted by the special committee in its resolutions on February 25, 2016, and WSGR informed Davis Polk of our board of directors’ approval regarding the Refinancing.

On March 2, 2016, Davis Polk delivered the execution version of the Refinancing Documents to Cleary, which contained terms that were substantially similar to the terms included in, and no other material terms that were not contained in, the drafts of the Refinancing Documents that the buyer group previously submitted to the special committee on February 26, 2016. On the same day, Mr. Zhang, Ms. Meng and Parent entered into a note purchase agreement (the “ FNOF NPA ”) with FNOF Sharing Economy Limited (“ FNOF ”), an affiliate of Forebright, for the sale of a note in a principal amount of US$60 million (the “ FNOR Note ”). The transactions contemplated by the FNOF NPA were subject to customary closing conditions. On March 10, 2016, Mr. Zhang, Ms. Meng and Parent amended their Schedule 13D to reflect the entry into the FNOF NPA and to disclose the terms of the FNOF NPA (including certain Refinancing Documents attached as exhibits to the FNOF NPA).

25

On March 18, 2016, Parent issued the FNOF Note and pledged the shares of the Common Stock held by Parent to FNOF to secure the FNOF Note. The Company did not provide any financial projections to Forebright or any of its affiliates in connection with the Refinancing.

On March 22, 2016, following several conversations with management regarding the need for financial projections of the Company, representatives of Houlihan Lokey met with Ms. Ning Cai and discussed that the special committee and Houlihan Lokey would need to review the Company’s financial projections to perform financial analyses with respect to the Company and the proposed transaction. At the meeting, Ms. Ning Cai indicated that she would coordinate with other management members to provide the financial projections in due course, taking into account that management of the Company was anticipating that its initial focus would be on preparing the financial statements of the Company for the fiscal year ended March 31, 2016.

On March 23, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. At the meeting, (i) representatives of Cleary informed the special committee that Cleary had started to prepare an initial draft of a merger agreement for the proposed transaction, which would be circulated for the special committee’s review in due course, (ii) representatives of Houlihan Lokey provided an update with respect to the information they had been provided with respect to the debt financing of the proposed transaction, and (iii) representatives of Houlihan Lokey updated the special committee regarding their meeting with Ms. Ning Cai and indicated that they would complete their preliminary financial analyses regarding the Company and the proposed transaction after receiving the financial projections from management.

Starting in early March 2016, the buyer group held preliminary discussions with several potential debt financing sources for the proposed transaction.

On April 7, 2016, Davis Polk delivered to Cleary a draft of the merger agreement prepared by Davis Polk. On April 8, 2016, representatives of Cleary informed Davis Polk that they would discuss with the special committee whether the parties should use the draft of the merger agreement prepared by Davis Polk as the basis for further discussion of the terms of the proposed transaction. The special committee determined that it would be premature to engage with the buyer group on the terms of the merger agreement until the special committee, with the assistance of Houlihan Lokey, based on its preliminary financial analyses, had concluded that the proposed transaction merited further consideration. Accordingly, the special committee instructed Cleary not to revise the draft merger agreement from Davis Polk or to discuss any issues reflected in the draft with the buyer group or Davis Polk.

After Houlihan Lokey communicated with management of the Company on several occasions with respect to their progress in preparing the financial projections, as instructed by the special committee, on or about April 22, 2016, management of the Company provided the special committee and Houlihan Lokey with an initial draft of certain financial projections relating to the Company, which were subsequently updated on May 27, 2016 (the “ May Projections ”) to reflect changes in exchange rate, refinements to capital expenditures estimates, refinements to projected volume of certain products (based on the market condition), and refinements to SG&A assumptions. The Company also provided the above financial projections to several potential debt financing sources.

On April 28, 2016, representatives of Houlihan Lokey, at the special committee’s instruction, met with management of the company to discuss the May Projections and other financial information relating to the Company. At the meeting, members of management explained to Houlihan Lokey that they were finalizing the financial results for the fiscal year that ended on March 31, 2016, and committed to provide Houlihan Lokey with additional financial information later.

In late May 2016, management provided Houlihan Lokey with preliminary estimates of financial results for the fiscal year ended March 31, 2016 and advised Houlihan Lokey that the Company’s results for the first two months of the first quarter were trailing the projected results in the May Projections.

On June 3, 2016, Houlihan Lokey delivered to the special committee preliminary financial discussion materials relating to the Company and the proposed transaction (the “ June Discussion Materials ”). The June Discussion Materials included, among other things, (i) the May Projections; (ii) enterprise value multiples derived from the US$4.13 closing price per share of the Common Stock on June 1, 2016 and

26

relative to the proposed consideration of US$5.91 per share of the Common Stock; (iii) historical trading prices and volume of the Common Stock; (iv) financial information relating to the selected publicly traded companies described below under “ Special Factors — Opinion of the Special Committee’s Financial Advisor— Selected Companies Analysis ”; (v) a preliminary illustrative market approach sensitivities analysis; (vi) a preliminary illustrative discounted cash flow sensitivities analysis; and (vii) financial information relating to the selected transactions described below under “ Special Factors — Opinion of the Special Committee’s Financial Advisor— Selected Transactions Analysis ” (other than the recent transactions involving Hengda Dairy Co., Ltd. and Challenger Global Investments Limited and Engro Foods Limited).

On June 12, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. At the meeting, the special committee and the representatives of Houlihan Lokey reviewed the June Discussion Materials and discussed the historical performance of the Company and the May Projections. The special committee also observed that the closing price per share of the Common Stock on June 10, 2016 was US$4.06. After discussion, taking into account, among other things, the preliminary financial analyses contained in the June Discussion Materials, the special committee decided that the offer price of US$5.91 per share merited further consideration. Houlihan Lokey advised the special committee that, because (a) the Company had materially failed to meet its revenue and net income forecasts for four consecutive quarters before the quarter ended June 30, 2016, (b) the financial results of the Company for the quarter ended June 30, 2016 (the “ First Quarter Financials ”) were expected to be available in the next few weeks and, based on information provided by management, were expected to be lower than the projected results in the May Projections, and (c) the impacts on the financial results of the Company by the newly launched liquid milk products, which were expected by the Company to drive the increase in the Company’s revenue, would be disclosed in the First Quarter Financials, Houlihan Lokey would conduct further financial analyses with respect to the Company and the proposed transaction following the release of the First Quarter Financials. Accordingly, the special committee decided to review with Houlihan Lokey the updated financial analyses after the First Quarter Financials became available and further consider whether the offer price represented a favorable valuation for the unaffiliated stockholders at such time. The special committee also decided to explore and consider potential strategic alternatives that might be available to the Company, including, but not limited to, (i) discussing with other potential qualified parties other potential offers that would be more beneficial to the unaffiliated stockholders of the Company and (ii) rejecting the proposed transaction and having the Company remain as a public company.

On June 13, 2016, the Company filed its annual report on Form 10-K for the fiscal year ending March 31, 2016.

On June 29, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. At the meeting, at the special committee’s request, representatives of Houlihan Lokey addressed certain questions raised by the special committee regarding the June Discussion Materials and discussed, among other things, the various methods Houlihan Lokey planned to use in conducting financial analyses with respect to the Company, which included a discounted cash flow analysis, a comparable companies analysis and comparable transaction analysis. Houlihan Lokey reminded the special committee that, based on information provided by management, the First Quarter Financials were expected to be lower than the projected results in the May Projections. Houlihan Lokey reiterated that they would conduct further financial analyses after the release of the First Quarter Financials. The representatives of Houlihan Lokey also recommended that the special committee consider conducting a market check to solicit alternative transaction opportunities. In response to questions from the special committee, representatives of Cleary then introduced the general procedures for conducting a market check, as well as certain factors that special committees in other going-private transactions of China-based companies usually take into consideration in determining whether to conduct a market check in connection with such going-private transactions, including the fiduciary duties of the special committee in a going-private transaction. It was noted that, since the date that our board of directors received the January 14 Proposal, neither Houlihan Lokey nor any member of the special committee had received any inquiries from any third party (other than the buyer group) demonstrating such third party’s interest in acquiring any equity interests of the Company, whether by joining the buyer group or through an independent alternative transaction. The special committee decided to have an in-person meeting on July 7, 2016 with representatives of Houlihan Lokey and Cleary to further (i) discuss the valuation of the Company and (ii) consider potential strategic alternatives that might be available to the Company, including, but not limited to, conducting a potential

27

pre-signing market check to seek other potential offers that would be more beneficial to the unaffiliated stockholders and rejecting the proposed transaction and having the Company remain as a public company.

On July 7, 2016, the special committee had a meeting at the offices of Houlihan Lokey in Beijing, China with representatives of Houlihan Lokey and Cleary. At the meeting, representatives of Houlihan Lokey reviewed the financial analyses contained in the June Discussion Materials and confirmed that they would conduct further financial analyses after the release of the First Quarter Financials. Representatives of Houlihan Lokey also reiterated their recommendation that the special committee consider conducting a market check to solicit alternative transaction opportunities. The special committee discussed with Houlihan Lokey and Cleary (i) potential benefits and limitations of potential strategic alternatives that might be available to the Company, including, but not limited to, a pre-signing market check to seek other potential offers that would be more beneficial to the unaffiliated stockholders and rejecting the proposed transaction and having the Company remain as a public company, (ii) the factors that might affect the potential strategic alternatives that might be available to the Company, including the fact that the buyer group owned 63.5% of the total outstanding shares of the Common Stock as of the date of this meeting (based on the number of shares of the Common Stock issued and outstanding as of June 13, 2016, as reported in the Company’s annual report on Form 10-K filed with the SEC on June 13, 2016) and had indicated that it was unwilling to sell its shares to a third party, and (iii) potential procedures associated with conducting a meaningful pre-signing market check. After deliberation, the special committee instructed Houlihan Lokey to prepare a proposal for the special committee’s consideration with respect to a potential market check process (the “ Market Check Proposal ”), which should include both a proposed timeline for a market check process and a list of the parties that Houlihan Lokey would suggest they be authorized to approach for purposes of soliciting alternative transaction opportunities. The special committee decided that they would further consider potential strategic alternatives that might be available to the Company, including whether to conduct a pre-signing market check based on the Market Check Proposal.

On July 19, 2016, Houlihan Lokey shared with the special committee a draft of the Market Check Proposal and a proposed form of letter (the “ Invitation Letter ”) for potential bidders for the Company to solicit alternative transaction opportunities. Houlihan Lokey proposed sending the Invitation Letters to 25 parties, including 13 strategic investors and 12 financial investors, which Houlihan Lokey had identified based on a review of, among other things, each investor’s operational profile and past investment activities. Following review, the special committee approved both of these documents.

On July 20, 2016, after discussion with Houlihan Lokey, the special committee decided to initiate a market check to solicit interest from, and engage in discussions with, other potential qualified parties regarding a potential transaction involving the Company, and instructed Houlihan Lokey to commence the market check process. Although the buyer group indicated in the January 14 Proposal that it was not willing to sell its shares in the Company to any third party (and separately informed Houlihan Lokey that it was not willing to sell its shares to a third party, even at a price higher than the proposed per share consideration of US$5.91), the special committee determined that a meaningful pre-signing market check would still be beneficial to the unaffiliated stockholders, as it could attract indicative offers that could potentially be used to negotiate an increase in the purchase price offered by the buyer group should the special committee determine that the buyer group’s proposed transaction merited consideration. Commencing on July 25, 2016, at the special committee’s instruction, Houlihan Lokey contacted 25 potential bidders (including 13 strategic investors and 12 financial investors) that were proposed by Houlihan Lokey and approved by the special committee, and delivered Invitation Letters to them, consistent with its proposal to the special committee on July 19, 2016. The Invitation Letters requested that the potential bidders submit an indication of interest on or before 5:00 PM, Beijing time, on August 24, 2016. Although Davis Polk had prepared a draft of the merger agreement in April, the special committee further decided that the initial draft of the merger agreement be prepared by legal counsel of the special committee, especially given the market check process.

On July 27, 2016, Cleary delivered to the special committee an initial draft of the merger agreement prepared by Cleary, together with a summary of the key terms included in the initial draft of the merger agreement.

In late July 2016, based on preliminary discussions it had with potential debt financing sources since early March 2016, the buyer group identified Shanghai Pudong Development Bank Co., Ltd. (“ SPDB ” or

28

the “ lender ”) as the most attractive potential source to provide debt financing for the proposed transaction and engaged in further negotiations with SPDB on the key terms of the debt financing.

On August 9, 2016, the Company issued a press release regarding its First Quarter Financials, and filed the press release as an exhibit to its current report on Form 8-K. As instructed by the special committee, Houlihan Lokey started to update the June Discussion Materials to take into account the First Quarter Financials, which were subsequently delivered to the special committee on September 8, 2016.

On August 11, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. During the meeting, at the special committee’s request, Cleary discussed with the special committee the key terms of the initial draft of the merger agreement prepared by Cleary and the implications of such key terms in connection with the proposed transaction. At the same meeting, Houlihan Lokey provided the special committee with an update on the market check process. None of the 25 potential bidders who received Invitation Letters had yet expressed interest in any transaction with the Company. Houlihan Lokey also noted to the special committee that the financial results in the First Quarter Financials had not met the May Projections and informed the special committee that management would provide revised financial projections. The special committee and Houlihan Lokey discussed the key drivers and rationale behind the revision of the financial projections as explained by management, including that (i) the Company had materially failed to meet its revenue and net income forecasts for four consecutive quarters before the quarter ended June 30, 2016 and the financial results of the Company in the First Quarter Financials did not meet the May Projections, (ii) the sales of the Company’s liquid milk products were materially below expectations of the Company for the quarter ended June 30, 2016 and July 2016, and (iii) the Company’s French project, which was expected by the Company to be fully operational in the summer of 2016, had been delayed due to certain technical issues. After representatives of Houlihan Lokey addressed certain questions raised by the special committee regarding the revised financial projections of the Company and discussion among the special committee, Houlihan Lokey and Cleary, the special committee considered whether the May Projections would be appropriate for Houlihan Lokey’s use in connection with its financial analyses and, based on that discussion, instructed Houlihan Lokey to provide an updated financial analysis of the Company reflecting the revised financial projections at the next special committee meeting. The special committee also decided that it would continue to consider potential strategic alternatives that might be available to the Company, including rejecting the proposed transaction and having the Company remain as a public company.

On August 17, 2016, management provided the updated financial projections to the special committee and Houlihan Lokey (the “ August Projections ”). Management also provided the August Projections to SPDB. Management did not provide SPDB with any projections that were different from the projections provided to the special committee.

On September 8, 2016, the special committee held a telephonic meeting with representatives of Houlihan Lokey and Cleary. Representatives of Houlihan Lokey (i) reviewed updated financial analyses (the “ September Discussion Materials ”) taking into account, among other things, the First Quarter Financials and the August Projections, and (ii) updated the special committee regarding the market check process, which ended on August 24, 2016. Among the 25 potential bidders who received Invitation Letters, 17 potential bidders expressly indicated that they were not interested in pursuing any alternative transaction opportunities and eight potential bidders did not respond to the Invitation Letters or subsequent follow-up requests. Those parties that provided a response noted a number of reasons for their decision, including a difficult market environment in China, challenging industry conditions and the stock ownership of the buyer group. None of the potential bidders requested to enter into a confidentiality agreement or expressed interest in evaluating the Company. The September Discussion Materials included, among other things, (i) a comparison of the May Projections and the August Projections; (ii) preliminary selected companies analysis; (iii) preliminary selected transactions analysis; and (iv) preliminary discounted cash flow analysis. The special committee then discussed whether the offer price of US$5.91 per share represented an attractive valuation for the unaffiliated stockholders of the Company. The special committee observed that the closing price per share of the Common Stock on September 7, 2016 was US$3.88. Given the offer price of US$5.91 per share was either at the high end of or within the preliminary implied per share equity value reference ranges contained in the September Discussion Materials, the special committee concluded that the offer price did represent an attractive valuation. Notwithstanding such conclusion, in an effort to maximize the

29

financial benefit of the proposed transaction to the unaffiliated stockholders, after discussion with Houlihan Lokey, the special committee decided to request that the buyer group increase the offer price. The special committee authorized and instructed Houlihan Lokey to negotiate with the buyer group and seek a “meaningful increase” in the price, and to report to the special committee after Houlihan Lokey received feedback from the buyer group regarding the increase in the offer price proposed by the special committee. On the same day, as instructed by the special committee, Cleary delivered to Davis Polk an initial draft of the merger agreement.

On September 9, 2016, at the direction of the special committee, representatives of Houlihan Lokey met with Mr. Zhang in Beijing. At this meeting, representatives of Houlihan Lokey requested that the buyer group meaningfully increase the proposed merger consideration, suggesting that a higher price was warranted based upon, among other things, their preliminary financial analyses and premiums paid in other going-private transactions. After negotiations, Mr. Zhang, on behalf of the buyer group, offered to increase the price to US$6.05 per share but indicated that it was a “best-and-final” offer. Mr. Zhang also suggested that the parties accelerate the negotiation of the merger agreement and the debt commitment letter such that the parties could sign the merger agreement by the end of September 2016. On the same day, Houlihan Lokey informed the special committee of its discussion with Mr. Zhang, including the buyer group’s increased offer of US$6.05 per share for the special committee’s consideration.

On September 19, 2016, Davis Polk provided a revised draft of the merger agreement to Cleary, which reflected the buyer group’s positions with respect to the terms of the merger agreement, including, among other things, that (i) the Company should broaden the scope of its representations, warranties and covenants, (ii) the buyer group would not provide any guaranty with respect to the obligations of Parent and Merger Sub under the merger agreement, (iii) the Company should not be allowed a “go-shop” period post-signing to solicit alternative transaction proposals (the “ Go-Shop Provision ”), (iv) regardless of whether our board of directors changed its recommendation to the stockholders, the proposed transaction would have to be submitted to the stockholders’ meeting unless the merger agreement had been terminated (the “ Force the Vote Provision ”), (v) the closing of the proposed transaction should be conditioned on no more than ten percent of the outstanding shares exercising appraisal rights (the “ Appraisal Rights Condition ”), (vi) if the proposed transaction was not consummated within fifteen months after the signing of the merger agreement, then either the Company or Parent may terminate the merger agreement (the “ Termination Date ”), (vii) the Company would not be entitled to terminate the merger agreement in the event that (a) there is a superior proposal from a third party unless the Company enters into an alternative acquisition agreement with respect to such superior proposal concurrently with the termination of the merger agreement or (b) our board of directors has changed its recommendation to the stockholders after the occurrence of any event that does not involve or relate to an offer or proposal regarding any competing transaction and was neither known nor reasonably foreseeable to our board of directors (the “ Intervening Event ”), (viii) both the Company termination fee and Parent termination fee should be equal to 3.5% of the aggregate merger consideration, and (ix) in the event of a termination of the merger agreement, the out-of-pocket expenses incurred by the Company should be borne by the Company and under certain circumstances, the Company should reimburse Parent for its out-of-pocket expenses subject to a cap of US$2,500,000.

On September 21, 2016, Cleary provided a summary of the key issues raised by the revised draft of the merger agreement to the special committee for its consideration.

On September 22, 2016, the special committee held a telephonic meeting with representatives of Cleary and Houlihan Lokey in attendance, at which (i) representatives of Houlihan Lokey discussed with the special committee the buyer group’s increased offer price of US$6.05 per share and (ii) representatives of Cleary discussed with the special committee the key issues raised by the revised draft of the merger agreement circulated by Davis Polk on September 19, 2016. The special committee discussed and considered the offer price of US$6.05 per share in light of the results of the market check process, the information contained in the September Discussion Materials which indicated that the offer price of US$6.05 per share was within or, in one case, above the implied per share value reference ranges derived from each analysis, the fact that the buyer group described it as its “best-and-final” offer, and the fact that the unaffiliated stockholders would have the chance to determine whether to accept the revised offer price given that the proposed transaction would be subject to a non-waivable condition requiring the approval by holders of a

30

majority of the shares of the Common Stock not beneficially owned by the buyer group. The special committee also observed that the closing price per share of the Common Stock on September 21, 2016 was US$3.91. Based on all of the relevant facts and circumstances, the special committee decided that the offer price of US$6.05 per share represented an attractive valuation for the unaffiliated stockholders. The special committee also concluded that it would better serve the interests of the unaffiliated stockholders for the special committee to focus its additional negotiating efforts on certain key terms of the merger agreement, including those relating to deal certainty and funding certainty, rather than seeking a new “best-and-final” offer from the buyer group, subject to any changes in the market conditions or the Company’s business that might affect the valuation. With regard to the terms of the merger agreement, the special committee and its advisors discussed, among other things, (a) whether the obligations of Parent and Merger Sub would be guaranteed by the other members of the buyer group; (b) the conditions to the proposed transaction; (c) the special committee’s rights and limitations in soliciting and dealing with third party proposals after the execution of the merger agreement; and (d) the amount of the proposed termination fee payable by the Company and Parent, respectively. The special committee asked certain questions to which representatives of Cleary responded. The special committee discussed and deliberated with Cleary and Houlihan Lokey on the strategy and approach in general, consistent with its fiduciary duties, to maximize value for the unaffiliated stockholders. The special committee thereafter instructed Cleary to revise the merger agreement to reflect the original positions of the special committee on the key issues raised by the revised draft of the merger agreement, including, among other thing, that (1) the buyer group should provide a guaranty with respect to the obligations of Parent and Merger Sub under the merger agreement, (2) the merger agreement should include the Go-Shop Provision, (3) the Force the Vote Provision should be removed, (4) the Appraisal Rights Condition should be removed, (5) the Termination Date should be set on a date that is nine months after the signing of the merger agreement, (6) the Company should be allowed to terminate the merger agreement in the event that our board of directors has changed its recommendation to the stockholders even if no alternative acquisition agreement is entered into, (7) the Company termination fee and Parent termination fee should equal 3.5% and 7.0% of the aggregate merger consideration, respectively, and (8) Parent should bear the Company’s out-of-pocket expenses (subject to a certain cap) under certain termination provisions, while the Company should not be required to bear Parent’s out-of-pocket expenses.

On September 29, 2016, as instructed by the special committee, Cleary provided a revised draft of the merger agreement to Davis Polk. On the same day, Davis Polk circulated a draft debt commitment letter and a draft term sheet to Cleary, which reflected the proposed terms of the debt financing to be provided by SPDB to the buyer group in connection with the transactions contemplated under the merger agreement.

On September 30, 2016, after reviewing the terms of the debt commitment letter and term sheet with the special committee, Cleary provided comments on the debt commitment letter and term sheet to Davis Polk.

On October 11, 2016, Cleary circulated a further revised draft of the merger agreement to Davis Polk, which reflected technical comments to certain provisions.

On October 13, 2016, Davis Polk provided a revised draft of the merger agreement to Cleary, which reflected the buyer group’s updated positions with respect to the terms of the merger agreement, including, among other things, that (i) the Company should broaden the scope of its representations, warranties and covenants, (ii) Mr. Zhang and Ms. Meng would provide a limited guaranty to guarantee the obligations of Parent and Merger Sub under the merger agreement with respect to the Parent termination fee; (iii) the Go-Shop Provision should be removed, (iv) the Force the Vote Provision should be included, (v) the buyer group would agree to removal of the Appraisal Rights Condition, (vi) the Termination Date should be set on a date that is fifteen months after the signing of the merger agreement, (vii) the Company should not be entitled to terminate the merger agreement in the event that (a) there is a superior proposal from a third party unless the Company enters into an alternative acquisition agreement with respect to such superior proposal concurrently with the termination of the merger agreement or (b) our board of directors has changed its recommendation to the stockholders in response to the occurrence of the Intervening Event, (viii) the Company termination fee and Parent termination fee should equal 3.5% and 5.0% of the aggregate merger consideration, respectively, and (ix) the agreement should not provide for reimbursement of any expenses by Parent or the Company to the other party in the event of a termination of the merger agreement.

31

On October 14, 2016, representatives of Cleary and Davis Polk had a telephonic meeting, during which they discussed the outstanding issues in the revised draft of the merger agreement circulated by Davis Polk on October 13, 2016 and indicated their clients’ positions and concerns on these issues.

On October 16, 2016, Davis Polk circulated to Cleary the revised drafts of the debt commitment letter and the term sheet, and Cleary updated the special committee on the status of such drafts.

On October 17, 2016, Davis Polk circulated an initial draft of the limited guarantee to be provided by Mr. Zhang and Ms. Meng to Cleary.

On October 18, 2016, Cleary provided a summary of the key issues raised by the revised draft of the merger agreement circulated by Davis Polk on October 13, 2016 to the special committee for its consideration.

On October 19, 2016, the special committee held a telephonic meeting with representatives of Cleary and Houlihan Lokey in attendance. At the special committee’s request, representatives of Cleary (i) discussed with the special committee the key issues raised by the revised draft of the merger agreement circulated by Davis Polk on October 13, 2016, and (ii) reported to the special committee that the latest drafts of the limited guarantee, the debt commitment letter and the term sheet provided by Davis Polk generally reflected comments provided by Cleary, and that Cleary would discuss further with Davis Polk to resolve the remaining issues. The special committee discussed and deliberated, and taking into account its fiduciary duties and its aim to maximize value for the unaffiliated stockholders, decided to consider all of the remaining key issues together and offer a package proposal to the buyer group. During the meeting, representatives of Houlihan Lokey also provided an update with respect to information they had received with respect to the debt financing documents in relation to Parent’s payment obligations under the merger agreement, which the buyer group was working to finalize with SPDB. On the same day, Davis Polk circulated to Cleary further revised drafts of the debt commitment letter and the term sheet.

On October 20, 2016, Cleary provided revised drafts of the merger agreement and the limited guarantee to Davis Polk, which reflected the special committee’s package proposal on the key issues in the merger agreement and the limited guarantee, including, among other things, that (i) the special committee insisted on including the Go-Shop Provision, (ii) the special committee agreed to include the Force the Vote Provision in regard to Intervening Events ( i.e. , the special committee agreed not to request a termination right of the Company upon the occurrence of an Intervening Event), (iii) the Termination Date would be set on a date that is twelve months after the signing of the merger agreement, (iv) in the event there is a superior proposal from a third party and our board of directors has changed its recommendation to the stockholders, the Company should be allowed to terminate the merger agreement without concurrently entering into an alternative acquisition agreement with respect to such superior proposal and (v) the Company termination fee and Parent termination fee would be equal to 3.0% and 6.0% of the aggregate merger consideration, respectively. On the same day, Cleary also circulated to Davis Polk the first draft of the disclosure letter to be attached to the merger agreement.

On October 21, 2016, representatives of Davis Polk and Cleary had a telephonic meeting to discuss the key issues in the revised draft of the merger agreement circulated by Cleary. Representatives of Davis Polk indicated, among other things, that (i) the Go-Shop Provision is unacceptable to the buyer group and (ii) the Company should not be entitled to terminate the merger agreement without concurrently entering into an alternative acquisition agreement with respect to a superior proposal even if our board of directors has changed its recommendation to the stockholders. Representatives of Cleary reiterated that the special committee insisted that its positions be reflected in the package proposal.

On October 22, 2016, Cleary provided an update on its negotiations with Davis Polk of the merger agreement to the special committee.

On October 23, 2016, Davis Polk provided revised drafts of the merger agreement, the disclosure letter and the limited guarantee to Cleary.

On October 24, 2016, the special committee held a telephonic meeting with representatives of Cleary and Houlihan Lokey in attendance. During the meeting, representatives of Cleary discussed with the special committee the buyer group’s updated positions with respect to the remaining key issues of the merger

32

agreement, including, among other things, that (i) the buyer group agreed to keep the Go-Shop Provision, with a few revisions on the notice period regarding a competing transaction, (ii) in the event there is a superior proposal from a third party and our board of directors has changed its recommendation to the stockholders, the Company may terminate the merger agreement without concurrently entering into an alternative acquisition agreement with respect to such superior proposal, (iii) the buyer group agreed to set the Termination Date on a date that is twelve months after the signing of the merger agreement, (iv) the Company termination fee and Parent termination fee would be equal to 2.5% and 5.0% of the aggregate merger consideration, respectively, (v) Parent should have the right to terminate the merger agreement and receive the Company termination fee if the Company has conducted any willful and material breach to the provisions relating to competing transactions under the merger agreement, and (vi) the Company termination fee should be Parent’s sole and exclusive remedy only in the event that the Company Termination Fee is paid or payable in accordance with the terms of the merger agreement. After further discussion and careful consideration, the special committee determined that the buyer group’s updated positions were generally consistent with the special committee’s positions included in the package proposal and instructed Cleary to work toward finalizing the merger agreement, the disclosure letter and the limited guarantee with Davis Polk.

On October 25, 2016, Cleary provided revised drafts of the merger agreement, the disclosure letter and the limited guarantee to Davis Polk, which also reflected WSGR’s comments on the drafts of the merger agreement and the disclosure letter.

Considering that the buyer group had agreed to retain the Go-Shop Provision in the merger agreement, the special committee requested that Houlihan Lokey prepare a proposal with respect to the post-signing “go-shop” process (the “ Go-Shop Proposal ”) on October 27, 2016, which should include a proposed timeline of the “go-shop” process and a list of the companies that Houlihan Lokey recommend the special committee authorize it to contact to solicit alternative transaction opportunities.

Between October 25, 2016 and the signing of the merger agreement, representatives of Cleary and Davis Polk held a number of discussions and exchanged multiple versions of the merger agreement, the disclosure letter and the limited guarantee in an effort to finalize the transaction documentation. Cleary further informed Davis Polk that the special committee would not be prepared to approve any of the transaction documentation until the buyer group obtained committed debt financing in an amount sufficient to pay the aggregate merger consideration.

On November 4, 2016, Cleary received revised drafts of the debt commitment letter and the term sheet from Davis Polk. On the same day, Houlihan Lokey informed the special committee that the management of the Company had updated the financial projections of the Company, which were later further revised by the management of the Company on November 10, 2016 and November 11, 2016, respectively, to reflect refinements to the model and corrections with respect to exchange rates (the “ Company Projections ”).

On November 7, 2016, Houlihan Lokey circulated to the special committee and Cleary a draft of the Go-Shop Proposal.

On November 11, 2016, the special committee held a telephonic meeting with representatives of Cleary and Houlihan Lokey in attendance. During the meeting, representatives of Houlihan Lokey reviewed the Company Projections with the special committee, which primarily reflected management’s lower financial projections as compared with the August Projections. The special committee and Houlihan Lokey discussed the differences between the August Projections and the Company Projections and the key drivers and rationale behind the differences as explained by management of the Company, including, among other factors, that (i) after failing to achieve the financial results for the quarter ended June 30, 2016 reflected in the May Projections, the Company again failed to achieve the financial results for the quarter ended September 30, 2016 reflected in the August Projections, (ii) certain equipment of Synutra France International SAS, one of the Company’s operating subsidiaries in France, had not yet been put into production as originally planned by the management of the Company, which adversely affected the Company’s profitability and (iii) updates with respect to RMB/US dollar and RMB/Euro exchange rates. The special committee discussed and deliberated with respect to the Company Projections and indicated that they understood the changes to the financial projections and that Houlihan Lokey would use the Company Projections for purposes of its financial analyses. The special committee considered whether the

33

Company Projections were appropriate for Houlihan Lokey’s use in connection with its financial analyses and requested that Houlihan Lokey update its financial analyses regarding the Company, which Houlihan Lokey would report to the special committee in a subsequent meeting of the special committee. Representatives of Cleary then discussed with the special committee the timetable of and logistics for the execution of the merger agreement and the other transaction documents. The special committee understood that the merger agreement was substantially finalized and could be executed pending the delivery of the executed debt commitment letter by the buyer group, and determined not to consider the approval of the merger agreement and other transaction documentation until Houlihan Lokey had updated its financial analyses so that the special committee would have the most current and complete information to evaluate the buyer group’s offer, as well as the other terms of the proposed transaction. During the meeting, representatives of Houlihan Lokey also introduced different approaches for conducting a post-signing “go-shop” process. The special committee discussed and deliberated, and decided that they would further consider the list of potential buyers Houlihan Lokey should reach out to during the “go-shop” process.

Later on the same day, Davis Polk circulated the final drafts of the debt commitment letter and the term sheet to Cleary, which would be executed and delivered by SPDB to Parent concurrently with the signing of the merger agreement. Davis Polk also confirmed that the buyer group would like to proceed with the execution of the merger agreement and the limited guarantee.

On November 17, 2016, the special committee held a telephonic meeting with representatives of Cleary and Houlihan Lokey in attendance. Prior to the meeting, Houlihan Lokey circulated to the special committee updated discussion materials dated as of November 17, 2016, which took into account the information contained in the Company Projections. At the request of the special committee, representatives of Houlihan Lokey first reviewed and discussed Houlihan Lokey’s financial analyses. Thereafter, at the request of the special committee, Houlihan Lokey verbally rendered its opinion to the special committee (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Special Committee dated November 17, 2016), as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Company Common Stock (other than the Excluded Persons) of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement. Please see “ Special Factors — Opinion of the Special Committee’s Financial Advisor ” beginning on page 42 for further details. Representatives of Cleary then provided to the special committee an overview of the key terms of the final drafts of the merger agreement, the limited guarantee and the debt commitment letter, and discussed with the special committee their fiduciary duties in connection with the proposed merger. Following a comprehensive and detailed discussion of the merger agreement, as well as Houlihan Lokey’s financial presentation and opinion, the special committee unanimously determined that the merger agreement, the merger and other transactions contemplated by the merger agreement were advisable and fair to and in the best interests of the Company and its unaffiliated stockholders. The special committee thus resolved (i) to recommend that our board of directors adopt the merger agreement, approve and declare advisable the merger agreement and the transactions contemplated thereby, including the merger, (ii) to recommend that our board of directors submit the merger agreement to the stockholders of the Company for adoption and resolve to recommend that the stockholders of the Company adopt the merger agreement and the transactions contemplated thereby, including the merger, (iii) to recommend that our board of directors authorize and approve the limited guarantee, including, without limitation, for purposes of Section 203 of the DGCL and (iv) that, following execution of the merger agreement, the Company initiate, solicit and encourage alternative transaction proposals in the manner permitted by the merger agreement.

Later on the same day, our board of directors held a telephonic meeting with representatives of WSGR, Houlihan Lokey and Cleary in attendance. At the meeting, representatives of Houlihan Lokey reviewed the financial analysis they had previously provided to and discussed with the special committee. Representatives of Cleary then gave an overview of the key terms of the merger agreement as recommended by the special committee to our board of directors. Representatives of WSGR then reviewed with our board of directors the directors’ fiduciary duties in connection with approving the proposed transaction. Based upon the unanimous recommendation of the special committee, our board of directors adopted resolutions approving the terms of the merger agreement and the ancillary documents and the transactions contemplated by the merger agreement, and recommending that the Company’s stockholders vote to approve the merger agreement and the transactions contemplated thereby, including the proposed merger.

34

Thereafter, on the same day, (i) the Company, Parent and Merger Sub executed and delivered the merger agreement, (ii) the Company, Mr. Zhang and Ms. Meng executed and delivered the limited guarantee and (iii) SPDB and Parent executed and delivered the debt commitment letter, which was acknowledged by FNOF.

On November 17, 2016, after the close of the NASDAQ Global Select Market, the Company issued a press release announcing its entry into a definitive merger agreement, and filed the press release, the merger agreement and the limited guarantee as exhibits to its current report on Form 8-K.

On November 18, 2016, Mr. Zhang, Ms. Meng and Parent amended their Schedule 13D to reflect the entry into the merger agreement, the limited guarantee and the debt commitment letter.

Starting on November 18, 2016, at the special committee’s instructions, Houlihan Lokey commenced the post-signing “go-shop” process in accordance with the terms of the merger agreement. During the go-shop period, which expired on December 16, 2016, Houlihan Lokey initiated contact with 36 parties to gauge their interest in a potential transaction involving the Company. Of the 36 potential bidders Houlihan Lokey contacted, 28 were not responsive and 8 expressly declined to make an offer. None of the parties indicated any preliminary interest in a transaction involving the Company or entered into a confidentiality agreement with the Company.

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

Both the special committee and our board of directors determined that the merger, on the terms and subject to the conditions set forth in the merger agreement, is advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders.

The Special Committee

The special committee, acting with the advice and assistance of its independent legal advisors and its independent financial advisor, evaluated the merger, including the terms of the merger agreement. At a meeting on November 17, 2016, the special committee unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, on the terms and subject to the conditions set forth in the merger agreement, are advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders, (ii) recommended that our board of directors adopt, approve, and declare the advisability of the merger agreement and the transactions contemplated by the merger agreement, including the merger and (iii) recommended that our board of directors submit the merger agreement to the stockholders for adoption and resolve to recommend the stockholders adopt the merger agreement and the transactions contemplated thereby, including the merger.

In the course of reaching its determinations, the special committee considered a number of substantive factors and potential benefits of the merger, each of which the special committee believed supported its decisions, including, but not limited to, the following factors (which are not listed in any relative order of importance):

•

the all-cash merger consideration, which will allow our unaffiliated stockholders an opportunity to immediately realize a fixed amount of cash for their investment, which amount the special committee believes to be fair to the unaffiliated stockholders, without incurring brokerage and other costs typically associated with market sales and not to be exposed to the risks and uncertainties relating to the Company’s prospects, taking into account, without limitation, the Company’s history of failing to meet management projections for prior periods and the risks associated with the Company’s newly launched liquid milk business and new manufacturing facility for milk powder production;

​

•

the current and historical market prices of the Common Stock, including the fact that the US$6.05 per share merger consideration represents an approximately 58% premium over the closing price of US$3.83 per share on the NASDAQ Global Select Market on January 14, 2016 and a premium of approximately 31% and 20%, respectively, over the 30- and 60-trading day volume weighted average price on the NASDAQ Global Select Market on January 14, 2016, the last trading day prior to the Company’s announcement on January 15, 2016 that it had received the buyer group’s going-private proposal;

​

35

•

the extensive negotiations with respect to the merger consideration, which led to an increase from US$5.91 per share to US$6.05 per share and the special committee’s determination that US$6.05 per share was the highest price that the buyer group would agree to pay, with the special committee basing its belief on a number of factors, including the duration and tenor of negotiations and the experience of the special committee and its advisors, and that further negotiation ran the risk that the buyer group might determine to offer an amount less than US$6.05 per share, or be unable to enter into the merger agreement and the transactions contemplated thereby, including the merger, in which event the Company’s stockholders would lose the opportunity to accept the premium being offered;

​

•

the possibility that it could take a considerable period of time for the trading price of the Common Stock to reach and sustain at least the per share merger consideration of US$6.05 (or that such price would never be reached), as adjusted for the time value of money;

​

•

the limited trading volume of the Common Stock on the NASDAQ Global Select Market;

​

•

the belief by the special committee that the merger consideration being offered by the buyer group was the most favorable price that could be obtained, taking into account that the Company had not received any actionable offer from any third party since the Company’s receipt of the proposal letter from the buyer group, which was announced via press release on January 15, 2016 and filed with the SEC on the same date, and the process undertaken to market the Company to other potential bidders;

​

•

the financial analysis reviewed by Houlihan Lokey with the special committee, and the oral opinion of Houlihan Lokey rendered to the special committee on November 17, 2016 (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the special committee dated as of November 17, 2016), as to the fairness, from a financial point of view of the date of the opinion, to the holders of the Common Stock (other than the Excluded Persons) of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement. Please see “ Special Factors — Opinion of the Special Committee’s Financial Advisor ” beginning on page 42 for additional information;

​

•

the belief of the special committee that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable;

​

•

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 a committed loan facility from SPDB which is in full force and effect and provides Parent with sufficient financing to fund the merger consideration and other transactions contemplated by the merger agreement;

​

•

the likelihood and anticipated timing of completing the merger in light of the scope of the conditions to completion, including the absence of significant regulatory approvals being required in connection with the merger;

​

•

the fact that the merger agreement provides that, in the event of the failure of the merger to be completed under certain circumstances, Parent will pay the Company a US$6.26 million termination fee, and the guarantee of such payment obligation of Parent by Mr. Zhang and Ms. Meng, jointly and severally, pursuant to the limited guarantee;

​

•

the Company’s right, pursuant to the merger agreement, to obtain an injunction, specific performance or other equitable relief to cause Parent and Merger Sub to consummate the merger; and

​

•

the buyer group’s agreement in the merger agreement to use its reasonable best efforts to consummate the merger;

​

36

•

the ability of the Company, under certain circumstances, based on the recommendation of the special committee, to change, withhold, withdraw, qualify or modify our recommendation that our stockholders vote to adopt the merger agreement;

​

•

the ability of the Company, subject to compliance with the terms and conditions of the merger agreement, to terminate the merger agreement prior to the receipt of the required stockholder approvals in order to accept an alternative transaction proposed by a third party that is a “superior proposal” (as defined in the merger agreement and further explained under “ The Agreement and Plan of Merger — Competing Transactions ” below);

​

•

the fact that the outreach to other potential bidders during the pre-signing market check had not resulted in any alternative acquisition proposals; and

​

•

the negative impact of the bulletin issued by the SEC in June 2011 on the risks of investing in companies that had initially been listed in the U.S. through reverse mergers, as well as the related enforcement actions by the SEC, on liquidity and trading price, of publicly-traded stock of such companies in general.

​

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

•

in considering the merger and the other transactions contemplated by the merger agreement with the buyer group, the special committee acted solely to represent the interests of the unaffiliated stockholders, and the special committee had independent control of the extensive negotiations with the buyer group and its legal advisors on behalf of such unaffiliated stockholders;

​

•

all of the directors serving on the special committee during the entire process were and are independent directors. In addition, none of such directors 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 stockholders other than the members’ receipt of board and special committee compensation in connection with their evaluation of the merger (which are not contingent upon the completion of the merger or the special committee’s or board’s recommendation of the merger) and continued indemnification and liability insurance for such directors following the completion of the merger for certain claims and liabilities arising from their actions taken prior to the effective time of the merger;

​

•

the special committee was empowered to consider, attend to and take any and all actions in connection with the written proposal from the buyer group and the transactions contemplated by the merger agreement from the date the committee was established, and no evaluation, negotiation, or response regarding the transactions or any documentation in connection therewith from that date forward was considered by our board of directors for approval unless the special committee had recommended such action to the Company’s board of directors;

​

•

the recognition by the special committee that it had no obligation to recommend the approval of the merger proposal from the buyer group or any other transaction;

​

•

the special committee held numerous meetings and met regularly to consider and review the terms of the merger, and each member of the special committee was actively engaged in the process on a continuous and regular basis;

​

•

the special committee was assisted in negotiations with the buyer group and in its evaluation of the merger by Houlihan Lokey, Cleary and Potter Anderson, its financial and legal advisors, respectively;

​

37

•

the special committee, with the assistance of its financial and legal advisors, had extensive opportunity to evaluate and negotiate the buyer group’s going-private proposal as well as to explore and evaluate other alternative transactions for the Company, and more than ten months elapsed from the date the buyer group delivered its going-private proposal to the date the merger agreement was entered into;

​

•

the fact that the special committee conducted a pre-signing market check to identify and seek offers from interested third parties, during which (i) Houlihan Lokey contacted 25 potential bidders regarding their potential interest in the Company and (ii) Houlihan Lokey had not received any feedback from any of such potential bidders that they were interested in evaluating the Company;

​

•

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, which, among other things, resulted in an increase in the merger consideration from the buyer group’s initial offer of US$5.91 per share to US$6.05 per share;

​

•

the fact that, under the terms of the merger agreement, the Company has a period of thirty days from November 17, 2016 to actively solicit competing proposals for the Company and furthermore, that the Company has the ability, after the expiration of such “go-shop” period, to consider and engage in discussions with respect to any unsolicited acquisition proposal that constitutes or could reasonably be expected to result in a superior proposal until the date our stockholders vote upon and adopt the merger agreement. As of December 8, 2016, Houlihan Lokey had initiated contact with 36 parties to gauge their interest in a potential transaction involving the Company and none had expressed any interest as of such date;

​

•

the Company has the ability under certain circumstances to specifically enforce certain terms of the merger agreement;

​

•

the Company may under certain circumstances terminate the merger agreement in order to enter into an agreement relating to a superior proposal; and

​

•

the fact that, under the terms of the merger agreement, the merger must be approved by an affirmative vote (in person or by proxy) of the holders of at least a majority of the outstanding shares of the Common Stock held by the minority stockholders.

​

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

•

the fact that the unaffiliated stockholders will have no ongoing equity participation in the Company following the merger, and that 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 the shares of the Common Stock, 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 stockholders;

​

•

the possibility that the buyer group could sell part or all of the Company following the merger to one or more purchasers at a valuation higher than that being paid in the merger;

​

•

the fact that the buyer group, which holds approximately 63.5% of the total outstanding shares of the Common Stock, has expressed unwillingness to consider a sale of their stake to any third party, which (i) made the special committee believe that it was less likely that any transaction with a third party could be completed at this time and (ii) may have discouraged, and may in the future discourage, third parties from submitting competing transactions with terms and conditions, including price, that may be superior to the merger;

​

•

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;

​

38

•

the risks and costs to the Company if the merger does not close, including the diversion of management and employee attention, potential employee attrition, the potential disruptive effect on business and customer relationships, and the negative impact of a public announcement of the merger on our sales and operating results and our ability to attract and retain key management, marketing and technical personnel;

​

•

the risk that, while the merger is expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and as a result, it is possible that the merger may not be completed even if approved by the Company’s stockholders;

​

•

the risk of incurring substantial expenses related to the merger, including in connection with litigation related to the merger;

​

•

the Company will be required, under certain circumstances, to pay Parent, which is beneficially owned by the buyer group, a termination fee of US$3.13 million or US$2.5 million, as applicable, in connection with the termination of the merger agreement;

​

•

the Company’s remedy for damages in the event of breach of the merger agreement by Parent or Merger Sub is limited to receipt of a reverse termination fee of US$6.26 million, guaranteed by the limited guarantee, and under certain circumstances the Company may not be entitled to such reverse termination fee at all;

​

•

the fact that since the Company became publicly listed in 2007, the highest historical closing price of the Common Stock (US$52.24 per share) exceeds the merger consideration offered to our unaffiliated stockholders;

​

•

the terms of the buyer group’s participation in the merger and the fact that the buyer group may have interests in the transaction that are different from, or in addition to, those of our unaffiliated stockholders (please see “ Special Factors — Interests of Certain Persons in the Merger ” beginning on page 66 for additional information);

​

•

the taxability of an all cash transaction to our unaffiliated stockholders that are U.S. holders for U.S. federal income tax purposes; and

​

•

the possibility that Parent and Merger Sub may be unable or unwilling to complete the merger, including if the financing as described above cannot be obtained despite Parent and Merger Sub’s compliance with their financing obligations set forth in the merger agreement or if Parent or Merger Sub chooses not to complete despite the availability of financing.

​

The foregoing discussion of information and factors considered by the special committee is not intended to be exhaustive, but includes all the material factors considered by the special committee. In view of the wide variety of factors considered by the special committee, the special committee found it impracticable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the special committee may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The special committee recommended that our board of directors adopt, and our board of directors adopted, the merger agreement based upon the totality of the information presented to and considered by it.

In the course of reaching its conclusion regarding the fairness of the merger to the unaffiliated stockholders and its decision to recommend the approval of the proposal to adopt the merger agreement and approval of the transactions contemplated by the merger agreement, including the merger, the special committee considered financial analyses presented by Houlihan Lokey on November 17, 2016. These analyses included, among others, selected companies analysis, selected transactions analysis and discounted cash flow analysis. The material analyses as presented to the special committee on November 17, 2016 are summarized below under the caption “ Special Factors — Opinion of the Special Committee’s Financial Advisor ” beginning on page 42. The special committee expressly adopted these analyses and the opinion of Houlihan Lokey, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement, including the merger.

39

The special committee did not consider the liquidation value of the Company’s assets because the special committee considers the Company to be a viable going concern business that will continue to operate regardless of whether the merger is consummated, where value is derived from cash flows generated from its continuing operations. In addition, the special committee believes that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going concern value. The special committee believes the analyses and additional factors it reviewed provided an indication of the Company’s going concern value. The special committee also considered the historical market prices of the Common Stock. The special committee did not consider the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the stockholders of the Company, as a factor. The special committee believes that net book value is not a material indicator of the value of the Company as a going concern. The Company’s net book value per share was US$2.29 based on the weighted average number of outstanding shares of the Common Stock as of December 31, 2016. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry in which the Company conducts its business or the business risks inherent in competing with other companies in the same industry.

Position of the Board of Directors as to Fairness of the Merger and Recommendation of the Board of Directors

The Company’s board of directors believes that the merger, on the terms and subject to the conditions set forth in the merger agreement, is advisable and fair to, and in the best interests of, the Company and its unaffiliated stockholders.

In reaching these determinations, our board of directors considered and adopted:

•

the special committee’s unanimous determination that the merger, on the terms and subject to the conditions set forth in the merger agreement, is advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders; and

​

•

the special committee’s unanimous recommendation that our board of directors adopt, approve, and declare the advisability of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and that our board of directors submit the merger agreement to the stockholders for adoption and resolve to recommend the stockholders adopt the merger agreement and the transactions contemplated thereby, including the merger.

​

In making these determinations, the Company’s board of directors also considered a number of other factors, including the following material factors (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 with respect to the proposed merger;

​

•

following its formation, the special committee’s independent control of the sale process with the advice and assistance of Houlihan Lokey, Cleary and Potter Anderson as its financial advisor and legal advisors, respectively, reporting solely to the special committee;

​

•

the process undertaken by the special committee and its advisors in connection with evaluating the merger, as described above in the section “ Special Factors — Background of the Merger ” beginning on page 19;

​

•

the oral opinion of Houlihan Lokey rendered to the special committee on November 17, 2016 (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the special committee dated November 17, 2016) as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of the Common Stock (other than the Excluded Persons) of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement. Please see “ Special Factors — Opinion of the Special Committee’s Financial Advisor ” beginning on page 42 for additional information;

​

40

•

as a publicly traded company, the Company faces pressure from public stockholders to make decisions that might produce better short-term results, but over the long term might lead to a reduction in the per share price of its publicly traded equity securities;

​

•

the offer price of US$6.05 per share from the buyer group in all-cash consideration represents a significant premium over recent market prices and gives shareholders the opportunity to immediately realize a fixed amount of cash for their investment, which the Company’s board of directors may be particularly valuable for shareholders in light of the limited trading volume of the Common Stock on the NASDAQ Global Select Market; and

​

•

Parent was able to obtain a committed loan facility from SPDB to fund the transaction contemplated by the merger agreement, including the merger, and will have to pay a reverse termination fee to the Company in certain circumstances if that financing fails to be realized.

​

The Company’s board of directors also believes that it is appropriate for the Company to undertake the merger and to terminate the registration of the Common Stock with the SEC at this time because (i) the offer price of US$6.05 per share from the buyer group represents a significant premium over recent market prices, (ii) the limited trading volume of the Common Stock on the NASDAQ Global Select Market does not justify the costs of remaining a public company, including the cost of complying with the Sarbanes-Oxley Act of 2002 and other U.S. federal securities laws, which totaled approximately US$1.3 million for each of the fiscal years ended March 31, 2015 and 2016, and (iii) of the fact that Parent was able to obtain a committed loan facility from SPDB to fund the transaction contemplated by the merger agreement, including the merger. With respect to (ii) above, these costs are ongoing, comprise a significant element of the Company’s corporate overhead expenses, and are difficult to reduce. In addition to the direct out-of-pocket costs associated with SEC reporting and compliance, the Company’s management and accounting staff, which comprise a handful of individuals, need to devote significant time to these matters. Furthermore, as an SEC-reporting company, the Company is required to disclose a considerable amount of business information to the public, some of which would be considered proprietary and need not be disclosed by a non-reporting company. As a result, the Company’s actual or potential competitors, customers, lenders and vendors all have ready access to the information which potentially may help them compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be.

The Company’s board of directors noted that the opinion of Houlihan Lokey addressed the fairness of the merger consideration to the holders of shares of the Common Stock other than the Excluded Persons. Even if  “the holders of the shares of the Common Stock other than the Excluded Persons” may include one or more affiliated stockholders of the Company that are not members of the buyer group, since the consideration to be received by such affiliated stockholders of the Company is identical in all respects to the consideration to be received by the unaffiliated stockholders, the Company’s board of directors believed that there was no meaningful distinction to be drawn between the concepts of  “fairness to the unaffiliated stockholders of the Company” and “fairness to the holders of shares of the Common Stock other than the Excluded Persons.” As a result, the Company’s board of directors believed that, even though the opinion of Houlihan Lokey addressed fairness with respect to the holders of shares of the Common Stock other than the Excluded Persons rather than with respect to the unaffiliated stockholders, it was still reasonable and appropriate to consider the opinion of Houlihan Lokey as a material factor in its determination as to the fairness of the transaction to the unaffiliated stockholders.

The Company’s board of directors did not consider other offers made by any unaffiliated person, other than as described in this proxy statement and prior filings with the SEC, as the Company is not aware of any firm offers made by any other persons prior to the date of the merger agreement for (i) a merger or consolidation of the Company with another company, or vice versa, (ii) a sale or transfer of all or any substantial part of the Company’s assets, or (iii) a purchase of the Company’s securities that would enable such person to exercise control of the Company.

To the extent known by each filing person after making reasonable inquiry, except as set forth under “ Special Factors — Recommendation of the Board of Directors and the Special Committee and Their Reasons for the Merger ,” no executive officer, director or affiliate of the Company or such filing person has made a recommendation either in support of or opposed to the merger and other transactions contemplated by the merger agreement.

41

Except as set forth under “ Special Factors — Background of the Merger ,” “ Special Factors — Recommendation of the Board of Directors and the Special Committee and Their Reasons for the Merger ,” and “ Special Factors — Opinion of the Special Committee’s Financial Advisor ,” no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of the unaffiliated stockholders for purposes of negotiating the terms of the merger and other transactions contemplated by the merger agreement and/or preparing a report concerning the fairness of the merger and other transactions contemplated by the merger agreement.

After carefully considering the unanimous recommendation of the special committee and other factors, the Company’s board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and fair to, and in the best interests of, the Company and its stockholders (other than the holders of the excluded shares), and adopted and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommends that our stockholders vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn or postpone the special meeting in order to take such actions as the Company’s board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

Opinion of the Special Committee’s Financial Advisor

On November 17, 2016, Houlihan Lokey verbally rendered its opinion to the special committee (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the special committee dated November 17, 2016), as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of shares of the Common Stock, other than the Excluded Persons, of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement.

Houlihan Lokey’s opinion was directed to the special committee (in its capacity as such) and only addressed the fairness, from a financial point of view and as of the date of the opinion, to the holders of the Common Stock (other than the Excluded Persons) of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement and did not address any other aspect or implication of the merger or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex B to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the special committee, the board of directors of the Company, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the merger.

In arriving at its opinion, Houlihan Lokey, among other things:

1.

reviewed a draft dated November 17, 2016 of the merger agreement;

​

2.

reviewed certain publicly available business and financial information relating to the Company that Houlihan Lokey deemed to be relevant;

​

3.

reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company made available to Houlihan Lokey by the Company, including the Company Projections;

​

4.

spoke with certain members of the management of the Company and certain representatives and advisors of the Company and the special committee regarding the business, operations, financial condition and prospects of the Company, the merger and related matters;

​

5.

compared the financial and operating performance of the Company with that of other public companies that Houlihan Lokey deemed to be relevant;

​

42

6.

considered the publicly available financial terms of certain transactions that Houlihan Lokey deemed to be relevant;

​

7.

reviewed the current and historical market prices and trading volume for the Common Stock and the current market prices of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant; and

​

8.

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

​

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they were based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses or Houlihan Lokey’s opinion, and that there is no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. Houlihan Lokey also took into account information comparing the financial projections for certain periods issued by management of the Company from time to time with the Company’s actual results for such periods.

Houlihan Lokey noted that Parent and Mr. Zhang had indicated that they were interested only in acquiring the outstanding shares of the Common Stock that they did not already own, and that they did not intend to sell their stake in the Company to a third party.

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the merger agreement and all other related documents and instruments that are referred to therein were true and correct, (b) each party to the merger agreement and other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the merger will be satisfied without waiver thereof, and (d) the merger will be consummated in a timely manner in accordance with the terms described in the merger agreement and such other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the merger will be consummated in a manner that complies in all respects with all applicable foreign, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the merger or the Company that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of the merger agreement would not differ from the draft of the merger agreement identified above in any respect material to its analysis or opinion.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection, independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey undertook no 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.

43

Houlihan Lokey’s opinion was furnished for the use of the special committee (in its capacity as such) and, if directed and deemed appropriate by the special committee, the board of directors of the Company (solely in its capacity as such), in connection with its evaluation of the merger and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion was not intended to be, and did not constitute, a recommendation to the special committee, the board of directors of the Company, any security holder or any other party as to how to act or vote with respect to any matter relating to the merger or otherwise.

Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of its opinion. Houlihan Lokey did not and will not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date of its opinion.

Houlihan Lokey was not requested to opine as to, and Houlihan Lokey’s opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the special committee, the board of directors of the Company, the Company, its security holders or any other party to proceed with or effect the merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the merger or otherwise (other than the merger consideration to the extent expressly specified in Houlihan Lokey’s opinion), including, without limitation, the terms or aspects of any arrangements involving Mr. Zhang or Ms. Meng or any potential financing for the merger or the likelihood of the consummation thereof, (iii) the fairness of any portion or aspect of the merger to the holders of any class of securities, creditors or other constituencies of the Company, or to any other party, except if and only to the extent expressly set forth in the last sentence of Houlihan Lokey’s opinion, (iv) the relative merits of the merger as compared to any alternative business strategies or transactions that might have been available to the Company or any other party, (v) the fairness of any portion or aspect of the merger to any one class or group of the Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (vi) whether or not the Company, its security holders or any other party is receiving or paying reasonably equivalent value in the merger, (vii) the solvency, creditworthiness or fair value of the Company, Parent or any other participant in the merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the merger, any class of such persons or any other party, relative to the merger consideration or otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or interpretations had been or would be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the special committee, on the assessments by the special committee, the board of directors of the Company, the Company and their respective advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company and the merger or otherwise. The issuance of Houlihan Lokey’s opinion was approved by a Houlihan Lokey committee authorized to approve opinions of this nature.

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company or the proposed merger and an evaluation of the results of those analyses is not entirely mathematical. As a consequence, mathematical derivations (such as the high, low, mean or median) of financial data are not by themselves meaningful and in selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. The estimates contained in the financial forecasts prepared by the management of the Company and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or

44

securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of our company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

Houlihan Lokey’s opinion was only one of many factors considered by the special committee in evaluating the proposed merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the merger consideration or of the views of the special committee, the board of directors or management of the Company with respect to the merger or the merger consideration. Under the terms of its engagement by the special committee , neither Houlihan Lokey’s opinion nor any other advice or services rendered by it in connection with the proposed merger or otherwise, should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, the Company, Parent, Merger Sub, any of their respective affiliates, the special committee, the board of directors, any security holder or creditor of the Company, Parent, Merger Sub, any of their respective affiliates or any other person, regardless of any prior or ongoing advice or relationships. The type and amount of consideration payable in the merger were determined through negotiation between the special committee and Parent, and the decision to enter into the merger agreement was solely that of the special committee and the board of directors of the Company.

Financial Analyses

In preparing its opinion to the special committee, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion.

The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the special committee on November 17, 2016. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

Furthermore, in accordance with SEC rules, the discussion materials prepared by Houlihan Lokey regarding the analyses summarized below were filed as exhibit C(5) to the Schedule 13E-3 filed by Synutra on December 9, 2016 and are available to stockholders on the SEC website at https://www.sec.gov/Archives/​edgar/data/1293593/000157104916020493/0001571049-16-020493-index.htm.

For purposes of its analyses, Houlihan Lokey reviewed a number of financial metrics, including:

•

Enterprise Value — generally, the value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company) plus the amount of its net debt (the amount of its outstanding indebtedness, non-convertible preferred stock, capital lease obligations and non-controlling interests less the amount of cash and cash equivalents on its balance sheet).

​

45

•

EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization for a specified time period.

​

•

Adjusted EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization, adjusted for certain non-recurring items, for a specified time period.

​

Specifically, because the Company’s results for the 12-month period ended September 30, 2016 and the Company Projections for fiscal 2017 and 2018 reflect EBITDA losses from the introduction of new products of approximately US$5.3 million, US$26.3 million and US$22.4 million respectively, as described below, and because Company management did not feel the current fiscal year results were representative of the Company’s future earnings potential, Houlihan Lokey performed certain of its analyses utilizing Adjusted EBITDA calculated by adding such amounts back to EBITDA for such 12-month period and projected EBITDA for fiscal 2017 and 2018 as reflected in the Company Projections.

Unless the context indicates otherwise, enterprise values and equity values used in the selected companies analysis described below were calculated using the closing price of the Common Stock and the common stock of the selected companies listed below as of November 14, 2016, and transaction values for the selected transactions analysis described below were calculated on an enterprise value basis based on the announced transaction equity price and other public information available at the time of the announcement. The estimates of the future financial and operating performance of the Company relied upon for the financial analyses described below were based on the Company Projections. The estimates of the future financial and operating performance of the selected companies listed below were based on certain publicly available research analyst estimates for those companies.

Selected Companies Analysis.    Houlihan Lokey reviewed certain data for the following selected dairy based nutritional products companies, with publicly traded equity securities, that Houlihan Lokey deemed relevant:

Ausnutria Dairy Corp Ltd (SEHK: 1717)
Beijing Sanyuan Foods Co., Ltd (SHSE: 600429)
Beingmate Baby & Child Food Co., Ltd (SZSE: 002570)
Biostime International Holdings Limited (China) (SEHK: 1112)
Bright Dairy & Food Co., Ltd. (SHSE: 600597)
Dutch Lady Milk Industries Bhd (KLSE: DLADY)
Hochdorf Holding AG (SWX: HOCN)
Maeil Dairies Co., Ltd. (KOSDAQ: A005990)
Morinaga Milk Industry Co., Ltd. (TSE: 2264)
Nam Yang Dairy Product Co., Ltd. (KOSE: A003920)
Synlait Milk Limited (NZSE: SML)
Yashili International Holdings Limited (SEHK: 1230)

The financial data reviewed included:

•

Enterprise value as a multiple of Adjusted EBITDA for the latest twelve month (“ LTM ”) period for which financial information was made public;

​

•

Enterprise value as a multiple of estimated Adjusted EBITDA for the next fiscal year (“ NFY ”) for which financial information has not been made public; and

​

•

Enterprise value as a multiple of estimated Adjusted EBITDA for the fiscal year following NFY (“ NFY + 1 ”).

​

This analysis indicated the following multiples for the selected companies, as compared to the corresponding multiples for the Company based upon the closing price of the Common Stock on November 14, 2016 and the merger consideration of US$6.05 per share utilizing the Company’s actual EBITDA for the 12-month period ended September 30, 2016 and estimated fiscal 2017 and 2018 EBITDA included in the Company Projections as well as the Company’s Adjusted EBITDA for the 12-month period ended September 30, 2016 and estimated fiscal 2017 and 2018 Adjusted EBITDA calculated based upon the Company Projections:

46

(1)

NA means “not available figure”, NEG means “negative” and NMF means “not meaningful figure”. NA, NEG and NMF amounts were excluded for purposes of calculating means and medians.

​

Taking into account the results of the selected companies analysis, Houlihan Lokey applied selected multiple ranges of 8.0x to 10.0x LTM Adjusted EBITDA and 5.5x to 7.5x estimated NFY + 1 Adjusted EBITDA to corresponding EBITDA for the Company to derive implied enterprise value references ranges for the Company. In selecting these ranges, Houlihan Lokey made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the selected companies. The selected companies analysis indicated implied per share value reference ranges of US$2.63 to US$4.56 per share of the Common Stock based on the selected range of multiples of LTM Adjusted EBITDA and US$2.22 to US$4.87 per share of the Common Stock based on the selected range of multiples of estimated NFY + 1 Adjusted EBITDA, as compared to the proposed merger consideration of US$6.05 per share of the Common Stock.

In addition, Houlihan Lokey applied selected multiple ranges of 8.0x to 10.0x LTM Adjusted EBITDA, 7.0x to 9.0x NFY Adjusted EBITDA and 5.5x to 7.5x estimated NFY + 1 Adjusted EBITDA to corresponding Adjusted EBITDA for the Company to derive implied enterprise value references ranges for the Company. In selecting these ranges, Houlihan Lokey made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the selected companies. This analysis indicated implied per share value reference ranges of US$3.38 to US$5.50 per share of the Common Stock based on the selected range of multiples of LTM Adjusted EBITDA, US$4.37 to US$7.07 per share of the Common Stock based on the selected range of multiples of estimated NFY Adjusted EBITDA and US$4.39 to US$7.84 per share of the Common Stock based on the selected

47

range of multiples of estimated NFY + 1 Adjusted EBITDA, as compared to the proposed merger consideration of US$6.05 per share of the Common Stock.

Selected Transactions Analysis.    Houlihan Lokey considered certain financial terms of the 16 transactions described in the table below involving target companies whose primary products consisted of dairy based nutritional products that Houlihan Lokey deemed relevant.

The financial data reviewed included:

•

Transaction value, which refers to the implied enterprise value of the target company, based on the announced transaction equity price and other public information available at the time of the announcement; and

​

•

Transaction value as a multiple of LTM EBITDA (or, in the case of the acquisition of Oushi Mengniu (Inner Mongolia) Dairy Products, Adjusted EBITDA).

​

This analysis indicated the following multiples for the selected transactions, as compared to the corresponding multiples for the merger based upon the merger consideration of US$6.05 per share and utilizing the Company’s EBITDA and Adjusted EBITDA for the 12-month period ended September 30, 2016:

48

(1)

NA means “not available figure” and NMF means “not meaningful figure”. NA and NMF amounts were excluded for purposes of calculating the mean and median.

​

Taking into account the results of the selected transactions analysis, Houlihan Lokey applied selected multiple ranges of 8.5x to 10.5x LTM EBITDA to the Company’s actual EBITDA and Adjusted EBITDA for the 12-month period ended September 30, 2016, which implied per share value reference ranges of US$3.11 to US$5.04 and US$3.91 to US$6.03 per share of the Common Stock, respectively, as compared to the proposed merger consideration of US$6.05 per share of the Common Stock. In selecting these ranges, Houlihan Lokey made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the target companies that participated in the selected transactions.

Discounted Cash Flow Analysis.    Houlihan Lokey performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company based on the Company Projections. Houlihan Lokey calculated terminal values for the Company by applying a range of perpetuity growth rates of 2.0% to 4.0% to the Company’s estimated 2020 unlevered free cash flows adjusted for a normalized tax rate and levels of long-term depreciation and amortization and capital expenditures. For purposes of this analysis, unlevered, after-tax free cash flow was calculated as EBIT as defined under “ Special Factors — Certain Financial Projections ”, less tax expense (assuming a 25% rate as provided management of the Company), plus depreciation and amortization, less capital expenditures, less change in net working capital. The net present values of the Company’s projected future cash flows and terminal values were then calculated using discount rates ranging from 12.0% to 15.0%. As Houlihan Lokey discussed with the special committee, Houlihan Lokey derived the foregoing range of discount rates by utilizing a blended analysis giving consideration to both the Company’s historic long-term infant milk formula business (the “ existing business ”) and the newly launched liquid milk business and new manufacturing facility for milk powder production (the “ new business ”), given the different characteristics of those businesses. The weighted average cost of capital for the existing business was weighted at 90% and derived based on certain financial metrics, including betas and capital structures, for the Company and the selected companies described under “ — Selected Companies Analysis ” above while the discount rate for the new business took into account the elevated risk profile of the new business, was weighted at 10% and was derived based upon expected rates of return by investors in businesses that are in the early stages of production and selling products. The discounted cash flow analysis indicated an implied per share value reference range of US$3.81 to US$9.29 per share of the Common Stock, as compared to the proposed merger consideration of US$6.05 per share of the Common Stock.

Other Information.     In addition, Houlihan Lokey observed certain additional information that was not considered part of its financial analysis for its opinion but was noted for informational purposes. Specifically, Houlihan Lokey reviewed information relating to the implied premiums paid in (i) 17 announced or proposed, but not yet completed or abandoned, going private transactions announced since August 19, 2013 involving Chinese companies and (ii) 71 completed going private transactions involving Chinese companies announced since April 8, 2010, including, the premium of transaction price (or, in the case of uncompleted transactions, the most recent proposed price) to the closing price of the common stock or common equity of the target company one day prior to the initial announcement of the proposed transaction, to the 30-day, 60-day, 90-day and 180-day and 52-week volume weighted average trading price of the common stock or common equity of the target company as of such date and to the 52-week high closing price as of such date. This information indicated the following high, mean, median and low implied

49

premiums for the 88 going private transactions as compared with the premiums represented by the proposed merger consideration of  $6.05 per share of the Common Stock compared with the relevant price or averages for the Common Stock as of January 15, 2016:

Miscellaneous

Houlihan Lokey was engaged by the special committee to act as its financial advisor in connection with the merger and provide financial advisory services, including an opinion to the special committee as to the fairness, from a financial point of view and as of the date of Houlihan Lokey’s opinion, to the holders of the Common Stock (other than the Excluded Persons) of the merger consideration to be received by such holders in the merger pursuant to the merger agreement. The special committee engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide financial advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Pursuant to its engagement by the special committee, Houlihan Lokey is entitled to an aggregate fee of US$1,007,000 for its services, US$250,000 of which became payable upon execution of Houlihan Lokey’s engagement letter, US$100,000 of which became payable when the special committee requested that Houlihan Lokey identify and begin contacting potential acquirers other than Parent, US$450,000 of which became payable upon the earlier of the execution by the Company of a definitive agreement with respect to any sale, merger, consolidation, business combination or other corporate transaction and delivery of Houlihan Lokey’s opinion (without regard to the conclusion set forth therein), US$50,000 of which became payable when the special committee requested that Houlihan Lokey assist it with the go-shop process and US$157,000 of which is contingent upon the successful completion of the merger (of which final amount $57,000 is based upon the excess of the merger consideration over US$5.91 per share). The Company has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokey’s engagement.

In the ordinary course of business, certain of Houlihan Lokey’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, the Company, Parent or any other party that may be involved in the merger and their respective affiliates or any currency or commodity that may be involved in the merger. Houlihan Lokey has confirmed both that it did not own any shares of the Common Stock during its engagement and prior to delivery of its opinion and that, based on a review of data available from Houlihan Lokey’s information management system, none of the members of the team working on the engagement owned any Common Stock during such period (other than indirectly through mutual funds, index funds, blind trusts, ETF’s, investment accounts over which a professional manager exercises investment discretion or similar investment vehicles).

Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to the Company, Parent, other participants in the merger or certain of their respective affiliates in the future, for which Houlihan Lokey and such affiliates may receive compensation. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future

50

act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, Parent, other participants in the merger or certain of their respective affiliates, for which advice and services Houlihan Lokey and such affiliates have received and may receive compensation. Since January 1, 2014, Houlihan Lokey has not received fees unrelated to the merger from the Company or any fees (whether or not related to the merger) from the buyer group.

Purposes and Reasons of the Buyer Group for the Merger

Under the SEC rules governing going-private transactions, each member of the buyer group is required to express its reasons for the merger to the unaffiliated stockholders. 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 the buyer group to acquire 100% control of the Company in a transaction in which the unaffiliated stockholders will be cashed out in exchange for US$6.05 per share, so that the buyer group will benefit from the rewards and bear the risks of sole ownership of the Company after the merger, including any future earnings and growth of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. In addition, the merger will allow Mr. Zhang to maintain his leadership role with the Company.

The buyer group believes that the operating environment has become more challenging due to recent operating conditions, industry trends and China’s macroeconomic growth. The recent economic slowdown in China and expected sustained macroeconomic challenges place substantial pressure on the Company’s revenue growth and other financial metrics. These changes have increased the uncertainty and volatility inherent in the business models 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 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. Following the merger, the Company’s management will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the U.S. public market’s valuation of the Company and the emphasis on short-term period-to-period performance.

As a privately held company, the Company will be relieved of many of the other 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. In particular, the buyer group believes that as a privately held company, the Company would no longer be subject to (i) the increased costs of regulatory compliance as an SEC reporting company and (ii) the requirement to disclose a considerable amount of business information to the public, some of which would otherwise be considered competitively sensitive and may potentially help the Company’s actual or potential competitors, customers, lenders and vendors compete against the Company or make it more difficult for the Company to negotiate favorable terms with them, as the case may be.

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 and because the buyer group was able to obtain debt financing in connection with the merger. 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.

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 proposed merger to the unaffiliated stockholders. 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

51

the merger are not intended and should not be construed as a recommendation to any stockholder of the Company as to how to vote on the proposal to adopt the merger agreement. The buyer group has interests in the merger that are different from, and/or in addition to, those of the unaffiliated stockholders 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 in the Merger ” beginning on page 67.

The buyer group believes the interests of the unaffiliated stockholders were represented by the special committee, which negotiated the terms and conditions of the merger agreement with the assistance of its independent legal advisor and its financial advisor. The buyer group attempted to negotiate a transaction that would be most favorable to them, and not to the unaffiliated stockholders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were substantively and procedurally fair to such unaffiliated stockholders. The buyer group did not participate in the deliberations of the special committee regarding, and did not receive any advice from the special committee’s independent legal advisor or its financial advisor as to, the fairness of the proposed merger to the unaffiliated stockholders. The buyer group did not perform, or engage a financial advisor to perform, any independent valuation or other analysis for the buyer group to assist them in assessing the substantive and procedural fairness of the proposed merger to the unaffiliated stockholders.

Based on its knowledge and analysis of available information regarding the Company and the factors considered by, and findings of, the special committee and the board of directors of the Company discussed in “ Special Factors — Recommendation of the Board of Directors and the Special Committee and Their Reasons for the Merger ” beginning on page 35, the buyer group believes the proposed merger is substantively and procedurally fair to the unaffiliated stockholders based upon the following factors:

•

the fact that the special committee and, acting upon the unanimous recommendation of the special committee, the board of directors of the Company determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of the unaffiliated stockholders;

​

•

the fact that the special committee, consisting entirely of directors who are not officers or employees of the Company and who are not affiliated with any member of the buyer group, was established and given authority to, among other things, review, evaluate and negotiate the terms of the merger and to recommend to the board of directors of the Company what action should be taken by the Company, including not to engage in the merger;

​

•

the fact that the members of the special committee do not have any interests in the merger different from, or in addition to, those of the unaffiliated stockholders, other than the members’ receipt of board and special committee compensation in connection with their evaluation of the merger (which are not contingent upon the completion of the merger or the special committee’s or board’s recommendation of the merger) and continued indemnification and liability insurance for such directors following the completion of the merger for certain claims and liabilities arising from their actions taken prior to the effective time of the merger;

​

•

the fact that the special committee retained and was advised by independent legal advisors and a financial advisor who are each experienced in advising committees such as the special committee in similar transactions;

​

•

the fact that the special committee and the board of directors of the Company had no obligation to recommend the approval of the going-private proposal from the buyer group;

​

•

the current and historical market prices of the Common Stock, including the fact that the US$6.05 per share merger consideration represents an approximately 58% premium over the closing price of US$3.83 per share on the NASDAQ Global Select Market on January 14, 2016 and a premium of approximately 31% and 20%, respectively, over the 30- and 60-trading day volume weighted average price on the NASDAQ Global Select Market on January 14, 2016, the last trading day prior to the Company’s announcement on January 15, 2016 that it had received the buyer group’s going-private proposal;

​

52

•

given the adoption of the merger agreement is subject to the affirmative vote of the (i) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (ii) the holders of at least a majority of the issued and outstanding shares of the Common Stock other than the excluded shares, the buyer group cannot unilaterally adopt the merger agreement at the special meeting and this would give the unaffiliated stockholders a meaningful opportunity to consider and vote upon the adoption of the merger agreement at the special meeting;

​

•

the fact that the merger consideration is all cash, which provides certainty of value and liquidity to the unaffiliated stockholders and allows the unaffiliated stockholders not to be exposed to risks and uncertainties relating to the prospects of the Company;

​

•

the fact that the merger consideration, other terms and conditions of the merger agreement and the transactions contemplated thereby were the result of extensive negotiations over an extended period of time between the special committee, the buyer group and their respective legal and financial advisors;

​

•

the fact that Parent and Merger Sub obtained debt financing commitment for the transaction, the limited number and nature of the conditions to the debt financing and the obligation of Parent to use its reasonable best efforts to obtain the debt financing;

​

•

the fact that Mr. Zhang and Ms. Meng have agreed to guarantee the obligations of Parent under the merger agreement to pay the termination fee to the Company and reimburse certain costs and expenses of the Company under certain circumstances;

​

•

notwithstanding that the opinion of Houlihan Lokey was provided for the information and assistance of the special committee and members of the buyer group are not entitled to, and did not, rely on such opinion, the fact that the special committee received from Houlihan Lokey an opinion dated November 17, 2016, as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of the Common Stock (other than the Excluded Persons) of the merger consideration of US$6.05 per share in cash to be received by such holders in the merger pursuant to the merger agreement;

​

•

the recognition of the potential disadvantages that the Company would continue to face as an SEC-reporting company, including continuing to be subject to the (i) increased costs of regulatory compliance; and (ii) requirement 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 the Company’s actual or potential competitors, customers, lenders and vendors compete against the Company or make it more difficult for the Company to negotiate favorable terms with them, as the case may be;

​

•

under the terms of the merger agreement, from the date of the merger agreement until the go-shop period end date, the Company is permitted to (i) initiate, solicit or encourage acquisition proposals, including by way of public disclosure and by way of providing access to non-public information to any person (subject to certain limitations and restrictions) and (ii) enter into and maintain discussions or negotiations with respect to acquisition proposals or otherwise cooperate with, assist or participate in, facilitate, or take any other action in connection with any such inquiries, proposals, discussions or negotiations;

​

•

under the terms of the merger agreement, in certain circumstances relating to an unsolicited bona fide written proposal of an alternative transaction, at any time and after the go-shop period end date, and prior to obtaining the required stockholder approval of the merger, the Company is permitted (subject to certain limitations and restrictions set forth in the merger agreement) to (i) clarify and understand the terms of conditions of such acquisition proposal so as to determine whether it constitutes or could reasonably be expected to result in a superior proposal; and (ii) furnish information to and enter into discussions or negotiations with persons making such acquisition proposals;

​

53

•

the fact that in certain circumstances under the terms of the merger agreement, the special committee and the board of directors of the Company are able to change, withhold, withdraw, qualify or modify their recommendation of the merger, including in response to intervening events that are not acquisition proposals;

​

•

the fact that the Company is able to, subject to compliance with the terms and conditions of the merger agreement, terminate the merger agreement prior to the completion of the merger in order to accept an alternative transaction proposed by a third party that is a superior proposal;

​

•

the termination fee payable by the Company to Parent if the merger agreement is terminated under certain circumstances is US$3.13 million, which amount is reduced to US$2.5 million if certain triggering events are in connection with an acquisition proposal received by the Company on or before the go-shop period end date;

​

•

the termination fee payable by Parent to the Company if the merger agreement is terminated under certain circumstances is US$6.26 million, which is twice the maximum amount of the termination fee payable by the Company to Parent;

​

•

the Company, under certain circumstances as set out in the merger agreement, is able to specifically enforce the terms of the merger agreement;

​

•

the availability of appraisal rights to the Company’s stockholders; and

​

•

the fact that neither the buyer group nor any of its advisors participated in or sought to influence the deliberative process of the special committee.

​

In the course of reaching their determination as to the fairness of the merger to the Company’s unaffiliated stockholders, the buyer group also considered a variety of risks and other countervailing factors related to the merger agreement and the merger, including the following:

•

the fact that the unaffiliated stockholders will have no ongoing equity participation in the Company following the merger and that the unaffiliated stockholders will cease to participate in the Company’s future earnings or growth, if any;

​

•

the risk that the merger might not be completed in a timely manner or at all;

​

•

the fact that the buyer group, which holds approximately 63.5% of the total outstanding shares of the Common Stock, expressed unwillingness to consider a sale of their stake to any third party, which may have discouraged, and may in the future discourage, third parties from submitting competing transactions with terms and conditions, including price, that may be superior to the merger;

​

•

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 fact that the Company has incurred and will continue to incur significant transaction costs and expenses in connection with the potential transaction, regardless of whether the merger is consummated;

​

•

the fact that since the Company became publicly listed in 2007, the highest historical closing price of the Common Stock (US$52.24 per share) exceeds the merger consideration offered to the unaffiliated stockholders; and

​

•

the taxability of an all cash transaction to our unaffiliated stockholders that are U.S. holders for U.S. federal income tax purposes.

​

The buyer group did not consider 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.

54

In its consideration of the fairness of the merger, the buyer group did not undertake an appraisal of the assets of the Company to determine the Company’s liquidation value for the unaffiliated stockholders due to the impracticability of determining a liquidation value given the significant execution risk involved in any breakup. In addition, the buyer group did not consider the Company’s liquidation value to be a relevant valuation method because it considers the Company to be a viable going concern where value is derived from cash flows generated from its continuing operations, and because the Company will continue to operate its business following the merger.

The buyer group did not establish, and did not consider, a pre-merger going concern value for the shares of the Common Stock as a public company to determine the fairness of the proposed merger consideration to the unaffiliated stockholders, because following the merger the Company will have a significantly different capital structure. However, to the extent the pre-merger going concern value was reflected in the pre-announcement price of the Common Stock, the merger consideration of US$6.05 per share represented a premium to the per share going concern value of the Company.

The buyer group is not aware of, and thus did not consider in its fairness determination, any offers or proposals made by any unaffiliated third parties with respect to a merger or consolidation of the Company with or into another company, a sale of all or a substantial part of the Company’s assets, or the purchase of the Company voting securities that would enable the holder to exercise control over the Company.

The buyer group did not receive any independent reports, opinions or appraisals from any outside party related to the proposed merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the merger to the unaffiliated stockholders.

The buyer group did not specifically consider the purchase prices paid in the transactions described under “ Common Stock Transaction Information ” but notes that the consideration to be received by the unaffiliated stockholders generally represents a premium over such prices.

Mr. Zhang and Ms. Meng were jointly responsible for making the fairness determination described above on behalf of themselves and Parent and Merger Sub. They considered the factors described above and made this fairness determination once the terms of the merger agreement had been fully negotiated with the special committee and its advisors.

The foregoing discussion of the information and factors considered and given weight by the buyer group in connection with its evaluation of the substantive and procedural fairness to the unaffiliated stockholders of the merger agreement and the transactions contemplated by the merger agreement, including the proposed merger, is not intended to be exhaustive, but is believed by the buyer group to include all material factors considered by them. The buyer group did not find it practicable to and did not quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the substantive and procedural fairness of the merger agreement and the proposed merger to the unaffiliated stockholders. Rather, the buyer group made the fairness determinations after considering all of the foregoing as a whole. In addition, the buyer group considered and recognized the negative factors considered by the special committee and the Company’s board of directors described under “ Special Factors — Recommendation of the Board of Directors and the Special Committee and Their Reasons for the Merger ” beginning on page 35, the consideration of which is adopted by the buyer group.

The buyer group believes these factors provide a reasonable basis for its belief that the proposed merger is both substantively and procedurally fair to the unaffiliated stockholders. This belief, however, is not intended to be and should not be construed as a recommendation by the buyer group to any stockholder of the Company as to how such stockholder should vote with respect to the adoption of the merger agreement. The buyer group does not make any recommendation as to how such stockholders should vote relating to the proposal to authorize, approve and adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the special meeting.

Management and Board of Directors of the Surviving Corporation

The board of directors of the surviving corporation will, from and after the effective time of the merger, consist of the directors of Merger Sub as of immediately prior to the effective time of the merger (identified below under “ Annex C — Directors and Executive Officers of Each Filing Person ”), until their

55

respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal. The officers of the surviving corporation will, from and after the effective time of the merger, be the officers of the Company as of immediately prior to the effective time of the merger (identified below under “ Annex C — Directors and Executive Officers of Each Filing Person ”), until their respective successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal.

Effects of the Merger on the Company

Private Ownership

The Common Stock is currently traded on the NASDAQ Global Select Market under the symbol “SYUT.” It is expected that, following the consummation of the merger, the Company will cease to be a publicly traded company and will instead become a private company beneficially owned by the buyer group. Following the completion of the merger, the Common Stock will no longer be listed on any securities exchange or quotation system, including the NASDAQ Global Select Market, and price quotations with respect to sales of the Common Stock in the public market will no longer be available. In addition, registration of the Common Stock under the Exchange Act may be terminated upon the Company’s application to the SEC if the Common Stock is not listed on a national securities exchange and there are fewer than 300 record holders of the Common Stock. Ninety days after the filing of Form 15 in connection with the completion of the merger or such longer period as may be determined by the SEC, registration of the Common Stock under the Exchange Act will be terminated and 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 Sarbanes-Oxley Act of 2002, 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 stockholders will no longer enjoy the rights or protections that the U.S. federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company.

At the effective time of the merger, each share of the Common Stock issued and outstanding immediately prior to such effective time (other than the excluded shares and the dissenting shares) will be automatically cancelled and converted into the right to receive the per share merger consideration of US$6.05 without interest. At the effective time of the merger, (i) the excluded shares will be cancelled and cease to exist and no payment or distribution will be made to the holders of such excluded shares, and (ii) if certain conditions are met, the dissenting shares will be cancelled for the right to receive the fair value of such shares as determined in accordance with the provisions of the applicable Delaware law, including Section 262 of the DGCL. As a result, current stockholders of the Company, other than the holders of the excluded shares, will no longer have any equity interest in, or be stockholders of, the Company upon completion of the merger. As a result, the Company’s stockholders, other than the holders of the excluded shares, will not have the opportunity to participate in the earnings and growth of the Company and they will not have the right to vote on corporate matters. Similarly, the Company’s current stockholders, other than the holders of the excluded shares, will not be exposed to the risk of loss in relation to their investment in the Company.

Directors and Management of the Surviving Corporation

If the merger is completed, the current certificate of incorporation of the Company will be amended and restated in its entirety to read identically to the certificate of incorporation of Merger Sub as in effect immediately prior to the effective time of the merger, and such amended and restated certificate of incorporation shall be the certificate of incorporation of the surviving corporation until thereafter amended in accordance with the applicable provisions of the DGCL and such certificate of incorporation; provided, however, that at the effective time of the merger, the certificate of incorporation of the surviving corporation shall be amended so that the name of the surviving corporation will be “Synutra International, Inc.” In addition, the directors of Merger Sub immediately prior to the completion of the merger will become the directors of the surviving corporation and the officers of the Company will remain the officers of the surviving corporation.

56

Primary Benefits and Detriments of the Merger

The primary benefits of the merger to the unaffiliated stockholders include the following:

•

the receipt by the unaffiliated stockholders of US$6.05 per share of the Common Stock (without accounting for any applicable withholding taxes), representing a premium of 31% and 20%, respectively, over the Company’s 30- and 60-trading day volume-weighted average price as quoted by the NASDAQ Global Select Market prior to January 14, 2016, the last trading day prior to the Company’s announcement on January 15, 2016 that it had received a non-binding going-private proposal; and

​

•

the avoidance of the risk associated with any possible decrease in the future revenues, cash flow, growth or value of the Company following the merger, as well as the uncertainty and risks associated with growing new businesses of the Company, including as a result of  (i) competition from other companies (some of which may have been in existence longer than the Company’s new businesses) and (ii) the fact that risks for new businesses may be greater.

​

The primary detriments of the merger to the unaffiliated stockholders include the following:

•

such stockholders will cease to have an interest in the Company and, therefore, will no longer benefit from possible increases in the future revenues, cash flow, growth or value of the Company; and

​

•

in general, the receipt of cash pursuant to the merger or through the exercise of the appraisal rights with respect to the merger 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 of the Merger ” beginning on page 69 and “— Material PRC Tax Consequences of the Merger ” beginning on page 71.

​

The primary benefits of the merger to the buyer group include the following:

•

if the Company successfully executes its business strategies, the value of the buyer group’s equity investment could increase because of possible increases in future revenues and cash flow, increases in the underlying value of the Company or the payment of dividends, if any, that will accrue to Parent;

​

•

the Company will no longer face pressure from public stockholders to make decisions that may produce better short-term results, but which may not maximize equity value in the long term;

​

•

the Company will have more freedom to focus on long-term strategic planning in a highly competitive business with increasing competition and regulation;

​

•

the Company will have more flexibility to change its capital expenditure strategies without public market scrutiny;

​

•

the Company will be able to 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

​

•

there will be a reduction of the costs and administrative burden associated with operating the Company as a publicly traded company, including the costs associated with regulatory filings and compliance requirements.

​

The primary detriments of the merger to the buyer group include the following:

•

all of the risks of any possible decrease in the revenues, cash flow or value of the Company following the merger will be borne by Parent;

​

•

the business risks facing the Company, including increased competition and government regulation, will be borne by Parent; and

​

•

an equity investment in the surviving corporation by Parent following the merger will involve substantial risk resulting from the limited liquidity of such an investment since there will be no trading market for the surviving corporation’s equity securities.

​

57

Effects of the Merger on 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 each member of the buyer group before and after the merger, based on the historical net book value and net earnings of the Company as of fiscal year ended March 31, 2016. The Company’s net earnings for the fiscal year ended March 31, 2016 was approximately US$21.0 million, and its net book value as of March 31, 2016 were approximately US$136.8 million.

(1)

Ownership represents shares of the Common Stock held by Parent. Ms. Meng, the spouse of Mr. Zhang, is the sole director and shareholder of Parent.

​

Effects on the Company if the Merger Is Not Completed

If the merger agreement is not authorized and adopted by the stockholders or if the merger is not completed for any other reason, the stockholders will not receive any payment for their shares of the Common Stock in connection with the merger. Instead, the Company will remain a publicly traded company and the Common Stock will continue to be registered under the Exchange Act and listed and traded on the NASDAQ Global Select Market, provided that the Company continues to meet its listing requirements. Therefore, the Company’s stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of the Common Stock. 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 Common Stock, including the risk that the market price of the Common Stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed.

Under certain circumstances specified in the merger agreement, the Company may be required to pay Parent a termination fee of US$3.13 million or US$2.5 million, or Parent may be required to pay us a termination fee of US$6.26 million. See “ The Agreement and Plan of Merger — Termination Fee ” beginning on page 93 for additional information.

If the merger is not completed, the Company’s board of directors will, from time to time, evaluate and review, among other things, the business, operations, dividend policy and capitalization of the Company and make such changes as are deemed appropriate, and continue to seek to identify strategic alternatives to enhance stockholder value. If the merger agreement is not adopted by the stockholders or if the merger is not completed for any other reason, we cannot assure you that any other transaction acceptable to the Company will be offered, or that the business, prospects or results of operations of the Company will not be adversely affected.

Plans for the Company after the Merger

After the effective time of the merger, the buyer group anticipates that the Company will continue to conduct its operations substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be a wholly-owned subsidiary of Parent. There are no current plans to repay the debt incurred to finance the merger, other than in accordance with the terms of the debt commitment letter.

The buyer group has advised the Company that, other than as described in this proxy statement, it does not have any present plans or proposals that relate to or would result in an extraordinary corporate transaction involving the Company’s corporate structure, business, or management, such as a merger, reorganization, liquidation, or relocation of any material operations or sale or transfer of a material amount of assets of the Company.

58

However, after the effective time of the merger, the buyer group and the surviving corporation will continue to evaluate the surviving corporation’s business and operations from time to time, and may propose or develop new plans and proposals, including any of the foregoing actions and any actions to address the challenges referred to under the heading “ Special Factors — Purposes and Reasons of the Buyer Group for the Merger ” above, in each case, which they consider to be in the best interests of the surviving corporation and its equity holders, including the possibility of relisting the Company or a substantial part of its business on another stock exchange. The buyer group expressly reserves the right to make any changes it deems appropriate to the operation of the surviving corporation in light of such evaluation and review as well as any future developments.

Certain Financial Projections

The Company’s management does not, as a matter of course, make available to the public future financial projections. However, as part of the nearly eleven-month process leading to execution of the merger agreement, management provided the special committee and Houlihan Lokey with the May Projections, the August Projections and the Company Projections, in each case for the fiscal years ending March 31, 2017 through March 31, 2020 and Houlihan Lokey, as the financial advisor to the special committee, was authorized by the special committee to use the Company Projections, including for purposes of its financial analyses of the Company and the proposed transaction. Each of the May Projections, the August Projections and the Company Projections were based on management’s projection of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for internal use and were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC regarding forward-looking information or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. generally accepted accounting principles (“ U.S. GAAP ”).

The May Projections and the August Projections have been superseded by the Company Projections and are being included in this proxy statement solely to provide holders of the Common Stock with information that was made available to the special committee and Houlihan Lokey throughout the course of the transaction process. Further, the projections included in the May Projections, the August Projections and the Company Projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the projections, management took into account historical performance, combined with estimates of future performance. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by management that management believed were reasonable at the time the projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. Further, since the projections cover multiple years, such information by its nature becomes less reliable with each successive year. The assumptions the Company’s management made about future financial factors affecting the Company’s business included, among other factors, that (i) material costs and expenses would increase in line with the Company’s revenues increase, (ii) the growth of the infant formula industry in China would continue in line with the management’s expectation, (iii) the tightened PRC regulations over infant formula products would not adversely affect the Company’s business in a manner inconsistent with the management’s expectation, (iv) the Company’s new manufacturing facilities in France would commence operation and generate revenues in line with the management’s expectation, and (iv) China’s overall economy would remain stable, with no material change in competition adversely affecting the Company. In addition, factors such as industry performance, the market for the Company’s existing and new services and products, the competitive environment, expectations regarding future acquisitions or any other transactions and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of management, may cause actual future results to differ materially from the results forecasted in these financial projections.

The projections do not take into account any acquisitions of new businesses or assets, as management believed that the nature, timing and amount of any such acquisitions would be too difficult to predict. In addition, the projections do not take into account any circumstances or events occurring after the respective dates that they were prepared. For instance, the projections do not give effect to completion of the merger or any changes to our operations or strategy that may be implemented after the time the projections were prepared. As a result, there can be no assurance that the projections will be realized, and actual results may be significantly different from those contained in the Company Projections.

59

Neither the Company’s independent registered public accounting firm, Deloitte Touche Tohmatsu Certified Public Accountants LLP, nor any other independent accountants have examined, compiled or performed any procedures with respect to the May Projections, the August Projections or the Company Projections or any amounts derived therefrom or built thereupon and, accordingly, they have not expressed any opinion or given any form of assurance on the May Projections, the August Projections or the Company Projections or their achievability. The financial projections included in this proxy statement are included solely to give stockholders access to certain information that was made available to the special committee and to the special committee’s financial advisor and are not included for the purpose of influencing any stockholder to make any investment decision with respect to the merger, including whether or not to vote in favor of approval of the proposal to adopt the merger agreement or to elect not to seek appraisal rights.

60

61

Certain of the prospective financial information prepared by the Company and included in the Company Projections may be considered non-U.S. GAAP financial measures. These non-U.S. GAAP measures are presented because management believes that they are useful financial indicators of the Company’s performance. The Company’s non-U.S. GAAP EBITDA and non-U.S. GAAP earnings before interest and taxes (“ EBIT ”) vary from the most comparable U.S. GAAP financial measures in that the non-U.S. GAAP measures do not include certain recurring charges. Although management uses these measures to assess the performance of the Company’s business compared to that of others in the industry, the use of these non-U.S. GAAP measures is limited because they do not include certain recurring charges that may be material in amount and are necessary to operate the Company’s business. As such, these non-U.S. GAAP measures should not be relied upon as alternatives to results prepared and presented in accordance with U.S. GAAP. Such measures are not defined under U.S. GAAP and, accordingly, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable measurements to results reported or forecasted by other companies.

62

A reconciliation of the non-U.S. GAAP measures used in the Company Projections with the most comparable financial measures calculated and presented in accordance with U.S. GAAP is set forth below.

The following table presents the calculation of unlevered free cash flow utilized by Houlihan Lokey in connection with its discounted cash flow analysis:

(1)

Represents 4.5 month stub period.

​

The following table presents the calculation of Adjusted EBITDA utilized by Houlihan Lokey in connection with its financial analyses:

The financial projections and forecasts included in this proxy statement should not be considered in isolation or in lieu of the Company’s operating and other financial information determined in accordance with U.S. GAAP. See “ Selected Financial Information ” beginning on page 104.

The financial projections and forecasts included in this proxy statement are forward-looking statements. For information on factors that may cause our future financial results to materially vary, see “ Special Note Regarding Forward-Looking Statements ” beginning on page 107 and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, incorporated by reference into this proxy statement. As described above, the May Projections and the August Projections have been superseded by the Company Projections.

For the foregoing reasons, as well as the bases and assumptions on which the financial projections and forecasts were compiled, the inclusion of specific portions of the financial projections and forecasts in this proxy statement should not be regarded as an indication that the Company, the special committee, the

63

Company’s board of directors or any of its or their respective advisors considers such financial projections or forecasts to be an accurate prediction of future events, and the projections and forecasts should not be relied on as such an indication. No one has made or is making any representation to any stockholders of the Company or anyone else regarding the information included in the financial projections and forecasts discussed above.

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

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS FINANCIAL PROJECTIONS AND FORECASTS INCLUDED IN THE MAY PROJECTIONS, THE AUGUST PROJECTIONS AND THE COMPANY 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.

Alternatives to the Merger

The board of directors of the Company did not independently determine to initiate a process for the sale of the Company. The special committee was formed on January 21, 2016, in response to the board of directors’ receipt of a preliminary non-binding proposal from Mr. Zhang and Parent on January 14, 2016 regarding a potential going-private transaction. The special committee and the board of directors have considered the going-private transaction and the possibility of remaining an independent entity on its own and with the assistance of its independent financial and legal advisors. The special committee and the board of directors determined to undertake the merger and not remain an independent entity given (i) the risks, uncertainties and costs involved in remaining a public company, (ii) that the adoption of the merger agreement requires the affirmative vote (in person or by proxy) of  (x) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (y) the holders of at least a majority of the issued and outstanding shares of the Common Stock (other than the excluded shares), and the buyer group alone may not adopt the merger agreement, and (iii) the Company can terminate the merger agreement under certain circumstances. See “ The Agreement and Plan of Merger — Competing Transaction s” starting on page 86. The special committee and the board of directors did not consider alternative means to accomplish the purposes of the going-private transaction such as a tender offer or a reverse stock split because they believed that the merger was the most direct and understandable means to unaffiliated stockholders in terms of deal structure, and also was the most common deal structure used in going-private transactions. Since the Company’s receipt of the proposal letter from the buyer group, which was announced via press release on January 15, 2016 and filed with the SEC on the same date, the Company has not received any actionable offer from any third party for (a) a merger or consolidation of the Company with another company, (b) a sale or transfer of all or substantially all of the Company’s assets or (c) a purchase of all or a substantial portion of the shares that would enable such person to exercise control of or significant influence over the Company. The special committee and the board of directors also took into account that, under certain circumstances prior to the receipt of the requisite stockholder approval, the Company can terminate the merger agreement after receipt of a superior proposal, subject to the payment to Parent of a termination fee of US$3.13 million or US$2.5 million, as applicable, as set forth in the merger agreement. In this regard, the special committee and the board of directors recognized that the Company has flexibility under the merger agreement, subject to the contractual rights of the buyer group, 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.

64

Financing of the Merger

The buyer group estimates that the total amount of funds necessary to complete the merger and the related transactions, including payment of the merger consideration to the Company’s stockholders other than the holders of the excluded shares pursuant to the merger agreement, is anticipated to be approximately US$125.2 million, assuming no exercise of appraisal rights by any stockholder of the Company. This amount is expected to be funded through a debt financing as described below.

The total amount of funds necessary to consummate the transactions contemplated under the merger agreement, including the merger, is expected to be provided through the aggregate debt financing commitments of up to US$150 million (the “ debt financing ”) as set forth in a debt commitment letter (the “ debt commitment letter ”). As of the date of this proxy statement, there are no alternative financing arrangements or plans in place to obtain the funds necessary for the consummation of transactions contemplated under the merger agreement, including the merger.

On November 17, 2016, Parent received the debt commitment letter from the lender, pursuant to which and subject to the conditions set forth therein, the lender committed to arrange and provide a term loan facility of up to US$150 million in aggregate principal amount (the “ term facility ”) for Parent to finance the merger.

The debt commitment letter terminates upon the following events: (i) Parent is abandoning the merger; (ii) the merger is rejected; (iii) the merger agreement is terminated in accordance with its terms or ceases to be in full force and effect; or (iv) Parent fails to make the first utilization before November 17, 2017. Parent, Merger Sub, the Company, Shengyuan Nutritional Food Co., Ltd., Ms. Meng, Mr. Zhang and FNOF are collectively referred to as obligors (the “ obligors ”) under the debt commitment letter.

The lender’s commitments to provide the debt financing to Parent are subject to, among other things:

•

the compliance by Parent in all material respects with all the terms of the debt commitment letter;

​

•

each of the representations and warranties made by Parent in the debt commitment letter being correct in all material respects;

​

•

the preparation, execution and delivery of the following finance documents by Parent and other obligors:

​

•

subject to the terms under the heading “Documentation” set forth in a term sheet associated with the debt commitment letter (the “ term sheet ”), a facility agreement incorporating the terms and conditions set forth in the term sheet or otherwise agreed between the lender and Parent (the “ facility agreement ”); and

​

•

the security documents and other facility documentation in respect of the term facility in each case required to be executed and delivered pursuant to the term sheet and the facility agreement;

​

•

it not being unlawful for the lender to fund, make available and maintain the term facility and perform its obligations under the finance documents, and upon satisfaction or waiver by the lender of such conditions precedent to the first utilization under the facility agreement.

​

The term facility will be available in multiple drawings from the date of the signing of the facility agreement. The term facility will mature on the fifth anniversary of the date of the first utilization. Parent is required to repay 20% of the total outstanding principal amount of the term facility on the 6-month anniversary of the first utilization and one third of the balance of the outstanding principal amount on the third, fourth and fifth anniversaries of the first utilization, respectively. The buyer group does not have any current plans or arrangements to refinance the term facility.

The term facility will be subject to mandatory prepayment in the following circumstances: (i) upon the occurrence of a change of control event (as defined in the term sheet), in full; or (ii) in the case of illegality in respect of the lender, to the extent of that illegality. Except with the prior written consent of the lender, a change of control will occur if: (i) Ms. Meng ceases to directly hold 100% of the voting shares of Parent, subject to an exception resulting from FNOF exercising its option to convert its convertible notes into the shares of Parent pursuant to the note purchase agreement (as defined in the term sheet); (ii) Parent ceases

65

to directly hold at least 63.5% of the voting shares in the Company, subject to an exception resulting from FNOF exercising its option to convert its exchangeable notes into the shares of the Company pursuant to the note purchase agreement; or (iii) the Company ceases to hold, directly or indirectly, 100% of the voting shares in Shengyuan Nutritional Food Co., Ltd.

The interest rate of the term facility will be equal to the London interbank offered rate for U.S. dollar deposits for a three-month period equal to the applicable three-month interest period and a margin of 2% per annum.

The obligations of the obligors under the term facility will be secured by: (i) a first priority share charge over 100% of the shares in Parent; (ii) a first priority pledge over 63.5% of the shares in the Company; (iii) an escrow account agreement regarding the borrower escrow account (as defined in the term sheet) with the lender; (iv) an agreement regarding the US$60 million notes FNOF holds pursuant to the note purchase agreement; and (v) undertaking letters and/or acknowledgements from certain obligors. The obligors will be subject to certain customary affirmative and negative covenants and the term facility contain certain customary events of default.

The lender’s commitments to provide the debt financing are not conditioned upon a successful syndication of any of the term facility with other financial institutions.

On or prior to the date of the consummation of the merger, the lender may not assign or transfer by novation any of its rights and obligations under the debt commitment letter to any person. After the merger is consummated, the lender may assign or transfer by novation any of its rights and obligations under the debt commitment letter to any other bank or financial institutions or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets, without the prior written consent of Parent. Parent may not assign or transfer by novation any of its rights and obligations under the debt commitment letter.

The foregoing summary of the debt commitment letter does not purport to be complete and is qualified in its entirety by reference to the debt commitment letter.

Limited Guarantee

On November 17, 2016, Mr. Zhang and Ms. Meng entered into a limited guarantee, pursuant to which they absolutely, unconditionally and irrevocably guaranteed to the Company, jointly and severally, on the terms and subject to the conditions therein, the due and punctual payment and discharge as and when due of the payment obligations of Parent with respect to (i) the termination fee that may be payable by Parent to the Company under the merger agreement, and (ii) the indemnification, reimbursement and expense obligations of Parent in connection with the cooperation of the Company and its subsidiaries for the financing arrangements, up to a defined maximum amount.

The limited guarantee will terminate as of the earliest of  (i) the effective time of the merger, (ii) the termination of the merger agreement in accordance with its terms where the Parent termination fee is not payable and there is no unpaid expense obligation of Parent, and (iii) in the case of a termination of the merger agreement for which the Parent termination fee is payable, the date falling 90 days after such termination (unless, in the case of clause (iii) above, the Company has previously made a written claim under the limited guarantee prior to such date, in which case the limited guarantee shall terminate upon the final, non-appealable resolution of such action and satisfaction by Mr. Zhang and Ms. Meng of any of their obligations finally determined or agreed to be owed by them).

Interests of Certain Persons in the Merger

In considering the recommendation of the special committee and the Company’s board of directors with respect to the merger, you should be aware that each member of the buyer group has interests in the transactions that are different from, and/or in addition to, the interests of our stockholders generally. The Company’s board of directors and special committee were aware of such interests and considered them, among other matters, in reaching their decisions to adopt the merger agreement and approve the transactions contemplated by the merger agreement, including the merger, and recommend that our stockholders vote in favor of approving the merger agreement and the transactions contemplated by the merger agreement, including the merger.

66

Interests of the Buyer Group in the Merger

As a result of the merger, the buyer group will own 100% of the surviving corporation immediately following the completion of the merger. Ms. Meng, the spouse of Mr. Zhang will continue to own 100% of the equity interests in Parent immediately after the completion of the merger.

Because of Parent’s equity interests in the surviving corporation, 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, including the amount paid by Parent as merger consideration to the unaffiliated stockholders. The buyer group will also bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Company and given that the Company will become a privately-held company following the completion of the merger, the buyer group will have no certainty of any future opportunity to sell their shares in Parent or the surviving corporation at an attractive price, or that any dividends paid by the surviving corporation or Parent will be sufficient to recover their investment.

The merger may provide additional means to enhance stockholder value for the buyer group, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance, 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.

Indemnification and Insurance

Pursuant to the merger agreement, the surviving corporation has agreed that it will, and will cause the Company’s subsidiaries to, indemnify and hold harmless (including any obligations to advance funds for expenses) the present and former officers and directors thereof against any and all costs or expenses (including attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities, obligations (including experts’ fees, travel expenses, court costs, retainers, transcript fees, duplicating, printing and binding costs), fines and amounts paid in settlement in connection with any actual or threatened claim, action, suit, arbitration, proceeding or investigation, whether civil, criminal, administrative or investigative, and whether initiated by the Company, the surviving corporation, any governmental authority or any other party, based in whole or in part on, arising out of, relating to or in connection with, (i) the fact that such person is or was a director, officer, employee, fiduciary or agent of the Company or its subsidiaries, (ii) any acts or omissions occurring or alleged to have occurred prior to or at the effective time, including the adoption of the merger agreement, the merger, or the other transactions or arising out of or pertaining to the transactions contemplated by the merger agreement, in each case to the extent provided to each such person under the Company’s or its subsidiaries’ organizational and governing documents or agreements in effect on the date of the merger agreement and to the fullest extent as permitted by the applicable law, or (iii) any acts or omissions in such persons’ official capacity as an officer, director or other fiduciary in the Company or its subsidiaries if such service was at the request or for the benefit of the Company or its subsidiaries, subject to certain limitations and restrictions.

The certificate of incorporation and by-laws of the surviving corporation will contain provisions no less favorable with respect to exculpation, advances of expenses and indemnification than are set forth in the certificate of incorporation and by-laws of the Company as in effect on the date of the merger agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the effective time of the merger in any manner that would adversely affect the rights thereunder of individuals who, at or prior to the effective time, were former or present directors or officers of the Company, unless such modification is required by applicable laws.

The Special Committee

On January 21, 2016, the Company’s board of directors established a special committee of directors to consider the proposal from the buyer group and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The special committee is composed of three independent directors — Ms. Jinrong Chen, Mr. Lei Lin and Mr. Yalin Wu. Other than (i) their receipt of board and special committee compensation (which are not contingent upon the completion of the merger or the

67

special committee’s or our board of directors’ recommendation of the merger), (ii) their indemnification and liability insurance rights under the merger agreement and (iii) the right of Mr. Yalin Wu to receive the merger consideration in respect of 400 shares of the Common Stock owned by him upon the completion of the merger, none of the members of the special committee has a financial interest in the merger or any of the transactions contemplated by the merger agreement and none of them is related to any member of the buyer group. The Company’s board of directors did not place any limitations on the authority of the special committee regarding its investigation and evaluation of the merger.

In consideration of the expected time and effort that would be required of the members of the special committee in evaluating the proposed transaction, we have compensated, and will continue to compensate, the members of the special committee for their service in such capacity at a rate of US$12,500 per month after the receipt of the January 14 Proposal, until the proposed transaction has either been terminated or completed or otherwise determined by our board of directors. As of the date of this proxy statement, each member of the special committee has received US$175,000 for his or her service in such capacity.

Position with the Surviving Corporation

After the completion of the merger, Mr. Zhang expects to continue to serve as a director of the surviving corporation. It is anticipated that the executive officers of the Company will hold positions with the surviving corporation that are substantially similar to their current positions.

Related Party Transactions

For a description of significant related-party transactions for the fiscal years ended March 31, 2015 and 2016, see “Item 13. Certain Relationships and Related Transactions, and Director Independence” included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, incorporated by reference into this proxy statement. See “ Where You Can Find More Information ” beginning on page 109. There have been no other significant related-party transactions since March 31, 2016, except in connection with the merger as discussed elsewhere in this proxy statement.

Dividends

The Company has never declared or paid any dividends on shares of the Common Stock. Accordingly, the Company does not expect to declare or pay any further dividends prior to the merger, and under the terms of the merger agreement, is prohibited from so doing.

Regulatory Matters

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

Fees and Expenses

Fees and expenses incurred or to be incurred by the Company and the buyer group in connection with merger are estimated at the date of this proxy statement to be as follows:

68

These expenses will not reduce the merger consideration to be received by the Company’s stockholders. Except for the right to reimbursement of costs and expenses under certain circumstances, the party incurring any costs and expenses in connection with the merger and the merger agreement will pay such costs and expenses.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of material U.S. federal income tax consequences of the merger that may be relevant to U.S. Holders and Non-U.S. Holders (each as defined below) whose shares of the Common Stock are converted into the right to receive cash pursuant to the merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “ Code ”), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (the “ IRS ”), and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to stockholders who hold their shares of the Common Stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes).

This discussion is for information only and does not address all of the tax consequences that may be relevant to a stockholder of the Company in light of its particular circumstances. For example, this discussion does not address:

•

tax consequences that may be relevant to the stockholders of the Company who may be subject to special treatment under U.S. federal income tax laws, such as financial institutions; tax-exempt organizations; partnerships, other entities or arrangements treated as partnerships for U.S. federal income tax purposes and other flow-through entities (and partners or investors therein); insurance companies; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of accounting for their securities; regulated investment companies; real estate investment trusts; entities subject to the U.S. anti-inversion rules; stockholders who hold their Common Stock as “qualified small business stock” for purposes of Sections 1045 or 1202 of the Code; or certain former citizens or long-term residents of the United States;

​

•

tax consequences to the stockholders of the Company holding their shares of the Common Stock as part of a hedging, constructive sale or conversion, straddle or other risk reduction transaction;

​

•

tax consequences to the stockholders of the Company who received their shares of the Common Stock in a compensatory transaction or pursuant to the exercise of options or warrants;

​

•

tax consequences to the stockholders of the Company who own an equity interest, actually or constructively, in Parent or the Company following the merger;

​

•

tax consequences to U.S. Holders whose “functional currency” is not the U.S. dollar;

​

•

tax consequences to the stockholders of the Company who hold their shares of the Common Stock through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States;

​

•

tax consequences to the stockholders of the Company who are “controlled foreign corporations,” “passive foreign investment companies” or “personal holding companies” for U.S. federal income tax purposes;

​

•

tax consequences arising from the Medicare tax on net investment income;

​

•

the U.S. federal estate, gift or alternative minimum tax consequences, if any;

​

•

any state, local or non-U.S. tax consequences;

​

•

tax consequences to the stockholders of the Company that do not vote in favor of the merger and who properly demand appraisal of their Common Stock under Section 262 of the DGCL.

​

69

If a partnership (including an entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of the Common Stock, then the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partner and the partnership. Partnerships holding shares of the Common Stock and partners therein are encouraged to consult their tax advisors regarding the consequences of the merger.

No ruling has been or will be obtained from the IRS regarding the U.S. federal income tax consequences of the merger described below. If the IRS contests a conclusion set forth herein, no assurance can be given that a stockholder of the Company would ultimately prevail in a final determination by a court.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY STOCKHOLDER OF THE COMPANY. A COMPANY STOCKHOLDER IS ENCOURAGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF HIS, HER OR ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER U.S. FEDERAL NON-INCOME TAX LAWS OR THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.

U.S. Holders

For purposes of this discussion, a “ U.S. Holder ” is a beneficial owner of shares of the Common Stock that is, for U.S. federal income tax purposes:

•

an individual who is a citizen or resident of the United States;

​

•

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia (or treated as such for U.S. federal income tax purposes);

​

•

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

​

•

a trust (1) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in Section 7701(a)(30) of the Code or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.

​

The receipt of cash by a U.S. Holder in exchange for shares of the Common Stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares of the Common Stock surrendered pursuant to the merger. A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for such shares. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the completion of the merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of certain non-corporate U.S. Holders, including individuals. The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of shares of the Common Stock at different times and different prices, such holder must determine its adjusted tax basis and holding period separately with respect to each block of the Common Stock.

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. U.S. HOLDERS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES IF PRC TAX IS IMPOSED ON GAIN ON A DISPOSITION OF THE SHARES OF THE COMMON STOCK, INCLUDING THE AVAILABILITY OF THE FOREIGN TAX CREDIT UNDER THEIR PARTICULAR CIRCUMSTANCES.

Non-U.S. Holders

For purposes of this discussion, the term “ Non-U.S. Holder ” means a beneficial owner of shares of the Common Stock that is neither a U.S. Holder nor a partnership (or entity or arrangement treated as such for U.S. federal income tax purposes).

70

Any gain realized by a Non-U.S. Holder pursuant to the merger generally will not be subject to U.S. federal income tax unless:

•

the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable income tax treaty);

​

•

such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the merger, and certain other specified conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable income tax treaty); or

​

•

the Company is or has been a “United States real property holding corporation” as such term is defined in Section 897(c) of the Code (“ USRPHC ”) at any time within the shorter of the five-year period preceding the merger or such Non-U.S. Holder’s holding period with respect to the applicable shares of the Common Stock, which we refer to as the “ relevant period ,” and, if shares of the Common Stock are regularly traded on an established securities market (within the meaning of Section 897(c)(3) of the Code), such Non-U.S. Holder owns directly, or is deemed to own pursuant to attribution rules, more than 5% of the Common Stock at any time during the relevant period, in which case such gain will be subject to U.S. federal income tax at rates generally applicable to U.S. persons (as described in the first bullet point above), except that the branch profits tax will not apply.

​

Information Reporting and Backup Withholding

Information reporting and backup withholding (at a current rate of 28%) may apply to the proceeds received by a stockholder of the Company pursuant to the merger. Backup withholding generally will not apply to: (1) a U.S. Holder that furnishes a correct taxpayer identification number and certifies that such holder is not subject to backup withholding on IRS Form W-9 or (2) a Non-U.S. Holder that provides a certification of such holder’s foreign status on the appropriate series of IRS Form W-8 or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the stockholder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

Material PRC Tax Consequences of the Merger

Under the Enterprise Income Tax Law (the “ EIT Law ”), which took effect on January 1, 2008, enterprises established outside of the PRC 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 PRC State Council adopted the Regulation on the Implementation of Enterprise Income Tax Law, 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 PRC 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, which provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China and also defines a Chinese-controlled offshore incorporated enterprise as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Under the EIT Law and its implementation regulations, the PRC 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 (i) does not have an establishment or place of business in the PRC or (ii) has an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment

71

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 of a capital asset in China is subject to PRC individual income tax at the rate of 20%. Relief from these taxes may be sought under applicable income 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 cash consideration for the shares of the Common Stock should otherwise be subject to PRC income tax to holders of such shares of the Common Stock 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 cash consideration for the shares of the Common Stock would otherwise be subject to PRC tax to holders of such shares of the Common Stock that are not PRC tax residents.

In addition, under the Circular on Strengthening the Administration of Enterprises Income Tax on Non-resident Enterprises’ Equity Transfer Income (“ Circular 698 ”) issued by the PRC State Administration of Taxation, which became effective as of January 1, 2008, the Circular Concerning Various Questions on the Administration of Enterprises Income Tax on Non-resident Enterprises (“ Bulletin 24 ”) issued by the PRC State Administration of Taxation, which became effective as of April 1, 2011, and the Bulletin on Certain Issues Relating to Indirect Transfer of Assets by Non-resident Enterprises (“ Bulletin 7 ”) issued by the PRC State Administration of Taxation, which became effective on February 3, 2015 and replaced or supplemented certain previous rules under Circular 698 and Circular 24, if a non-resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, the non-resident enterprise may have an obligation to report to the competent PRC tax authorities within 30 days after the execution of relevant equity transfer agreement and be subject to a 10% PRC income tax on the gain from such equity transfer, unless such non-resident enterprise both acquired and disposed of shares of such offshore holding company on a public securities market in accordance with standard rules of such market.

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 redefine and deem the transaction as a direct transfer of PRC resident enterprises’ equity and impose a 10% income tax on the gain from such offshore share transfer. Circular 698 or Bulletin 7 may be determined by the PRC tax authorities to be applicable to the merger where non-PRC resident stockholders were involved, if the merger is determined by the PRC tax authorities to lack reasonable commercial purpose. As a result, if PRC tax authorities were to invoke Circular 698 or Bulletin 7 and impose tax on the receipt of consideration for the shares of the Common Stock, then any gain recognized on the receipt of consideration for such shares of the Common Stock pursuant to the merger by the Company’s non-PRC-resident stockholders 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 are encouraged to consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including any PRC tax consequences.

Delisting and Deregistration of the Common Stock

If the merger is completed, the Common Stock will be delisted from the NASDAQ Global Select Market and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC.

Litigation Relating to the Merger

Four purported stockholder class action complaints have been filed against the Company and certain officers and directors thereof in connection with the proposed transaction. The first, Rudy Murillo v. Synutra International, Inc., et al., Case No. 12990-VCL, was filed on December 15, 2016, in the Court of

72

Chancery of the State of Delaware, and was amended on January 5, 2017. The plaintiff in this action also filed a motion for expedited proceedings, but that motion was denied by the Court of Chancery on February 3, 2017. The second, Abraham Atachbarian Roth Ira v. Synutra International, Inc., et al., Case No. 1:16-cv-01302-LPS, was filed on December 22, 2016, in the United States District Court for the District of Delaware. The third, Robert Garfield v. Synutra International, Inc., et al., Case No. 428880-v, was filed on January 5, 2017, in the Circuit Court for Montgomery County, Maryland. On February 21, 2017, the Company filed a motion to dismiss or stay this action in favor of the Murillo action. That motion remains pending. The fourth, Arthur Flood v. Synutra International, Inc., et al., Case No. 2017-0032-JTL, was filed on January 17, 2017, in the Court of Chancery of the State of Delaware, and was amended on February 10, 2017. These complaints challenge the proposed transaction and allege, among other things, that the individual defendants breached their fiduciary duties to the minority stockholders by approving the proposed transaction following an inadequate process and failing to disclose material information in connection with the proposed transaction. The complaints seek, among other relief, to enjoin defendants from consummating the proposed transaction or, alternatively, damages in the event the proposed transaction is consummated. The Company has reviewed the allegations contained in the complaints, believes they are without merit and intends to defend these actions vigorously.

One of the conditions to the closing of the merger is that no order by a court or other governmental authority shall be in effect that prohibits the consummation of the merger or that makes the consummation of the merger illegal. As such, if the plaintiffs are successful in obtaining an injunction prohibiting the defendants from completing the merger on the agreed-upon terms, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe.

Accounting Treatment of the Merger

The merger is expected to be accounted for, at historical cost, as a merger of entities under common control in accordance with Accounting Standards Codification 805-50, “Business Combinations — Related Issues.”

73

THE SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the Company’s board of directors for use at the special meeting to be held on April 28, 2017 starting at 11:00 a.m. (Beijing time), at the offices of the Company located at the Synutra International Building, 106 Dong Lu Yuan, Tongzhou District, Beijing 101101, China, or at any postponement or adjournment thereof. At the special meeting, holders of the Common Stock will be asked to vote upon the proposal to adopt the merger agreement, and to approve the proposal to adjourn or postpone the special meeting in order to take such actions as the Company’s board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

The merger is subject to the adoption of the merger agreement by the affirmative vote (in person or by proxy) of  (i) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (ii) the holders of at least a majority of the issued and outstanding shares of the Common Stock (other than the excluded shares), in each case in accordance with the Company’s certificate of incorporation and bylaws and the DGCL. If our stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about March 15, 2017.

Record Date and Quorum

We have fixed the close of business in New York on March 14, 2017 as the record date for the special meeting, and only holders of record of the Common Stock on the record date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you own shares of the Common Stock at the close of business in New York on the record date. As of the date of this proxy statement, 56,690,400 shares of the Common Stock are outstanding. On the record date, 56,690,400 shares of the Common Stock are expected to be outstanding and entitled to vote. Each share of the Common Stock entitles its holder to one vote on all matters properly coming before the special meeting.

The presence, in person or by proxy, of the holders of a majority of the shares of the Common Stock outstanding and entitled to vote on the record date is necessary to constitute a quorum for the transaction of business at the special meeting. Abstentions and broker non-votes are included in determining the number of shares present or represented at the special meeting for purposes of determining whether a quorum exists. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned.

Attendance

Stockholders may vote by attending the special meeting and voting in person. In order to attend the special meeting in person, arrive on time at the address listed above with your proxy card and a form of valid photo identification. Specific directions to the Synutra International Building, the location of the special meeting, are attached as Annex E to this proxy statement. If you are a beneficial owner of shares held in street name and you want to vote in person at the special meeting, you must contact the bank, brokerage firm or other nominee that holds your shares in their name prior to the meeting and obtain from them a valid proxy issued by them in your name giving you the right to vote the shares registered in their name. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

Vote Required

Adoption of the merger agreement requires the affirmative vote (in person or by proxy) of  (i) the holders of at least a majority of the issued and outstanding shares of the Common Stock entitled to vote and (ii) the holders of at least a majority of the issued and outstanding shares of the Common Stock (other

74

than the excluded shares), in each case in accordance with the Company’s certificate of incorporation and bylaws and the DGCL. For the proposal to adopt the merger agreement, you may vote “ FOR ,” “ AGAINST ” or “ ABSTAIN .” Abstentions will not be counted as votes cast in favor of the proposal to adopt the merger agreement, but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

If your shares of the Common Stock are registered directly in your name with our transfer agent, Computershare, Inc., you are considered, with respect to those shares of the Common Stock, the “stockholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

If your shares of the Common Stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of the Common Stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of the Common Stock, the stockholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting.

Under the rules of the NASDAQ Global Select Market, banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to adopt the merger agreement, and, as a result, absent specific instructions from the beneficial owner of such shares of the Common Stock, banks, brokerage firms or other nominees are not empowered to vote those shares of the Common Stock on non-routine matters, which we refer to generally as broker non-votes. THESE BROKER NON-VOTES WILL BE COUNTED FOR PURPOSES OF DETERMINING A QUORUM, AND WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.

The proposal to adjourn or postpone the special meeting in order to take such actions as the Company’s board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement, will be approved if holders of the majority of the voting power of the outstanding shares of the Common Stock entitled to vote at the special meeting that are represented at the special meeting vote in favor of such proposal. For the proposal to adjourn or postpone the special meeting in order to take such actions as the Company’s board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement, you may vote “ FOR ,” “ AGAINST ” or “ ABSTAIN .” For purposes of this proposal, if you have given a proxy and abstained on this proposal, such abstention will have the same effect as a vote “ AGAINST ” this proposal. If there are broker non-votes on the issue, such broker non-votes will have the same effect as a vote “ AGAINST ” this proposal.

If you are a stockholder of record, you may submit your proxy or vote your shares of the Common Stock on matters presented at the special meeting in any of the following ways:

By Telephone:    You may submit your proxy by calling the toll-free telephone number indicated on your proxy card. Please follow the voice prompts that allow you to submit your proxy and confirm that your instructions have been properly recorded.

Via the Internet:    You may submit your proxy by logging on to the website indicated on your proxy card. Please follow the website prompts that allow you to submit your proxy and confirm that your instructions have been properly recorded.

By Mail:    You may submit your proxy by completing, signing and returning the proxy card in the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares of the Common Stock according to your directions. If you sign and return your proxy card without specifying choices, your shares of the Common Stock will be voted by the persons named in the proxy “ FOR ” the proposals set forth in this proxy statement.

75

Vote at the Meeting:    You may cast your vote in person at the special meeting. Written ballots will be passed out to stockholders or legal proxies who want to vote in person at the meeting.

If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of the Common Stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted.

Please note that if you are a beneficial owner of shares held in street name and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for submitting your proxy over the Internet or by telephone. If you choose to submit your proxy by mailing a proxy card, your proxy card must be received by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

If you submit your proxy, regardless of the method you choose, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, or your proxies, will vote your shares of the Common Stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of the Common Stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of the Common Stock should be voted on a matter, the shares of the Common Stock represented by your properly signed proxy will be voted “ FOR ” the proposal to adopt the merger agreement and “ FOR ” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

If you have any questions or need assistance voting your shares, please call MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, at (800) 322-2885 (or +1-212-929-5500 call collect outside of the United States) or by email at proxy@mackenziepartners.com.

IT IS IMPORTANT THAT YOU SUBMIT A PROXY FOR YOUR SHARES OF THE COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

As of March 14, 2017, the record date, the directors and executive officers of the Company (other than Mr. Zhang) are expected to beneficially own and be entitled to vote, in the aggregate, 400 shares of the Common Stock, representing less than 1% of the outstanding shares of the Common Stock on the record date. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of the Common Stock “ FOR ” the proposal to adopt the merger agreement and “ FOR ” the proposal to adjourn or postpone the special meeting in order to take such actions as our board of directors determines are necessary or appropriate, including to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

At the close of business in New York on March 14, 2017, the record date, 56,690,400 shares of the Common Stock are expected to be outstanding and entitled to vote at the special meeting. On the record date, the buyer group is expected to own 36,000,000 shares of the Common Stock, which represent approximately 63.5% of the total outstanding shares of the Common Stock. Accordingly, due to the “majority of the minority stockholders” vote requirement described above, based on the 56,690,400 shares of the Common Stock expected to be outstanding on the record date, more than 10,345,200 shares of the Common Stock owned by the minority stockholders (representing greater than 50% of the total

76

outstanding shares of the Common Stock owned by the minority stockholders and, together with all the shares beneficially owned by the buyer group, 81.8% of the total outstanding shares of the Common Stock), must be voted in favor of the proposal to adopt the merger agreement for it to be approved.

Proxies and Revocation

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person at the special meeting. If your shares of the Common Stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of the Common Stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of the Common Stock will not be voted on the proposal to adopt the merger agreement, which will have the same effect as a vote “ AGAINST ” the proposal to adopt the merger agreement.

If you are a stockholder of record, you have the right to revoke a proxy (whether delivered over the Internet, by telephone or by mail) at any time before it is submitted at the special meeting by:

•

submitting a new proxy by telephone or via the Internet after the date of the earlier submitted proxy;

​

•

signing another proxy card with a later date and returning it to us prior to the special meeting; or

​

•

attending the special meeting and voting in person.

​

Any such new or later-dated proxy should be delivered (over the Internet or by mail) to our corporate secretary. If delivered by Internet, please email szhang@synutra.com. If sent by mail, please send it to Synutra International, Inc. at 2275 Research Boulevard, Suite 500, Rockville, Maryland 20850, Attn: Corporate Secretary. Any such new or later-dated proxies must be received by the Company prior to the special meeting. Receipt by the Company of such new or later-dated proxy prior to the special meeting is, in itself, sufficient to revoke a prior proxy by that stockholder. If you hold your shares in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

Adjournments

Although it is not currently expected, the special meeting may be adjourned, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the special meeting to adopt the merger agreement, or if a quorum is not present at the special meeting. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned.

Anticipated Date of Completion of the Merger

We are working towards completing the merger as quickly as possible and expect the merger to close no later than the termination date under the merger agreement. In order to complete the merger, we must obtain the required stockholder approval of the merger at the special meeting and the other closing conditions under the merger agreement must be satisfied or waived in accordance with the merger agreement.

Payment of Solicitation Expenses

The Company has retained MacKenzie Partners, Inc., a proxy solicitation firm, to solicit proxies in connection with the special meeting for a fee of US$13,500 and the reimbursement of out-of-pocket expenses. In addition, the Company may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of the Common Stock for their expenses in forwarding soliciting materials to beneficial owners of the Common Stock and in obtaining voting instructions from those owners.

77

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, toll-free at (800) 322-2885 (or +1-212-929-5500 call collect outside of the United States) or by email at proxy@mackenziepartners.com.

78

THE AGREEMENT AND PLAN OF MERGER

This section of the proxy statement describes the material terms of the merger agreement but does not purport to describe all of the terms of the merger agreement. This description is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A, and is incorporated by reference into this proxy statement. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. This description of the merger agreement has been included to provide you with information regarding its terms.

Structure and Completion of the Merger

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the merger agreement. Merger Sub is a Delaware corporation formed solely for purposes of the merger. Parent is a British Virgin Islands company and wholly-owned by Ms. Meng. If and only after the merger is completed, the Company will cease to be a publicly traded company. The closing will occur on a date to be specified by the special committee (on behalf of the Company) and Parent, which will be no later than ten business days following the date on which all of the closing conditions have been satisfied or waived. At the closing, Merger Sub and the Company will file a certificate of merger with respect to the merger with the Secretary of State of the State of Delaware. The merger will become effective upon such filing or at a later time as agreed by Parent, Merger Sub and the Company and specified in the certificate of merger in accordance with the DGCL.

In order to complete the merger, all conditions to the merger must be satisfied or waived in accordance with the merger agreement. 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.

Certificate of Incorporation and Bylaws of the Surviving Corporation; Directors and Officers of the Surviving Corporation

Upon completion of the merger, the certificate of incorporation and bylaws of Merger Sub, as in effect immediately prior to the effective time of the merger, will be the certificate of incorporation and bylaws of the surviving corporation (except that at the effective time of the merger, the certificate of incorporation will be amended to reflect that the name of the surviving corporation is “Synutra International, Inc.”). The directors of Merger Sub immediately prior to the effective time of the merger will become the directors of the surviving corporation and the officers of the Company immediately prior to the effective time of the merger will remain the officers of the surviving corporation, in each case, unless otherwise determined by Parent in a written notice delivered to the Company prior to the effective time, and until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal in accordance with the certificate of incorporation and bylaws of the surviving corporation and applicable law.

Treatment of the Common Stock

At the effective time of the merger, each issued and outstanding share of the Common Stock, other than any excluded shares and dissenting shares, will be automatically cancelled and converted into the right of its holder to receive US$6.05 in cash without interest and subject to any applicable withholding taxes. All the excluded shares will be automatically cancelled at the effective time of the merger, and no payment or distribution shall be made to the holders of such excluded shares. The dissenting shares will be cancelled for the right to receive the fair value of such shares as determined in accordance with the provisions of the DGCL.

At the effective time of the merger, each share of the common stock of Merger Sub issued and outstanding immediately prior to the effective time of the merger, par value US$0.0001 per share, will be converted into one validly issued, fully paid and non-assessable share of the common stock, par value US$0.0001 per share, of the surviving corporation.

Exchange Procedures

Prior to or at the effective time of the merger, Parent will deposit, or cause to be deposited with a paying agent, cash in an amount sufficient to pay the aggregate merger consideration under the merger

79

agreement. The cash deposited, prior to the effective time of the merger, shall be held on behalf of Parent and, from and after the effective time of the merger, shall be held for the benefit of the holders of the shares of the Common Stock (other than holders of the excluded shares and the dissenting shareholders). Promptly after the effective time of the merger (but in no event later than five business days following the effective time of the merger), the surviving corporation shall cause the paying agent to mail to each stockholder of record (other than holders of the excluded shares and the dissenting shares) (i) a letter of transmittal in customary form and (ii) instructions for effecting the surrender of any stock certificates in exchange for the applicable merger consideration. Upon surrender of the stock certificates, or receipt of an “agent’s message” by the paying agent if the shares are represented by book-entry interests, each record holder of such stock certificates or book-entry interests will receive an amount (after giving effect to any required tax withholdings), equal to (a) the number of shares represented by the stock certificates multiplied by (b) the per share merger consideration.

Representations and Warranties

The merger agreement contains representations and warranties made by the Company to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to the Company, in each case, as of specific dates. The statements embodied in those representations and warranties were made for purposes of the merger agreement and are subject to important qualifications and limitations agreed by the parties in connection with negotiating the terms of the merger agreement. In addition, some of those representations and warranties may be subject to a contractual standard of materiality different from that generally applicable to stockholders, may have been made for the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party or parties prove to be untrue due to a change in circumstance or otherwise and allocating risk between the parties to the merger agreement rather than establishing matters as facts. Moreover, the representations and warranties made by the Company may be qualified by the matters contained in the disclosure letter delivered by the Company in connection with the merger agreement and its public disclosure with the SEC since January 1, 2013 and prior to the date of the merger agreement. It should also be noted that information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

The representations and warranties made by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:

•

due organization, existence, good standing (to the extent the relevant jurisdiction recognizes such concept of good standing) and authority to carry on the businesses of the Company and each of its subsidiaries;

​

•

the truthfulness, correctness and completeness of the copy of the certificate of incorporation, bylaws or equivalent organizational documents of the Company and each of its subsidiaries furnished or otherwise made available to Parent, and the full force and effect of such documents;

​

•

the Company’s capitalization, and the absence of options, warrants, preemptive rights or other similar rights relating to the share capital of the Company or securities convertible into or exchangeable for capital stock or voting securities or other equity securities of the Company;

​

•

the Company’s corporate power and authority to execute, deliver and perform its obligations under the merger agreement and to consummate the transactions contemplated by the merger agreement, including the merger;

​

•

the vote of the Company’s stockholders required to approve and adopt the merger agreement;

​

•

the declaration of advisability and recommendation to the stockholders of the Company of the merger agreement and the merger by the board of directors of the Company, acting upon the recommendation of the special committee, and the adoption of the merger agreement and the merger by the board of directors of the Company, acting upon the recommendation of the special committee;

​

80

•

the receipt of an opinion from the financial advisor to the special committee;

​

•

the subsidiaries of the Company, the absence of violations of preemptive right or other rights with respect to the share capital of such subsidiaries, and the absence of encumbrances on the Company’s or its subsidiaries’ ownership of the equity interests of such subsidiaries, the absence of options, warrants, preemptive rights or other similar rights relating to the share capital of the subsidiaries or securities convertible into or exchangeable for capital stock or voting securities or other equity securities of the subsidiaries;

​

•

the absence of violations of, default under, material breach of, or conflict with, the governing documents of the Company and its subsidiaries, any law applicable to the Company and its subsidiaries and certain agreements of the Company and its subsidiaries as a result of the Company entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

​

•

governmental consents and approvals in connection with the transactions contemplated by the merger agreement;

​

•

the possession of governmental permits, consents or approvals necessary for the Company or its subsidiaries to own or use its properties or to carry on its business; the absence of default under or violations of any law applicable to the Company or any of its subsidiaries;

​

•

the Company’s SEC filings since January 1, 2013 and the financial statements included or incorporated by reference in such SEC filings;

​

•

the absence of undisclosed liabilities;

​

•

compliance with all applicable provisions of the Sarbanes-Oxley Act of 2002 and the Company’s disclosure control and procedures and internal controls over financial reporting;

​

•

no violation of the Foreign Corrupt Practices Act of 1977 or any other applicable anti-bribery law or anti-corruption law for the past three years;

​

•

the absence of a “Company Material Adverse Effect” (as defined below) and the absence of certain other changes or events since June 30, 2016 through the date of the merger agreement;

​

•

the absence of legal proceedings and governmental orders against the Company or its subsidiaries;

​

•

compliance with applicable PRC labor and employment laws, and the absence of collective bargaining agreement or other labor union contract;

​

•

real estate and title to assets;

​

•

intellectual property;

​

•

tax matters;

​

•

material contracts and the absence of any default under, or material breach or violation of, any material contract;

​

•

insurance matters;

​

•

environmental matters;

​

•

the accuracy of the information provided by the Company for inclusion in the Schedule 13E-3 and this proxy statement;

​

•

the absence of any undisclosed broker’s or finder’s fees;

​

•

the absence of a stockholder rights plan and the inapplicability of any antitakeover laws enacted under U.S. state or federal laws; and

​

•

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

​

81

Many of the representations and warranties in the merger agreement made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, a “ Company Material Adverse Effect ” means any fact, event, circumstance, change, development or effect that, either individually or in the aggregate with all other effects, (a) has a material adverse effect on the business, assets, financial condition or results of operations of the Company and its subsidiaries taken as a whole; or (b) would prevent or materially delay the consummation of the transactions contemplated under the merger agreement by the Company or otherwise be materially adverse to the ability of the Company to perform its obligations under the merger agreement; provided, solely with respect to clause (a) above, that in no event shall any of the following, either alone or in combination, constitute, or be taken into account in determining whether there has been a Company Material Adverse Effect:

(i)

changes in general business, economic or political conditions or changes in financial, credit or securities markets in general;

​

(ii)

changes in GAAP or regulatory accounting requirements (or any interpretation or enforcement thereof) after the date of the merger agreement;

​

(iii)

changes in applicable laws (or any interpretation or enforcement thereof) that are binding on the Company or any of its subsidiaries;

​

(iv)

effects resulting from the consummation of the merger and the transactions contemplated by the merger agreement, or the public announcement of the merger agreement or the identity of the parties to the merger agreement, including the initiation of stockholder litigation or other legal proceeding related to the merger agreement or the transactions contemplated by the merger agreement, or any losses of customers or employees, or any disruption in or loss of suppliers, distributors, providers or similar parties with whom the Company or any of its subsidiaries has any relationship;

​

(v)

acts of God, natural disasters, epidemics, declarations of war, acts of sabotage or terrorism, or outbreak or escalation of hostilities;

​

(vi)

changes in the market price or trading volume of the shares of the Common Stock (the facts or occurrences giving rise to or contributing to such changes may be taken into account in determining whether a Company Material Adverse Effect has occurred);

​

(vii)

actions or omissions of the Company or any of its subsidiaries (x) that are expressly required by the merger agreement, or (y) with the written consent or at the written request of Parent or Merger Sub;

​

(viii)

changes, effects or circumstances affecting the industries or markets in which the Company and its subsidiaries operate;

​

(ix)

the failure by the Company or any of its subsidiaries to meet any internal or industry estimates, expectations, forecasts, projections or budgets for any period (although the facts or occurrences giving rise to or contributing to such failure may be taken into account in determining whether a Company Material Adverse Effect has occurred); or

​

(x)

any change or prospective change in the Company’s credit ratings (although the facts or occurrences giving rise to or contributing to such change or prospective change may be taken into account in determining whether a Company Material Adverse Effect has occurred);

​

provided, that events, circumstances, changes or effects set forth in clauses (i), (ii), (iii), (v) and (viii) above may be taken into account in determining whether a “Company Material Adverse Effect” has occurred or would reasonably be expected to occur if and to the extent such events, circumstances, changes or effects individually or in the aggregate have a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries in which the Company and its subsidiaries conduct their businesses (in which case the incremental disproportionate impact or impacts may be taken into account in determining whether or not a Company Material Adverse Effect has occurred).

82

The representations and warranties made by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:

•

their due organization, existence and good standing (to the extent the relevant jurisdiction recognizes such concept of good standing);

​

•

their memorandum and articles of association being in full force and effect;

​

•

the capitalization of Parent and Merger Sub;

​

•

their corporate power and authority to execute, deliver and perform their obligations under the merger agreement and to consummate the transactions contemplated by the merger agreement, and the enforceability of the merger agreement against them;

​

•

the absence of violations of, conflict with, default under, or material breach of, the governing documents of Parent or Merger Sub, law applicable to Parent or Merger Sub and certain agreements of Parent or Merger Sub as a result of Parent or Merger Sub entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

​

•

governmental consents and approvals in connection with the transactions contemplated by the merger agreement;

​

•

the delivery and the effectiveness and validity of the debt commitment letter, and the absence of any amendment or modification thereof or default or breach thereunder;

​

•

sufficiency of funds in the financing contemplated by the debt commitment letter to pay the aggregate merger consideration contemplated by the merger agreement, and to pay all reasonable related fees and expenses;

​

•

the absence of any side letters or other arrangements related to the funding, investing or contribution of the debt financing other than as set forth in the debt commitment letter;

​

•

the absence of legal proceedings and governmental orders against Parent, Merger Sub, or any of their respective affiliates;

​

•

the accuracy of the information provided by Parent or Merger Sub for inclusion in the Schedule 13E-3 and this proxy statement;

​

•

the absence of an “interested stockholder” (as defined in Section 203 of the DGCL) status of Parent, Merger Sub or any member of the buyer group or their respective affiliates in the past three years;

​

•

the operations of Merger Sub;

​

•

solvency of Parent and the surviving corporation on a consolidated basis immediately following completion of the merger;

​

•

the limited guarantee being in full force and effect and no default on the part of Mr. Zhang and Ms. Meng under the limited guarantee;

​

•

the absence of any oral or written contracts between Parent, Merger Sub or any of their respective affiliates, on the one hand, and any member of the Company’s directors, officers, employees or stockholders, on the other hand, that relate in any way to the transactions contemplated by the merger agreement, including the merger, and the absence of any oral or written contracts regarding the consideration, voting arrangements and provision of financing relating to the merger (except as provided under the merger agreement);

​

•

the independent investigation performed by Parent and Merger and the acknowledgment as to reliance solely upon such investigation;

​

•

the acknowledgment as to non-reliance of any estimates, forecasts, projections, plans and budgets provided by the Company and its subsidiaries;

​

83

•

the absence of any undisclosed broker’s or finder’s fees; and

​

•

the absence of any other representations and warranties made by Parent and Merger Sub to the Company, other than the representations and warranties made by Parent and/or Merge Sub in the merger agreement.

​

Conduct of Business Prior to Closing

Under the merger agreement, the Company has agreed that, subject to certain exceptions in the merger agreement, from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, the Company and its subsidiaries will conduct their business in the ordinary course consistent with past practice in all material respects and use commercially reasonable efforts to preserve substantially intact their business organization and current relationships with customers and suppliers, government authorities, lenders and other persons with which the Company or any of its subsidiaries has material relations, maintain in effect all of the permits of the Company and its subsidiaries and keep available the services of current officers and key employees in all material aspects.

Subject to certain exceptions set forth in the merger agreement, unless Parent consents in writing (which consent cannot be unreasonably conditioned, withheld or delayed), the Company will not and will not permit any of its subsidiaries to, among other things, directly or indirectly:

•

amend or otherwise change the governing documents of the Company or any of its subsidiaries;

​

•

issue, deliver, sell, transfer, lease, sublease, license, pledge, dispose of, grant or encumber, or authorize the issuance, delivery, sale, transfer, lease, sublease, license, pledge, disposition, grant or encumbrance of, any shares or securities, or any property or assets of the Company or any of its subsidiaries subject to certain exceptions;

​

•

declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its shares, or split, combine or reclassify any of its shares, other than dividends paid by a wholly-owned Company subsidiary to its parent or another subsidiary or amend any terms of shares or securities of the Company or any of its subsidiaries;

​

•

reclassify, combine, split, subdivide or redeem or offer to redeem, or purchase, offer to purchase or otherwise acquire, directly or indirectly, any of shares, or any options, warrants, convertible securities or other rights exchangeable into or convertible or exercisable for any of shares of the Company or any of its subsidiaries;

​

•

effect or commence any liquidation, dissolution, scheme of arrangement, merger, consolidation, amalgamation, restructuring, reorganization or similar transaction involving the Company or any of its subsidiaries, or create any new subsidiaries that qualify as “significant subsidiaries” as defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act, subject to certain exceptions;

​

•

acquire or make any capital contribution or investment in any corporation, partnership, other business organization or any division thereof, incur, assume or modify any debt or make loans or advances, or acquire any material assets or make any capital expenditures that are not budgeted, subject to certain exceptions;

​

•

make any changes with respect to any financial accounting policies, methods or procedures, except as required by changes in statutory or regulatory accounting rules, GAAP or law and as agreed to by its independent public accountants;

​

•

enter into, materially amend, or modify or consent to the termination of any material contract, or amend, waive, modify, release, assign or consent to the termination of the Company’s or any of its subsidiaries’ material rights thereunder;

​

•

pay, discharge or satisfy any material claims, liabilities or obligations subject to certain exceptions;

​

•

settle or offer or propose to settle any litigation or other action subject to certain exceptions;

​

84

•

engage in the conduct of any new line of business material to the Company and its subsidiaries, taken as a whole;

​

•

make, revoke or change any material tax election, materially amend any tax return or waive any statute of limitations with respect to any material tax claim or assessment, enter into any material closing agreement with respect to taxes, surrender any right to claim a material refund of taxes, or settle or finally resolve any material controversy with respect to material taxes for an amount in excess of the amount reserved or provided therefor in the financial statements, change any annual accounting period, or materially change any method of tax accounting or take any action outside the ordinary course of business that could reasonably be expected to result in the Company or any of its subsidiaries being required to include a material item of income in, or exclude a material deduction from, a tax return for a period beginning after the closing date;

​

•

(i) increase or amend the compensation payable or benefits provided to any personnel of the Company and its subsidiaries, or (ii) establish, adopt or amend any stock option, restricted stock or other benefit plan or arrangement, subject to certain exceptions; or

​

•

agree, authorize or enter into any agreement to take any of the foregoing.

​

During the period from the date of the merger agreement to the earlier of the effective time of the merger or the termination of the merger agreement in accordance with its terms, each of Parent and Merger Sub shall not, (a) in the case of Merger Sub, undertake any businesses or activities other than in connection with the merger agreement and the transactions contemplated by the merger agreement, including the merger and the debt financing, or (b) enter into any agreements with respect to, or consummate, any acquisitions, mergers, consolidations or business combinations which would be reasonably likely to, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by the merger agreement by Parent or Merger Sub.

Financing

As of the date of the merger agreement, Parent delivered to the Company a true, correct and complete copy of the executed debt commitment letter from the lender, pursuant to which and subject to the conditions set forth therein, the lender committed to arrange and provide a term loan facility of up to US$150 million in aggregate principal amount for Parent to finance the merger.

Parent and Merger Sub represented and warranted to the Company that, as of the date of the merger agreement, (a) the debt commitment letter was in full force and effect and was the valid and binding obligation of Parent, (b) the debt commitment letter had not been amended or modified, and (c) the commitment contained in the debt commitment letter had not been withdrawn or rescinded in any respect. However, Parent and Merger Sub may amend or modify the debt commitment letter and/or elect to replace all or any portion of the debt financing with alternative debt and/or equity financing (the “ alternative financing ”), in each case so long as (i) the aggregate proceeds of the debt financing, as amended or modified, and/or any alternative financing will be sufficient for Merger Sub and the surviving corporation to pay (1) the aggregate merger consideration and (2) any other amounts required to be paid in connection with the consummation of the transactions contemplated by the merger agreement and all related fees and expenses associated therewith, and (ii) the amendment or modification or the alternative financing does not impose new or additional conditions or otherwise expands, amends or modifies the existing conditions, in each case would not or would not reasonably be expected to (1) prevent or materially delay the consummation of the transactions contemplated by the merger agreement, or (2) materially adversely impact the ability of Parent or Merger Sub to enforce their respective rights against the other parties to the debt commitment letter. Parent will promptly deliver to the Company copies of any such amendment, modification or replacement.

Parent and Merger Sub will use their respective reasonable best efforts to:

•

maintain in full force and effect the debt commitment letter, subject to any amendment, modification or replacement in accordance with the terms of the merger agreement;

​

85

•

negotiate definitive agreements with respect to the debt financing (including the financing contemplated by the debt commitment letter as permitted to be replaced, amended or supplemented) on the terms and conditions contained in the debt commitment letter (including any such replacement, amendment or supplement of the debt commitment letter);

​

•

satisfy on a timely basis all conditions in the debt commitment letter that are within their control and otherwise comply with their obligations thereunder;

​

•

consummate the debt financing at or prior to the effective time of the merger; and

​

•

enforce their rights under the debt commitment letter.

​

Parent will give the Company prompt notice (i) of any breach or default by any party to the debt commitment letter, which would be reasonably likely to result in any condition of the debt commitment letter not to be satisfied to the effect that the debt financing will cease to be available or the termination of the debt commitment letter, (ii) of the receipt of any written notice or other written communication from any party to the debt commitment letter with respect to any alleged or threatened breach, default, termination or repudiation by any party to the debt commitment letter which could result in any condition of the debt commitment letter not to be satisfied to the effect that the debt financing will cease to be available or the termination of the debt commitment letter, and (iii) if Parent or Merger Sub at any time believes that it will not be able to obtain all or any portion of the debt financing on the terms, in the manner or from the sources contemplated by the debt commitment letter.

In the event that any portion of the debt financing becomes unavailable, Parent will promptly notify the Company and use its reasonable best efforts to arrange to obtain the alternative financing in an amount sufficient to consummate the transactions contemplated by the merger agreement, including the merger, as promptly as possible.

The obtaining of the debt financing or any alternative financing is not a condition to the consummation of the transactions contemplated by the merger agreement, including the merger.

Competing Transactions

From the date of the merger agreement until the go-shop period end date, the Company and its subsidiaries and their respective representatives are permitted to, directly and indirectly,

•

subject to certain conditions, initiate, solicit or encourage any competing transaction (as defined below) or inquiries, proposals or offers that could reasonably be expected to lead to a competing transaction, including by way of public disclosure and by way of providing access to non-public information to any person pursuant to one or more confidentiality agreements (it being understood that such confidentiality agreements shall not include any provision granting such person exclusive rights to negotiate with the Company or having the effect of prohibiting the Company from satisfying its obligations under the merger agreement); and

​

•

enter into and maintain discussions or negotiations with respect to any competing transaction (or inquiries, proposals or offers that could reasonably be expected to lead to a competing transaction), or otherwise cooperate with, assist or participate in or facilitate, or take any other action in connection with any such inquiries, proposals, discussions or negotiations.

​

Following the go-shop period end date, except as described in this section, the Company shall, and shall cause its subsidiaries and their respective representatives to, (i) immediately cease any activities permitted by the above paragraph and any discussions with any person (other than Parent and any excluded party as defined below) that are ongoing as of the go-shop period end date and that relate to, or could reasonably be expected to lead to, a competing transaction, and (ii) use its reasonable best efforts to promptly request each person (other than Parent and any excluded party) to return or destroy all information required to be returned or destroyed by such person under the terms of the applicable confidentiality agreement. Immediately after the go-shop period end date until the effective time of the merger or, if earlier, the termination of the merger agreement, neither the Company nor its subsidiaries nor any representatives of the Company or any of its subsidiaries is permitted to, directly or indirectly,

86

•

solicit, initiate, knowingly encourage or knowingly take any other action to facilitate any inquiries or the making of any proposal or offer that relates to, constitutes, or could reasonably be expected to lead to, any competing transaction;

​

•

enter into, maintain or continue discussions or negotiations with, or provide any nonpublic information to or otherwise knowingly assist or cooperate with, any person or entity in furtherance of such inquiries, proposals or offers or to obtain a proposal or offer for a competing transaction;

​

•

agree to, approve, endorse or recommend any competing transaction or enter into any letter of intent or contract or commitment contemplating or otherwise relating to any competing transaction; or

​

•

release any third party from, or waive any provision of, any confidentiality or standstill agreement to which it is a party.

​

Following the go-shop period end date, the Company is required to notify Parent in writing, as promptly as reasonably practicable (and in any event within 48 hours after the Company has knowledge thereof), of any proposal or offer, or any inquiry or contact with any person, regarding a competing transaction or that would reasonably be expected to lead to a competing transaction, specifying (i) the material terms and conditions thereof  (including material amendments or proposed material amendments), and (ii) whether the Company has any intention to provide confidential information to such person. The Company must also keep Parent informed, on a reasonably current basis (and in any event within 48 hours of the occurrence of any material changes, developments, discussions or negotiations) of the status and terms of such proposal, offer, inquiry, contact or request.

At any time after the go-shop period end date and prior to the receipt of the required stockholder approval of the proposal to adopt the merger agreement, the Company may, (a) after its receipt of a written, bona fide inquiry, proposal or offer with respect to a competing transaction from any person (without violation of the “competing transactions” provisions under the merger agreement), contact such person solely in order to clarify and understand the terms and conditions of such inquiry, proposal or offer so as to determine whether it constitutes, or could reasonably be expected to result in, a superior proposal (as defined below), and notify such person of certain restrictions provided under the merger agreement; and (b) furnish information to, and enter into discussion or negotiations with, a person who has made a written, bona fide proposal or offer regarding a competing transaction. In such case referred to in (b) above, the special committee must have (1) determined in its good faith judgment (after consultation with its outside financial advisor and outside legal counsel) that such proposal or offer either constitutes or could reasonably be expected to result in a superior proposal; (2) promptly provided written notice to Parent (in any event within 48 hours) of its intent to furnish information or enter into discussions or negotiations with such person; and (3) obtained from such person an acceptable confidentiality agreement. In addition, the Company must promptly make available to Parent any material information concerning the Company and its subsidiaries that is provided to any such person and that was not previously made available to Parent or its representatives.

Notwithstanding the above restrictions, after the go-shop period end date, the Company may continue to take any of the actions described in the above paragraph with respect to any person or group of persons that has made a proposal or offer regarding a competing transaction on or before the go-shop period end date if the special committee determines in good faith (after consultation with its outside financial advisor and outside legal counsel) that, as of the date of the go-shop period end date, such proposal or offer regarding a competing transaction constitutes, or is reasonably likely to lead to, a superior proposal (each such person or group of persons, an “ excluded party ”).

Except as described in the following paragraph, the board of directors and the special committee of the Company may not (1) change, withhold, withdraw, qualify or modify, or propose publicly to change, withhold, withdraw, qualify or modify, in a manner adverse to Parent or Merger Sub, the board of directors’ recommendation with respect to the merger, (2) adopt, approve or recommend, or propose to adopt, approve or recommend, any competing transaction, (3) fail to make the board of directors’ recommendation with respect to the merger or fail to include the board of directors’ recommendation with

87

respect to the merger in the proxy statement, (4) fail to recommend against any competing transaction subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within ten business days after the commencement of such competing transaction, (5) resolve or publicly announce its intention to do any of such actions under clauses (1) through (4) (any of such actions under clauses (1) through (5) being referred to as a “ change of recommendation ”) or (6) authorize, approve or recommend, or cause or permit the Company or any of its subsidiaries to enter into any alternative acquisition agreement.

Prior to the time of the special meeting, if the board of directors of the Company has determined in its good faith judgment upon the recommendation of the special committee (after the special committee has consulted with its outside financial advisor and outside legal counsel) (i) that a bona fide written offer or proposal regarding a competing transaction received by the Company constitutes a superior proposal, the board of directors may, upon recommendation of the special committee (after the special committee has consulted with its outside financial advisor and outside legal counsel), make a change of recommendation and/or authorize the Company to terminate the merger agreement in accordance with its terms, or (ii) that an intervening event (as defined below) has occurred and is continuing and that failure to effect a change of recommendation in response to such intervening event would reasonably be expected to be inconsistent with its fiduciary duties under applicable law, the board of directors may, upon recommendation of the special committee (after the special committee has consulted with its outside legal counsel), make a change of recommendation in response to such intervening event. However, prior to taking such actions described above, the Company shall have provided prior written notice to Parent and during the applicable notice period, if requested by Parent, negotiated with, and caused its representatives to negotiate with, Parent and its representatives in good faith to make such adjustments in the terms and conditions of the merger agreement so that such offer or proposal would (i) cease to constitute a superior proposal or (ii) no longer be inconsistent with the board of directors’ fiduciary duties not to effect a change of recommendation, as determined by the board of directors upon recommendation of the special committee (after the special committee has consulted with its outside legal counsel).

For purposes of the merger agreement, a “ competing transaction ” means any of the following (other than the transactions contemplated under the merger agreement): (i) any merger, consolidation, share exchange, business combination, scheme of arrangement, amalgamation, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any subsidiary of the Company whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company or to which 20% or more of the total revenue, operating income or EBITDA of the Company are attributable; (ii) any sale, lease, exchange, transfer or other disposition of assets or businesses of the Company and the subsidiaries of the Company that constitute or represent 20% or more of the total revenue, operating income, EBITDA or assets of the Company and the subsidiaries of the Company, taken as a whole; (iii) any sale, exchange, transfer or other disposition of 10% or more of any class of equity securities of the Company; or (iv) any general offer, tender offer or exchange offer that, if consummated, would result in any person beneficially owning 10% or more of any class of equity securities of the Company; or any combination of the foregoing. For purposes of this definition, revenue, operating income and EBITDA of the Company shall be determined on a consolidated basis for the prior 12-month period preceding the date of determination and shall be determined in accordance with GAAP (or, in the case of EBITDA, in a manner consistent with the Company’s past accounting practices and, with respect to the components of EBITDA that are customarily GAAP items, in any case in accordance with GAAP).

For purposes of the merger agreement, a “ superior proposal ” means a written, bona fide offer made by a person with respect to a competing transaction that the board of directors of the Company determines, in its good faith judgment upon the recommendation of the special committee (after (i) consultation with its outside financial advisor and outside legal counsel and (ii) taking into consideration all terms and conditions relating to such offer, including all legal, financial, regulatory and other aspects of such offer, including the likelihood and timing of consummation thereof, and any revisions to the merger agreement made or proposed in writing by Parent prior to the time of determination and the identity of the person or group making the offer), to be more favorable to the Company and its stockholders from a financial point of view (other than the holders of the excluded shares) than the merger. For purposes of the definition of “superior proposal,” each reference to “10%” or “20%”, as the case may be, in the definition of  “competing transaction” shall be replaced with “50%.”

88

For purposes of the merger agreement, an “ intervening event ” means any material event, development, condition, occurrence or change that (i) was not known by the board of directors of the Company as of or prior to the date of the merger agreement and (ii) does not involve or relate to an offer or proposal regarding any competing transaction.

Stockholders Meeting

Unless the merger agreement is terminated, the Company shall duly mail this proxy statement, convene and cause to occur a meeting of its stockholders as promptly as reasonably practicable after the SEC confirms that it has no further comments on, or otherwise clears, this proxy statement and the Schedule 13E-3 for the purpose of obtaining the stockholder approval required by the merger agreement. Subject to the provisions of the merger agreement discussed above under “ — Competing Transactions ,” the Company shall include in the proxy statement the board of directors’ recommendation that the Company’s stockholders adopt the merger agreement and use its reasonable best efforts to solicit proxies in favor of approval of the merger and to secure the required stockholder approval.

The Parent has agreed to vote, and cause its affiliates to vote, all of its shares in favor of the proposal to adopt the merger agreement at the special meeting.

Indemnification; Directors’ and Officers’ Insurance

Pursuant to the merger agreement, the parties have agreed that:

•