tm2216078-3_sc13e3a - block - 4.9531272s
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
Amendment No. 1
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
BlueCity Holdings Limited
(Name of the Issuer)
BlueCity Holdings Limited
Baoli Ma
Multelements Limited
Diversefuture Limited
BlueCity Media Limited
Shimmery Sapphire Holding Limited
Cantrust (Far East) Limited
Metaclass Management ELP
Chizicheng Strategy Investment Limited
Spriver Tech Limited
Chunhe Liu
Aviator D, L.P.
CDH China HF Holdings Company Limited
Rainbow Rain Limited
Roger Field Fund, L.P.
CDH Harvest Holdings Limited
Shangzhi Wu
(Names of Persons Filing Statement)
Class A Ordinary Shares, par value US$0.0001 per share*
American Depositary Shares, each two representing one Class A Ordinary Share
(Title of Class of Securities)
G11957 100
(CUSIP Number of Class of Securities)
BlueCity Holdings Limited
Baoli Ma
BlueCity Media Limited
Shimmery Sapphire Holding Limited
Cantrust (Far East) Limited
Block 2 Tower B Room 028, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District
Beijing 100022
Multelements Limited
Diversefuture Limited
Block 2 Tower B Room 028, No. 22 Pingguo Shequ, Bai
Zi Wan Road, Chaoyang District
Beijing 100022
CEC Development Mansion F12, Sanyuan Bridge,
Beijing

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Metaclass Management ELP
Chizicheng Strategy Investment Limited
Spriver Tech Limited
Chunhe Liu
CEC Development Mansion F12, Sanyuan Bridge, Beijing
Aviator D, L.P.
CDH China HF Holdings Company Limited
Rainbow Rain Limited
Roger Field Fund, L.P.
CDH Harvest Holdings Limited
Shangzhi Wu
3rd Floor, Kaishi Building, No.1 Yan’an East Road, Huangpu District, Shanghai
Tel: (+86) 158 1070 2036
(Name, Address and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of the Persons Filing Statement)
With copies to:
Yuting Wu, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
JingAn Kerry Center, Tower II, 46/F
1539 Nanjing West Road
Shanghai, the People’s Republic of China
Telephone: +86 21-6193-8200
Yang Wang
Simpson Thacher & Bartlett LLP
3901 China World Tower A
1 Jianguomenwai Avenue
Beijing 100004, China
Telephone: (+86) 10 5965 2976
Brian V. Breheny, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Telephone: (202) 371-7000
Yi Gao
Simpson Thacher & Bartlett LLP
ICBC Tower – 35th Floor
3 Garden Road, Central
Hong Kong, China
This statement is filed in connection with (check the appropriate box):
a

The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14-C or Rule 13e-3(c) under the Securities Exchange Act of 1934.
b

The filing of a registration statement under the Securities Act of 1933.
c

A tender offer
d

None of the above
Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies:  ☐
Check the following box if the filing is a final amendment reporting the results of the transaction:  ☐
*
Not for trading, but only in connection with the listing on the Nasdaq Global Market of the American depositary shares (“ADSs”), each two representing one Class A ordinary share, par value US$0.0001 per share, of the Company (the “Class A Ordinary Share”).
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of this transaction, passed upon the merits or fairness of this transaction, or passed upon the adequacy or accuracy of the disclosure in this transaction statement on schedule 13e-3. Any representation to the contrary is a criminal offense.

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INTRODUCTION
This Amendment No. 1 to the Rule 13E-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (this “Transaction Statement”), is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”):
(a)
BlueCity Holdings Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands (the “Company”), the issuer of the Class A Ordinary Shares, that is subject to the transaction pursuant to Rule 13e-3 under the Exchange Act;
(b)
Mr. Baoli Ma, the chairman of the board of directors and chief executive officer of the Company (the “Founder”);
(c)
Multelements Limited, a company incorporated under the laws of the Cayman Islands (“Parent”);
(d)
Diversefuture Limited, a company incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of Parent (“Merger Sub”);
(e)
BlueCity Media Limited; a company incorporated under the laws of the British Virgin Islands;
(f)
Shimmery Sapphire Holding Limited, a company incorporated under the laws of the British Virgin Islands;
(g)
Cantrust (Far East) Limited, a company incorporated under the laws of the British Virgin Islands;
(h)
Metaclass Management ELP, an exempted limited partnership established under the laws of the Cayman Islands;
(i)
Chizicheng Strategy Investment Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands;
(j)
Spriver Tech Limited, a company incorporated under the laws of the British Virgin Islands;
(k)
Mr. Chunhe Liu, a citizen of the People’s Republic of China;
(l)
Aviator D, L.P., an exempted limited partnership established under the laws of the Cayman Islands;
(m)
CDH China HF Holdings Company Limited, a company incorporated under the laws of the Cayman Islands;
(n)
Rainbow Rain Limited, a company incorporated under the laws of the British Virgin Islands;
(o)
Roger Field Fund, L.P., an exempted limited partnership established under the laws of the Cayman Islands;
(p)
CDH Harvest Holdings Limited, a company incorporated under the laws of the Cayman Islands; and
(q)
Mr. Shangzhi Wu, a citizen of Singapore.
On April 30, 2022, the Company, Parent and Merger Sub entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into the Company, with the Company being the surviving company of the Merger as a wholly-owned subsidiary of Parent (the “Merger”).
Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each Class A ordinary share and Class B ordinary share of the Company (each, a “Share”) issued and outstanding immediately prior to the Effective Time, other than Shares represented by ADSs (as defined below),will be cancelled and cease to exist in exchange for the right to receive US$3.20 in cash without interest (the “Per Share Merger Consideration”), and each outstanding American depositary share of the Company (each, an “ADS,” each two of which representing one Class A ordinary shares of the Company (the “Class A Ordinary Shares”)) will be cancelled in exchange for the right to receive US$1.60 in cash without interest (the “Per ADS Merger Consideration”), except for (a) certain Shares (including Shares represented by ADSs) (collectively,
 
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the “Rollover Shares”) beneficially owned by BlueCity Media Limited, Aviator D, L.P. and Rainbow Rain Limited (each, a “Rollover Shareholder” and collectively, the “Rollover Shareholders”), which will be cancelled and cease to exist without payment of consideration as contemplated by and in accordance with the support agreement entered into between Parent and each of the Rollover Shareholders dated April 30, 2022 (the “Support Agreement”), (b) any other Shares (including Class A Ordinary Shares represented by ADSs) held by Parent, Merger Sub, the Company or any of their respective subsidiaries, (c) Shares (including Class A Ordinary Shares represented by ADSs) held by the ADS depositary and reserved for issuance, settlement and allocation upon exercise or vesting of Company Options (as defined below), and (d) Shares that are issued and outstanding immediately prior to the Effective Time and that are held by shareholders of the Company who have validly exercised and not effectively withdrawn or lost their rights to dissent from the Merger, or dissenter rights, in accordance with Section 238 of the Companies Act (As Revised) of the Cayman Islands, as amended, modified, or re-enacted from time to time (the “Cayman Islands Companies Act”) (collectively, the “Dissenting Shares;” holders of Dissenting Shares collectively being referred to as “Dissenting Shareholders”), which will be cancelled and cease to exist at the Effective Time and thereafter only represent the right to receive the payment of the fair value of such Dissenting Shares held by them determined in accordance with Section 238 of the Cayman Islands Companies Act.
In addition to the foregoing, at the Effective Time, each option to purchase Class A Ordinary Shares (each, a “Company Option”) granted pursuant to the Company’s 2015 Stock Incentive Plan that is outstanding and unexercised as of the Effective Time, whether vested or unvested, shall be cancelled, and the holder thereof shall be entitled to receive an amount in cash, without interest, payable as soon as reasonably practicable following the Effective Time equal to the product of (i) the excess, if any, of (A) the Per Share Merger Consideration, over (B) the exercise price, multiplied by (ii) the number of Class A Ordinary Shares subject to such Company Option as of the Effective Time. Each Company Option with the exercise price that is equal to or greater than the Per Share Merger Consideration shall be cancelled at the Effective Time without the payment of consideration therefor.
At the Effective Time, each Company Option to purchase Class A Ordinary Shares granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is outstanding, vested and unexercised as of the Effective Time, shall be assumed by Parent and automatically converted into an option for ordinary shares of Parent (each, an “Assumed Option”) under an equity incentive plan to be established by Parent equal to the product of (A) the number of Class A Ordinary Shares that were subject to the corresponding Company Option immediately prior to the Effective Time, multiplied by (B) a fraction (such ratio, the “Exchange Ratio”), the numerator of which is the Per Share Merger Consideration and the denominator of which is the fair market value of an ordinary share of Parent, and rounding such product down to the nearest whole number of ordinary shares of Parent, with an exercise price per share subject to the Assumed Option equal to the exercise price for which the corresponding Company Option was exercisable immediately prior to the Effective Time divided by the Exchange Ratio, and rounded up to the nearest whole cent. Each Assumed Option shall be subject to the same terms and conditions as to vesting, exercisability and forfeiture as the corresponding Company Option as in effect on the date of the Merger Agreement.
At the Effective Time, each Company Option granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is unvested as of the Effective Time will be cancelled without the payment of consideration therefor.
At or prior to the Effective Time, the Company shall terminate each of the 2015 Stock Incentive Plan, the 2020 Stock Incentive Plan and the 2021 Stock Incentive Plan, and all award agreements evidencing Company Options, effective as of the Effective Time.
The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining the requisite approval of the shareholders of the Company. The Merger Agreement, the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger, must be authorized and approved by a special resolution as defined in the Cayman Islands Companies Act, which requires an affirmative vote of holders of Shares representing at least two-thirds of votes cast by such holders as, being entitled so to do, vote in person or, in the case of such holders as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy as a single class, at the extraordinary general meeting or any adjournment or
 
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postponement thereof in accordance with the Cayman Islands Companies Act and the Company’s memorandum and articles of association.
Pursuant to the Support Agreement, among other things and subject to the terms and conditions set forth therein, the Rollover Shareholders agreed to (i) vote all Shares directly or indirectly owned by them in favor of the authorization and approval of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, and (ii) have the Rollover Shares beneficially owned by them be cancelled for no consideration from the Company in exchange for the subscription of ordinary shares of Parent at the closing of the Merger in accordance with the Merger Agreement. As of the date of this Schedule 13E-3, the Rollover Shareholders directly or indirectly own in the aggregate 7,071,760.5 Shares (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised), which represent approximately 37.7% in number and approximately 70.2% in voting rights of the Company’s issued and outstanding Shares. Of those Shares beneficially owned by the Rollover Shareholders as of the date of this Schedule 13E-3, 3,918,605 Shares are Rollover Shares.
The Company will make available to its shareholders a proxy statement (the “Proxy Statement,” a copy of which is attached as Exhibit (a)-(1) to this Transaction Statement), relating to the extraordinary general meeting of the Company’s shareholders, at which the Company’s shareholders will consider and vote upon, among other proposals, a proposal to authorize and approve the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger. Capitalized terms used but not defined in this Transaction Statement shall have the meanings given to them in the Proxy Statement.
The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Transaction Statement are qualified in their entirety by the information contained in the Proxy Statement and the annexes thereto.
All information contained in this Transaction Statement concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, has supplied any information with respect to any other Filing Person.
Item 1   Summary Term Sheet
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet”

“Questions and Answers about the Extraordinary General Meeting and the Merger”
Item 2   Subject Company Information
(a)
Name and Address. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Summary Term Sheet — The Parties Involved in the Merger”
(b)
Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“The Extraordinary General Meeting — Record Date; Shares and ADSs Entitled to Vote”

“Security Ownership of Certain Beneficial Owners and Management of the Company”
(c)
Trading Market and Price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Market Price of the Company’s ADSs, Dividends and Other Matters — Market Price of the ADSs”
 
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(d)
Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Market Price of the Company’s ADSs, Dividends and Other Matters — Dividend Policy”
(e)
Prior Public Offerings. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Transactions in the Shares — Prior Public Offerings”
(f)
Prior Stock Purchases. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Transactions in the Shares”
Item 3   Identity and Background of Filing Persons
(a)
Name and Address. BlueCity Holdings Limited is the subject company. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — The Parties Involved in the Merger”

“Annex E — Directors and Executive Officers of Each Filing Person”
(b)
Business and Background of Entities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — The Parties Involved in the Merger”

“Annex E — Directors and Executive Officers of Each Filing Person”
(c)
Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — The Parties Involved in the Merger”

“Annex E — Directors and Executive Officers of Each Filing Person”
Item 4   Terms of the Transaction
(a)-(1)
Material Terms — Tender Offers. Not applicable.
(a)-(2)
Material Terms — Merger or Similar Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet”

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“Special Factors”

“The Extraordinary General Meeting”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
(c)
Different Terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“The Extraordinary General Meeting — Proposals to be Considered at the Extraordinary General Meeting”
 
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“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
(d)
Appraisal Rights. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Dissenters’ Rights of Shareholders”

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“Special Factors — Dissenters’ Rights”

“Dissenters’ Rights”

“Annex D — Cayman Islands Companies Act Cap. 22 (Law 3 of 1961, as consolidated and revised) — Section 238”
(e)
Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Provisions for Unaffiliated Security Holders”
(f)
Eligibility of Listing or Trading. Not applicable.
Item 5   Past Contracts, Transactions, Negotiations and Agreements
(a)
Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Interests of Certain Persons in the Merger”

“Special Factors — Related Party Transactions”

“Transactions in the Shares”
(b)
Significant Corporate Events. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Purposes of and Reasons for the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
(c)
Negotiations or Contacts. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Background of the Merger”

“Special Factors — Plans for the Company after the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
 
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(e)
Agreements Involving the Subject Company’s Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Financing of the Merger”

“Summary Term Sheet — Equity Commitment Letter”

“Summary Term Sheet — Support Agreement”

“Summary Term Sheet — Limited Guarantee”

“Summary Term Sheet — Interim Investors Agreement”

“Special Factors — Background of the Merger”

“Special Factors — Plans for the Company after the Merger”

“Special Factors — Financing of the Merger”

“Special Factors — Equity Commitment Letter”

“Special Factors — Support Agreement”

“Special Factors — Limited Guarantee”

“Special Factors — Interim Investors Agreement”

“Special Factors — Interests of Certain Persons in the Merger”

“Special Factors — Related Party Transactions”

“Special Factors — Voting by the Buyer Group at the Extraordinary General Meeting”

“The Merger Agreement”

“Transactions in the Shares”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
Item 6   Purposes of the Transaction and Plans or Proposals
(b)
Use of Securities Acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet”

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“Special Factors — Purposes of and Reasons for the Merger”

“Special Factors — Effects of the Merger on the Company”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
(c)(1)-(8)
Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — The Merger”

“Summary Term Sheet — Purposes and Effects of the Merger”

“Summary Term Sheet — Plans for the Company after the Merger”

“Summary Term Sheet — Financing of the Merger”

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”
 
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“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Purposes of and Reasons for the Merger”

“Special Factors — Effects of the Merger on the Company”

“Special Factors — Plans for the Company after the Merger”

“Special Factors — Financing of the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“Special Factors — Related Party Transactions”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
Item 7   Purposes, Alternatives, Reasons and Effects
(a)
Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Purposes and Effects of the Merger”

“Summary Term Sheet — Plans for the Company after the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Purposes of and Reasons for the Merger”
(b)
Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Position of the Buyer Group as to the Fairness of the Merger”

“Special Factors — Purposes of and Reasons for the Merger”

“Special Factors — Alternatives to the Merger”

“Special Factors — Effects on the Company if the Merger is not Completed”
(c)
Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Purposes and Effects of the Merger”

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Position of the Buyer Group as to the Fairness of the Merger”

“Special Factors — Purposes of and Reasons for the Merger”

“Special Factors — Effects of the Merger on the Company”

“Special Factors — Alternatives to the Merger”
 
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(d)
Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Purposes and Effects of the Merger”

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Effects of the Merger on the Company”

“Special Factors — Plans for the Company after the Merger”

“Special Factors — Effects on the Company if the Merger is not Completed”

“Special Factors — The Company’s Net Book Value and Net Loss”

“Special Factors — Interests of Certain Persons in the Merger”

“Special Factors — U.S. Federal Income Tax Consequences”

“Special Factors — PRC Income Tax Consequences”

“Special Factors — Cayman Islands Tax Consequences”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
Item 8   Fairness of the Transaction
(a)-(b)
Fairness; Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Position of the Buyer Group as to the Fairness of the Merger”

“Summary Term Sheet — Opinion of the Special Committee’s Financial Advisor”

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Position of the Buyer Group as to the Fairness of the Merger”

“Special Factors — Opinion of the Special Committee’s Financial Advisor”

“Special Factors — Interests of Certain Persons in the Merger”

“Annex C — Opinion of Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, as Financial Advisor”
(c)
Approval of Security Holders. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Shareholder Vote Required to Authorize and Approve the Merger Agreement and the Plan of Merger”

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“The Extraordinary General Meeting — Vote Required”
(d)
Unaffiliated Representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
 
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“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Opinion of the Special Committee’s Financial Advisor”

“Annex C — Opinion of Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, as Financial Advisor”
(e)
Approval of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”
(f)
Other Offers. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”
Item 9   Reports, Opinions, Appraisals and Negotiations
(a)
Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Opinion of the Special Committee’s Financial Advisor”

“Special Factors — Background of the Merger”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Opinion of the Special Committee’s Financial Advisor”

“Annex C — Opinion of Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, as Financial Advisor”
(b)
Preparer and Summary of the Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Special Factors — Opinion of the Special Committee’s Financial Advisor”

“Annex C — Opinion of Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, as Financial Advisor”
(c)
Availability of Documents. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Where You Can Find More Information”
The reports, opinions or appraisals referenced in this Item 9 will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of the Shares and ADSs or his, her or its representative who has been so designated in writing.
Item 10   Source and Amount of Funds or Other Consideration
(a)
Source of Funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
 
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“Summary Term Sheet — Financing of the Merger”

“Special Factors — Financing of the Merger”

“The Merger Agreement”

“Annex A — Agreement and Plan of Merger”

“Annex B — Plan of Merger”
(b)
Conditions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Financing of the Merger”

“Special Factors — Financing of the Merger”
(c)
Expenses. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Special Factors — Fees and Expenses”
(d)
Borrowed Funds. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Summary Term Sheet — Financing of the Merger”

“Special Factors — Financing of the Merger”

“The Merger Agreement”
Item 11   Interest in Securities of the Subject Company
(a)
Securities Ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“Security Ownership of Certain Beneficial Owners and Management of the Company”
(b)
Securities Transactions. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“Transactions in the Shares”
Item 12   The Solicitation or Recommendation
(d)
Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”

“Summary Term Sheet — Support Agreement”

“Questions and Answers about the Extraordinary General Meeting and the Merger”

“Special Factors — Support Agreement”

“Special Factors — Voting by the Buyer Group at the Extraordinary General Meeting”

“The Extraordinary General Meeting — Vote Required”

“The Merger Agreement”

“Security Ownership of Certain Beneficial Owners and Management of the Company”
 
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(e)
Recommendations of Others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — Position of the Buyer Group as to the Fairness of the Merger”

“Summary Term Sheet — Support Agreement”

“Summary Term Sheet — Interests of the Company’s Executive Officers and Directors in the Merger”

“Special Factors — Support Agreement”

“Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board”

“Special Factors — Position of the Buyer Group as to the Fairness of the Merger”

“The Extraordinary General Meeting — The Board’s Recommendation”
Item 13   Financial Statements
(a)
Financial Information. The audited financial statements of the Company for the two years ended December 31, 2020 and 2021 are incorporated herein by reference to the Company’s Form 20-F for the year ended December 31, 2021, originally filed on April 28, 2022 (see page F-1 and following pages).
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Financial Information”

“Where You Can Find More Information”
(b)
Pro Forma Information. Not applicable.
Item 14   Persons/Assets, Retained, Employed, Compensated or Used
(a)
Solicitation or Recommendations. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

“The Extraordinary General Meeting — Solicitation of Proxies”
(b)
Employees and Corporate Assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

“Summary Term Sheet — The Parties Involved in the Merger”

“Special Factors — Interests of Certain Persons in the Merger”

“Annex E — Directors and Executive Officers of Each Filing Person”
Item 15   Additional Information
(c)
Other Material Information. The information contained in the Proxy Statement, including all annexes thereto, is incorporated herein by reference.
 
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Item 16   Exhibits
(a)-(1) Proxy Statement of the Company dated June 23, 2022 (the “Proxy Statement”).
(a)-(2) Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement.
(a)-(3) Form of Proxy Card, incorporated herein by reference to the Proxy Statement.
(a)-(4) Form of ADS Voting Instruction Card, incorporated herein by reference to the Proxy Statement.
(a)-(5) Press Release issued by the Company, dated April 30, 2022, incorporated herein by reference to Exhibit 99.1 to the report on Form 6-K furnished by the Company to the SEC on May 2, 2022.*
(b) Not applicable.
(c)-(1) Opinion of Kroll, LLC, operating through its Duff & Phelps Opinions Practice, dated April 30, 2022, incorporated herein by reference to Annex C to the Proxy Statement.
(c)-(2) Discussion Materials prepared by Kroll, LLC, operating through its Duff & Phelps Opinions Practice, dated April 30, 2022, for discussion with the special committee of the board of directors of the Company.*
(d)-(1) Agreement and Plan of Merger, dated April 30, 2022, by and among the Company, Parent and Merger Sub, incorporated herein by reference to Annex A to the Proxy Statement.
(d)-(2) Limited Guarantee, dated April 30, 2022, by Metaclass Management ELP in favor of the Company, incorporated herein by reference to Exhibit H to Schedule 13D/A jointly filed by Mr. Baoli Ma and Rollover Shareholders and their respective affiliates with the SEC on May 2, 2022.*
(d)-(3) Equity Commitment Letter, dated April 30, 2022, by Metaclass Management ELP in favor of Parent, incorporated herein by reference to Exhibit I to Schedule 13D/A jointly filed by Mr. Baoli Ma and Rollover Shareholders and their respective affiliates with the SEC on May 2, 2022.*
(d)-(6) Support Agreement, dated April 30, 2022, by and among Parent and each Rollover Shareholder, incorporated herein by reference to Exhibit J to Schedule 13D/A, jointly filed by Mr. Baoli Ma and Rollover Shareholders and their respective affiliates with the SEC on May 2, 2022.*
(d)-(7) Interim Investors Agreement, dated April 30, 2022, by and among Parent, Merger Sub, Mr. Baoli Ma, Metaclass Management ELP and each Rollover Shareholder, incorporated herein by reference to Exhibit K to Schedule 13D/A, jointly filed by Mr. Baoli Ma and Rollover Shareholders and their respective affiliates with the SEC on May 2, 2022.*
(f)-(1) Dissenters’ Rights, incorporated herein by reference to the information set forth in the Proxy Statement under the caption “Dissenters’ Rights.”
(f)-(2) Section 238 of the Cayman Islands Companies Act Cap. 22 (Law 3 of 1961, as consolidated and revised), incorporated herein by reference to Annex D to the Proxy Statement.
(g) Not applicable.
107 Calculation of Filing Fee Tables.*
*
Previously filed.
 
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 23, 2022
BlueCity Holdings Limited
By
/s/ Wenjie (Jenny) Wu
Name:
Wenjie (Jenny) Wu
Title:
Chairperson of the Special Committee
 
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 23, 2022
Multelements Limited
By
/s/ Baoli Ma
Name:
Baoli Ma
Title:
Director
Diversefuture Limited
By
/s/ Baoli Ma
Name:
Baoli Ma
Title:
Director
 
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 23, 2022
Baoli Ma
By
/s/ Baoli Ma   
BlueCity Media Limited
By
/s/ Baoli Ma
Name:
Baoli Ma
Title:
Director
Shimmery Sapphire Holding Limited
By
/s/ Susan Toya Palmer
/s/ Sabinah Clement
Name:
Susan Toya Palmer and Sabinah Clement
Title:
Authorised Signatory (For and on behalf of Rustem Limited as Director of Shimmery Sapphire Holding Limited)
Cantrust (Far East) Limited
By
/s/ Susan Toya Palmer
/s/ Sabinah Clement
Name:
Susan Toya Palmer and Sabinah Clement
Title:
Authorised Signatory (For and on behalf of Cantrust (Far East) Limited as Trustee of Shimmery Diamond Trust)
 
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 23, 2022
Metaclass Management ELP
by Chizicheng Strategy Investment Limited, its general partner
By
/s/ Chunhe Liu
Name:
Chunhe Liu
Title:
Director
Chizicheng Strategy Investment Limited
By
/s/ Chunhe Liu
Name:
Chunhe Liu
Title:
Director
Spriver Tech Limited
By
/s/ Chunhe Liu
Name:
Chunhe Liu
Title:
Director
Chunhe Liu
By
/s/ Chunhe Liu
 
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 23, 2022
Aviator D, L.P.
by CDH China HF Holdings Company Limited, its general partner
By
/s/ William Hsu
Name:
William Hsu
Title:
Director
CDH China HF Holdings Company Limited
By
/s/ William Hsu
Name:
William Hsu
Title:
Director
Rainbow Rain Limited
By
/s/ William Hsu
Name:
William Hsu
Title:
Director
Roger Field Fund, L.P.
by CDH Harvest Holdings Limited, its general partner
By
/s/ William Hsu
Name:
William Hsu
Title:
Director
CDH Harvest Holdings Limited
By
/s/ William Hsu
Name:
William Hsu
Title:
Director
Shangzhi Wu
By
/s/ Shangzhi Wu
 
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Exhibit (a)-(1)
PROXY STATEMENT OF THE COMPANY
[MISSING IMAGE: lg_bluecity-4c.jpg]
Shareholders of BlueCity Holdings Limited
Re: Notice of Extraordinary General Meeting of Shareholders
Dear Shareholder:
You are cordially invited to attend an extraordinary general meeting of shareholders of BlueCity Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the “Company”), to be held on July 29, 2022 at 10:00 a.m. (Beijing time). The meeting will be held at Block 2 Tower B, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China. The accompanying notice of the extraordinary general meeting and proxy statement provide information regarding the matters to be considered and voted on at the extraordinary general meeting, including at any adjournment or postponement thereof.
On April 30, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Multelements Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands (“Parent”), and Diversefuture Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which the Merger Sub will be merged with and into the Company, with the Company being the surviving company of the Merger (the “Surviving Company”) and becoming a wholly-owned subsidiary of Parent (the “Merger”). The purpose of the extraordinary general meeting is for you and the other shareholders of the Company to consider and vote, amongst other things, upon a proposal to authorize and approve the Merger Agreement and the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) and the transactions contemplated by the Merger Agreement and the Plan of Merger, including the Merger (collectively, the “Transactions”). Copies of the Merger Agreement and the form of the Plan of Merger are attached as Annex A and Annex B, respectively, to the accompanying proxy statement.
As of the date of the accompanying proxy statement, Parent is owned by (a) BlueCity Media Limited, a company with limited liability incorporated under the laws of British Virgin Islands and controlled by Mr. Baoli Ma, chairman of the board of directors (the “Board”) and chief executive officer of the Company (the “Founder”) and (b) Metaclass Management ELP, an exempted limited partnership established under the laws of the Cayman Islands (the “Sponsor”). Each of Parent and Merger Sub was formed solely for purposes of the Merger and the investment and financing transactions related to the Merger.
At the effective time of the Merger (the “Effective Time”), Parent will be beneficially owned by (a) the Founder, BlueCity Media Limited, Shimmery Sapphire Holding Limited and Cantrust (Far East) Limited (collectively, the “Founder Filing Persons”), (b) the Sponsor, Chizicheng Strategy Investment Limited, Spriver Tech Limited and Mr. Chunhe Liu (collectively, the “Sponsor Filing Persons”), and (c) Aviator D, L.P., CDH China HF Holdings Company Limited, Rainbow Rain Limited, Roger Field Fund, L.P., CDH Harvest Holdings Limited and Mr. Shangzhi Wu (collectively, the “CDH Filing Persons”). Parent, Merger Sub, the Founder Filing Persons, the Sponsor Filing Persons and the CDH Filing Persons are collectively referred to as the “Buyer Group.”
As of the date of the accompanying proxy statement, BlueCity Media Limited, Aviator D, L.P. and Rainbow Rain Limited (collectively, the “Rollover Shareholders”) directly or indirectly own in the aggregate 1,956,920.5 Class A ordinary shares (including ordinary shares represented by American depositary shares (“ADSs”), par value US$0.0001 per share, of the Company (each, a “Class A Ordinary Share”) but excluding Shares represented by Company Options (as defined below) held by the Rollover Shareholders or their
 

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affiliates which have not been exercised) and 5,114,840 Class B ordinary shares, par value US$0.0001 per share, of the Company (each, a “Class B Ordinary Share” and the Class B Ordinary Shares together with the Class A Ordinary Shares, the “Shares” and each a “Share”), which represent approximately 37.7% of the total issued and outstanding Shares in the Company and approximately 70.2% of the total voting power of the total issued and outstanding Shares in the Company. If the Merger is completed, the Company will continue its operations as a privately held company and will be wholly owned by Parent, and the Company’s ADSs will no longer be listed on Nasdaq Global Market (“Nasdaq”) and the ADS program for the Shares will terminate.
Under the terms of the Merger Agreement, if the Merger is completed, at the Effective Time, each Share issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares (as defined below), the Dissenting Shares (as defined below) and Class A Ordinary Shares represented by ADSs, will be cancelled in exchange for the right to receive US$3.20 in cash per Share without interest and net of any applicable withholding taxes (the “Per Share Merger Consideration”), and each ADS (other than the ADSs representing the Excluded Shares) issued and outstanding immediately prior to the Effective Time, together with the underlying Class A Ordinary Shares represented by such ADSs, will be cancelled in exchange for the right to receive US$1.60 in cash per ADS, without interest and net of any applicable withholding taxes (the “Per ADS Merger Consideration”). The ADS holders will pay any applicable fees, charges and expenses of Deutsche Bank Trust Company Americas, in its capacity as ADS depositary (the “ADS Depositary”), and government charges due to or incurred by the ADS Depositary, in connection with the cancellation of the ADSs surrendered (and the underlying Shares), including applicable ADS cancellation fees (US$0.05 per ADS pursuant to the terms of the deposit agreement (the “Deposit Agreement”), dated as of July 7, 2020, by and among the Company, the ADS Depositary, and the holders and beneficial owners of ADSs issued thereunder).
Notwithstanding the foregoing, if the Merger is completed, the following Shares shall not be cancelled in exchange for the right to receive the Per Share Merger Consideration or the Per ADS Merger Consideration described above, but will be cancelled and shall cease to exist at the Effective Time as follows:
(a)
(i) 3,918,605 Shares beneficially owned by the Rollover Shareholders (subject to adjustments set forth in the Merger Agreement, collectively, the “Rollover Shares”), (ii) any other Shares (including Class A Ordinary Shares represented by ADSs) held by Parent, Merger Sub, the Company or any of their respective subsidiaries, and (iii) Shares (including Class A Ordinary Shares represented by ADSs) held by the ADS Depositary and reserved for issuance, settlement and allocation upon exercise or vesting of Company Options (as defined below) (collectively, the “Excluded Shares”) will be cancelled and shall cease to exist without payment of any consideration or distribution therefor; and
(b)
Shares that are issued and outstanding immediately prior to the Effective Time and that are held by shareholders of the Company who have validly exercised and not effectively withdrawn or lost their rights to dissent from the Merger, or dissenter rights, in accordance with Section 238 of the Companies Act (As Revised) of the Cayman Islands, as amended, modified, or re-enacted from time to time (the “Cayman Islands Companies Act”) (collectively, the “Dissenting Shares;” holders of Dissenting Shares collectively being referred to as “Dissenting Shareholders”) will be cancelled and cease to exist at the Effective Time and the Dissenting Shareholders shall not be entitled to receive the Per Share Merger Consideration and shall instead be entitled to receive only the payment of the fair value of such Dissenting Shares held by them determined in accordance with Section 238 of the Cayman Islands Companies Act.
At the Effective Time, each option to purchase Class A Ordinary Shares (each, a “Company Option”) granted pursuant to the Company’s 2015 Stock Incentive Plan that is outstanding and unexercised as of the Effective Time, whether vested or unvested, shall be cancelled, and the holder thereof shall be entitled to receive an amount in cash, without interest, payable as soon as reasonably practicable following the Effective Time equal to the product of (i) the excess, if any, of (A) the Per Share Merger Consideration, over (B) the exercise price, multiplied by (ii) the number of Class A Ordinary Shares subject to such Company Option as of the Effective Time. Each Company Option with the exercise price that is equal to or greater than the Per Share Merger Consideration shall be cancelled at the Effective Time without the payment of consideration therefor.
 
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At the Effective Time, each Company Option to purchase Class A Ordinary Shares granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is outstanding, vested and unexercised as of the Effective Time, shall be assumed by Parent and automatically converted into an option for ordinary shares of Parent (each, an “Assumed Option”) under an equity incentive plan to be established by Parent equal to the product of (A) the number of Class A Ordinary Shares that were subject to the corresponding Company Option immediately prior to the Effective Time, multiplied by (B) a fraction (such ratio, the “Exchange Ratio”), the numerator of which is the Per Share Merger Consideration and the denominator of which is the fair market value of an ordinary share of Parent, and rounding such product down to the nearest whole number of ordinary shares of Parent, with an exercise price per share subject to the Assumed Option equal to the exercise price for which the corresponding Company Option was exercisable immediately prior to the Effective Time divided by the Exchange Ratio, and rounded up to the nearest whole cent. Each Assumed Option shall be subject to the same terms and conditions as to vesting, exercisability and forfeiture as the corresponding Company Option as in effect on the date of the Merger Agreement.
At the Effective Time, each Company Option granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is unvested as of the Effective Time will be cancelled without the payment of consideration therefor.
At or prior to the Effective Time, the Company shall terminate each of the 2015 Stock Incentive Plan, the 2020 Stock Incentive Plan and the 2021 Stock Incentive Plan, and all award agreements evidencing Company Options, effective as of the Effective Time.
The Buyer Group intends to fund the merger consideration through a combination of rollover equity (represented by the Rollover Shares) from the Rollover Shareholders, cash contribution by the Sponsor and cash in the Company and its subsidiaries. On April 30, 2022, the Sponsor and Parent entered into an equity commitment letter (the “Equity Commitment Letter”), whereby the Sponsor has committed, subject to the terms and conditions therein, to contribute, at the closing of the Merger, an aggregate amount in cash up to US$50 million to Parent, for the purpose of funding the Merger consideration and fees and expenses incurred by Parent and the Company in connection with the transactions contemplated by the Merger Agreement. On the same date, the Sponsor executed and delivered to the Company a limited guarantee in favor of the Company (the “Limited Guarantee”), whereby the Sponsor agreed to irrevocably and unconditionally guarantee as a primary obligor certain payment obligations of Parent under the Merger Agreement.
On April 30, 2022, a special committee of the board of directors of the Company (the “Board”), composed solely of independent and disinterested directors (the “Special Committee”), acting with full power and authority delegated by the Board, reviewed and considered the terms and conditions of the Merger Agreement, the Plan of Merger, and the Transactions. The Special Committee, after consultation with its financial advisor and legal counsel and due consideration of all relevant factors, unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement and the Plan of Merger, is fair and in the best interests of the Company and the unaffiliated security holders of the Company (as such term is defined in Rule 13e-3 of the Securities Exchange Act of 1934, as amended, the “Unaffiliated Security Holders”), and declared it advisable for the Company to enter into the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, and (b) recommended the approval and authorization of the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger, to the Board.
On April 30, 2022, the Board (other than the Founder who abstained from the vote), acting upon the unanimous recommendation of the Special Committee, (a) determined that that it is fair to, and in the best interests of, the Company and its shareholders (other than holders of Excluded Shares) and the Unaffiliated Security Holders, and declared it advisable, for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions, including the Merger, (b) authorized and approved the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, and (c) resolved to direct that the Merger Agreement, the Plan of Merger and the Transactions be submitted to the shareholders of the Company for their approval and authorization at an extraordinary general meeting of the Company’s shareholders, with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.
 
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Accordingly, the Board recommends that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger, and the consummation of the Transactions, including (i) the Merger, (ii) upon the Merger becoming effective (the “Effective Time”), the variation of the authorized share capital of the Company from US$500,000 divided into 5,000,000,000 Shares of a par value of US$0.0001 per Share, comprising of (i) 4,600,000,000 Class A Ordinary Shares of a par value of US$0.0001 each, (ii) 200,000,000 Class B Ordinary Shares of a par value of US$0.0001 each and (iii) 200,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as the Board may determine in accordance with the existing memorandum and articles of association of the Company to US$50,000 divided into 50,000 ordinary shares of a par value of US$1.00 each (the “Variation of Capital”), and (iii) the amendment and restatement of the existing memorandum and articles of association of the Company (as the Surviving Company) by their deletion in their entirety and the substitution in their place of the new memorandum and articles of association at the Effective Time, in the form attached as Annexure 2 to the Plan of Merger (the “Adoption of Amended M&A”), FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the Merger Agreement, the Plan of Merger, and the Transactions, including the Merger, the Variation of Capital, and the Adoption of Amended M&A, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.
The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the consummation of the Transactions are authorized and approved by a special resolution (as defined in the Cayman Islands Companies Act) of the Company’s shareholders, passed by an affirmative vote of holders of Shares representing at least two-thirds of votes cast by such holders as, being entitled so to do, vote in person or, in the case of such holders as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy as a single class, at the extraordinary general meeting or any adjournment or postponement thereof (the “Shareholder Approval”). As of the date of the accompanying proxy statement, the Rollover Shareholders directly or indirectly own in the aggregate 1,956,920.5 Class A Ordinary Shares (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised) and 5,114,840 Class B Ordinary Shares, which represent approximately 37.7% of the total issued and outstanding Shares in the Company and approximately 70.2% of the total voting power of the total issued and outstanding Shares in the Company, all of which will be voted in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions. Accordingly, based on 18,733,475.5 Shares expected to be issued and outstanding on July 15, 2022, the record date for voting Shares at the extraordinary general meeting (the “Share Record Date”), and assuming that members of the Buyer Group and the Rollover Shareholders vote all their Shares in favor of the special resolutions and a quorum will be present at the extraordinary general meeting, sufficient votes will be cast to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, without requiring any further vote of any other shareholder of the Company.
The accompanying proxy statement provides detailed information about the Merger and the extraordinary general meeting. We encourage you to read the entire document and all of the attachments and other documents referred to or incorporated by reference herein carefully. You may also obtain more information about the Company from documents the Company has filed with the United States Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website at www.sec.gov.
The Rollover Shareholders will exercise their rights as registered shareholders of the Company to demand poll voting at the meeting and accordingly voting will take place by poll voting. Whether or not you plan to attend the extraordinary general meeting, please complete the accompanying proxy card, in accordance with the instructions set forth on the proxy card, as promptly as possible. The deadline to lodge your proxy card is July 27, 2022 at 10:00 a.m. (Beijing time), being 48 hours before the time appointed for the extraordinary general meeting. Each registered shareholder has one vote for each Class A Ordinary Share held and five votes for each Class B Ordinary Share held as of 10:00 a.m. (New York City time) on the Share Record Date.
Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if you hold your Shares through a financial intermediary such as a broker, bank or nominee, you
 
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must rely on the procedures of the financial intermediary through which you hold your Shares if you wish to vote at the extraordinary general meeting.
The Company will instruct the ADS Depositary to deliver to holders of ADS holders as of June 23, 2022 (the “ADS Record Date”) a Depositary Notice and an ADS Voting Instruction Card, the forms of which are attached as Annex G and Annex H to the accompanying proxy statement, and holders of ADSs as of the ADS Record Date will have the right to instruct the ADS Depositary how to vote the Shares underlying their ADSs at the extraordinary general meeting, subject to and in accordance with the terms of the Deposit Agreement. A copy of the Deposit Agreement is available free of charge at the SEC’s website at www.sec.gov.
ADS holders are strongly urged to sign, complete and return the ADS Voting Instruction Card to the ADS Depositary in accordance with the instructions printed thereon and in the Depositary Notice, as soon as possible and, in any event, so as to be received by the Depositary no later than 10:00 a.m. (New York time) on July 22, 2022 (or if the extraordinary general meeting is adjourned, such later date as may be notified by the Company or the ADS Depositary).
As the registered holder of the Shares represented by ADSs, the ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) the Shares represented by ADSs at the extraordinary general meeting in accordance with the voting instructions, the form of which is attached as Annex G to the accompanying proxy statement, timely and actually received from holders of ADSs at the close of business in New York City on June 23, 2022 (the “ADS Record Date”). The ADS Depositary must actually receive such instructions no later than 10:00 a.m. (New York City time) on July 22, 2022. Pursuant to Section 4.8 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Shares represented by ADSs. Accordingly, Shares represented by ADSs, for which voting instructions fail to specify the manner in which the ADS Depositary is to vote or no timely voting instructions are received by the ADS Depositary, will not be voted. If you hold your ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your ADSs if you wish to vote.
Holders of ADSs will not be able to attend or vote at the extraordinary general meeting directly (whether in person or by proxy) unless they surrender their ADSs for conversion into, and delivery of, Shares and become registered in the Company’s register of members as holders of Shares prior to 10:00 a.m. (New York City time) on the Share Record Date. ADS holders who wish to attend and vote at the extraordinary general meeting need to make arrangements with their broker or custodian to deliver the ADSs to the ADS Depositary for cancellation before the close of business in New York City on July 8, 2022 together with (a) delivery instructions for the corresponding Shares represented by such ADSs (including, if applicable, the name and address of person who will be the registered holder of such Shares), (b) payment of ADS Depositary’s fees associated with such cancellation (US$0.05 per ADS), which will not be borne by the Surviving Company, and any applicable taxes, and (c) certification that the ADS holder either (i) beneficially owned the relevant ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being surrendered (or has cancelled all voting instructions previously given), or (ii) did not beneficially own the relevant ADSs as of the ADS Record Date. If you hold your ADSs in a brokerage, bank or other nominee account, please promptly contact your broker, bank or other nominee to find out what actions you need to take to instruct the broker, bank or other nominee to surrender the ADSs on your behalf. Upon surrender of the ADSs, the ADS Depositary will direct Deutsche Bank AG, Hong Kong Branch, the custodian holding the Shares, to deliver, or cause the delivery of, the Shares represented by the ADSs so cancelled to or upon the written order of the person(s) designated in the order delivered to the ADS Depositary for such purpose. If you hold ADSs through a broker or other securities intermediary, you should contact that broker or intermediary to determine the date by which you must instruct them to act in order that the necessary processing can be completed in time. If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the Company instruct its registered office provider or share registrar to issue and mail a certificate to your attention. If the Merger is not consummated, the Company will continue to be a publicly traded company in the United States and ADSs will continue to be listed on Nasdaq. Shares are not listed and cannot be traded on any stock exchange other than the Nasdaq, and in such case only in the form of ADSs. As a result, if you have cancelled your ADSs to attend the extraordinary general meeting and the Merger is not consummated and you wish to be able to sell your Shares on a stock exchange, you will need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of
 
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applicable law and the Deposit Agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 per ADS issued), applicable share transfer taxes (if any), and related charges pursuant to the Deposit Agreement.
Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares as determined in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex D to the accompanying proxy statement. The fair value of your Shares as determined under the Cayman Islands Companies Act could be more than, the same as, or less than the merger consideration you would receive pursuant to the Merger Agreement if you do not exercise dissenters’ rights with respect to your Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSS. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO DISSENT FROM THE MERGER MUST SURRENDER THEIR ADSS TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THE ADSS, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN VOTING INSTRUCTIONS AS TO THE ADSS BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON JULY 8, 2022, AND BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES ACT. IF THE MERGER IS NOT COMPLETED, THE COMPANY WILL CONTINUE TO BE A PUBLIC COMPANY IN THE U.S., AND THE COMPANY’S ADSS WILL CONTINUE TO BE LISTED ON THE NASDAQ. THE SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSS.
AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSS TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, OR HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WILL NEED TO DEPOSIT HIS, OR HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSS, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSS (UP TO US$0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this letter or in the accompanying notice of the extraordinary general meeting or proxy statement. Any representation to the contrary is a criminal offense.
If you have any questions or need assistance voting your Shares or ADSs, please call our Investor Relations Department at +86 10-5876-9662 or e-mail to ir@bluecity.com. ADS holders who have any questions should contact the ADS Depositary using the contact details provided on the ADS Voting Instruction Card. ADS holders who hold ADSs indirectly should contact their bank, broker, financial institution or administrator through which such ADSs are held.
 
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Thank you for your cooperation and continued support.
Sincerely, Sincerely,
/s/ Wenjie (Jenny) Wu
Wenjie (Jenny) Wu
Chairperson of the Special Committee
/s/ Baoli Ma
Baoli Ma
Chairman of the Board and Chief Executive Officer
The accompanying proxy statement is dated June 23, 2022, and is first being mailed to the Company’s shareholders and ADS holders on or about July 1, 2022.
 
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BLUECITY HOLDINGS LIMITED
NOTICE OF EXTRAORDINARY GENERAL MEETING OF
SHAREHOLDERS TO BE HELD ON JULY 29, 2022
Dear Shareholder:
Notice is hereby given that an extraordinary general meeting of the shareholders of BlueCity Holdings Limited (referred to herein alternately as the “Company,” “us,” “we” or other terms correlative thereto), will be held on July 29, 2022 at 10:00 a.m. (Beijing time) at Block 2 Tower B, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China.
Only registered holders of Class A ordinary shares of the Company, par value US$0.0001 per share (each, a “Class A Ordinary Share”), and Class B ordinary shares of the Company, par value US$0.0001 per share (each, a “Class B Ordinary Share;” and the Class B Ordinary Shares together with the Class A Ordinary Shares, the “Shares”), as of 10:00 a.m. (New York City time) on July 15, 2022 (the “Share Record Date”) or their proxy holders are entitled to attend and vote at this extraordinary general meeting or any adjournment thereof.
At the extraordinary general meeting, you will be asked to consider and vote upon the following resolutions:

as special resolutions:
THAT the Agreement and Plan of Merger, dated as of April 30, 2022 (the “Merger Agreement”), among the Company, Multelements Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands (“Parent”), and Diversefuture Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands and a wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which the Merger Sub will be merged with and into the Company, with the Company being the surviving company of the Merger (the “Surviving Company”) and becoming a wholly-owned subsidiary of Parent (the “Merger”) (such Merger Agreement being in the form attached as Annex A to the proxy statement accompanying this notice of extraordinary general meeting and which will be produced and made available for inspection at the extraordinary general meeting), the plan of merger required to be registered with the Registrar of Companies of the Cayman Islands in connection with the Merger (the “Plan of Merger”) (such Plan of Merger being substantially in the form attached as Annex B to the proxy statement accompanying this notice of extraordinary general meeting and which will be produced and made available for inspection at the extraordinary general meeting), and the consummation of the transactions contemplated by the Merger Agreement and the Plan of Merger (collectively, the “Transactions”) including (i) the Merger, (ii) upon the Merger becoming effective (the “Effective Time”), the variation of the authorized share capital of the Company from US$500,000 divided into 5,000,000,000 Shares of a par value of US$0.0001 per Share , comprising of (i) 4,600,000,000 Class A Ordinary Shares of a par value of US$0.0001 each, (ii) 200,000,000 Class B Ordinary Shares of a par value of US$0.0001 each and (iii) 200,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as the Board may determine in accordance with the existing memorandum and articles of association of the Company to US$50,000 divided into 50,000 ordinary shares of a par value of US$1.00 each (the “Variation of Capital”)and (iii) the amendment and restatement of the existing memorandum and articles of association of the Company by their deletion in their entirety and the substitution in their place of the new memorandum and articles of association of the Company (as the Surviving Company) at the Effective Time of the Merger, in the form attached as Annexure 2 to the Plan of Merger (the “Adoption of Amended M&A”), be approved and authorized by the Company;
THAT each member of a special committee of the Board, composed solely of independent and disinterested directors of the Company (the “Special Committee”), be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, and upon the Merger becoming effective, the Variation of Capital and the Adoption of Amended M&A; and

if necessary, as an ordinary resolution:
 
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THAT the extraordinary general meeting be adjourned in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.
Please refer to the accompanying proxy statement, which is attached to and made a part of this notice. A list of the Company’s shareholders will be available at its principal executive offices at Block 2 Tower B Room 028, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China, during ordinary business hours for the two business days immediately prior to the extraordinary general meeting.
Pursuant to certain support agreement entered into on April 30, 2022, each of BlueCity Media Limited, an affiliate of Mr. Baoli Ma, chairman of the board of directors (the “Board”) and chief executive officer of the Company (the “Founder”), Aviator D, L.P. and Rainbow Rain Limited (collectively, the “Rollover Shareholders”) will vote all of the Shares (including Shares represented by the Company’s American depositary shares (“ADSs”)) directly or indirectly owned by them in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions. As of the date of this notice, the Rollover Shareholders directly or indirectly own in the aggregate 7,071,760.5 Shares (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised), which represent approximately 37.7% in number and approximately 70.2% in voting rights of the Company’s issued and outstanding Shares.
After careful consideration and upon the unanimous recommendation of the Special Committee, the Board (other than the Founder, who abstained from the vote) (a) determined that that it is fair to, and in the best interests of, the Company and its shareholders (other than holders of Excluded Shares) and the Unaffiliated Security Holders, and declared it advisable, for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions, including the Merger, (b) authorized and approved the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, including the Merger, and (c) resolved to direct that the Merger Agreement, the Plan of Merger and the Transactions be submitted to the shareholders of the Company for their approval and authorization at an extraordinary general meeting of the Company’s shareholders, with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. The Board recommends that you vote FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, the Variation of Capital, and the Adoption of Amended M&A, FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to do all things necessary to give effect to the Merger Agreement, the Plan of Merger, and the Transactions, including the Merger, and upon the Merger becoming effective, the Variation of Capital, and the Adoption of Amended M&A, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.
Regardless of the number of Shares or ADSs that you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement, the Plan of Merger and the Transactions are authorized and approved by a special resolution (as defined in the Companies Act (As Revised) of the Cayman Islands, as amended, modified, or re-enacted from time to time (the “Cayman Islands Companies Act”)) of the Company passed by an affirmative vote of holders of Shares representing at least two-thirds of votes cast by such holders as, being entitled so to do, vote in person or, in the case of such holders as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy as a single class, at the extraordinary general meeting or any adjournment or postponement thereof. As of the date of this proxy statement, the Rollover Shareholders directly or indirectly own 7,071,760.5 Shares (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised), which represents approximately 70.2% of the total voting rights in the Company. Accordingly, based on the total number of Shares expected to be issued and outstanding on the Share Record Date, and assuming that the Rollover Shareholders shall vote all their Shares in favor of the special resolutions and a quorum will be present at the extraordinary general meeting, sufficient votes will be cast to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, without requiring any further vote of any other shareholder of the Company.
 
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Regardless of whether you plan to attend the extraordinary general meeting in person, we request that you submit your proxy in accordance with the instructions set forth on the proxy card as promptly as possible. To be valid, your proxy card must be completed, signed and returned to the Company’s offices (to the attention of: Investor Relations Department) at Block 2 Tower B Room 028, No . 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China, no later than 10:00 a.m. (Beijing time), July 27, 2022, being 48 hours before the time appointed for the extraordinary general meeting. The proxy card is the “instrument of proxy” and the “instrument appointing a proxy” as referred to in the Company’s articles of association. The Rollover Shareholders will exercise their right as registered shareholders of the Company to demand poll voting at the meeting and accordingly voting will take place by poll voting. Each registered shareholder has one vote for each Class A Ordinary Share held and five votes for each Class B Ordinary Share held as of 10:00 a.m. (New York City time) on the Share Record Date. If you receive more than one proxy card because you own Shares that are registered in different names, please vote all of your Shares shown on each of your proxy cards in accordance with the instructions set forth on the proxy card.
Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the extraordinary general meeting and vote your Shares in person. Please note, however, that if your Shares are registered in the name of a broker, bank or other nominee and you wish to vote at the extraordinary general meeting in person, you must obtain from the record holder a proxy issued in your name.
If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to your broker, bank or other nominee, your vote will not be counted.
When proxies are properly dated, executed and returned by holders of Shares, the Shares they represent will be voted at the extraordinary general meeting in accordance with the instructions of such shareholders. If no specific instructions are given by such shareholders, such Shares will be voted “FOR” the proposals as described above, unless you appoint a person other than the chairman of the meeting as your proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If you own ADSs as of the close of business in New York City on June 23, 2022 (the “ADS Record Date”) (and do not surrender such ADSs and become a registered holder of the Shares underlying such ADSs as explained below), you cannot vote at the extraordinary general meeting directly, but you may give voting instructions, the form of which is attached as Annex H to the accompanying proxy statement, to Deutsche Bank Trust Company Americas, (the “ADS Depositary”), in its capacity as the ADS Depositary and the holder of the Shares underlying your ADSs, how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible. The ADS Depositary must receive your instructions no later than 10:00 a.m. (New York City time) on July 22, 2022 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or other securities account, you must rely on the procedures of the broker, bank or other securities intermediary through which you hold your ADSs if you wish to vote.
Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you surrender your ADSs and become a registered holder of the Shares underlying your ADSs prior to 10:00 a.m. (New York City time) on July 15, 2022, the Share Record Date. If you wish to surrender your ADSs for the purpose of voting Shares directly, you need to make arrangements to deliver your ADSs to the ADS Depositary for cancellation before the close of business in New York City on July 8, 2022 together with (a) delivery instructions for the corresponding Shares represented by such ADSs (including, if applicable, the name and address of person who will be the registered holder of such Shares), (b) payment of ADS Depositary’s fees associated with such cancellation (US$0.05 per ADS), which will not be borne by the Surviving Company, and any applicable taxes, and (c)  certification that the ADS holder either (i) beneficially owned the relevant ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being surrendered (or has cancelled all voting instructions previously given), or (ii) did not beneficially own the relevant ADSs as of the ADS Record Date. If you hold your ADSs in a brokerage, bank or other securities account, please contact your broker, bank or other securities intermediary to find out what actions you need
 
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to take to instruct the broker, bank or other securities intermediary to surrender the ADSs on your behalf. It is difficult to predict how long the steps described above may take. ADS holders that wish to surrender to become registered holders of Shares are advised to take action as soon as possible.
Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares as determined in accordance with Section 238 of the Cayman Islands Companies Act, as amended, modified, or re-enacted from time to time (the “Cayman Islands Companies Act”) if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex D to the accompanying proxy statement. The fair value of their Shares as determined under the Cayman Islands Companies Act could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSS. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO DISSENT FROM THE MERGER MUST SURRENDER THEIR ADSS TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THE ADSS, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN VOTING INSTRUCTIONS AS TO THE ADSS BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON JULY 8, 2022, AND BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES ACT. IF THE MERGER IS NOT COMPLETED, THE COMPANY WILL CONTINUE TO BE A PUBLIC COMPANY IN THE U.S., AND THE COMPANY’S ADSS WILL CONTINUE TO BE LISTED ON THE NASDAQ. THE SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSS.
AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSS TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, OR HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WILL NEED TO DEPOSIT HIS, OR HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSS, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSS (UP TO US$0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
If you have any questions or need assistance voting your Shares, please contact our Investor Relations Department at +86 10-5876-9662 or e-mail to ir@bluecity.com. ADS holders who have questions may also contact the ADS Depositary using its contact details provided on the ADS Voting Instruction Card. ADS holders who hold ADSs indirectly via a bank, broker, financial institution or administrator should contact such person through which such ADSs are held.
The Merger Agreement, the Plan of Merger and the Transactions are described in the accompanying proxy statement. Copies of the Merger Agreement and the Plan of Merger are included as Annex A and Annex B, respectively, to the accompanying proxy statement. We urge you to read the entire accompanying proxy statement carefully.
Notes:
1.
In the case of joint holders, any one of such joint holder may vote, either in person or by proxy, in
 
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respect of such share as if he or she were solely entitled thereto, but if more than one of such joint holders be present at the extraordinary general meeting the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. For this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company in respect of the joint holders.
2.
The instrument appointing a proxy must be in writing under the hand of the appointer or of his or her attorney duly authorized in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized to sign the same.
3.
A proxy need not be a member (registered shareholder) of the Company.
4.
The proxy card must be deposited in the manner set out in the notice of the extraordinary general meeting. A proxy card that is not deposited in the manner permitted will be invalid.
5.
Votes given in accordance with the terms of a proxy card will be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, provided that no intimation in writing of such death, insanity or revocation was received by the Company at Block 2 Tower B Room 028, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China, Attention: Investor Relations Department, at least two hours before the commencement of the extraordinary general meeting, or adjourned meeting at which such proxy is used.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Baoli Ma
Baoli Ma
Chairman of the Board and Chief Executive Officer
June 23, 2022
 
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PROXY STATEMENT
Dated June 23, 2022
SUMMARY VOTING INSTRUCTIONS
Ensure that your shares or ADSs of BlueCity Holdings Limited can be voted at the extraordinary general meeting by submitting your proxy or contacting your broker, bank or other nominee.
If your shares are registered in the name of a broker, bank or other nominee:   check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares are voted at the extraordinary general meeting.
If your shares are registered in your name:   submit your proxy as soon as possible by signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope, so that your shares can be voted at the extraordinary general meeting in accordance with your instructions.
If you submit your proxy card without indicating how you wish to vote, the shares represented by your proxy will be voted in favor of the resolutions to be proposed at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as your proxy, in which case the shares represented by your proxy will be voted (or not submitted for voting) as your proxy determines.
If your ADSs are registered in the name of a broker, bank or other nominee: check the ADS voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that the shares represented by your ADSs are voted at the extraordinary general meeting. Instructions to the ADS depositary must be provided in the manner specified by the ADS depositary prior to the ADS voting deadline.
If your ADSs are registered in your name: submit your ADS voting instruction card as soon as possible (and in all cases prior to the ADS voting deadline) by signing, dating and returning the enclosed ADS voting instruction card in the enclosed postage-paid envelope, so that the shares represented by your ADSs can be voted at the extraordinary general meeting on behalf of the ADS depositary, as the registered holder of the shares represented by your ADSs.
If you submit your ADS voting instruction card without indicating how you wish to vote or do not submit it in a timely manner, the ADS depositary will not vote (or cause to be voted) the shares underlying your ADSs. The ADS depositary will not exercise any voting discretion in respect of any shares underlying your ADSs.
If you have any questions, require assistance with voting your proxy card, or need additional copies of proxy material, please contact our Investor Relations Department at +86 10-5876-9662 or e-mail to ir@bluecity.com. ADS holders who have questions may also contact the ADS Depositary using its contact details provided on the ADS voting instruction card. ADS holders who hold ADSs indirectly via a bank, broker, financial institution or administrator should contact such person through which such ADSs are held.
 
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SUMMARY TERM SHEET
This “Summary Term Sheet” and the “Questions and Answers About the Extraordinary General Meeting and the Merger” highlight selected information contained in this proxy statement regarding the Merger (as defined below) and may not contain all of the information that may be important to your consideration of the Merger and other transactions contemplated by the Merger Agreement (as defined below). You should carefully read this entire proxy statement and the other documents to which this proxy statement refers for a more complete understanding of the matters being considered at the extraordinary general meeting. In addition, this proxy statement incorporates by reference important business and financial information about the Company. You are encouraged to read all of the documents incorporated by reference into this proxy statement and you may obtain such information without charge by following the instructions in “Where You Can Find More Information” beginning on page 104. In this proxy statement, the terms “the Company,” “us,” “we” or other terms correlative thereto refer to BlueCity Holdings Limited. All references to “dollars,” “US$” and “$” in this proxy statement are to U.S. dollars, and all references to “RMB” in this proxy statement are to Renminbi, the lawful currency of the People’s Republic of China (“China” or the “PRC”).
The Parties Involved in the Merger
The Company
The Company is an exempted company incorporated under the laws of the Cayman Islands and a leading online LGBTQ platform.
The Company’s principal executive office is located at Block 2 Tower B Room 028, No 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China. Its telephone number at this address is +86 10 5876 9855. Its registered office in the Cayman Islands is Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. 2681, Grand Cayman KY1-1111, Cayman Islands.
For a description of the Company’s history, development, business and organizational structure, see the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2021 filed with the SEC on April 28, 2022 (“Company’s Annual Report”), which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 104 for a description of how to obtain a copy of the Company’s Annual Report.
Parent
Multelements Limited (“Parent”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of holding the equity interest in Merger Sub (as defined below) and completing the Transactions, including the Merger. The registered address of Parent is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. The business address and telephone number of Parent is Block 2 Tower B Room 028, No 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing, People’s Republic of China, +86 10 5876 9855.
Merger Sub
Diversefuture Limited (“Merger Sub”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is a holding company formed solely for the purpose of effecting the Transactions, including the Merger. The registered address of Merger Sub is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. The business address and telephone number of Merger Sub is Block 2 Tower B Room 028, No 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing, People’s Republic of China, +86 10 5876 9855.
Founder Filing Persons
Mr. Baoli Ma (the “Founder”) is a citizen of the People’s Republic of China. Mr. Ma has been the chief executive officer of the Company since its inception in 2011 and chairman of the Board since the Company’s
 
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initial public offering. The business address and telephone number of Mr. Ma is Block 2 Tower B Room 028, No 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing, People’s Republic of China, +86 10 5876 9855.
BlueCity Media Limited is a British Virgin Islands company ultimately controlled by the Founder through Shimmery Sapphire Holding Limited and Cantrust (Far East) Limited (together with the Founder and BlueCity Media Limited, the “Founder Filing Persons”). BlueCity Media Limited is wholly-owned by Shimmery Sapphire Holding Limited. Cantrust (Far East) Limited holds 100% equity interests in Shimmery Sapphire Holding Limited on behalf of Shimmery Diamond Trust, which is a trust established under the laws of Guernsey and managed by Cantrust (Far East) Limited as the trustee. The Founder is the settlor of Shimmery Diamond Trust, and the Founder and his family are the trust’s beneficiaries. The Founder may provide investment advisory services to the trustee in his capacity as an investment advisor in respect to the assets of Shimmery Diamond Trust, including the shares held by BlueCity Media Limited in the Company. The principal business of BlueCity Media Limited is investment holding. The business address and telephone number of BlueCity Media Limited is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands, +86 10 5876 9855.
Each of Shimmery Sapphire Holding Limited and Cantrust (Far East) Limited is a British Virgin Islands company. The principal business of Shimmery Sapphire Holding Limited is investment holding and the principal business of Cantrust (Far East) Limited is provision of trust services. The business address and telephone number of each of Shimmery Sapphire Holding Limited and Cantrust (Far East) Limited is Ritter House, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin Islands, +1 284 394 9100.
Sponsor Filing Persons
Metaclass Management ELP is an exempted limited partnership established under the laws of the Cayman Islands. Its general partner is Chizicheng Strategy Investment Limited, an exempted company with limited liability incorporated in the Cayman Islands. Chizicheng Strategy Investment Limited is a wholly-owned subsidiary of Spriver Tech Limited, a British Virgin Islands company wholly owned by Mr. Chunhe Liu (together with Metaclass Management ELP, Chizicheng Strategy Investment Limited and Spriver Tech Limited, the “Sponsor Filing Persons”).
The principal business of Metaclass Management ELP is to participate in the going private transaction of the Company and to make equity and equity-related investments in companies that operate in a variety of sectors. The business address and telephone number of Metaclass Management ELP is CEC Development Mansion 12F, No 9 Xiaguangli, Chaoyang District, Beijing, People’s Republic of China, +86 10 53687809.
The principal business of Chizicheng Strategy Investment Limited is being the general partner of Metaclass Management ELP. The business address and telephone number of Chizicheng Strategy Investment Limited is CEC Development Mansion 12F, No 9 Xiaguangli, Chaoyang District, Beijing, People’s Republic of China, +86 10 53687809.
The principal business of Spriver Tech Limited is investment holding. The business address and telephone number of Spriver Tech Limited is CEC Development Mansion 12F, No 9 Xiaguangli, Chaoyang District, Beijing, People’s Republic of China, +86 10 53687809.
Mr. Chunhe Liu is a citizen of the People’s Republic of China. Mr. Liu is the founder of Newborn Town Inc. (HKEX: 09911), has served as the executive director of Newborn Town Inc. since September 12, 2018 and was the CEO of Newborn Town Inc. until August 26, 2021. Newborn Town Inc. is a developer of social media and game mobile apps, with a business address at CEC Development Mansion 12F, No 9 Xiaguangli, Chaoyang District, Beijing, People’s Republic of China. The business address and telephone number of Mr. Liu is CEC Development Mansion 12F, No 9 Xiaguangli, Chaoyang District, Beijing, People’s Republic of China, +86 10 53687809.
CDH Filing Persons
Aviator D, L.P. is an exempted limited partnership established under the laws of the Cayman Islands. The principal business of Aviator D, L.P. is investment fund. CDH China HF Holdings Company Limited is a Cayman Islands company and the general partner of Aviator D, L.P. Its principal business is to serve as the
 
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general partner of investment funds. The business address and telephone number of each of Aviator D, L.P. and CDH China HF Holdings Company Limited is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, +852 3518 8018.
Rainbow Rain Limited is a British Virgin Islands company wholly-owned by Roger Field Fund, L.P., whose general partner is CDH Harvest Holdings Limited. Roger Field Fund, L.P. is an exempted Cayman Islands limited partnership and CDH Harvest Holdings Limited is a Cayman Islands company. The principal business of Rainbow Rain Limited is investment holding, the principal business of Roger Field Fund, L.P. is investment fund and the principal business of CDH Harvest Holdings Limited is to serve as the general partner of investment funds. The business address and telephone number of Rainbow Rain Limited is Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands, +852 3518 8018. The business address and telephone number of Roger Field Fund, L.P. is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, +852 3518 8018. The business address and telephone number of CDH Harvest Holdings Limited is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, +852 3518 8018.
Mr. Shangzhi Wu is a citizen of Singapore and controls CDH China HF Holdings Company Limited and CDH Harvest Holdings Limited (together with Aviator D, L.P., Rainbow Rain Limited, Roger Field Fund, L.P. and Mr. Shangzhi Wu, the “CDH Filing Persons”). Mr. Wu is the co-founder of CDH Investments, an alternative asset management firm, and has served as the chairman of CDH Investments since its inception. The business address of CDH Investments is 1503 Level 15 International Commerce Center, 1 Austin Road West, Kowloon, Hong Kong. The business address and telephone number of Mr. Wu is 1503 Level 15 International Commerce Center, 1 Austin Road West, Kowloon, Hong Kong, +852 3518 8018.
The Merger (Page 75)
You are being asked to vote to authorize and approve the Agreement and Plan of Merger dated as of April 30, 2022 among the Company, Parent and Merger Sub (the “Merger Agreement”), and the plan of merger required to be registered with the Registrar of Companies of the Cayman Islands (the “Cayman Registrar”), in connection with the Merger (the “Plan of Merger”), pursuant to which, once the Merger Agreement and the Plan of Merger are approved and authorized by the requisite vote of the shareholders of the Company and the other conditions to the completion of the transactions contemplated by the Merger Agreement are satisfied or waived in accordance with the terms of the Merger Agreement, the Merger Sub will be merged with and into the Company, with the Company being the surviving company of the Merger (the “Surviving Company”) and becoming a wholly-owned subsidiary of Parent (the “Merger”). The Surviving Company will be wholly owned by Parent, and will continue to do business under the name “BlueCity Holdings Limited” following the Merger. Copies of the Merger Agreement and the form of the Plan of Merger are attached as Annex A and Annex B, respectively, to this proxy statement. You should read the Merger Agreement and the Plan of Merger in their entirety because they, and not this proxy statement, are the legal documents that govern the Merger.
Merger Consideration (Page 75)
Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each Share (as defined below) issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares (as defined below), Dissenting Shares (as defined below) and Class A Ordinary Shares (as defined below) represented by American depositary shares (each, an “ADS”), will be cancelled in exchange for the right to receive US$3.20 in cash per Share without interest (the “Per Share Merger Consideration”) and each ADS issued and outstanding immediately prior to the Effective Time (other than ADSs representing Excluded Shares) will be cancelled in exchange for the right to receive US$1.60 in cash per ADS, without interest and net of any applicable withholding taxes (the “Per ADS Merger Consideration”).
Notwithstanding the foregoing, if the Merger is completed, the following shares shall not be cancelled in exchange for the right to receive the Per Share Merger Consideration or the Per ADS Merger Consideration described in the immediately preceding paragraph, but will be cancelled and shall cease to exist at the Effective Time as follows:
(a)
(i) 3,918,605 Shares beneficially owned by the Rollover Shareholders (subject to adjustments set forth in the Merger Agreement, collectively, the “Rollover Shares”), (ii) any other Shares (including
 
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Class A Ordinary Shares represented by ADSs) held by Parent, Merger Sub, the Company or any of their respective subsidiaries, and (iii) Shares (including Class A Ordinary Shares represented by ADSs) held by the ADS Depositary and reserved for issuance, settlement and allocation upon exercise or vesting of Company Options (as defined below) (collectively, the “Excluded Shares”) will be cancelled and shall cease to exist without payment of any consideration or distribution therefor; and
(b)
Shares that are issued and outstanding immediately prior to the Effective Time and that are held by shareholders of the Company who have validly exercised and not effectively withdrawn or lost their rights to dissent from the Merger, or dissenter rights, in accordance with Section 238 of the Companies Act (As Revised) of the Cayman Islands, as amended, modified, or re-enacted from time to time (the “Cayman Islands Companies Act”) (collectively, the “Dissenting Shares;” holders of Dissenting Shares collectively being referred to as “Dissenting Shareholders”) will be cancelled and cease to exist at the Effective Time and the Dissenting Shareholders shall not be entitled to receive the Per Share Merger Consideration and shall instead be entitled to receive only the payment of the fair value of such Dissenting Shares held by them determined in accordance with Section 238 of the Cayman Islands Companies Act.
Treatment of Company Equity Awards (Page 76)
At the Effective Time, each option to purchase Class A Ordinary Shares (each, a “Company Option”) granted pursuant to the Company’s 2015 Stock Incentive Plan that is outstanding and unexercised as of the Effective Time, whether vested or unvested, shall be cancelled, and the holder thereof shall be entitled to receive an amount in cash, without interest, payable as soon as reasonably practicable following the Effective Time equal to the product of (i) the excess, if any, of (A) the Per Share Merger Consideration, over (B) the exercise price, multiplied by (ii) the number of Class A Ordinary Shares subject to such Company Option as of the Effective Time. Each Company Option with the exercise price that is equal to or greater than the Per Share Merger Consideration shall be cancelled at the Effective Time without the payment of consideration therefor.
At the Effective Time, each Company Option to purchase Class A Ordinary Shares granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is outstanding, vested and unexercised as of the Effective Time, shall be assumed by Parent and automatically converted into an option for ordinary shares of Parent (each, an “Assumed Option”) under an equity incentive plan to be established by Parent equal to the product of (A) the number of Class A Ordinary Shares that were subject to the corresponding Company Option immediately prior to the Effective Time, multiplied by (B) a fraction (such ratio, the “Exchange Ratio”), the numerator of which is the Per Share Merger Consideration and the denominator of which is the fair market value of an ordinary share of Parent, and rounding such product down to the nearest whole number of ordinary shares of Parent, with an exercise price per share subject to the Assumed Option equal to the exercise price for which the corresponding Company Option was exercisable immediately prior to the Effective Time divided by the Exchange Ratio, and rounded up to the nearest whole cent. Each Assumed Option shall be subject to the same terms and conditions as to vesting, exercisability and forfeiture as the corresponding Company Option as in effect on April 30, 2022 the date of the Merger Agreement.
At the Effective Time, each Company Option granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is unvested as of the Effective Time will be cancelled without the payment of consideration therefor.
Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger (Page 69)
In order for the Merger to be consummated, the Merger Agreement and the Plan of Merger must be approved by a special resolution (as defined in the Cayman Islands Companies Act) of the Company passed by an affirmative vote of holders of Shares (including Shares represented by ADSs) representing at least two-thirds of votes cast by such holders as, being entitled so to do, vote in person or, in the case of such holders as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy as a single class, at the extraordinary general meeting or any adjournment or postponement thereof. If this vote is not obtained, the Merger will not be consummated.
 
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As of the date of this proxy statement, the Rollover Shareholders directly or indirectly own in the aggregate 1,956,920.5 Class A ordinary shares of the Company, par value US$0.0001 per share (each, a “Class A Ordinary Share”) (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised) and 5,114,840 Class B ordinary shares of the Company, par value US$0.0001 per share (each, a “Class B Ordinary Share;” and the Class B Ordinary Shares together with the Class A Ordinary Shares, the “Shares”), which collectively represent approximately 37.7% of the Company’s total issued and outstanding Shares and approximately 70.2% of the total voting power of the total issued and outstanding Shares in the Company. See “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 99 for additional information. Pursuant to the terms of the Support Agreement (as defined below), these Shares will be voted by the Rollover Shareholders in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, at the extraordinary general meeting.
Shareholder Record Date and Voting (Page 69)
You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name as of 10:00 a.m. (New York City time) on the Share Record Date. If you own Shares as of 10:00 a.m. (New York City time) on the Share Record Date, you should lodge your proxy card so that the proxy card is received by the Company no later than 10:00 a.m. (Beijing time) on July 27, 2022, being 48 hours before the time appointed for the extraordinary general meeting.
If you own ADSs as of the close of business in New York City on the ADS Record Date (and do not surrender such ADSs and become a registered holder of the Shares underlying such ADSs, as explained below), you cannot vote directly nor are you able to attend the extraordinary general meeting, but you may instruct the ADS Depositary (as the holder of the Shares underlying your ADSs) how to vote the Shares underlying your ADSs. The ADS Depositary must receive your instructions no later than 10:00 a.m. (New York City time) on July 22, 2022 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting.
Dissenters’ Rights of Shareholders (Page 73)
Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares as determined in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex D to the accompanying proxy statement. The fair value of your Shares as determined under the Cayman Islands Companies Act could be more than, the same as, or less than the merger consideration you would receive pursuant to the Merger Agreement if you do not exercise dissenters’ rights with respect to your Shares.
ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSS. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE SHARES THAT IT HOLDS, EVEN IF AN ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. ADS HOLDERS WISHING TO DISSENT FROM THE MERGER MUST SURRENDER THEIR ADSS TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THE ADSS, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING SHARES, AND CERTIFY THAT THEY HAVE NOT GIVEN VOTING INSTRUCTIONS AS TO THE ADSS BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON JULY 8, 2022, AND BECOME REGISTERED HOLDERS OF SHARES BEFORE THE VOTE TO AUTHORIZE AND APPROVE THE MERGER IS TAKEN AT THE EXTRAORDINARY GENERAL MEETING. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES ACT. IF THE MERGER IS NOT COMPLETED, THE COMPANY WILL CONTINUE TO BE A PUBLIC
 
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COMPANY IN THE U.S., AND THE COMPANY’S ADSS WILL CONTINUE TO BE LISTED ON THE NASDAQ. THE SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN THE NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSS.
AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS, HER OR ITS ADSS TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS, OR HER OR ITS SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WILL NEED TO DEPOSIT HIS, OR HER OR ITS SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSS, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSS (UP TO US$0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
We encourage you to read the section of this proxy statement entitled “Dissenters’ Rights” as well as Annex D to this proxy statement carefully and to consult your Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.
Purposes and Effects of the Merger (Page 48)
The purpose of the Merger is to enable the Buyer Group to acquire 100% ownership and control of the Company in a transaction in which the Company’s shareholders and ADS holders, other than holders of the Excluded Shares and Dissenting Shares, will be cashed out in exchange for the Per Share Merger Consideration or the Per ADS Merger Consideration, as applicable, so that the Buyer Group will bear the rewards and risks of the 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. See “Special Factors — Purposes of and Reasons for the Merger” beginning on page 48 for additional information.
The ADSs are currently listed on Nasdaq Global Market (“Nasdaq”) under the symbol “BLCT.” Following the consummation of the Merger, the Company will cease to be a publicly traded company and will be a privately held company wholly owned by the Buyer Group. Following the completion of the Merger, the ADSs will no longer be listed on any securities exchange or quotation system, including Nasdaq. See “Special Factors — Effects of the Merger on the Company” beginning on page 49 for additional information.
Plans for the Company after the Merger (Page 53)
The Buyer Group anticipates that following the completion of the Merger, the Company will initially 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, which itself will be directly owned by BlueCity Media Limited, the Sponsor, Aviator D, L.P. and Rainbow Rain Limited.
Following the completion of the Merger and the anticipated deregistration of the ADSs and Shares, the Company will no longer be subject to the Exchange Act and the compliance and reporting requirements of the Nasdaq and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.
Position of the Buyer Group as to the Fairness of the Merger (Page 35)
Each member of the Buyer Group believes that the Merger is fair, both substantively and procedurally, to the Unaffiliated Security Holders. Their belief is based upon the factors discussed under the section entitled “Special Factors — Position of the Buyer Group as to the Fairness of the Merger” beginning on page 35.
Each member of 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 each member of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote
 
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on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the transactions contemplated thereby, including the Merger.
Financing of the Merger (Page 55)
The Company and the members of the Buyer Group estimate that the total amount of funds necessary to complete the Transactions, including the Merger, is anticipated to be approximately US$48.8 million as of the date of this proxy statement, assuming no exercise of dissenters’ rights by shareholders of the Company. In calculating this amount, the Company and the members of the Buyer Group did not consider the value of the Excluded Shares. This amount includes the cash to be paid to the shareholders and ADS holders of the Company (other than the Rollover Shareholders) and holders of outstanding Company Options under the Company’s 2015 Stock Incentive Plan, as well as the related costs and expenses, in connection with the Transactions, including the Merger.
The members of the Buyer Group expect to provide this amount through a combination of cash contributions contemplated by the Equity Commitment Letter and cash in the Company and its subsidiaries.
Equity Commitment Letter (Page 55)
Concurrently with the execution of the Merger Agreement, the Sponsor and Parent entered into an equity commitment letter (the “Equity Commitment Letter”), whereby the Sponsor has committed, subject to the terms and conditions therein, to contribute, at the closing of the Merger, an aggregate amount in cash up to US$50 million to Parent (which contributions may take the form of ordinary equity, shareholder loans, preferred equity or other securities), for the purpose of funding the Merger consideration and fees and expenses incurred by Parent and the Company in connection with the transactions contemplated by the Merger Agreement.
Support Agreement (Page 56)
Concurrently with the execution of the Merger Agreement, the Rollover Shareholders and Parent entered into a support agreement (the “Support Agreement”), pursuant to which, among other things and subject to the terms and conditions set forth therein, the Rollover Shareholders agreed to (i) vote all Shares directly or indirectly owned by them in favor of the authorization and approval of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, and (ii) have the Rollover Shares beneficially owned by them be cancelled for no consideration from the Company at the Effective Time in exchange for the right to receive by them or their respective designated entities a corresponding number of ordinary shares of Parent at the closing of the Merger.
As of the date of this proxy statement, the Rollover Shareholders directly or indirectly own in the aggregate 7,071,760.5 Shares (including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised), which represent approximately 37.7% of the total issued and outstanding Shares and 70.2% of the aggregate voting power of the total issued and outstanding Shares. Of those Shares beneficially owned by the Rollover Shareholders as of the date of this proxy statement, 3,918,605 Shares are Rollover Shares.
Limited Guarantee (Page 56)
Concurrently with the execution of the Merger Agreement, the Sponsor executed and delivered to the Company a limited guarantee in favor of the Company (the “Limited Guarantee”), whereby the Sponsor agreed to irrevocably and unconditionally guarantee as a primary obligor Parent’s obligation to pay termination fee to the Company, if and when due pursuant to the Merger Agreement, as well as certain fees and expenses incurred by the Company in connection with its enforcement of its right thereunder, up to a maximum amount of US$1,400,000.
Interim Investors Agreement (Page 56)
Concurrently with the execution of the Merger Agreement, Parent, Merger Sub, Mr. Baoli Ma, the Sponsor and the Rollover Shareholders entered into an interim investors agreement (the “Interim Investors
 
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Agreement”) which governs until the earlier of the termination of the Merger Agreement or consummation of the Merger, among other matters, the actions of Parent and Merger Sub and the relationship among members of the Buyer Group with respect to the Merger Agreement, the Equity Commitment Letters, the Limited Guarantees, the Support Agreement and the transactions contemplated thereby.
The Interim Investors Agreement provides for, among other things and, subject to certain limitations or exceptions therein, (i) the mechanism for making decisions relating to the Merger Agreement pending consummation of the Merger, (ii) the mechanism for making decisions with respect to financing pending consummation of the Merger, and (iii) certain fees and expenses sharing arrangements among the parties to the Interim Investors Agreement.
Opinion of the Special Committee’s Financial Advisor (Page 40)
Pursuant to an engagement letter dated January 10, 2022 and the amendment to the engagement letter dated April 22, 2022 (the “D&P Engagement Letter”), the Special Committee engaged Kroll LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice (formerly known as Duff & Phelps, A Kroll Business operating as Kroll, LLC), to serve as its independent financial advisor and to provide a fairness opinion in connection with the Merger. On April 30, 2022, Duff & Phelps rendered its oral opinion (which was subsequently confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated as of April 30, 2022, addressed to the Special Committee) to the Special Committee, to the effect that, as of that date and based upon and subject to the procedures followed, assumptions made, factors and matters considered and qualifications and limitations on the review undertaken by Duff & Phelps as set forth in its opinion, the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, the Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, were fair, from a financial point of view, to such holders (without giving effect to any impact of the Merger on any particular holder of Shares or ADSs other than in their capacity as holders of Shares or ADSs).
The opinion of Duff & Phelps was addressed to the Special Committee and only addressed the fairness from a financial point of view of the Per Share Merger Consideration to be received by holders of Shares (other than the Excluded Shares, the Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, and does not address any other aspect or implication of the Merger. The summary of the opinion of Duff & Phelps in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this proxy statement and sets forth the procedures followed, assumptions made, factors and matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in preparing its opinion. We encourage holders of Shares and ADSs to read carefully the full text of the written opinion of Duff & Phelps. However, the opinion of Duff & Phelps, the summary of the opinion and the related analyses set forth in this proxy statement are not intended to be, and do not constitute, advice or a recommendation to any shareholder or holder of ADSs, of the Company as to how to act or vote with respect to the Merger or any other matter. See “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on page 40 for additional information.
Interests of the Company’s Executive Officers and Directors in the Merger (Page 58)
In considering the recommendations of the Special Committee and the Board with respect to the Merger, the Company’s shareholders should be aware that certain of the Company’s directors and executive officers have interests in the Transactions that are different from, and/or in addition to, the interests of the Company’s shareholders generally. These interests include, among others:

the beneficial ownership of equity interests in Parent by the Founder and other holders of Company Options granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan as a result of the Merger (if approved and consummated);

the potential enhancement or decline of the share value of the Surviving Company, of which the Founder and other holders of Company Options granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan will have beneficial ownership as a result of the completion of the Merger, and future performance of the Surviving Company;
 
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the cash-out of Company Options granted pursuant to the Company’s 2015 Stock Incentive Plan held by certain of the Company’s directors and executive officers;

continued indemnification rights and directors and officers liability insurance to be provided by the Surviving Company to former directors and officers of the Company pursuant to the Merger Agreement;

the compensation at a rate of US$15,000 per month for the Chairperson of the Special Committee and US$12,000 per month for the other member of the Special Committee, respectively, in exchange for each member’s services in such capacity (the payment of which is not contingent upon the closing of the Merger or the Special Committee’s or the Board’s recommendation of the Merger); and

the potential continuation of service of the executive officers of the Company (including the Founder) with the Surviving Company in positions that are substantially similar to their current positions, allowing them to benefit from remuneration arrangements with the Surviving Company.
The Special Committee and the Board were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the Merger Agreement and related matters. See “Special Factors — Interests of Certain Persons in the Merger” beginning on page 57 for additional information.
No Solicitation of Competing Transactions (Page 84)
The Merger Agreement restricts the Company’s ability, until the Effective Time or, if earlier, the termination of the Merger Agreement, to solicit proposals, engage in discussions or negotiations, provide confidential information, or enter into any agreements, in each case, regarding a Competing Proposal (as defined in “The Merger Agreement — No Solicitation of Transactions”). See “The Merger Agreement — No Solicitation of Transactions” beginning on page 84.
Conditions to the Merger (Page 89)
The obligations of each of Parent, Merger Sub and the Company are subject to the satisfaction or waiver of the following conditions:

the Shareholder Approval shall have been obtained in accordance with the Cayman Islands Companies Act and the Company Governing Documents; and

(i) there shall be no law, statute, rule or regulation that has been enacted or promulgated by any governmental entity of competent jurisdiction which prohibits or makes illegal the consummation of the Merger and the other Transactions; and (ii) there shall be no order or injunction of a court or governmental entity of competent jurisdiction in effect preventing the consummation of the Merger and the other Transactions in any material respect or imposing a Non-Required Remedy.
The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction or waiver of the following conditions:

the representations and warranties of the Company set forth in the Merger Agreement shall be true and correct as of the date of the Merger Agreement and as of the closing date of the Merger, subject to certain qualifications;

the Company has performed or complied in all material respects with all agreements or obligations required to be performed or complied with by it under the Merger Agreement at or prior to the Effective Time;

Since the date of the Merger Agreement, no Material Adverse Effect (as defined in “The Merger Agreement — Representations and Warranties” beginning on page 77) shall have occurred and be continuing;

the holders of no more than 10% of the Shares shall have validly served and not validly withdrawn a notice of dissent under Section 238(2) of the Companies Act; and
 
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the Company shall have delivered to Parent a certificate, dated the closing date, signed by a senior executive officer of the Company, certifying as to the satisfaction of the immediately preceding conditions.
The obligations of Company to effect the Merger are subject to the satisfaction or waiver of the following conditions:

the representations and warranties of Merger Sub set forth in the Merger Agreement are true and correct as of the date of the Merger Agreement and as of the closing date of the Merger, subject to certain qualifications;

Parent and Merger Sub have performed or complied in all material respects with all agreements and obligations required to be performed or complied with by them under the Merger Agreement at or prior to the Effective Time; and

Parent shall have delivered to the Company a certificate, dated the closing date, signed by a director or officer of Parent, certifying as to the satisfaction of the preceding conditions.
Termination of the Merger Agreement (Page 89)
The Merger Agreement may be terminated at any time prior to the Effective Time:
(a)
by mutual written consent of Parent and the Company (acting upon the recommendation of the Special Committee);
(b)
by either the Parent or the Company, if:

the Effective Time has not occurred by 11:59 pm, Hong Kong time on October 31, 2022 (the “Outside Date”);

any governmental authority of competent jurisdiction has issued a final, non-appealable order in each case permanently restraining, enjoining or otherwise prohibiting the consummation of the Merger or other Transactions; or

the Shareholder Approval having not been obtained after the final adjournment of the Shareholders Meeting (as defined below) at which a vote on such approval was taken;
in each case provided that this termination right is not be available to any party whose failure (or, in the case of Parent, the failure of Parent or Merger Sub) to fulfill any of its obligations under the Merger Agreement has been a primary cause of, or resulted in, the failure of the Merger to be consummated by the Outside Date or the applicable condition(s) being satisfied;
(c)
by the Company, upon:

a Parent Breach Termination Event;

a Superior Proposal Termination Event; or

a Parent Failure to Close Termination Event;
(d)
by Parent, upon any Parent Termination Event
each as defined in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 89.
U.S. Federal Income Tax Consequences (Page 61)
The receipt of cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. Special rules will apply if you are a “U.S. Holder” and the Company was or currently is a passive foreign investment company, or “PFIC.” See “Special Factors — U.S. Federal Income Tax Consequences” beginning on page 61. The U.S. federal income tax consequences of the Merger will depend upon your personal circumstances. You should consult your tax advisors regarding the U.S. federal, state, local, foreign and other tax consequences of the Merger to you.
 
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PRC Income Tax Consequences (Page 64)
The Company does not believe that it should be considered a resident enterprise under the PRC Enterprise Income Tax Law (the “EIT Law”) or that the gains recognized on the receipt of cash for the Shares or ADSs should otherwise be subject to PRC tax to holders of such Shares or ADSs that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise, then gains recognized on the receipt of cash for our Shares or ADSs pursuant to the Merger by our shareholders or ADSs holders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that the Company is not considered a resident enterprise, gains recognized on the receipt of cash for Shares or ADSs will be subject to PRC tax if the holders of such Shares or ADSs are PRC residents. The Company does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 37 and Bulletin 7, and, as a result, the Company (as purchaser and withholding agent) will not withhold any PRC tax (under Bulletin 7 and Bulletin 37) from the Merger consideration to be paid to holders of Shares or ADSs. If PRC tax authorities were to invoke Bulletin 37 or Bulletin 7 and impose tax on the receipt of consideration for Shares, then any gain recognized on the receipt of consideration for such Shares pursuant to the Merger by the Company’s non-PRC-resident shareholders could be treated as PRC-source income and thus be subject to PRC income tax at a rate of 10% (subject to applicable treaty relief, if any). You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.
Please see “Special Factors — PRC Income Tax Consequences” beginning on page 64 for additional information.
Cayman Islands Tax Consequences (Page 65)
The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of the Merger or the receipt of cash for the Shares under the terms of the Merger Agreement. This is subject to the qualifications that (a) Cayman Islands stamp duty may be payable if any original transaction documents are brought into or executed or produced before a court in the Cayman Islands (for example, for enforcement), (b) registration fees will be payable to the Registrar of Companies in the Cayman Islands to register the Plan of Merger and to file the Variation of Capital and the Adoption, and (c) fees will be payable to the Cayman Islands Government Gazette Office to publish the notice of the Merger in the Cayman Islands Government Gazette.
Regulatory Matters (Page 61)
The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with effecting the Merger other than (a) the approvals, filings or notices required under the U.S. federal securities laws and (b) the filing of the Plan of Merger (and supporting documentation as specified in the Cayman Islands Companies Act) with the Registrar of Companies of the Cayman Islands and, in the event the Merger becomes effective, a copy of the certificate of merger being given to the shareholders and creditors (if any) of the Company and Merger Sub as at the time of the filing of the Plan of Merger and notice of the Merger being published in the Cayman Islands Government Gazette.
Litigation Related to the Merger (Page 61)
We are currently not aware of any lawsuit that challenges the Merger, the Merger Agreement or the Transactions.
Market Price of the ADSs (Page 66)
The closing price of the ADSs on the Nasdaq on April 14, 2022, the last trading day before the Proposal Letter was made to the Board in a letter from certain members of the Buyer Group, dated April 18, 2022, was US$1.37 per ADS. The Per ADS Merger Consideration of US$1.60 to be paid in the Merger represents a
 
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premium of 16.8% to that closing price, and a premium of 19.21% to the volume-weighted average price of the ADSs during the last 20 trading days prior to its receipt of the Proposal Letter.
Accounting Treatment of the Merger (Page 61)
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.”
Fees and Expenses (Page 60)
Except as provided otherwise under the Merger Agreement, the Interim Investors Agreement, the Equity Commitment Letter or the Limited Guarantee, all fees and expenses incurred in connection with the Merger Agreement and the Transactions will be paid by the party incurring such expenses, whether or not the Merger is consummated.
Remedies and Limitation on Liability (Page 56)
The parties to the Merger Agreement agree that a party shall be entitled to seek specific performance of the terms and provisions of the Merger Agreement, including to seek an injunction or injunctions to prevent breaches of the Merger Agreement by any party, and, in the case of the Company, to seek an injunction or injunctions, specific performance or other equitable relief to enforce Parent’s and/or Merger Sub’s obligations to consummate the closing of the Merger or to cause the consummation of the financing contemplated in the Equity Commitment Letter, in addition to any other remedy by law or equity, subject to certain limitations as described under the caption “The Merger Agreement — Remedies and Limitations on Liability” beginning on page 91.
The maximum aggregate liabilities of Parent, on the one hand, and the Company, on the other hand, for monetary damages in connection with the Merger Agreement are limited to (a) the maximum Parent Termination Fee of US$1,400,000 and the maximum Company Termination Fee of US$700,000, respectively, and (b) reimbursement of certain expenses in the event that the Company or Parent fail to pay the applicable termination fee when due and in accordance with the requirements of the Merger Agreement, as the case may be.
While the Company, Parent and Merger Sub may pursue both a grant of specific performance and payment of a termination fee, none of them will be permitted or entitled to receive both a grant of specific performance that results in a closing and payment of a termination fee, and upon the payment of the relevant termination fee, the remedy of specific performance shall not be available against the party making such payment.
 
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QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE
MERGER
The following questions and answers address briefly some questions you may have regarding the extraordinary general meeting and the Merger. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.
Q:
When and where will the extraordinary general meeting be held?
A:
The extraordinary general meeting will take place on July 29, 2022, at 10:00 a.m. (Beijing time) at Block 2 Tower B, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China.
Q:
What am I being asked to vote on?
A:
You will be asked to consider and vote on the following proposals:

as a special resolution, that the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including (i) the Merger, (ii) the variation of the authorized share capital of the Company from US$500,000 divided into 5,000,000,000 Shares of a par value of US$0.0001 per Share, comprising of (i) 4,600,000,000 Class A Ordinary Shares of a par value of US$0.0001 each, (ii) 200,000,000 Class B Ordinary Shares of a par value of US$0.0001 each and (iii) 200,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as the Board may determine in accordance with the existing memorandum and articles of association of the Company to US$50,000 divided into 50,000 ordinary shares of US$1.00 par value per share, at the Effective Time (the “Variation of Capital”), and (iii) the adoption of the new amended and restated memorandum and articles of association in the form attached as Appendix II to the Plan of Merger, at the Effective Time (the “Adoption of Amended M&A”), be authorized and approved;

as a special resolution, that each of the members of the Special Committee be authorized to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, and upon the Merger becoming effective, the Variation of Capital and the Adoption of Amended M&A; and

if necessary, as an ordinary resolution, that the extraordinary general meeting be adjourned in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.
Q:
What is the Merger?
A:
The Merger is a going private transaction pursuant to which the Buyer Group will acquire the Company. Once the Merger Agreement and the Plan of Merger are approved and authorized by the Company’s shareholders and the other closing conditions under the Merger Agreement have been satisfied or waived, the Merger Sub will be merged with and into the Company and cease to exist, with the Company being the surviving company of the Merger (the “Surviving Company”) and becoming a wholly-owned subsidiary of Parent (the “Merger”). If the Merger is consummated, the Company will continue its operations as a privately held company beneficially owned by Parent and, as a result of the Merger, the ADSs will no longer be listed on Nasdaq.
Q:
When do you expect the Merger to be completed?
A:
We are working toward consummating the Merger as soon as possible and currently expect the Merger to consummate during the second half of 2022, after all conditions to the Merger have been satisfied or waived.
Q:
How does the Board recommend that I vote on the proposals?
A:
After careful consideration, and upon the unanimous recommendation of the Special Committee, the Board (other than the Founder who abstained from the vote) recommends you to vote:
 
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FOR the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, and upon the Merger becoming effective, the Variation of Capital and the Adoption of Amended M&A;

FOR the proposal to authorize each of the members of the Special Committee to do all things necessary to give effect to the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, and upon the Merger becoming effective, the Variation of Capital and the Adoption of Amended M&A; and

FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received at the time of the extraordinary general meeting to pass the special resolutions to be proposed at the extraordinary general meeting.
Q:
What consideration will I be entitled to receive in the Merger?
A:
If you own ADSs immediately prior to the Effective Time and are not a member of the Buyer Group and the Merger is completed, you will be entitled to receive the Per ADS Merger Consideration of US$1.60 (less applicable taxes, expenses and ADS Depositary fees, including a US$0.05 per ADS cancellation fee) in cash, without interest and net of any applicable withholding taxes, for each ADS you continue to own when the merger consideration is paid out by the ADS Depositary. You will pay any applicable fees, charges and expenses of the ADS Depositary and government charges due to or incurred by the ADS Depositary in connection with (i) the cancellation of your ADSs (and the underlying Shares) and (ii) the distribution of the merger consideration to you, including applicable ADS cancellation fees.
Each Share issued and outstanding immediately prior to the Effective Time (other than the Excluded Shares, Dissenting Shares and Class A Ordinary Shares represented by ADSs) will be cancelled in exchange for the right to receive the Per Share Merger Consideration of US$3.20 in cash per Share without interest and net of any applicable withholding taxes.
The Dissenting Shares will be cancelled and cease to exist at the Effective Time, and the holders of such Dissenting Shares shall not be entitled to receive the Per Share Merger Consideration of US$3.20 in cash per Share and shall instead be entitled to receive only the payment of the fair value of their Dissenting Shares as determined in accordance with the provisions of Section 238 of the Cayman Islands Companies Act.
See “Special Factors — U.S. Federal Income Tax Consequences,” “Special Factors — PRC Income Tax Consequences,” and “Special Factors — Cayman Islands Tax Consequences” for a description of the tax consequences of the Merger. Unaffiliated Security Holders should consult their own tax advisors for a full understanding of how the Merger will affect their U.S. federal, state, and local and PRC and other non-U.S. taxes.
Q:
How will a holder of ADSs receive the net Per ADS Merger Consideration to which the holder is entitled after the Merger is completed?
A:
If you are not a member of the Buyer Group and you are a registered holder of ADSs that are evidenced by certificates, also referred to as American depositary receipts (“ADRs”), unless you have surrendered your ADRs to the ADS Depositary for cancellation prior to the Effective Time, upon your surrender of the ADRs (or an affidavit and indemnity for loss in lieu of the ADRs) together with a duly completed letter of transmittal (which will be supplied to you by the ADS Depositary after the Effective Time), the ADS Depositary will send or cause to be sent to you the Per ADS Merger Consideration, without interest and less the applicable ADS cancellation fee (US$0.05 per ADS held) and any applicable expenses and withholding taxes and other governmental charges, for each ADS represented by the ADRs, in exchange for the cancellation of your ADRs after the completion of the Merger. If you are not a member of the Buyer Group and you are a registered holder on the books of the ADS Depositary in uncertificated form, unless you have surrendered your ADSs to the ADS Depositary for cancellation prior to the Effective Time, the ADS Depositary will send or cause to be sent to you the Per ADS Merger Consideration, without interest and less the applicable ADS cancellation fee (US$0.05 per ADS held) and any applicable expenses and withholding taxes and other governmental charges, in exchange for the cancellation of all of
 
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your ADSs after the completion of the Merger. You will pay any applicable fees, charges and expenses of the ADS Depositary in connection with the distribution of the merger consideration to you, including ADS cancellation fees.
In the event of a transfer of ownership of ADSs that is not registered in the register of ADS holders maintained by the ADS Depositary, the check for any cash to be exchanged upon cancellation of the ADSs will be issued to such transferee only if the ADRs, if applicable, are presented to the ADS Depositary, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable ADS transfer taxes have been paid or are not applicable.
The Per ADS Merger Consideration may be subject to backup withholding taxes if the ADS Depositary has not received from you a properly completed and signed U.S. Internal Revenue Service Form W-8 or W-9.
If your ADSs are held in “street name” by your broker, bank or other nominee, you will not be required to take any action to receive the net merger consideration for your ADSs as the ADS Depositary will arrange for the surrender of the ADSs and the remittance of the Per ADS Merger Consideration (net of any expenses, applicable ADS Depositary fees pursuant to the terms of the Deposit Agreement, any applicable withholding taxes and other governmental charge) to DTC (the clearance and settlement system for the ADSs) for distribution to your broker, bank or other nominee on your behalf. If you have any questions concerning the receipt of the Per ADS Merger Consideration, please contact your broker, bank or other nominee.
Q:
How will a holder of the Shares receive the net Per Share Merger Consideration to which the holder is entitled after the Merger is completed?
A:
If the Shares are held directly by a registered holder, promptly after the Effective Time (and in any event within five business days), a bank or trust company appointed by Parent and reasonably acceptable to the Company, which will act as paying agent (the “Paying Agent”), will mail to the holder (i) a letter of transmittal specifying how the delivery of the Per Share Merger Consideration to the holder will be made and (ii) instructions for surrendering share certificates representing Shares (or affidavits and indemnities of loss in lieu of the share certificates) or non-certificated Shares represented by book entry, and/or such other documents as may be required to receive the Per Share Merger Consideration. Subject to complying with these instructions, and upon surrender of the share certificates, if applicable, and/or other documents described above, the holder will receive a cheque, in the amount equal to the number of the holder’s Shares multiplied by the Per Share Merger Consideration, in exchange for cancellation of the holder’s Shares. The Per Share Merger Consideration may be subject to U.S. federal income tax backup withholding taxes if the Paying Agent has not received from the holder a properly completed and signed U.S. Internal Revenue Service Form W-8 or W-9, as applicable.
Q:
How will the Company equity awards be treated in the Merger?
A:
At the Effective Time, each option to purchase Class A Ordinary Shares (each, a “Company Option”) granted pursuant to the Company’s 2015 Stock Incentive Plan that is outstanding and unexercised as of the Effective Time, whether vested or unvested, shall be cancelled and the holder thereof shall be entitled to receive an amount in cash, without interest, payable as soon as reasonably practicable following the Effective Time equal to the product of (i) the excess, if any, of (A) the Per Share Merger Consideration, over (B) the exercise price, multiplied by (ii) the number of Class A Ordinary Shares subject to such Company Option as of the Effective Time. Each Company Option with the exercise price that is equal to or greater than the Per Share Merger Consideration shall be cancelled at the Effective Time without the payment of consideration therefor.
At the Effective Time, each Company Option to purchase Class A Ordinary Shares granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan, in each case, that is outstanding, vested and unexercised as of the Effective Time shall be assumed by Parent and automatically converted into an option for ordinary shares of Parent (each, an “Assumed Option”) under an equity incentive plan to be established by Parent equal to the product of (A) the number of Class A Ordinary Shares that were subject to the corresponding Company Option immediately prior to the Effective Time, multiplied by (B) a fraction (such ratio, the “Exchange Ratio”), the numerator of which is the Per Share Merger
 
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Consideration and the denominator of which is the fair market value of an ordinary share of Parent, and rounding such product down to the nearest whole number of ordinary shares of Parent, with an exercise price per share subject to the Assumed Option equal to the exercise price for which the corresponding Company Option was exercisable immediately prior to the Effective Time divided by the Exchange Ratio, and rounded up to the nearest whole cent. Each Assumed Option shall be subject to the same terms and conditions as to vesting, exercisability and forfeiture as the corresponding Company Option as in effect on April 30, 2022 the date of the Merger Agreement.
At the Effective Time, each Company Option granted pursuant to the Company’s 2020 Stock Incentive Plan or 2021 Stock Incentive Plan, in each case, that is unvested as of the Effective Time will be cancelled without the payment of consideration therefor.
Q:
What vote of the Company’s shareholders is required to authorize and approve the Merger Agreement and the Plan of Merger?
A:
An affirmative vote of holders of Shares representing at least two-thirds of votes cast by such holders as, being entitled so to do, vote in person or, in the case of such holders as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy as a single class, at the extraordinary general meeting is required to authorize and approve the Merger Agreement and the Plan of Merger.
As of 10:00 a.m. (New York City time) on July 15, 2022, the Share Record Date for the extraordinary general meeting, 18,733,475.5 Shares are expected to be issued and outstanding and entitled to vote at the extraordinary general meeting.
Pursuant to the Support Agreement, among other things, the Rollover Shareholders have agreed to vote their Shares in favor of authorization and approval of the Merger Agreement and the Transactions, including the Merger. As of the date of this proxy statement, the Rollover Shareholders and their affiliates directly or indirectly own an aggregate of 7,071,760.5 Shares, including Shares represented by ADSs but excluding Shares represented by Company Options held by the Rollover Shareholders or their affiliates which have not been exercised, which represent approximately  37.7% of the total issued and outstanding Shares and 70.2% of the aggregate voting power of the total issued and outstanding Shares (excluding Shares issued to the ADS Depositary and reserved for exercise of outstanding Company Options).
Q:
What vote of the Company’s shareholders is required to approve the proposal to adjourn the extraordinary general meeting, if necessary, to solicit additional proxies?
A:
An affirmative vote of holders of Shares representing a simple majority of votes cast by such holders as, being entitled to do so, vote in person or, in the case of any holder of Shares being a corporation, by its duly authorized representative or, where proxies are allowed, by proxy at the extraordinary general meeting is required.
Q:
How do I vote if my Shares are registered in my name?
A:
If Shares are registered in your name as of 10:00 a.m. (New York City time) on July 15, 2022 (the “Share Record Date”), you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the accompanying return envelope as soon as possible so that it is received by the Company no later than 10:00 a.m. (Beijing time), July 27, 2022, being 48 hours before the time appointed for the extraordinary general meeting, which is the deadline to lodge your proxy card, so that your Shares may be represented and voted at the extraordinary general meeting.
Alternatively, you can attend the extraordinary general meeting and vote in person. To attend the extraordinary general meeting, you must present certain documents to verify your identities, such as your identification card or passport and your share certificate. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, Shares represented by your proxy will be voted FOR each of the proposals to be voted on at the extraordinary general meeting, unless you appoint a person other than the chairman of the meeting as proxy, in which case Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
 
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If your Shares are held by your broker, bank or other nominee, please see below for additional information.
Q:
How do I vote if I own ADSs?
A:
If you own ADSs as of the close of business in New York City on the ADS Record Date (and do not surrender such ADSs and become a registered holder of the Shares underlying your ADSs as explained below), you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS Depositary (as the holder of Shares underlying your ADSs) how to vote the Shares underlying your ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible. The ADS Depositary must receive such instructions no later than 10:00 a.m. (New York City time) on July 22, 2022 in order to ensure the Shares underlying your ADSs are properly voted at the extraordinary general meeting. The ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) the Shares it holds on deposit at the extraordinary general meeting in accordance with the voting instructions timely received from holders of ADSs. The ADS Depositary has, advised us that, pursuant to the terms of the deposit agreement under which the ADSs are issued, it will not vote or attempt to exercise the right to vote any Shares other than in accordance with signed voting instructions from the relevant ADS holder and, accordingly, Shares represented by ADSs for which no timely voting instructions are received by the ADS Depositary will not be voted. If you hold your ADSs in a brokerage, bank or other securities account, you must rely on the procedures of the broker, bank or other securities intermediary through which you hold your ADSs if you wish to vote.
Alternatively, if you own ADSs as of the close of business in New York City on the ADS Record Date, you may vote at the extraordinary general meeting directly if you surrender your ADSs and become a holder of the Shares underlying your ADSs prior to 10:00 a.m. (New York City time) on the Share Record Date. If you wish to surrender your ADSs for the purpose of voting the corresponding Shares, you need to make arrangements to deliver your ADSs to the ADS Depositary for cancellation before the close of business in New York City on July 8, 2022 together with (a) delivery instructions for the corresponding Shares represented by such ADSs (including, if applicable, the name and address of person who will be the registered holder of such Shares), (b) payment of ADS Depositary’s fees associated with such cancellation (US$0.05 per ADS), which will not be borne by the Surviving Company, and any applicable taxes, and (c)  certification that the ADS holder either (i) beneficially owned the relevant ADSs as of the ADS Record Date and has not given, and will not give, voting instructions to the ADS Depositary as to the ADSs being surrendered (or has cancelled all voting instructions previously given), or (ii) did not beneficially own the relevant ADSs as of the ADS Record Date. If you hold your ADSs in a brokerage, bank or other nominee account, please promptly contact your broker, bank or other nominee account to find out what actions you need to take to instruct the broker, bank or other nominee account to surrender the ADSs on your behalf. Upon surrender of the ADSs, the ADS Depositary will direct Deutsche Bank AG, Hong Kong Branch, the custodian holding the Shares, to transfer registration of the Shares to the former ADS holder (or a person designated by the former ADS holder). If after the registration of Shares in your name you wish to receive a certificate evidencing the Shares registered in your name, you will need to request the Company’s registered office provider or share registrar, Conyers Trust Company (Cayman) Limited, to issue and mail a certificate to your attention. It is difficult to predict how long the steps described above may take. ADS holders that wish to surrender to become registered holders of Shares are advised to take action as soon as possible. If the Merger is not consummated, the Company will continue to be a public company in the United States and ADSs will continue to be listed on Nasdaq. As a result, if you have converted your ADSs to attend the extraordinary general meeting and you wish to be able to sell your Shares on a stock exchange, you will need to deposit your Shares into the Company’s ADS program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including, among other things, payment of relevant fees of the ADS Depositary for the issuance of ADSs (US$0.05 for each ADS) and applicable share transfer taxes (if any) and related charges pursuant to the Deposit Agreement.
Q:
If my Shares or ADSs are held in a brokerage, bank or other securities account, will my broker, bank or other securities intermediary vote my Shares or ADSs on my behalf?
A:
Your broker, bank or other securities intermediary will only vote your Shares or give voting instruction
 
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with respect to Shares underlying your ADSs on your behalf if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or other securities intermediary regarding how to instruct it to vote your Shares or ADSs. If you do not instruct your broker, bank or other securities intermediary how to vote your Shares that it holds, or do not do so in a timely manner, those Shares or ADSs will not be voted.
Q:
What will happen if I abstain from voting or fail to vote on the proposal to authorize and approve the Merger Agreement?
A:
If you abstain from voting, fail to cast your vote in person, fail to complete and return your proxy card in accordance with the instructions set forth on the proxy card, or fail to give voting instructions to the ADS Depositary, your broker, bank, or other securities intermediary, your vote will not be counted.
Q:
May I change my vote?
A:
Yes. If you are a holder of Shares, you may change your vote in one of the following three ways:

First, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting at least two hours before the commencement of the extraordinary general meeting. Any written notice revoking a proxy should also be sent to the Company’s offices at Block 2 Tower B Room 028, No. 22 Pingguo Shequ, Bai Zi Wan Road, Chaoyang District, Beijing 100022, People’s Republic of China, Attention: Investor Relations Department, at least two hours before the commencement of the extraordinary general meeting.

Second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company so that it is received by the Company no later than 10:00 a.m. (Beijing time) on July 27, 2022, being 48 hours before the time appointed for the extraordinary general meeting which is the deadline to lodge your proxy card.

Third, you may attend the extraordinary general meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the shareholder actually votes at the extraordinary general meeting.
Holders of ADSs may revoke their voting instructions by notification to the ADS Depositary in writing at any time prior to 10:00 a.m. (New York City time) on July 22, 2022. A holder of ADSs can do this in one of two ways:

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

Second, a holder of ADSs can change its voting instructions by phone or online or complete, date and submit a new ADS voting instruction card to the ADS Depositary bearing a later date than the ADS voting instruction card sought to be revoked.
If you hold your Shares or ADSs through a broker, bank or other securities intermediary and you have instructed your broker, bank or other securities intermediary to vote your Shares or ADSs, you must follow directions received from the broker, bank or other securities intermediary to change your instructions.
Q:
What should I do if I receive more than one set of voting materials?
A:
If you are a holder of record and your Shares or ADSs are registered in more than one name, you will receive more than one proxy or voting instruction or voting instruction card. Please submit each proxy card that you receive.
Q:
If I am a holder of certificated Shares or ADRs, should I send in my Share certificates or my ADRs now?
A:
No, please do not send in your certificates or ADRs now. After the Merger is completed, holders of certificated Shares will be sent a form of letter of transmittal with detailed written instructions for exchanging your share certificates for the Per Share Merger Consideration. Similarly, after the Merger is completed, ADR holders will be sent a form of letter of transmittal with detailed written instructions for exchanging your ADRs for the Per ADS Merger Consideration.
 
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All holders of uncertificated Shares and uncertificated ADSs will automatically receive their net merger consideration shortly after the Merger is completed without any further action required on the part of such holders. If your ADSs are held in a securities account with a broker or other securities intermediary, your broker or other securities intermediary will credit the net merger consideration to your account.
Q:
Am I entitled to dissenters’ rights?
A:
Shareholders who dissent from the Merger will have the right to receive payment of the fair value of their Shares in accordance with Section 238 of the Cayman Islands Companies Act if the Merger is consummated, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the extraordinary general meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Islands Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex D to this proxy statement. The fair value of each of their Shares as determined under the Cayman Islands Companies Act could be more than, the same as, or less than the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Shares.
ADS holders will not have the right to dissent from the Merger and receive payment of the fair value of the Shares underlying their ADSs. The ADS Depositary will not attempt to exercise any dissenters’ rights with respect to any of the Shares that it holds, even if an ADS holder requests the ADS Depositary to do so. ADS holders wishing to exercise dissenters’ rights must surrender their ADSs to the ADS Depositary, pay the ADS Depositary’s fees required for the cancellation of the ADSs, provide instructions for the registration of the corresponding Shares, and certify that they have not given voting instructions as to the ADSs before 10:00 a.m. (New York City time) on July 22, 2022, and become registered holders of Shares before the vote to authorize and approve the Merger is taken at the Extraordinary General Meeting. Thereafter, such former ADS holders must comply with the procedures and requirements for exercising dissenters’ rights with respect to the Ordinary Shares under section 238 of the Cayman Islands Companies Act.
We encourage you to read the section of this proxy statement entitled “Dissenters’ Rights” beginning on page 94 as well as “Annex D — Cayman Islands Companies Act Cap. 22 (Law 3 of 1961, as consolidated and revised) — Section 238” to this proxy statement carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.
Q:
What do I need to do now?
A:
We urge you to read this proxy statement carefully, including its annexes, exhibits, attachments and the other documents referred to or incorporated by reference herein and to consider how the Merger affects you as a shareholder. After you have done so, please vote as soon as possible.
Q:
Will any proxy solicitors be used in connection with the extraordinary general meeting?
A:
We have not retained a third-party service provider to assist in the solicitation process. We will ask banks, brokers and other securities intermediaries to forward our proxy solicitation materials to the beneficial owners of Shares. In addition, proxies may be solicited by mail, in person, by telephone, by internet or by facsimile by certain of our officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable out-of-pocket expenses. We will pay all expenses of filing, printing and mailing this proxy statement.
Q:
Who can help answer my questions?
A:
If you have any questions about the Merger or if you need additional copies of this proxy statement or the accompanying proxy card, you should contact our Investor Relations Department at +86 10-5876-9662 or e-mail to ir@bluecity.com.
In order for you to receive timely delivery of any additional copy of this proxy statement or the accompanying proxy card in advance of the extraordinary general meeting, you must make your request no later than ten days prior to the date of the extraordinary general meeting.
 
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SPECIAL FACTORS
Background of the Merger
Most of the events leading to the execution of the Merger Agreement described in this Background of the Merger occurred primarily in the PRC. Therefore, all dates and times referenced in this Background of the Merger refer to Beijing time unless otherwise specified.
The Board and senior management of the Company periodically review the Company’s long-term strategic plans with the goal of maximizing shareholder value. As part of this ongoing process, the Board and senior management of the Company also have, from time to time, considered strategic alternatives that may be available to the Company with the objective of increasing shareholder value, including potential commercial and strategic business partnerships, acquisition transactions, new business lines, and capital market events. While the Company’s management had discussions from time to time with third parties regarding possible options over the past years, these discussions did not result in any specific proposals for any strategic transaction prior to the events described below.
In late 2021, the Founder began to consider the possibility of a potential going-private transaction with respect to the Company and discussed his preliminary thoughts on such potential transaction with representatives of Spriver Tech Limited (together with the Founder, Spriver Tech Limited and such entities through which Founder beneficially owns equity interests of the Company, the “Initial Buyer Group”) and attorneys at Simpson Thacher & Bartlett LLP (“STB”), which later served as the U.S. legal counsel to the Founder and the Buyer Group (including the Initial Buyer Group) (as defined below) in connection with the Proposed Transaction (as defined below).
On January 2, 2022, the Initial Buyer Group entered into a consortium agreement regarding the cooperation and participation in the evaluation, negotiation and consummation of an acquisition transaction with respect to the Company.
On the same date, the Initial Buyer Group submitted a preliminary non-binding proposal letter to the Board (the “Original Proposal”) to indicate their intention to acquire all of the Ordinary Shares of the Company that are not already beneficially owned by them for US$3.70 per Ordinary Share or US$1.85 per ADS in cash through a going private transaction (the “Proposed Transaction”). The Initial Buyer Group intended to fund the consideration payable in the Proposed Transaction primarily with equity capital from the Initial Buyer Group in the form of rollover capital and cash contributions.
Before market opens on January 3, 2022 (U.S. time), the Company issued a press release regarding its receipt of the Original Proposal and the Proposed Transaction and later furnished the press release to the SEC as an exhibit to its current report on Form 6-K.
On January 4, 2022, the Founder Filing Persons filed with the SEC an amendment to their Schedule 13D (the “Original 13D”) in relation to the execution of the consortium agreement and the submission of the Original Proposal.
Also on January 4, 2022, the Board convened a meeting by conference call, together with several Company representatives and representatives of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), U.S. legal counsel to the Company, to discuss the Original Proposal. During the course of this meeting, representatives of Skadden reviewed with the Board the fiduciary duties of Board members in considering the Proposed Transaction. The Board discussed relationships between certain Board members and the potential participants in a transaction, and resolved to form a special committee (the “Special Committee”) consisting of independent directors: Wenjie (Jenny) Wu, Shengwen (Roy) Rong, and Guojie Shi, with Wenjie (Jenny) Wu serving as the chairperson of the Special Committee, in order to evaluate the Company’s strategic options, including the Original Proposal, remaining as a listed U.S. public company and any other alternative transactions that might be available to the Company.
After discussion of these matters, the Board adopted resolutions delegating to the Special Committee the exclusive power and authority of the Board to, among other things: (i) investigate the Original Proposal, the Potential Transaction and any matters relating thereto, (ii) evaluate the terms of the Original Proposal or any other proposal made by the Initial Buyer Group from time to time relating to the subject matter of the Original
 
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Proposal, (iii) discuss and negotiate with the Initial Buyer Group and its representatives any terms of the Potential Transaction and implement the Potential Transaction, (iv) explore any alternatives to the Original Proposal or the Potential Transaction (the “Alternative Transactions”), including maintaining the Company’s current status as a public company, (v) if and when appropriate, negotiate definitive agreements with respect to the Potential Transaction or any Alternative Transaction, with the execution and delivery of any such agreement being subject to the approval of the Board, (vi) if and when appropriate, negotiate and execute ancillary agreements with respect to the Potential Transaction or any Alternative Transaction, (vii) report to the Board the recommendations and conclusions of the Special Committee with respect to the Potential Transaction and/or any Alternative Transaction and any recommendation as to whether the final terms of the Potential Transaction or any Alternative Transaction are fair to and in the best interests of the minority shareholders of the Company and should be approved by the Board and, if applicable, by the Company’s shareholders, and determinations and recommendations with respect to any other matters requested by the Board, (viii) adopt defensive measures, such as rights issuance, with respect to the Original Proposal or any proposal for an Alternative Transaction, (ix) retain such advisors, including legal counsel, financial advisors and outside consultants, as the Special Committee in its sole discretion deems appropriate to assist the Special Committee in discharging its responsibilities, and (x) take such other actions as the Special Committee deems necessary or appropriate to carry out its delegated responsibilities.
On the same date, the Company issued a press release announcing the formation of the Special Committee consisting of three independent directors, Wenjie (Jenny) Wu, Shengwen (Roy) Rong, and Guojie Shi, to evaluate and consider the Proposed Transaction or any alternative strategic options that the Company may pursue.
Following its formation, the Special Committee interviewed and evaluated law firms, including Skadden, to act as independent legal counsel for the Special Committee. In considering legal counsel retention, the Special Committee noted that Skadden had been the long-time U.S. legal counsel to the Company and possessed thorough understanding of its business and operations, and had extensive experience in advising going private transactions. During the same period of time, the Special Committee interviewed investment banks, including Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice (formerly known as Duff & Phelps, A Kroll Business operating as Kroll, LLC), to act as an independent financial advisor to the Special Committee. During the course of these interviews and evaluations, the Special Committee evaluated these advisors’ credentials, experience and independence to serve as legal and financial advisors, respectively, to the Special Committee and negotiated the fees to be paid.
On January 8, 2022, the Special Committee convened a meeting by conference call and approved the appointment of Skadden as its U.S. legal counsel and Duff & Phelps as its independent financial advisor.
On January 10, 2022, the Special Committee convened a meeting by conference call to review and discuss the updated fee quotes and engagement letters submitted by investment banks, including Duff & Phelps, and confirmed its decision to engage Duff & Phelps as its independent financial advisor for the Proposed Transaction. On the same day, the Company issued a press release announcing the engagement of Skadden and Duff & Phelps by the Special Committee and later furnished the press release to the SEC as an exhibit to its current report on Form 6-K.
On January 14, 2022, the Special Committee convened a meeting by conference call with representatives of Skadden and Duff & Phelps, to discuss, among other things, the Original Proposal and the role of the Special Committee. During the course of the meeting, representatives of Duff & Phelps and Skadden provided a summary of the general process of a going-private transaction, the advisors’ roles in assisting the Special Committee in its work, and the roles the members of the Special Committee should play. Representatives of Duff & Phelps explained to the Special Committee their request to conduct financial due diligence on the Company in order to evaluate the fairness of the Proposed Transaction from a financial perspective.
Later on the same date, Skadden and STB had a telephonic meeting and discussed certain preliminary matters regarding the Proposal and the Proposed Transaction, including the due diligence process and the documentation plans.
On January 17, 2022, at the request of the Special Committee, the Company began preparation of financial projections for the fiscal years ending 2022 through 2030 for use by Duff & Phelps in connection with its financial analysis.
 
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Between January 14, 2022 and February 14, 2022, Skadden exchanged drafts of the confidentiality agreement with STB to be used with members of the Initial Buyer Group in furtherance of its due diligence review of the Company (the “Confidentiality Agreements”) and discussed with the Special Committee the terms of the Confidentiality Agreements. On February 14, 2022, with the approval of the Special Committee, the Company entered into the Confidentiality Agreements with each member of the Initial Buyer Group. The Confidentiality Agreements contain customary provisions restricting disclosure and use of confidential information by then members of the Initial Buyer Group relating to the Company or the Proposed Transaction and a 12-month “standstill” provision restricting such members of the Initial Buyer Group from acquiring additional securities of the Company without the Special Committee’s consent.
During the period from February 11, 2022 to March 11, 2022, the Company received extensive requests for due diligence information from members of the Initial Buyer Group and advisors engaged by the Initial Buyer Group concerning commercial, financial, regulatory and legal due diligence matters, to which the Company responded, with the relevant information and documents being provided by emails, on-site or through the virtual data room.
Between February 15, 2022 and April 30, 2022, representatives and advisors of the Initial Buyer Group conducted due diligence on the Company.
On February 10, 2022, the Special Committee approved the appointment of Maples and Calder (Hong Kong) LLP (“Maples”) as its Cayman Islands legal counsel.
On February 11, 2022, Duff & Phelps sent the draft financial projections for the fiscal years ending 2022 through 2030 prepared by the Company’s management to the Special Committee.
On February 14, 2022, the Special Committee held a telephonic meeting, together with representatives of Skadden and Duff & Phelps, and discussed the draft financial projections. In the course of this discussion, the representatives of Duff & Phelps explained in details the methodology and other details of the draft financial projections. The Special Committee raised questions on various line items of the draft financial projections, the methodology used and the underlying assumptions, and requested additional time to carefully review the draft financial projections. The Special Committee also approved the execution of the Confidentiality Agreements by the Company.
On February 18, 2022, the Special Committee held a telephonic meeting, together with representatives of Skadden and Duff & Phelps, and discussed the updated draft financial projections. After much deliberation, the members of the Special Committee approved Duff & Phelps’ use of the financial projections in its valuation analysis.
On April 1, 2022, in light of recent change in the Company’s business operation and deterioration of market conditions, the Company’s management further updated the financial projections (the “Management Projections”) and Duff & Phelps sent the Management Projections  to the Special Committee who later approved the use of the Management Projections in its valuation analysis.
On April 2, 2022, STB provided an initial draft of the Merger Agreement to Skadden.
On April 9, 2022, Skadden provided to the Special Committee an issues list identifying the key issues in the initial draft of the Merger Agreement received from STB.
On April 11, 2022, the Special Committee held a telephonic meeting with representatives of Skadden and Duff & Phelps to discuss the initial draft of the Merger Agreement. Representatives of Skadden discussed with the Special Committee the key issues raised in the initial draft Merger Agreement received from STB, and offered recommendations on the positions to be taken by the Special Committee. Among other things, the Special Committee and Skadden discussed (a) the Company’s representations and warranties requested by the Initial Buyer Group, (b) the approach to be taken with respect to possible competing proposals between signing and closing, (c) conditions to Parent’s obligation to close the transaction, (d) limitations on Initial Buyer Group’s ability to amend the equity commitment letters prior to closing, and (e) trigger events for termination of the Merger Agreement prior to the closing and termination fees. Skadden updated the Special Committee that the initial draft Merger Agreement had not included a draft of treatment of equity awards, and the Special Committee directed Skadden to conduct further review once the Initial Buyer Group’s proposal becomes available.
 
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After discussing with Skadden the effect and implications of the various positions taken by the Initial Buyer Group in the initial draft of the Merger Agreement, the Special Committee instructed Skadden to revise the Merger Agreement and negotiate with STB based on the following positions: (i) the representations and warranties of the Company should be streamlined and qualified by the appropriate materiality standard; (ii) additional representations and warranties of the Initial Buyer Group are requested; (iii) in addition to the statutory shareholder vote requirement, the consummation of the proposed transaction should be conditioned upon the approval by the affirmative vote of shareholders representing more than 50% of the voting rights of the public unaffiliated shares (the “majority of the minority” vote condition); (iv) the Company should have a right to change the board’s recommendation in connection with an intervening event; (v) Initial Buyer Group’s ability to amend the equity commitment letters should be limited and the terms of any additional equity commitment letters are not materially less favorable should be from the standpoint of the Company; (vi) Initial Buyer Group’s obligation to consummate the proposed transaction should not be subject to the condition proposed by the Initial Buyer Group that the dissenting shares account for no more than 5% of the Company’s outstanding share capital; and (vii) the Parent should pay the Parent Termination Fee in the event that the Merger Agreement is terminated because closing fails to occur as a result of failure to obtain requisite regulatory approvals (if regulatory approvals are required). Skadden also advised that the Special Committee has the authority to not proceed with the transaction, regardless of whether a competing proposal exists or is being considered, should it determine that doing so would be in the best interest of the Company and its unaffiliated holders.
The Special Committee instructed Duff & Phelps to conduct precedent analysis on certain issues, including (i) the use of a pre-signing market check, (ii) the use of a post-signing “go-shop,” pursuant to which the Company may actively solicit alternative acquisition proposals from other potential buyers during a specified period after the signing of the Merger Agreement, and (iii) the amount of the company termination fee and reverse termination fee, in similar going private transactions.
On April 12, 2022, Duff & Phelps provided to the Special Committee (i) a study on pre-signing market checks and/or post-signing “go-shop” and (ii) a study on the amount of the company termination fee and reverse termination fee, in precedent going private transactions.
On April 18, 2022, Skadden circulated a markup of the initial draft of the Merger Agreement to STB, reflecting the feedbacks from the Special Committee and Maples, the Cayman Islands legal counsel to the Special Committee.
Between January 2022 and April 2022, due to various factors including the deterioration of macroeconomic and general market conditions and the significant decline in share price of major Chinese technology companies listed outside of the PRC, the Initial Buyer Group considered uncertainties and challenges surrounding the Original Proposal and options including lowering the offer price for the Original Proposal.
On April 18, 2022, the Founder and Metaclass Management ELP, an affiliate of Spriver Tech Limited (the “Sponsor”) submitted a revised preliminary non-binding proposal letter dated April 18, 2022 (the “Proposal Letter”) to the Board with respect to the Proposed Transaction wherein the Buyer Group (at such time comprising only the Founder Filing Persons and the Sponsor Filing Persons) proposes to acquire all of the outstanding Ordinary Shares, including the Class A Ordinary Shares represented by the ADSs that are not already beneficially owned by the Buyer Group, in a going private transaction. The Buyer Group was formed in furtherance of the Proposed Transaction initially set forth in the Original Proposal, and the Proposal Letter updates the Original Proposal to (i) inform the Board that Metaclass Management ELP, an affiliate of Spriver Tech Limited, is replacing Spriver Tech Limited as the Sponsor and (ii) reduce the proposed purchase price from US$3.70 per Ordinary Share or US$1.85 per ADS in cash to US$3.20 per Ordinary Share or US$1.60 per ADS in cash.
On the same date, the Company issued a press release regarding its receipt of the Proposal Letter and later furnished the press release to the SEC as an exhibit to its current report on Form 6-K.
On April 20, 2022, the Founder Filing Persons filed with the SEC an amendment to the Original 13D in relation to the submission of the Proposal Letter, the execution of an assignment agreement pursuant to which Spriver Tech Limited assigned and transferred to the Sponsor all of its rights and obligations under the consortium agreement, and certain share charges with respect to certain Ordinary Shares held by the Founder.
 
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On April 22, 2022, STB provided to Skadden a revised draft of the Merger Agreement, the initial drafts of support agreement, equity commitment letter, limited guarantee and interim investors agreement (collectively, the “Ancillary Agreements”), as well as the anticipated breakdown of the Buyer Group’s financing package.
On April 25, 2022, the Special Committee held a telephonic meeting with representatives of Skadden and Duff & Phelps to discuss the revised draft of the Merger Agreement. Representatives of Skadden discussed with the Special Committee the key issues raised in the revised draft Merger Agreement received from STB, and offered recommendations on the positions to be taken by the Special Committee. Among other things, the Special Committee and Skadden discussed (a) the Company’s representations and warranties requested by the Buyer Group, (b) the treatment of equity awards, (c) conditions to Parent’s obligation to close the transaction, and (d) trigger events for termination of the Merger Agreement prior to the closing and termination fees.
After discussing with Skadden the effect and implications of the various positions taken by the Buyer Group in the revised draft of the Merger Agreement, the Special Committee instructed Skadden to revise the Merger Agreement and negotiate with STB based on the following positions: (i) each equity award granted under the 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is unvested should have the same treatment as such equity award granted under the 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is vested and unexercised; (ii) the Company should have a right to change the board’s recommendation in connection with an intervening event with a narrower scope; (iii) Buyer Group’s obligation to consummate the proposed transaction should not be subject to the condition proposed by the Buyer Group that the dissenting shares account for no more than 5% of the Company’s outstanding share capital; (iv) a “majority of the minority” vote would not be a condition to the Company’s obligation to consummate the Merger; (v) the amount of Company termination fee be reduced from 1.3% of the Company’s equity value (being approximately $780,000) to $700,000 and therefore, the Parent termination fee, which is two times the Company termination fee, be reduced from 2.6% of the Company’s equity value (being approximately $1,560,000) to $1,400,000; and (vi) the representations and warranties of the Company should be further streamlined. The Special Committee instructed Duff & Phelps to conduct precedent analysis on the percentage of dissenting shares as a condition to buyer’s obligation to close specified in merger agreements in similar going private transactions. On the same date, Skadden circulated a markup of the revised draft of the Merger Agreement to STB, reflecting the feedbacks from the Special Committee and Maples.
On April 26, 2022, Duff & Phelps sent to the Special Committee the requested precedent analysis on the percentage of dissenting shares. After reviewing the analysis, the Special Committee instructed Skadden to reject the inclusion of a closing condition that the percentage of dissenting shareholders be lower than a certain threshold. On the same date, Skadden circulated an updated markup of the revised draft of the Merger Agreement to STB.
On April 27, 2022, STB provided to Skadden a revised draft of the Merger Agreement. On the same date, Skadden circulated to STB markups on the drafts of Ancillary Agreements. On the same date, Skadden provided an initial draft of disclosure schedule to STB, which were negotiated by and between Skadden and STB within the following days.
On April 28, 2022, the Special Committee held a telephonic meeting with representatives of Skadden and Duff & Phelps to discuss the revised draft of the Merger Agreement. Representatives of Skadden discussed with the Special Committee the key issues raised in the revised draft Merger Agreement, and offered recommendations on the positions to be taken by the Special Committee. Among other things, the Special Committee and Skadden discussed (a) the treatment of equity awards, (b) conditions to Buyer Group’s obligation to close the transaction, and (c) trigger events for termination of the Merger Agreement prior to the closing and termination fees. After discussing with Skadden the effect and implications of the various positions taken by the Buyer Group in the revised draft of the Merger Agreement, the Special Committee instructed Skadden to revise the Merger Agreement and negotiate with STB based on the following positions: (i) insist that each equity award granted under the 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is unvested should have the same treatment as such equity award granted under the 2020 Stock Incentive Plan or 2021 Stock Incentive Plan that is vested and unexercised; (ii) the Company should not be required to pay or should only be required to pay a lower amount of Company termination fee upon an intervening event; and (iii) continue to push back on including the percentage of dissenting shareholders as a closing condition or substantially raise the percentage.
 
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Representatives from Duff & Phelps updated the Special Committee about the status of the fairness opinion.
Between April 28 and April 30, 2022, Skadden and STB continued to negotiate the remaining open issues, exchange comments to drafts of Merger Agreement and the Ancillary Agreements, and narrowed down the remaining open issues. During the same period, the Special Committee had multiple discussions with Skadden about the open issues. Skadden and STB thereafter reached agreement to finalize the Merger Agreement and the Ancillary Agreements.
On April 30, 2022, the Special Committee held a telephonic meeting with representatives of Skadden and Duff & Phelps. At the request of the Special Committee, Duff & Phelps reviewed and discussed its financial analysis. Thereafter, at the request of the Special Committee, Duff & Phelps verbally rendered its opinion to the Special Committee (which was subsequently confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated April 30, 2022, addressed to the Special Committee) that, as of the date thereof and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion, the Per Share Merger consideration to be received by the holders of Shares (other than the holder of the Excluded Shares), pursuant to the Merger Agreement, is fair from a financial point of view to such holders. Please see “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on page 40 for additional information regarding the financial analysis performed by Duff & Phelps and the opinion rendered by Duff & Phelps to the Special Committee. The full text of the written opinion of Duff & Phelps to the Special Committee, dated September April 30, 2022, is attached as Annex C to this proxy statement. Thereafter, Skadden reviewed with the members of the Special Committee the key terms of the Merger Agreement and the Ancillary Agreements. Following a discussion of the terms of the Merger Agreement and the related transaction documents, as well as Duff & Phelps’ presentation of its financial analysis and opinion, the Special Committee unanimously resolved to approve the proposed Merger Agreement, the Plan of Merger and the Limited Guarantee, each in the drafts presented to the Special Committee, and the transactions contemplated by the Merger Agreement, including the Merger, and recommend that the Board authorize and approve the Merger Agreement, the Plan of Merger, and the consummation of the Transactions, including the Merger. In adopting these resolutions, the Special Committee took into account the factors described under the heading titled “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 27. The Special Committee noted that the Per Share Merger Consideration of US$3.20, represented the Buyer Group’s “best and final offer.”
Following the meeting of the Special Committee, the Board convened, and based upon the unanimous recommendation of the Special Committee, and taking into account the other factors described below under the heading titled “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 27, the Board (with the Founder abstaining from voting) adopted resolutions approving the terms of the Merger Agreement and Limited Guarantee and the transactions contemplated thereby and resolutions recommending that the Company’s shareholders vote to approve the terms of the Merger Agreement and Limited Guarantee.
Later on the same date, the Company and the Buyer Group executed and delivered the Merger Agreement and the applicable Ancillary Agreements.
Later on the same date, the Company issued a press release announcing the execution of the Merger Agreement and the Limited Guarantee.
On May 2, 2022, the Company furnished the press release and the executed merger agreement as exhibits to its current report on Form 6-K with the SEC.
On the same date, the Founder Filing Persons and the CDH Filing Persons filed with the SEC an amendment to the Original Schedule 13D as a “group” in light of the admission of the CDH Filing Persons to the Buyer Group and the execution of the Merger Agreement and the Ancillary Agreements.
Reasons for the Merger and Recommendation of the Special Committee and the Board
The Special Committee and the Board believe that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s long-term financial performance without the pressures created by the public equity market’s emphasis on short-term period-to-period financial performance.
 
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In addition, as an SEC-reporting company, the Company’s management and accounting staff, which comprise a relatively small number of individuals, must devote significant time to SEC reporting and compliance matters. The Company is also required to disclose a considerable amount of business and financial information to the public, some of which would otherwise be considered competitively sensitive and would not be disclosed by a non-reporting company. As a result, our actual or potential competitors, customers, and suppliers would have ready access to such disclosed information, which may help them compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be.
At a meeting on April 30, 2022, the Special Committee, after consultation with its financial advisor and legal counsel and due consideration of all relevant factors, unanimously (a) determined that the Merger, on the terms and subject to the conditions set forth in the Merger Agreement and the Plan of Merger, is fair to and in the best interests of the Company and the Unaffiliated Security Holders of the Company, and declared that it advisable to enter into the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, and (b) recommended the approval and authorization of the Merger Agreement, the Plan of Merger and the transactions contemplated thereby, including the Merger, to the Board.
At a meeting on April 30, 2022, the Board (other than the Founder who abstained from the vote), acting upon the unanimous recommendation of the Special Committee, (a) determined that it is fair to, and in the best interests of, the Company and the Unaffiliated Security Holders, and declared it advisable, for the Company to enter into the Merger Agreement and the Plan of Merger and to consummate the Transactions, including the Merger, (b) authorized and approved the execution, delivery and performance of the Merger Agreement and the Plan of Merger and the consummation of the Transactions, and (c) resolved to direct that the Merger Agreement, the Plan of Merger and the Transactions be submitted to the shareholders of the Company for their approval and authorization at an extraordinary general meeting of the Company’s shareholders, with the recommendation of the Board that the shareholders of the Company authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger.
In the course of reaching their determination, the Special Committee and the Board considered the following factors and potential benefits of the Merger, each of which the Special Committee and the Board believed supports their decision to recommend the Merger Agreement and that the Merger is fair to the Unaffiliated Security Holders, including the reduction in the Merger consideration. These factors and potential benefits, which are not listed in any relative order of importance, are discussed below:

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

factors relating to the reduction of the Per Share Merger Consideration from US$3.70 to US$3.20 and the Per ADS Merger Consideration from US$1.85 to US$1.60:

the decrease in the trading price of the ADSs from the closing price of US$1.53 per ADS as quoted by the Nasdaq on December 31, 2021, the last trading day prior to the Company’s receipt of the Original Proposal on January 2, 2022, to a closing price of US$1.37 per ADS on April 14, 2022, the last trading day prior to the Company’s announcement of its receipt of the a Proposal Letter on April 18, 2022;

deterioration of macroeconomic and general market conditions and the decline in share price of major Chinese internet companies listed in the United States;

tightening of regulatory policies across industries in the PRC, including, without limitation to, the Notice on Strengthening the Management of Online Show Live Streaming and E-commerce Live Streaming, or Notice 78, and the Guiding Opinion on Strengthening the Management of Online Show Live Streaming, or Notice 3, which is expected to have a meaningful impact on live streaming industry and the general market environment; and

the likelihood of the successful completion of the transactions and/or obtaining the remedies under the Merger Agreement and the associated costs to the Company and its shareholders;

the challenges faced by the Company, including, among others:
 
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increased competition in the global online LGBTQ social and entertainment industry, and PRC online health services industry;

increased competition in China’s live streaming market, in which a substantial majority of the Company’s revenues are generated from;

challenges faced by the Company to keep growing its active user base — for example, additional investments in selling and marketing to acquire users and research and development to further enhance artificial intelligence technology and big data analytics capabilities, which the Company believes are crucial to scale its products and services and improve user experience;

rising political tensions between China and the U.S. and the uncertainty of future trade policies, treaties, government regulations, tariffs and other matters;

the adverse impact of the outbreak of COVID-19 and uncertainty regarding the potential further impact of COVID-19 and of measures implemented by the Chinese central and local governments to control its spread, including travel restrictions, lock-downs, quarantines, temporary shutdowns of businesses, on the global and China economy and the Company’s business, financial condition and results of operation; and

the potential adverse effects on the Company’s business, financial condition and results of operations caused by the general economic slowdown in China and globally and the challenges in the macroeconomic environment;

the estimated forecasts of the Company’s future financial performance prepared by the Company’s management, together with the Company’s management’s view of the Company’s financial condition, results of operations, business, prospects and competitive position;

the current and historical market prices of the Company’s ADSs, and the fact that the Per ADS Merger Consideration represents a premium of approximately 16.8% to the closing price of the Company’s ADSs on April 14, 2022, the last trading day prior to the Company’s announcement of its receipt of the Proposal Letter, and a premium of 19.21% to the volume-weighted average traded price of the ADSs during the 20 trading days prior to its receipt of the Proposal Letter dated April 18, 2022;

the limited trading volume of the ADSs on Nasdaq;

the costs of regulatory compliance for public companies, including accounting, legal and other expenses incurred in connection with the public reporting requirements under the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002, of approximately US$1.8 million to US$3.7 million per year on a recurring basis;

the recognition that, as an SEC-reporting company, the Company’s management and accounting staff, which comprises a relatively small number of individuals, must devote significant time to SEC reporting and compliance matters;

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

the recognition that, as an SEC-reporting company, the Company is required to disclose a considerable amount of business and financial 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 may help our actual or potential competitors, customers, and suppliers compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be;

the possible alternatives to the Merger (including the possibility of continuing to operate the Company as an independent publicly traded company and the possibility of a sale of the Company to another buyer), the perceived potential benefits and risks to the Unaffiliated Security Holders of the possible alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, and the assessment by the Special Committee that none of these alternatives was reasonably likely to present superior opportunities for the Company and the Unaffiliated Security Holders or to create greater value for the Unaffiliated Security Holders than the Merger, taking into account (i) the likelihood of
 
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being consummated, given the percentage ownership held by the Rollover Shareholders and the Founder’s and Rollover Shareholders’ expressed unwillingness to sell their and their affiliates’ Shares in any other transaction involving the Company, (ii) the business, financial, competitive, industry and market risks, and (iii) the absence of any proposal made by any unsolicited potential buyers since the announcement of the proposed transaction on January 2, 2022;

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

the possibility that it could take a considerable period of time before the trading price of the ADSs would reach and sustain at least the Per ADS Merger Consideration of US$1.60, as adjusted for present value, and the possibility that such value might never be obtained;

the negotiations with respect to the Per Share Merger Consideration and the Per ADS Merger Consideration and the Special Committee’s belief that, following extensive negotiations with the Buyer Group, US$3.20 per Share or US$1.60 per ADS was the highest price that the Buyer Group would agree to pay;

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

the absence of any financing condition in the Merger Agreement;

the fact that the Sponsor delivered the Equity Commitment Letter, committing to contribute sufficient financing to complete the Merger, and the creditworthiness of the equity financing source;

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

the Company’s ability, in certain circumstances as set out in the Merger Agreement, the Equity Commitment Letter and the Support Agreement, to seek specific performance to prevent breaches of such agreements and to enforce specifically the terms of such agreements, including the consummation of the Merger; and

the fact that the consummation of the Merger is not subject to any governmental or regulatory approvals;

the fact that the Merger Agreement provides that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent will pay the Company a termination fee of US$1,400,000 (see “The Merger Agreement — Termination Fees” beginning on page 91 for additional information) and the guarantee of such payment obligation by the Sponsor pursuant to the Limited Guarantee (see “Special Factors — Limited Guarantee” beginning on page 56);

the financial analysis reviewed by Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice (formerly known as Duff & Phelps, A Kroll Business operating as Kroll, LLC) with the Special Committee, as well as the oral opinion of Duff & Phelps rendered to the Special Committee on April 30, 2022 (which was subsequently confirmed in writing by delivery of Duff & Phelps’ written opinion, dated April 30, 2022, to the Special Committee), as to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, the Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, as of the date thereof, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion (See “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on page 40 for additional information). The Special Committee notes that the opinion delivered by Duff & Phelps addresses the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of the Shares (other than the Excluded Shares, Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the ADS holders of the Company (other than ADSs representing the Excluded Shares). These director and officer shareholders are treated in the same way
 
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as the Unaffiliated Security Holders in connection with the Merger, and will receive the same amount of Per Share Merger Consideration or Per ADS Merger Consideration as the Unaffiliated Security Holders. The Special Committee does not believe the inclusion of these director and officer shareholders in Duff & Phelps’ opinion affects its ability to rely on the opinion of Duff & Phelps as one of the factors, based on which the Special Committee determines that the Merger is fair to the Unaffiliated Security Holders. However, the Special Committee has not made any determination, nor does it intend to express any view, as to the fairness of the Merger to any shareholder who is an affiliate of the Company, such as the director and officer shareholders identified in the preceding sentence;

the fact that, since the Company’s announcement of its receipt of the Original Proposal on January 2, 2022, and prior to the execution of the Merger Agreement, no third party had contacted the Company, the Special Committee or Duff & Phelps expressing an interest in exploring an alternative transaction with the Company; and

the possibility that China-based U.S.-listed public companies such as the Company could be delisted from U.S. stock exchanges, or be subject to other burdensome restrictions, by reason of the enactment of the Holding Foreign Companies Accountable Act, or the HFCAA, on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit its shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. On February 4, 2022, the U.S. House of Representatives passed a bill which contained, among other things, an identical provision. If this provision were to be enacted into law and the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA is reduced from three years to two, then the Company’s shares and the ADSs could be prohibited from trading in the United States in 2023. On May 4, 2022, the SEC provisionally named the Company as a Commission-Identified Issuer following the filing of Company’s Annual Report.
In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the Merger is procedurally fair to the Unaffiliated Security Holders and to permit the Special Committee and the Board to represent effectively the interests of such Unaffiliated Security Holders. The procedural safeguards include the following, which are not listed in any relative order of importance:

the consideration and negotiation of the Merger Agreement was conducted entirely under the control and supervision of the Special Committee, which consists of three independent directors, and that the Board delegated to the Special Committee plenary authority to negotiate the transaction and attend to all related matters and processes;

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

all of the members of the Special Committee during the entire process were and are independent directors and free from any affiliation with any member of the Buyer Group; in addition, none of the members of the Special Committee has any financial interest in the Merger that is different from that of the Unaffiliated Security Holders other than the members’ receipt of Board compensation in the ordinary course and the Special Committee compensation (which is not contingent on the completion of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger) and their indemnification and liability insurance rights under the Merger Agreement;

the Special Committee was assisted in negotiations with the Buyer Group and in its evaluation of the Merger by Duff & Phelps as its financial advisor, Skadden as its U.S. legal counsel and Maples and Calder (Hong Kong) LLP as its Cayman Islands legal counsel;
 
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The Special Committee was empowered to, among other things, consider, attend to and take any and all actions in connection with the Merger and the Transactions contemplated thereby and to recommend to the Board what action should be taken by the Company, including not to engage in the Transactions, including the Merger, and no evaluation, negotiation or response regarding the proposed Transactions or any documentation in connection therewith from that date onward was considered or deliberated by the Board for authorization and approval until the Special Committee had recommended such action to the Board;

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

the Special Committee held meetings on multiple occasions to consider and review the terms of the Merger Agreement and the Transactions, including the Merger;

the recognition by the Special Committee and the Board that the Special Committee had no obligation to recommend the Merger or any other Transactions;

the recognition by the Special Committee and the Board that, subject to the terms and conditions of the Merger Agreement, the Company has the ability to consider any proposal reasonably likely to lead to a Superior Proposal (as defined in the section entitled “The Merger Agreement — Communication and Provision of Information upon Receipt of a Competing Proposal” beginning on page 84) until the Company’s shareholders vote on and authorize and approve the Merger;

the fact that the Company is able, subject to compliance with the terms and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of the approval of the Company’s shareholders of the Merger Agreement and the Transactions contemplated thereby at the shareholder meeting convened for such purpose (a) in order to enter into an alternative agreement with respect to an acquisition proposal that is a Superior Proposal or (b) in the event that the Board changes its recommendation of the Merger as required by directors’ fiduciary duties in connection with an Intervening Event;

the ability of the Special Committee and the Board, under certain circumstances, to change, withhold, withdraw, qualify or modify their recommendation that the shareholders vote to approve the Merger Agreement in the event of a Superior Proposal or an Intervening Event;

the ability of the Special Committee to evaluate bona fide, unsolicited alternative acquisition proposals that may arise between the date of the Merger Agreement and the date of the approval of the Merger by the Company’s shareholders, to furnish confidential information to and conduct negotiations with such third parties and, in certain circumstances, to terminate the Merger Agreement, subject to the payment to the Parent of a termination fee, and accept a Superior Proposal, consistent with the Special Committee’s fiduciary obligations; and

the availability of dissenters’ rights to the Unaffiliated Security Holders who comply with all of the required procedures under the Cayman Islands Companies Act for exercising dissenters’ rights, which allow such shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands.
The Special Committee and the Board also considered a variety of potentially negative factors concerning the Merger Agreement and the Merger, including the following, which are not listed in any relative order of importance:

approval of the Merger Agreement is not subject to the authorization and approval of holders of a majority of the Company’s outstanding Shares unaffiliated with the Buyer Group and given that the Buyer Group holds approximately 70.2% of the voting power of the total issued and outstanding Shares as of the date of this proxy statement, the Buyer Group has the ability to determine the outcome of the matters to be voted upon at the extraordinary general meeting;

the inclusion of a condition to closing of the Merger, pursuant to which Parent or Merger Sub would not be required to close the Merger if the Company’s shareholders holding 10% or more of the Shares exercise their dissenters’ rights;
 
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the significant portion of the voting power of the Shares owned by the Buyer Group, and the Founder’s participation in the Buyer Group, may have deterred, and may continue to deter, other potentially interested parties from proposing to acquire the Company at a price per ADS that is higher than US$1.60;

the Unaffiliated Security Holders will have no on-going 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 Shares and ADSs, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company, which could include a dividend to shareholders;

the restrictions on the conduct of the Company’s business prior to the consummation 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 the consummation of the Merger;

the highest historical closing price of the ADSs (US$25.99) since the Company became publicly listed on Nasdaq on July 8, 2020 and the highest closing price of the ADSs (US$7.54) during the 52-week period prior to April 14, 2022, the last trading day prior to the date on which the Company announced its receipt of the Proposal Letter, both exceed the Per ADS Merger Consideration;

the risks and costs to the Company if the Merger is not consummated, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Company’s business and customer relationships;

the Company may be required, under certain circumstances, to pay Parent a termination fee of US$700,000 in connection with termination of the Merger Agreement;

the Company’s remedy in the event of a breach of the Merger Agreement by the Parent is limited, under certain circumstances, to receipt of the Parent Termination Fee of US$1,400,000, and under certain circumstances the Company may not be entitled to the Parent Termination Fee or expenses at all;

the terms of the Buyer Group’s participation in the Merger and the fact that the Rollover Shareholders have interests in the Merger that are different from, and/or in addition to, the interests of the Unaffiliated Security Holders generally (see “Special Factors — Interests of Certain Persons in the Merger” beginning on page 57 for additional information);

the possibility that the Merger might not be consummated and the negative impact of such a public announcement on the Company’s sales and operating results, and the Company’s ability to attract and retain key management, marketing and technical personnel; and

the taxability of an all-cash transaction to the Unaffiliated Security Holders who are U.S. Holders (as defined under “Special Factors — U.S. Federal Income Tax Consequences”) for U.S. federal income tax purposes, and the likely taxability of such a transaction to the Unaffiliated Security Holders in other jurisdictions.
The foregoing discussion of information and factors considered by the Special Committee and the Board is not intended to be exhaustive, but includes all material factors considered by the Special Committee and the Board. In view of the wide variety of factors considered by the Special Committee and the Board, neither the Special Committee nor the Board found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Special Committee and the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee unanimously recommended that the Board authorize and approve, and the Board authorized and approved, the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, based upon the totality of the information presented to and considered by it.
The Special Committee and the Board noted that the authorization and approval of the execution of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, are not subject to approval by a majority of the Unaffiliated Security Holders. Nevertheless, the Special Committee
 
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and the Board believe the Merger is procedurally fair to the Unaffiliated Security Holders because, among other things, (i) the majority-of-the-minority voting requirement is not customary in going-private transactions involving Cayman Islands companies, and (ii) various safeguards and protective measures have been adopted to ensure the procedural fairness of the Transactions, including without limitation (a) the Board’s formation of the Special Committee and granting to the Special Committee of the authority to review, evaluate, and negotiate (and to ultimately either authorize or reject) the terms of the Merger Agreement, the Plan of Merger and the Transactions, (b) the Special Committee’s retention of, and receipt of advice from, competent and experienced independent legal counsels and independent financial advisor for purposes of negotiating the terms of the Transactions and/or preparing a fairness opinion concerning the fairness of the Transactions, (c) the execution of the Merger Agreement, the Plan of Merger and the consummation of the Transactions, including the Merger, have been approved by all of the directors who are neither employees of the Company nor affiliated with the Buyer Group, and (d) the right of the Company to evaluate bona fide unsolicited alternative acquisition proposals that may arise before the Company’s shareholders vote upon the Merger.
In reaching its conclusion regarding the fairness of the Merger to the Unaffiliated Security Holders and its decision to recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, the Special Committee considered financial analyses presented by Duff & Phelps. These analyses included, among others, historical trading ranges, comparable companies analysis, precedent transactions analysis and discounted cash flows analysis. All of the material financial analyses as presented to the Special Committee on April 30, 2022 are summarized below under the section entitled “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on page 40. The Special Committee and the Board expressly adopted these analyses and opinions, among other factors considered, in reaching their respective determination as to the fairness of the Transactions, including the Merger.
Neither the Special Committee nor the Board considered the liquidation value of the Company’s assets because each considers the Company to be a viable going-concern business where value is derived from cash flows generated from its continuing operations. In addition, the Special Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going-concern value for the reasons that (i) liquidation sales generally result in proceeds substantially less than the sales of a going concern; (ii) it is impracticable to determine a liquidation value given the significant execution risk involved in any breakup of a company; (iii) an ongoing operation has the ability to continue to earn profit, while a liquidated company does not, such that the “going-concern value” will be higher than the “liquidation value” of a company because the “going concern value” includes the liquidation value of a company’s tangible assets as well as the value of its intangible assets, such as goodwill; and (iv) a liquidation process would involve additional legal fees, costs of sale and other expenses that would reduce any amounts that shareholders might receive upon liquidation. Furthermore, the Company has no intention of liquidation and the Merger will not result in the liquidation of the Company. Each of the Special Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going-concern value. Each of the Special Committee and the Board also considered the historical market prices of the Shares as described under the section entitled “Market Price of the Company’s ADSs, Dividends and Other Matters — Market Price of the ADSs” beginning on page 66. Each of the Special Committee and the Board considered the purchase prices paid in previous purchases as described under “Transactions in the Shares” beginning on page 98.
Neither the Special Committee nor the Board, however, considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the Company’s shareholders, as a factor. The Special Committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern as it does not take into account the future prospects of the Company, market conditions, trends in the industry or the business risks inherent in competing with larger companies in that industry. The net book value per Share as of December 31, 2021 was US$3.74 based on 18,733,449 issued and outstanding Shares as of that date. The Company is not aware of any firm offers made by any unaffiliated person, other than the filing persons, during the past two years for (i) the Merger or consolidation of the Company with or into another company, (ii) the sale of all or a substantial part of the Company’s assets or (iii) the purchase of the Company’s voting securities that would enable the holder to exercise control over the Company.
 
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In reaching its determination that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to, and in the best interests of, the Company, the Company’s shareholders (other than the holders of Excluded Shares) and the Unaffiliated Security Holders and its decision to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, and recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, by the Company’s shareholders, the Board, on behalf of the Company, considered the analysis and factors described above under this section and under “Special Factors — Background of the Merger” and expressly adopted such determination, recommendation and analysis. During its consideration of the Merger Agreement and the Transactions, including the Merger, the Board was also aware that some of the Company’s shareholders, including the Rollover Shareholders (including the Founder), have interests with respect to the Merger that are, or may be, different from, or in addition to those of the Unaffiliated Security Holders generally, as described under the section entitled “Special Factors — Interests of Certain Persons in the Merger” beginning on page 57.
Except as set forth under “Special Factors — Background of the Merger” beginning on page 22, “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 27 and “Special Factors — Opinion of the Special Committee’s Financial Advisor” beginning on page 40, no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of Unaffiliated Security Holders for purposes of negotiating the terms of the Transactions and/or preparing a report concerning the fairness of the Transactions.
For the foregoing reasons, the Special Committee and the Board believe that the Merger Agreement, the Plan of Merger and the Transactions, including the Merger, are fair to, and in the best interests of, the Company and the Unaffiliated Security Holders.
Position of the Buyer Group as to the Fairness of the Merger
Under SEC rules governing going-private transactions, each member of the Buyer Group is required to express its belief as to the fairness of the Merger to the Unaffiliated Security Holders (as such term is defined in Rule 13e-3 of the Exchange Act). Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the Merger are not intended to be and should not be construed as a recommendation to any shareholder of the Company as to how that shareholder should vote on the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Transactions, including the Merger. Members of the Buyer Group which are shareholders of the Company have interests in the Merger that are different from, and/or in addition to, those of the other shareholders of the Company by virtue of their continuing interests in the Surviving Company after the completion of the Merger. These interests are described under “Special Factors — Interests of Certain Persons in the Merger — Interests of the Members of the Buyer Group” beginning on page 57.
The Buyer Group believes that the interests of the Unaffiliated Security Holders were represented by the Special Committee, which negotiated the terms and conditions of the Merger Agreement with the assistance of its independent legal and financial advisors. The Buyer Group attempted to negotiate a transaction that would be most favorable to them, and not to the Unaffiliated Security Holders and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were substantively or procedurally fair to the Unaffiliated Security Holders. 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 or financial advisors as to, the fairness of the Merger to the Unaffiliated Security Holders. Furthermore, the Buyer Group did not itself undertake a formal evaluation of the fairness of the Merger. No financial advisor provided the Buyer Group with any analysis or opinion with respect to the fairness of the Merger consideration to the Unaffiliated Security Holders.
Based on their knowledge and analysis of available information regarding the Company, as well as discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Special Committee and the Board discussed under the section entitled “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 27, the Buyer Group believes that the Merger is substantively fair to Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:
 
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the Per Share Merger Consideration of US$3.20 and Per ADS Merger Consideration of US$1.60 represent a premium of 16.8% to the closing price of US$1.37 per ADS as quoted by the Nasdaq on April 14, 2022, the last trading day before the Proposal Letter was made to the Board in a letter from certain members of the Buyer Group, dated April 18, 2022, and a premium of 19.21% to the volume-weighted average price of the ADSs during the last 20 trading days prior to its receipt of the Proposal Letter;

the Company’s ADSs traded as low as US$1.25 per ADS during the 52-week period prior to the receipt of the Proposal Letter;

the members of the Special Committee are not officers or employees of the Company, are not affiliated with any member of the Buyer Group and do not have any interests in the Merger different from, or in addition to, those of the Unaffiliated Security Holders, other than the members’ receipt of Board compensation and Special Committee compensation (which are not contingent upon the completion of the Merger or the Special Committee’s or the Board’s recommendation and/or authorization and approval of the Merger) and their indemnification and liability insurance rights under their respective Indemnification Agreement entered into with the Company and the Merger Agreement;

notwithstanding that the Buyer Group may not rely upon the opinion provided by Duff & Phelps to the Special Committee on April 30, 2022, the Special Committee received an opinion from Duff & Phelps stating that, as of the date of such opinion, and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Duff & Phelps in preparing its opinion, the Per Share Merger Consideration and the Per ADS Merger Consideration to be received by the holders of Shares and ADSs in the Merger were fair to them, from a financial point of view;

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

the Company has the ability, under certain circumstances, to seek specific performance to prevent breaches of the Merger Agreement and to specifically enforce the terms of the Merger Agreement;

the Merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the Merger will be consummated and the Merger consideration will be paid to the Unaffiliated Security Holders;

the consideration to be paid to the Unaffiliated Security Holders in the Merger is all cash, allowing the Unaffiliated Security Holders to immediately realize a certain and fair value for all of their Shares, without incurring brokerage and other costs typically associated with market sales;

the potential adverse effects on the Company’s business, financial condition and results of operations caused by the recent economic slowdown in the PRC and globally and challenges in the macroeconomic environment;

the possibility that PRC-based U.S.-listed public companies would be subject to additional costs and burden of regulatory compliance by reason of any newly enacted law or regulation similar in substance to the Holding Foreign Companies Accountable Act;

the availability of dissenters’ rights to the Unaffiliated Security Holders who hold their Shares in their own names and comply with all of the required procedures under the Cayman Islands Companies Law for exercising dissenters’ rights, which allow registered shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands; and

the Merger Agreement requires Parent to pay a reverse termination fee of US$1,400,000, which is twice the amount of the termination fee payable by the Company to Parent if the Merger Agreement is terminated under certain circumstances.
The Buyer Group did not consider the liquidation value of the Company because the Buyer Group considers the Company to be a viable going concern and views the trading history of the Shares as an indication of the Company’s going concern value, and, accordingly, did not believe liquidation value to be relevant to a determination as to the fairness of the Merger.
 
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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 as it does not take into account the future prospects of the Company, market conditions, trends in the industry or the business risks inherent in competing with larger companies in that industry and therefore not a relevant measure in the determination as to the fairness of the Merger.
The Buyer Group did not establish, and did not consider, a going concern value for the Company as a public company to determine the fairness of the Merger consideration to Unaffiliated Security Holders 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 Company’s Shares, the Per Share Merger Consideration of US$3.20 and Per ADS Merger Consideration of US$1.60 represent a premium to the going concern value of the Company.
The Buyer Group is not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person during the past two years for (i) a Merger or consolidation of the Company with another company, (ii) the sale or transfer of all or substantially all of the Company’s assets or (iii) the 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 Buyer Group did not perform or receive any independent reports, opinions or appraisals from any third party related to the fairness of the Merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive and procedural fairness of the Merger to Unaffiliated Security Holders.
The Buyer Group believes that the Merger is procedurally fair to the Unaffiliated Security Holders based on the following factors, which are not listed in any relative order of importance:

the consideration and negotiation of the Merger Agreement were conducted entirely under the control and supervision of the Special Committee, which consists of 3 independent directors, as defined under applicable Nasdaq rules, each of whom is an outside, non-employee director, and that no limitations were placed on the Special Committee’s authority;

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

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

the Special Committee retained independent financial advisor(s) and legal counsel(s) to assist it in negotiations with the Buyer Group and in its evaluation of the Merger;

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

the terms and conditions of the Merger Agreement were the product of extensive negotiations between the Special Committee and its advisors, on the one hand, and the Buyer Group and its advisors, on the other hand;
 
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the Special Committee was empowered to exercise the full power and authority of the Board in connection with the Transactions and related process;

since the announcement of the receipt of the Original Proposal on January 3, 2022 and prior to the execution of the Merger Agreement, no party other than the members of the Buyer Group had contacted the Company or the Special Committee expressing an interest in exploring an alternative transaction with the Company;

the Special Committee met regularly to consider and review the terms of the Merger Agreement, the Plan of Merger and the Transactions, including the Merger;

the recognition by the Special Committee and the Board that it had no obligation to recommend the Transactions;

the recognition by the Special Committee and the Board that, under the terms of the Merger Agreement, it has the ability to consider an unsolicited, bona fide Competing Proposal (as defined in the section entitled “The Merger Agreement — No Solicitation of Transactions” beginning on page 84) that constitutes a Superior Proposal until the Company’s shareholders vote upon and authorize and approve the Merger Agreement, the Plan of Merger and the consummation of the Transactions;

the Buyer Group did not participate in or have any influence over the deliberative process of, or the conclusions reached by, the Special Committee or the negotiating positions of the Special Committee;

the Company’s ability, subject to compliance with the terms and conditions of the Merger Agreement, to terminate the Merger Agreement prior to the receipt of shareholder approval in order to accept an alternative transaction proposed by a third party that is a Superior Proposal;

the availability of dissenters’ rights to the Unaffiliated Security Holders who comply with all of the required procedures under the Cayman Islands Companies Law for exercising dissenters’ rights, which allow such shareholders to receive payment of the fair value of their Shares as determined by the Grand Court of the Cayman Islands; and

the fact that, in certain circumstances under the terms of the Merger Agreement, the Special Committee and the Board are able to change, withhold, withdraw, qualify or modify their recommendation of the Merger.
The foregoing is a summary of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the Merger to the Unaffiliated Security Holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the Merger to the Unaffiliated Security Holders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.
Certain Financial Projections
The Company’s management does not, as a matter of course, make available to the public detailed financial forecasts or internal projections as to future performance, revenues, earnings or financial condition. However, the Company’s management prepared certain financial projections for the fiscal year ending December 31, 2022 through the fiscal year ending December 31, 2030 for the Special Committee and Duff & Phelps in connection with the financial analysis for the Merger. These financial projections, which were based on the Company management’s estimates of the Company’s future financial performance as of the date provided, were prepared by the Company’s management for internal use and for use by Duff & Phelps in their respective financial analyses, and were not prepared with a view towards 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. GAAP.
The financial projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the projections, the Company’s management took into account historical performance, combined with estimates regarding revenue, operating loss and net loss. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events
 
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made by our management that our management believed were prepared on a reasonable basis, reflected the best estimates and judgments available at that time and presented, to the best of the management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results, and shareholders are cautioned not to place undue reliance on the prospective financial information. In addition, factors such as industry performance, the market for the Company’s existing and new products, the competitive environment, expectations regarding future acquisitions or any other transactions and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of our management, may cause actual future results to differ materially from the results forecasted in these financial projections.
In addition, the projections generally do not take into account any circumstances or events occurring after the date that they were prepared. For instance, the projections do not give effect to completion of the Merger or any changes to the Company’s 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 projections.
Neither the Company, its independent registered public accounting firm, nor any other independent accounts have examined, compiled, or performed any procedures with respect to the financial projections or any amounts derived therefrom or built thereupon, nor have they given any opinion or any other form of assurance on such information or its achievability. The financial projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the Special Committee and Duff & Phelps, and are not included in this proxy statement in order to induce any shareholders to vote in favor of approval of the Merger Agreement or to elect not to seek appraisal for its, his or her Shares.
The following table sets forth the Management Projections prepared by the Company’s management and considered by the Special Committee and Duff & Phelps in connection with their analysis of the Proposed Transaction. For descriptions of business of the Company, please see the Company’s Annual Report. These projections have been considered by the Special Committee in connection with their analysis of the Merger and Duff & Phelps in connection with the delivery of its fairness opinion:
Management Projections
2022P
2023P
2024P
2025P
2026P
2027P
2028P
2029P
2030P
(in RMB millions except percentages)
Net Revenues
1,066.47 1,328.07 1,506.84 1,625.41 1,737.51 1,845.37 1,954.45 2,067.22 2,176.37
Cost of Revenue
(742.57) (937.98) (1,067.72) (1,145.26) (1,220.99) (1,294.88) (1,370.51) (1,439.96) (1,508.00)
Gross Profit
323.90 390.09 439.12 480.14 516.51 550.49 583.94 627.26 668.37
Margin%
30.4% 29.4% 29.1% 29.5% 29.7% 29.8% 29.9% 30.3% 30.7%
EBITDA
(104.93) (71.18) (41.12) (16.38) 3.94 21.17 34.72 54.81 71.94
Margin%
-9.8% -5.4% -2.7% -1.0% 0.2% 1.1% 1.8% 2.7% 3.3%
EBIT
(118.51) (86.89) (55.90) (31.13) (9.43) 7.13 20.02 43.09 59.56
Margin%
-11.1% -6.5% -3.7% -1.9% -0.5% 0.4% 1.0% 2.1% 2.7%
Net Income
(116.76) (85.57) (54.87) (30.24) (8.59) 8.02 21.06 44.37 48.92
Margin%
-10.9% -6.4% -3.6% -1.9% -0.5% 0.4% 1.1% 2.1% 2.2%
Capital Expenditures (1)
6.39 7.96 9.03 9.74 10.41 11.06 11.71 12.39 13.04
Net Working Capital 
(44.48) (41.62) (48.16) (54.91) (61.97) (69.07) (76.29) (83.69) (91.43)
(1)
Capital expenditures include acquisition of property, plant and equipment.
In preparing these projections, the Company’s management necessarily made certain assumptions about future financial factors affecting the Company’s business, including, primarily:
 
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the Company will be able to successfully develop and expand its new products and services while maintaining consistent and high quality services;

the demand for products and services relating to the industry will continue in line with management’s expectations;

increased operating expenses and investment in marketing will be required to ensure the Company’s products and services remain competitive and to improve the Company’s brand recognition;

China’s overall economy will remain relatively stable, with no material change in competition adversely affecting the Company;

the Company’s effective tax rate is assumed to be in line with management’s expectations;

the Renminbi and the overall economy in China will generally remain stable, and that there will be no material adverse change in the competition, the industry, and relevant regulations affecting the Company; and

the Chinese economy will continue to recover from the COVID-19 pandemic and there will be no material deterioration of the COVID-19 pandemic globally.
NONE OF THE COMPANY OR ITS AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY SHAREHOLDER OR OTHER PERSON REGARDING THE ULTIMATE PERFORMANCE OF THE COMPANY COMPARED TO THE INFORMATION CONTAINED IN THE PROJECTIONS OR THAT PROJECTED RESULTS WILL BE ACHIEVED.
BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAW.
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 “Financial Information  —  Selected Historical Financial Information” beginning on page 96.
The financial projections are forward-looking statements. For information on factors that may cause the Company’s future financial results to materially vary, see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 102 and “Item 3. Key Information — D. Risk Factors” included in the Company’s Annual Report, incorporated by reference into this proxy statement.
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 (or its financial advisor) or the Board 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 shareholders of the Company or anyone else regarding the information included in the financial projections and forecasts discussed above.
Opinion of the Special Committee’s Financial Advisor
Pursuant to the D&P Engagement Letter, Duff & Phelps was retained to serve as the Special Committee’s independent financial advisor and to deliver a fairness opinion in connection with the Merger. Duff & Phelps is an internationally recognized financial services firm that, among other things, is regularly engaged in the investment banking business, including the valuation of businesses and securities in connection with mergers and acquisitions, underwritings and private placements of securities, and other investment banking services.
 
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At a meeting of the Special Committee on April 30, 2022, Duff & Phelps rendered its oral opinion (which was confirmed in writing by the delivery of Duff & Phelps’ written opinion, dated as of April 30, 2022, addressed to the Special Committee) to the Special Committee that, as of such date and based upon and subject to the factors, assumptions, qualifications and limitations set forth in its opinion, the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, the Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by the holders of ADSs (other than ADSs representing the Excluded Shares) in the Merger, were fair, from a financial point of view, to such holders (without giving effect to any impact of the Merger on any particular holder of Shares or ADSs other than in their capacity as holders of Shares or ADSs). No limitations were imposed by the Special Committee upon Duff & Phelps with respect to the investigations made or procedures followed by it in rendering its opinion.
The full text of the written opinion of Duff & Phelps dated April 30, 2022, which sets forth the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The holders of Shares and ADSs are urged to read the opinion in its entirety. Duff & Phelps’ written opinion is addressed to the Special Committee (in its capacity as such), is directed only to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of Shares (other than the Excluded Shares, Dissenting Shares and Class A Shares represented by ADSs) and the Per ADS Merger Consideration to be received by holders of ADSs (other than ADSs representing the Excluded Shares) and does not constitute, a recommendation to any holder of Shares or ADSs as to how such holder should vote or act with respect to the Merger or any other matter. Duff & Phelps did not recommend any specific amount of consideration for the Merger, that any specific amount of consideration constituted the only appropriate consideration for the Merger, or that the Per Share Merger Consideration or the Per ADS Merger Consideration was the best price possibly attainable under any circumstances.
In connection with its opinion, Duff & Phelps has made such reviews, analyses and inquiries as it has deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

reviewed the Company’s annual reports and audited financial statements on Form 20-F filed with the SEC for the years ended December 31, 2018 through December 31, 2020 and the Company’s unaudited financial statements for the year ended December 31, 2021 included in the Company’s Form 6-K filed with the SEC;

reviewed certain unaudited and segment financial information for the Company for the years ended December 31, 2018 through December 31, 2021, provided by the management of the Company;

reviewed a detailed financial projection model for the Company for the years ending December 31, 2022 through December 31, 2030, prepared and provided to Duff & Phelps by the management of the Company, upon which Duff & Phelps has relied, with the Company’s and the Special Committee’s consent, in performing its analysis (collectively, the “Management Projections”);

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

received and reviewed a letter dated April 29, 2022 from the management of the Company, which made certain representations as to historical financial information for the Company, the Management Projections and the underlying assumptions of such projections (the “Management Representation Letter”);

reviewed a draft of the Merger Agreement dated as of April 30, 2022;

reviewed a draft of the Interim Investors Agreement by and among Parent, Merger Sub and the other parties thereto dated as of April 30, 2022;
 
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reviewed a draft of the Support Agreements by and among Parent certain shareholders of the Company listed in Schedule A thereto dated as of April 30, 2022 (the Merger Agreement, Interim Investors Agreement and Support Agreement as referenced above, collectively, the “Transaction Documents”);

discussed the information referred to above and the background and other elements of the Merger with the management of the Company;

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

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

performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis, an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.
In performing its analyses and rendering its opinion with respect to the Merger, Duff & Phelps, with the Company’s and the Special Committee’s consent:

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

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

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

assumed that information supplied and representations made by the management of the Company are substantially accurate regarding the Company and the Merger;

assumed that the representations and warranties made in the Transaction Documents and the Management Representation Letter are substantially accurate;

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

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

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

assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived in the Merger.
To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based is proven to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied
 
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upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Merger.
Duff & Phelps prepared its opinion effective as of April 30, 2022. Its opinion was necessarily based upon market, economic, financial, and other conditions as they existed and can be evaluated as of April 30, 2022, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after April 30, 2022. The credit, financial and stock markets have been experiencing unusual volatility and Duff & Phelps expresses no opinion or view as to any potential effects of such volatility on the Company or the Merger.
Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the assets, businesses or operations of the Company, or any alternatives to the Merger, (ii) negotiate the terms of the Merger (other than its participation in the negotiation of the Per Share Merger Consideration or Per ADS Merger Consideration), and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Merger, or (iii) advise the Special Committee or any other party with respect to alternatives to the Merger. Duff & Phelps did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.
Duff & Phelps is not expressing any opinion as to the market price or value of the Shares or ADSs (or anything else) after the announcement or the consummation of the Merger. Duff & Phelps’ opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter. The issuance of Duff & Phelps’ opinion was approved by an authorized opinion review committee of Duff & Phelps.
In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the Per Share Merger Consideration or Per ADS Merger Consideration, or with respect to the fairness of any such compensation.
Duff & Phelps’ opinion was furnished solely for the use and benefit of the Special Committee in connection with its consideration of the Merger and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent, except that a copy of its opinion may be included in the filings with the SEC in relation to the Merger. Duff & Phelps’ opinion (i) does not address the merits of the underlying business decision to enter into the Merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the Merger; (iii) is not a recommendation as to how the Special Committee, the Board or any other person (including holders of the Shares or ADSs) should vote or act with respect to any matters relating to the Merger, or whether to proceed with the Merger or any related transaction; and (iv) does not indicate that the Per Share Merger Consideration or Per ADS Merger Consideration is the best possibly attainable under any circumstances; instead, it merely states whether the Per Share Merger Consideration or Per ADS Merger Consideration is within or above a range suggested by certain financial analyses. The decision as to whether to proceed with the Merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.
Duff & Phelps’ opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with the opinion shall be limited in accordance with the terms set forth in the D&P Engagement Letter. Duff &
 
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Phelps’ opinion is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in the D&P Engagement Letter.
Summary of Financial Analysis
Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the Special Committee. This summary is qualified in its entirety by reference to the full text of Duff & Phelps’ opinion, attached hereto as Annex C. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.
The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.
Discounted Cash Flow Analysis
Duff & Phelps performed a discounted cash flow analysis of the projected future unlevered free cash flows attributable to the Company for the fiscal years ending December 31, 2022 through December 31, 2030, with unlevered “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows using a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps used and relied upon the Management Projections, which are described in this proxy statement in the section entitled “Special Factors — Certain Financial Projections” beginning on page 38. The costs associated with the Company being a publicly-listed company, as provided by the management of the Company, were excluded from the Management Projections because such costs would likely be eliminated as a result of the Merger.
Duff & Phelps estimated the net present value of all cash flows attributable to the Company after fiscal year 2030 (the “Terminal Value”) using a perpetuity growth formula assuming a 5.0% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the Chinese economy and the Company’s business. Duff & Phelps used discount rates ranging from 16.0% to 18.0%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and the Terminal Value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles.
Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in an estimated enterprise value for the Company of RMB -9.00 million to RMB 35.00 million and a range on implied values of the Company’s ADSs of US$1.35 to US$1.53.
 
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Selected Public Companies and Merger and Acquisition Transactions Analyses
Duff & Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.
The companies used for comparative purposes in the following analysis were not directly comparable to the Company, and the transactions used for comparative purposes in the following analysis were not directly comparable to the Merger. Duff & Phelps does not have access to nonpublic information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the Merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and the selected merger and acquisition transactions analyses are subject to certain limitations.
Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the interactive media and services industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. The eleven companies included in the selected public company analysis in the interactive media and services industry were:

Kuaishou Technology

Bilibili Inc.

Tencent Music Entertainment Group

Weibo Corporation

Scienjoy Holding Corporation

Zhihu Inc.

Inke Limited

DouYu International Holdings Limited

Hello Group Inc.

HUYA Inc.

JOYY Inc.
Duff & Phelps selected these companies for its analysis based on their relative similarity, primarily in terms of business model, to that of the Company.
The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 2022, 2023 and 2024 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the calendar year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses).
Due to the limited comparability of the selected public companies’ financial metrics relative to the Company, rather than applying a range of selected multiples from a review of the public companies, Duff & Phelps reviewed various valuation multiples for the Company implied by the valuation range determined from the discounted cash flow analysis in the context of the Company’s relative size, growth in revenue and profits, profit margins, capital spending and other characteristics that it deemed relevant.
 
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Revenue Growth
EBITDA Growth
EBITDA Margin
Company
3-YR
CAGR
2021
2022
2023
2024
3-YR
CAGR
2021
2022
2023
2024
3-YR
AVG
2021
2022
2023
2024
Kuaishou Technology
58.7% 37.9% 21.8% 23.5% 18.0% NM NM NM NM NM -11.5% -28.7% -23.9% -13.7% -0.9%
Bilibili Inc.
67.4% 61.5% 30.5% 31.2% 28.7% NM NM NM NM NM -12.8% -20.6% -17.0% -4.9% 3.8%
Tencent Music Entertainment Group
18.1% 7.2% -12.0% -0.4% 3.3% 22.5% -15.7% -10.4% -17.2% -0.9% 15.8% 12.9% 13.1% 10.9% 10.5%
Weibo Corporation
9.5% 33.6% 7.8% 9.9% 6.1% 5.6% 39.6% 1.8% 15.9% 12.7% 33.5% 33.3% 31.5% 33.2% 35.3%
Scienjoy Holding Corporation(1)
NA 57.4% NA NA NA NA 2.1% NA NA NA 16.1% 12.5% NA NA NA
Zhihu Inc.
NA 118.9% 59.3% 53.1% 54.7% NM NM NM NM NM -81.4% -46.3% -26.0% -16.7% -8.7%
Inke Limited
33.5% 85.4% NA NA NA -3.9% 719.9% NA NA NA 2.8% 6.0% NA NA NA
DouYu International Holdings Limited
72.0% -5.4% -20.8% 5.0% 2.0% NA NA NA NA NA -6.3% -5.4% -5.8% -4.6% -6.0%
Hello Group Inc.
2.8% -3.0% -1.8% 7.2% 6.4% -13.5% -21.6% -26.2% 15.2% 3.4% 19.3% 15.6% 11.7% 12.6% 12.2%
HUYA Inc.
70.9% 4.0% -5.6% 5.7% 12.1% NA -80.0% NA NA NA 4.3% 1.5% -3.8% -2.2% -0.2%
JOYY Inc.
2.6% 36.2% 10.2% 10.3% 8.2% NM NM NM 60.2% -4.7% -5.9% -5.2% 3.9% 5.6% ​</