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CHINA ARCHITECTURAL
ENGINEERING,
INC.
105 BAISHI ROAD
JIUZHOU WEST AVENUE
ZHUHAI 519070
PEOPLE’S REPUBLIC OF
CHINA
NOTICE OF CORPORATE ACTION TAKEN BY
WRITTEN CONSENT
OF MAJORITY STOCKHOLDERS WITHOUT SPECIAL
MEETING OF THE STOCKHOLDERS
Dear Stockholders:
We are writing to advise you that
stockholders of China Architectural Engineering, Inc., a Delaware corporation
(“CAE,”“the Company,”“we” or “us”), holding a majority of the voting rights of
our common stock executed a written consent dated January 18, 2010 in lieu of a
special meeting authorizing our Board of Directors to conduct the following
items:
(i)
to issue up to 25,000,000 shares
of our common stock (the “Shares”) in connection with the acquisition of
60% of the equity interest of Shanghai ConnGame Network Co. Ltd., a
company organized under the laws of the People’s Republic of China
(“ConnGame”); and
(ii)
to amend our Certificate of
Incorporation to increase the number of authorized shares of our common
stock from 100,000,000 shares to 150,000,000 shares (the
“Amendment”).
The accompanying information statement,
which describes the issuance of the Shares and the Amendment in more detail, is
being furnished to our stockholders for informational purposes only, pursuant to
Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the rules and regulations prescribed thereunder. The consent that we
have received constitutes the only stockholder approval required for the
issuance of the Shares and the Amendment under the NASDAQ Marketplace Rules, the
Delaware General Corporation Law and our Certificate of Incorporation and
Bylaws. Accordingly, the issuance of the Shares and the Amendment will not be
submitted to the other stockholders of the Company for a
vote.
Our Board of Directors has fixed the
close of business on January [__], 2010 (the “Record Date”) as the record date
for the determination of stockholders entitled to notice of the action by
written consent. Pursuant to Rule 14c-2 under the Exchange Act,
the issuance of the Shares and the amendment to our Certificate of Incorporation
will not be implemented until at least twenty (20) calendar days after the
mailing of this information statement to our stockholders. This
information statement will be mailed on January [__], 2010 to stockholders of
record on January [__], 2010.
No action is required by you to
effectuate this action. The accompanying information statement is furnished only
to inform our stockholders of the action described above before it takes effect
in accordance with Rule 14c-2 promulgated under the Exchange
Act. This letter is the notice required by Section 228 of the
Delaware General Corporation Law.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
PLEASE NOTE THAT THE HOLDERS OF A
MAJORITY OF OUR OUTSTANDING SHARES OF COMMON STOCK HAVE VOTED TO AUTHORIZE THE
ISSUANCE OF THE SHARE AND THE AMENDMENT. THE NUMBER OF VOTES RECEIVED
IS SUFFICIENT TO SATISFY THE STOCKHOLDER VOTE REQUIREMENT AND NO
ADDITIONAL VOTES WILL CONSEQUENTLY BE NEEDED TO APPROVE THESE
MATTERS.
FOR THE BOARD OF
DIRECTORS
Chief Executive
Officer and
Chairman of the
Board of Directors
Dated:
January [__], 2010
Zhuhai,
China
CHINA ARCHITECTURAL ENGINEERING,
INC.
INFORMATION STATEMENT
REGARDING
CORPORATE ACTION TAKEN BY WRITTEN
CONSENT OF
OUR BOARD OF DIRECTORS AND HOLDERS
OF
A MAJORITY OF OUR COMMON
STOCK
IN LIEU OF SPECIAL
MEETING
China Architectural Engineering, Inc.
(“CAE,”“the Company,”“we” or “us”) is furnishing this information statement to
you to provide a description of actions taken by our Board of Directors and by
the holders of a majority of our outstanding shares of common stock in
accordance with the relevant sections of the General Corporation Law of the
State of Delaware (the “Delaware Code”).
This information statement is being
mailed on January [__], 2010 to stockholders of record on January [__], 2010
(the “Record Date”). The information statement is being delivered only to inform
you of the corporate action described herein before such action takes effect in
accordance with Rule 14c-2 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). No action is requested or required on
your part.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
THIS IS NOT A NOTICE OF A MEETING OF
STOCKHOLDERS AND NO STOCKHOLDERS' MEETING WILL BE HELD TO CONSIDER ANY MATTER
DESCRIBED HEREIN.
PLEASE NOTE THAT THE HOLDERS OF A
MAJORITY OF OUR OUTSTANDING SHARES OF COMMON STOCK HAVE VOTED TO AUTHORIZE THE
ISSUANCE OF THE SHARES AND THE AMENDMENT. THE NUMBER OF VOTES RECEIVED IS
SUFFICIENT TO SATISFY THE STOCKHOLDER VOTE REQUIREMENT AND NO ADDITIONAL VOTES
WILL CONSEQUENTLY BE NEEDED TO APPROVE THESE MATTERS.
GENERAL DESCRIPTION OF CORPORATE
ACTIONS
On January 18, 2010, our Board of
Directors authorized the issuance of up to 25,000,000 shares of our common stock
(the “Shares”) to First Jet Investments Ltd., a company formed under the laws of
the British Virgin Islands (“First Jet”) to acquire a 60% equity interest in
Shanghai ConnGame Network Co. Ltd., a company formed under the laws of the
People's Republic of China (“ConnGame”) from First Jet (the
“Acquisition”).
On January 18, 2010, our Board of
Directors also approved an amendment to our Certificate of Incorporation (as
amended, the “Certificate of Incorporation”) to increase the total number of
authorized shares of common stock of the Company from 100,000,000 shares to
150,000,000 shares in the form attached hereto as Annex A (the
“Amendment”).
The
Board’s approval of the issuance of the Shares and the Amendment was subject to
the approval of such amendment by the holders of a majority of the outstanding
shares of our common stock.
On January 18, 2010, the holders of
a majority of our outstanding common stock delivered an executed written consent
of stockholders authorizing and approving the issuance of the Shares and the
Amendment.
VOTING AND VOTE
REQUIRED
Section 228 of the DGCL provides that
the written consent of the holders of outstanding shares of voting capital
stock, having not less than the minimum number of votes which would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, may be substituted for a
meeting. Approval by at least a majority of the outstanding voting
power of our shares of common stock present and voting on the matter at a
meeting would be required to approve the Amendment.
In addition to the DGCL, we are subject
to the rules of the NASDAQ Stock Market, Inc. because our common stock is listed
on the NASDAQ Global Market. Pursuant to NASDAQ Marketplace Rule 5635(a), we
must obtain stockholder approval prior to the issuance of securities in
connection with the acquisition of the stock or assets of another company if the
number of shares of common stock to be issued exceeds 20% of the number of
shares of common stock outstanding prior to the issuance of the stock. In
addition, under Nasdaq Marketplace Rule 5635(b), we must obtain stockholder
approval prior to the issuance of securities that will result in a change of
control of our Company.
As of Record Date, we had 53,256,874
shares of common stock outstanding. The issuance of the full
25,000,000 shares to First Jet in connection with the Acquisition would result
in the issuance of more than 20% of our pre-issuance outstanding shares. In
addition, as of the Record Date, the largest shareholder of our Company is KGE
Group, Ltd. which holds approximately 24.1 million shares of our common
stock. The issuance of 25,000,000 shares of common stock to First Jet
would result in a change of control of our Company, with First Jet becoming our
largest stockholder, owning approximately 31.9% of our outstanding common stock
immediately after the issuance. Therefore, under NASDAQ Marketplace Rules,
stockholder approval is required prior to the issuance of the
Shares.
Each stockholder is entitled to one vote
for each share of common stock held by such stockholder. On January 18, 2010,
the following stockholders holding an aggregate of 29,100,387, or 54.6%, of all
eligible votes, delivered an executed written consent authorizing the issuance
of the Shares and the Amendment:
Stockholder
No. of
Shares
KGE
Group Limited
24,100,287
Resort Property International
Limited
5,000,000
Total
29,100,287
Accordingly, the written consent
executed by the above-listed stockholders satisfies the stockholder approval
requirement for authorization of the issuance of the Shares and the
Amendment. In an effort to minimize the Company's expenses, a special
meeting of the stockholders is not required and will not be held because
stockholders holding a majority of the eligible votes are in favor of the
actions.
NOTICE PURSUANT TO DELAWARE CODE SECTION
228
Pursuant to Delaware Code Section 228,
we are required to provide prompt notice of the taking of a corporate action by
written consent to our stockholders who have not consented in writing to such
action. This information statement serves as the notice required by Delaware
Code Section 228.
COST OF THIS INFORMATION
STATEMENT
The entire cost of furnishing this
information statement will be borne by us. We will request brokerage houses,
nominees, custodians, fiduciaries and other like parties to forward this
information statement to the beneficial owners of our common stock held of
record by them.
HOUSEHOLDING OF STOCKHOLDER
MATERIALS
Some banks, brokers and other nominee
record holders may be participating in the practice of “householding”
stockholder materials, such as proxy statements, information statements and
annual reports. This means that only one copy of this information statement may
have been sent to multiple stockholders in your household. We will promptly
deliver a separate copy of this Information Statement to you if you write or
call us at the following address or telephone number: 105 Baishi Road, Jiuzhou West Avenue,
Zhuhai 519070, People’s Republic of China, telephone: 0086-756-8538908. If you
want to receive separate copies of stockholder materials in the future, or if
you are receiving multiple copies and would like to receive only one copy for
your household, you should contact your bank, broker, or other nominee record
holder, or you may contact us at the above address and telephone
number.
CORPORATE
ACTION NO. 1
APPROVAL OF
THE ISSUANCE OF UP TO 25,000,000 SHARES OF OUR COMMON STOCK
IN
CONNECTION
WITH OUR ACQUISITION OF 60% OF THE EQUITY INTEREST OF
CONNGAME
OVERVIEW
The Board of Directors and the
stockholders have approved by written consent the issuance of up to 25,000,000
shares of our common stock (the “Shares”) to acquire a 60% equity interest in
Shanghai ConnGame Network Co. Ltd., a company formed under the laws of the
People's Republic of China (“ConnGame”) from First Jet Investments Ltd., a
company formed under the laws of the British Virgin Islands (“First
Jet”). First Jet owns of 81% of the equity interest of
ConnGame. The issuance of any of the Shares will occur no
sooner than 20 calendar days after the date this information statement has been
mailed to stockholders.
REASONS
FOR THE ACQUISITION
ConnGame
is a developer and publisher of MMORPG (Massively Multiplayer Online Role
Playing Game). We hope that the acquisition of ConnGame will expand
our core capabilities and facilitate our planned transformation into a high-end
architectural design consultant and service provider, as we intend to leverage
ConnGame’s design engines and virtual applications to broaden our service
capabilities and scope of architectural collaborations. We intend to utilize
ConnGame's technology and online platform to provide technical consulting and
advisory services to architects, real estate developers and
governments. We believe our acquisition of ConnGame will enable
us to strengthen our core architectural engineering and design abilities, in
addition to enabling us to enter China's large online game market, with
ConnGame’s two to-be-released MMORPG games. We believe that the
online game industry and its related business model will be a growing market in
China.
We intend
to modify our previous business model that has traditionally focused on design
and construction to focus on design and virtual online. We believe
that this transformation will reduce our exposure to unpredictable operational
risks that relate to construction projects, in addition to providing us with the
tools to strengthen our ability to complete projects within budget
limitations. We also believe that the acquisition of ConnGame and its
technologies will enable us to better evaluate estimated profitable of
construction projects before we enter into contracts. We believe that
our technology profile will be strengthened, particularly with ConnGame’s
virtual and online and graphic technologies, and that the technology and
capabilities will permit us to render more animated, detailed, and interactive
designs that could assist us in attaining highly desirable projects from our
bidding competitors.
RISKS
RELATED TO THE ACQUISITION OF CONNGAME
This
information statement contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks our public filings made with the Securities and Exchange
Commission. Any investment in our common stock involves a high degree
of risk, and any potential investors should carefully consider the material
risks described in our public filings made with the Securities and Exchange
Commission before deciding whether to purchase any of our securities. Our
business, financial condition or results of operations could be materially
adversely affected by these risks, including those related to the Acquisition
and to the business operations of ConnGame. The industry in which
ConnGame operates, the online game industry, is vastly different from the
industry that we have historically operated in and, therefore, ConnGame is
subject to different risks related to its business. Our business,
financial condition or results of operations could be materially adversely
affected by these risks if any of them actually occur after the
Acquisition.
Because
our current management has no experience in the development and operation of
MMORPG, our business has a higher risk of failure.
Our
current management has no professional training or technical credentials in the
field of in the development and operation of MMORPG. As a result, they may not
be able to recognize and take advantage of potential opportunities in the sector
without the aid from the management of ConnGame. Consequently our
operations, earnings and ultimate financial success may suffer harm as a
result.
If
our stock price decreases, the Nasdaq Stock Market may delist our securities,
which could limit investors’ ability to trade in our securities.
Nasdaq
Listing Rule 5550(a)(2) (the “Rule”) requires that our common stock maintain a
minimum bid price of $1.00 per share for 30 consecutive business
days. As of January 15, 2010, our stock price closed at
$1.18. If we do not meet the requirement, our securities may become
subject to delisting. If our common stock is delisted by Nasdaq, the
trading market for our common stock would likely be adversely affected, as price
quotations may not be as readily obtainable, which would likely have a material
adverse effect on the market price of our common stock.
Although
we expect that the acquisition will result in benefits to us, we may not realize
those benefits because of integration difficulties and other
challenges.
The
success of the acquisition of ConnGame will be dependent in large part on the
success of our management in integrating the operations, technologies and
personnel of the two companies. Our failure to meet the challenges involved in
successfully completing the integration of the operations of ConnGame or to
otherwise realize any of the anticipated benefits of the acquisition, including
additional revenue opportunities, could impair our results of
operations.
Challenges
involved in this integration include, without limitation:
·
integrating
successfully each company's operations, technologies, products and
services;
·
reducing
the costs associated with
operations;
·
coordinating
the publishing, distribution and marketing efforts to effectively promote
the services and products of our combined company;
and
·
combining
the corporate cultures, maintaining employee morale and retaining key
employees.
We may
not successfully complete the integration of our operations and ConnGame in a
timely manner and we may not realize the anticipated benefits of the acquisition
of ConnGame to the extent, or in the timeframe, anticipated. Anticipated
benefits assume a successful integration and are based on projections, which are
inherently uncertain, and other assumptions. Even if integration is successful,
anticipated benefits may not be achieved.
Through
FirstJet, Mr. Jun Tang will become our largest shareholder and the Chairman of
our Board of Directors, and the interests of First Jet and Mr. Jun Tang may
conflict with the interests of our other shareholders.
As a
result of the issuance of 25,000,000 shares to First Jet, it will become our
largest shareholder and Mr. Jun Tang will have the ability to strongly influence
the nominations of our board of directors and determination of the outcome of
certain matters submitted to our stockholders, such as the approval of
significant transactions. As a result, actions that may be supported by a
majority of other stockholders may be blocked by First Jet and Mr. Jun
Tang.
The
development of MMORPG products requires substantial up-front expenditures. We
may not be able to recover development costs for our future MMORPG
products.
Consumer
preferences for games are usually cyclical and difficult to predict, and even
the most successful titles remain popular for only limited periods of time,
unless refreshed with new content. We will be required to continuously develop
new products and enhancements to existing products. Because of the significant
complexity of MMORPG games, these products require a longer development time and
are more expensive to create than traditional console game products. In
addition, the long lead time involved in developing a MMORPG product and the
significant allocation of financial resources that each product requires means
it is critical that we accurately predict consumer demand for new MMORPG
products. If future MMORPG products do not achieve expected market acceptance or
generate sufficient sales upon introduction, we may not be able to recover the
development and marketing costs associated with new products, and our financial
results could suffer.
The
interactive entertainment industry is highly competitive and it will be
difficult to obtain market share.
We expect
to compete with other interactive entertainment gaming publishers. Those
competitors vary in size from small companies with limited resources to very
large corporations with significantly greater financial, marketing, and product
development resources than we have. Certain of these competitors may spend more
money and time on developing and testing products, undertake more extensive
marketing campaigns, and adopt more aggressive pricing policies than we
do. Competition in the interactive entertainment industry is
intense and we expect new competitors to continue to emerge.
We
may be subject to intellectual property claims.
As the
number of interactive entertainment products increases and the features and
content of these products continue to overlap, software developers increasingly
may become subject to infringement claims. Our products often utilize
complex technology that may become subject to emerging intellectual property
rights of others. It is possible that third parties still may claim
infringement. From time to time, we receive communications from third
parties regarding such claims. Existing or future infringement claims against
us, whether valid or not, may be time consuming, distracting to management and
expensive to defend.
Intellectual
property litigation or claims could force us to do one or more of the
following:
·
cease
selling, incorporating, supporting or using products or services that
incorporate the challenged intellectual
property;
·
obtain
a license from the holder of the infringed intellectual property, which if
available at all, may not be available on commercially favorable terms;
or
·
redesign
the affected interactive entertainment software products or hardware
peripherals, which could result in additional costs, delay introduction
and possibly reduce commercial appeal of the affected
products.
Any of
these actions may harm our business and financial results.
Integrating
and maintaining internal controls for the combined business may strain our
resources and divert management's attention. If we fail to establish and
maintain proper internal controls, our ability to produce accurate financial
statements or comply with applicable regulations could be impaired.
Prior to
the consummation of the acquisition, ConnGame was not not subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, the
Sarbanes-Oxley Act of 2002 and the rules and regulations of any stock exchange.
As a subsidiary of ours, ConnGame will be subject to such rules and regulations.
As described in Item 9A of this Form 10-K, it was determined that we
had material weaknesses in our internal control over financial reporting.
Integrating and maintaining appropriate internal controls and procedures for the
combined business will require specific compliance training of certain officers
and employees, will entail substantial costs in order to modify existing
accounting systems, and will take a significant period of time to
complete. We may not be able to demonstrate compliance with
Section 404 of the Sarbanes-Oxley Act in a timely manner, or that our
internal controls are perceived as inadequate, or that we are unable to produce
timely or accurate financial statements, investors may lose confidence in our
operating results and our stock price could decline.
Forward-Looking
Statements
This
information statement contains forward-looking statements that involve
substantial risks and uncertainties. The words “anticipated,”“believe,” “expect, “plan,”“intend,”“seek,”“estimate,”“project,”“could,”“may,” and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations and future business strategies. Such statements reflect our
management’s current views with respect to future events and financial
performance and involve risks and uncertainties, including, without limitation,
the risks indicated above. Actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated
should one or more of these risks or uncertainties occur or if any of the risks
or uncertainties described elsewhere in this information statement or in the
“Risk Factors” section of our 2008 annual report and September 30, 2009
quarterly report occur. Consequently, all of the forward-looking
statements made in this report are qualified by these cautionary statements and
there can be no assurance of the actual results or developments.
SUMMARY
OF PROPOSED TERMS OF THE ACQUISITION
Issuance
of 25,000,000 Shares for a 60% Interest in ConnGame
On
December 11, 2009, we and First Jet entered into a letter of intent for the
Acquisition (“Letter of Intent”). Pursuant to the terms and
conditions of the Letter of Intent, we will issue up to 25,000,000 shares of our
common stock to First Jet to acquire 60% of the equity interest of
ConnGame.
The
actual number of Shares that will be issued in this transaction will be based on
an independent valuation of ConnGame. In the event that an
independent valuation firm determines that the value of ConnGame is at least $50
million, then we will issue all 25 million of the Shares to First Jet. If the
value of ConnGame is determined to be less than $50 million, we will reduce the
number of shares that we will issue to First Jet depending on the value of
ConnGame, as negotiated by the parties.
The
Shares will be issued to First Jet in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder and/or pursuant to
Regulation S of the Securities Act.
Change
in Chairman of Our Board of Directors
Upon the
consummation of the Acquisition, it is anticipated that Luo Ken Yi will resign
as Chairman of the Board of Directors. Mr. Luo will remain as a
member of the Board. Upon Mr. Luo’s resignation as the Chairman of
the Board, the Board will appoint Mr. Jun Tang, the sole shareholder of First
Jet, as Chairman of the Board.
Mr. Jun
Tang, 47, currently serves as the President and Chief Executive Officer of New
Huadu Group, Fujian. From 2004 to 2008, Mr. Tang served as President
of Shanghai SNDA (Nasdaq: SNDA), a interactive entertainment media company in
China. Prior to that, he served as President of Microsoft China Co.,
Ltd from 2002 to 2004. From 1997 to 2002, he served as General
Manager of Microsoft Global Technical Engineering Center, and from 1994 to 1997
he served as Senior Project Manager for Microsoft US. Mr.
Tang received his doctorate degree, master’s degree and bachelor’s degree in the
U.S., Japan and China, respectively.
Condition to consummating the issuance
of the shares.
The
Acquisition and the issuance of the Shares are subject to the waiver of
reduction to conversion price of the Company’s outstanding Bonds or exercise
price of the 2008 Warrants. Pursuant to the trust deeds that govern
the Company’s outstanding Variable Rate Convertible Bonds due 2012 (the “2007
Bonds”) and 12% Convertible Bonds due 2011 (the “2008 bonds,” and collectively
with the 2007 Bonds, the “Bonds”) and the warrants to purchase 300,000 shares of
common stock of the Company expiring 2013 (the “2008 Warrants”), the
conversion price of the Bonds and the exercise price of the 2008 Warrants shall
adjust downward if we issue shares as a per share price that is less than the
current conversion price of the Bonds or exercise price of the 2008
Warrants. The 2007 Bonds are currently exercisable at $2.45 per share
and the 2008 Bonds are currently exercisable at $6.35 per share. The exercise
price of the 2008 Warrants is $6.35 per share.
Based on
the current trading price of our common stock on the NASDAQ Global Market, we
anticipate that the issuance of the Shares would trigger a downward adjustment
of the conversion prices of the Bonds and exercise price of the 2008 Warrants
because the price at which the Shares will be issued, as determined under the
valuation provisions of the trust deeds for the Bonds, would be lower than the
current conversion prices of the Bonds and exercise price of the 2008
Warrants.
The
Acquisition and our obligation to issue the Shares is subject to the holders of
the Bonds and the 2008 Warrants agreeing to waive their right to a reduction in
the conversion price of the Bonds and exercise price of the 2008 Warrants due to
the issuance of the Shares by entering into an Amendment and Waiver Agreement
(the “Waiver”). The holders of the 2008 Bonds also must agree that no
default shall occur under Condition 12(A)(xiv) of the trust deed governing the
2008 Bonds relating to the requirement that KGE Group own at least 45% of our
issued and outstanding common stock, as after the issuance of the Shares, KGE
Group will own less than 45% of the issued and outstanding common
stock.
Closing
conditions may be waived and/or re-negotiated by us and the parties to the
Acquisition.
Dilutive Effect
Our stockholders will incur immediate
and significant dilution of their percentage of stock ownership in CAE if and
when the Shares are issued. This means that our current stockholders will own a
smaller percentage interest in CAE as a result of the issuance of the
Shares.
The table below illustrates the
incremental impact that the issuance of the Shares will have upon the number of
shares of our common stock outstanding (assuming no additional issuances of
shares of our common stock):
Number of
Shares
Number of
Shares
Outstanding Prior
to
Shares
Outstanding
After
Issuance
Issued
Issuance
Issuance of
Shares:
53,256,874
(Before issuance
of
Shares)
25,000,000
(Shares)
78,256,874
Stockholders immediately prior to the
issuance of the Shares will incur substantial dilution in their percentage
ownership of our common stock upon the issuance of the
Shares. Following the acquisition of the 60% equity interest in
ConnGame, our current stockholders will own approximately 68.1% of our
outstanding common stock, a reduction of approximately
39.1%.
Interest
of Executive Officers and Directors
None of
the directors or executive officers has a direct or indirect interest in the
Acquisition, other than as a stockholder.
The Board
of Directors considers the Amendment to be in the best interests of the Company
and its stockholders. As of the Record Date, there were 53,256,874
shares of common stock outstanding. Additionally, as of the Record
Date, there were 2,000,000 shares reserved for issuance under our 2009 Omnibus
Incentive Plan (the “Plan”), 6,414,912 shares reserved for issuance upon the
conversion of our outstanding convertible bonds (at the current per share
conversion prices) and 423,700 shares reserved for issuance upon the exercise of
our outstanding warrants. Assuming the issuance of the full
25,000,000 shares in connection with the Acquisition, approximately 87.1% of our
authorized common shares will be either issued or reserved for issuance pursuant
to the Plan and our outstanding warrants and convertible bonds. In
addition, if there is a triggering event that requires a reduction in the per
share conversion price of out outstanding convertible bonds, the number of
issuable shares will increase accordingly. Therefore, after the
Acquisition, our flexibility to pursue potential future transactions involving
shares of our common stock, including acquisitions, equity offerings, stock
dividends, and equity compensation, will be limited. The Board of
Directors believes that the availability of the additional authorized shares of
common stock will allow the Company to respond quickly to such potential
business opportunities as they arise. Other than the potential
issuance of the Shares in connection with the Acquisition, we do not currently
have any agreements or other commitments to issue any shares of common
stock.
There are
no preemptive rights with respect to our common stock.
POTENTIAL EFFECTS OF THE PROPOSED
AMENDMENT
The Company could use the additional
shares of common stock that would become available for issuance as a result of
the Amendment for potential strategic transactions including, among other
things, future acquisitions, joint ventures, restructurings, and other
investments. The Company has no plans to use any of the additional
shares that will become authorized for issuance for any such purposes, other
than the issuance of up to 25,000,000 shares to acquire a 60% equity interest in
ConnGame, as described above.
The additional shares of common stock
that would become available for issuance as a result of the Amendment could be
used by our management to oppose a hostile takeover attempt or delay or prevent
changes of control or changes in or removal of management, including
transactions that are favored by a majority of the stockholders or in which the
stockholders might otherwise receive a premium for their shares over
then-current market prices or benefit in some other manner. The Board
has no plans to use any of the additional shares of common stock that would
become available when the Amendment is effected for any such
purposes.
In
addition to the anti-takeover implications from the increased number of shares
that would become available for issuance as a result of the Amendment, as
discussed above, we are also affected by Delaware anti-takeover laws and
anti-takeover provisions in our charter documents. Other than as
discussed in this information statement, there are no provisions of our
articles, bylaws, employment agreements or credit agreements have material
anti-takeover consequences.
Delaware Law Anti-Takeover
Law
We are
subject to Section 203 of the Delaware General Corporation Law. This provision
generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date the stockholder became an interested stockholder,
unless:
·
prior
to such date, the Board of Directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
·
upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and
also officers and by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or
·
on
or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual meeting or special meeting
of stockholders and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section
203 defines a business combination to include:
·
any
merger or consolidation involving the corporation and the interested
stockholder;
·
any
sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested
stockholder;
·
subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
·
any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
·
the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In
general, Section 203 defines an “interested stockholder” as any entity or person
beneficially owning 15% or more of the outstanding voting stock of a
corporation, or an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of a corporation at any time
within three years prior to the time of determination of interested stockholder
status; and any entity or person affiliated with or controlling or controlled by
such entity or person.
Anti-Takeover Charter
Provisions
Our
Certificate of Incorporation and Bylaws contain provisions that could have the
effect of discouraging potential acquisition proposals or tender offers or
delaying or preventing a change in control of our company, including changes a
stockholder might consider favorable. In particular, our Certificate of
Incorporation and Bylaws, as applicable, among other things, will:
·
provide
our Board of Directors with the ability to alter our Bylaws without
stockholder approval;
·
provide
for an advance notice procedure with regard to the nomination of
candidates for election as directors and with regard to business to be
brought before a meeting of stockholders;
and
·
provide
that vacancies on our Board of Directors may be filled by a majority of
directors in office, although less than a
quorum.
Such
provisions may have the effect of discouraging a third-party from acquiring our
company, even if doing so would be beneficial to its stockholders. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of our Board of Directors and in the policies formulated by
them, and to discourage some types of transactions that may involve an actual or
threatened change in control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal and to
discourage some tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
However,
these provisions could have the effect of discouraging others from making tender
offers for our shares that could result from actual or rumored takeover
attempts. These provisions also may have the effect of preventing changes in our
management.
OTHER EFFECTS ON OUTSTANDING
SHARES
The rights and preferences of the
outstanding shares of the common stock will remain the same should the Amendment
occur.
INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON
Except in their capacity as
stockholders, none of our officers, directors or any of their respective
affiliates has any interest in the Amendment.
NO APPRAISAL RIGHTS
Under the Delaware Code, stockholders
are not entitled to appraisal rights with respect to the amendment to the
Certificate of Incorporation to effect the increased in the number of authorized
shares, and we will not independently provide stockholders with any such
right.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to the securities. In computing the
number of shares beneficially owned by a person and the percentage of ownership
of that person, shares of common stock subject to options and warrants held by
that person that are currently exercisable or become exercisable within 60 days
of the Record Date are deemed outstanding even if they have not actually been
exercised. Those shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
The
following table sets forth certain information with respect to beneficial
ownership of the Company’s common stock as of the Record Date, based on
53,256,874 issued and outstanding shares of common stock, by:
·
Each
person known to be the beneficial owner of 5% or more of the Company’s
outstanding common stock;
·
Each
executive officer;
·
Each
director; and
·
All
of the executive officers and directors as a
group.
The
number of shares of our common stock outstanding as of the Record Date, excludes
(i) 423,700 shares of our common stock issuable upon exercise of outstanding
warrants, (ii) 6,414,912 shares of our common stock issuable upon the conversion
of issued and outstanding bonds, subject to adjustment, (iii) 100,000 shares
that are issuable upon the exercise of outstanding options, and (iv) an
additional 1,900,000 shares of common stock that are authorized to be issued and
granted under our 2009 Omnibus Incentive Plan. Unless otherwise
indicated, the persons and entities named in the table have sole voting and sole
investment power with respect to the shares set forth opposite the stockholder’s
name, subject to community property laws, where applicable. Unless otherwise
indicated, the address of each stockholder listed in the table is c/o China
Architectural Engineering, Inc., 105 Baishi Road, Jiuzhou West Avenue, Zhuhai,
519070, People’s Republic of China.
Common
Shares
Beneficially
Owned
Prior
to Issuance of Shares
In
the Acquisition
After
Issuance of Shares
In
the Acquisition
Name
of Beneficial Owner
Title
Number of
Shares
Percentage
of
Shares
Number of
Shares
Percentage
of
Shares (1)
Executive
Officers and Directors:
Luo
Ken Yi
Chief
Executive Officer and Chairman of the Board (2)
24,100,287
(3)
45.3
%
24,100,287
30.8
%
Tang
Nianzhong
Vice
President, China Operations and Director
24,100,287
(3)
45.3
%
24,100,287
30.8
%
Ye
Ning
Vice
President
24,100,287
(3)
45.3
%
24,100,287
30.8
%
Gene
Michael Bennet
Chief
Financial Officer
100,000
(4)
*
100,000
(4)
*
Li
Guoxing
General
Manager of Design
-
-
-
-
Wang
Zairong
Chief
Technology Officer
-
-
-
-
Feng
Shu
Research
and Development Supervisor
-
-
-
-
Charles
John Anderson
President,
U.S. Operations and Chief Operating Officer
-
-
-
-
Zheng
Jinfeng
Director
-
-
-
-
Zhao
Bao Jiang
Director
-
-
-
-
Kelly
Wang
Director
-
-
-
-
Miu
Cheung
Director
-
-
-
-
Chia
Yong Whatt
Director
-
-
-
-
Officers
and Directors as a group (total of 12 persons)
24,200,287
(3)(4)
45.4
%
24,200,287
(3)(4)
30.9
%
5%
Stockholders
KGE
Group Limited
24,100,287
(3)
45.3
%
24,100,287
30.8
%
ABN
AMRO Bank, N.V.
4,558,908
(5)
7.9
%
4,558,908
5.5
%
Li
Qin Fu
5,000,000
(6)
9.4
%
5,000,000
6.9
%
First
Jet Investments Ltd.
-
-
25,000,000
(7)
31.9
%
(1)
Percentages
calculated based on 78,256,874 shares of common stock issued and
outstanding after the issuance of the 25,000,000
Shares.
(2)
Upon
the closing of the Acquisition, Mr. Luo Ken Yi will resign as Chairman of
the Board of Directors, however, he will remain a member of the Board of
Directors.
(3)
Consists
of 24,100,287 shares of common stock in our company held by KGE Group
Limited, a Hong Kong corporation, of which Luo Ken Yi, Ye Ning and Tang
Nianzhong are directors and may be deemed to have voting and investment
control over the shares owned by KGE Group Limited. In addition, Luo Ken
Yi, Ye Ning and Tang Nianzhong own approximately 70%, 10% and 10%
respectively, of KGE Group Limited’s issued and outstanding shares. In
addition, KGE Holding Limited owns approximately 5% of the issued and
outstanding shares of KGE Group Limited, of which is owned by Luo Ken Yi
and his brother. As a result, Luo Ken Yi, Ye Ning and Tang Nianzhong may
be deemed to be a beneficial owner of the shares held by KGE Group
Limited. Each of the foregoing persons disclaims beneficial ownership of
the shares held by KGE Group Limited except to the extent of his pecuniary
interest.
(4)
Includes
100,000 shares of common stock issuable upon the exercise of outstanding
stock options currently
exercisable.
(5)
Includes
(i) 1,181,102 shares of common stock may be acquired upon conversion of
the Company’s 12% Convertible Bonds Due 2011, which are
currently convertible at a conversion price of $6.35 per share, subject to
adjustment upon certain events, and (ii) 112,500 shares of common stock
that may be acquired upon exercise of the warrants issued in connection
with the 2008 Bonds. Also includes 3,265,306 shares of common stock may be
acquired upon conversion of the $8 million of the Company’s Variable Rate
Convertible Bonds due in 2012 based on a conversion price of $2.45 per
share. The address of the stockholder is 250 Bishopsgate,
London EC2M 4AA, United Kingdom.
(6)
Consists
of 5,000,000 shares that Resort Property International Limited purchased
from KGE Group, Ltd. in a private transaction that closed on August 6,2009. The shares were purchased by Nine Dragon (Hong Kong) Co.
Ltd., an entity controlled by Li Qin Fu, who also has voting and
investment control over the securities owned by Resort Property
International Limited. The address of the stockholder is Room 2601, No 3
Lane, 288 Huaihai West Road, Shanghai PR China,
200031.
(7)
Includes
25,000,000 shares to be issued to First Jet Investment Ltd. in connection
with the Acquisition. Mr. Jun Tang has voting and investment
control over the securities owned by First Jet Investment
Ltd. According to the terms of the acquisition, Mr. Jun Tang
will be appointed as Chairman of the Board upon closing of the
transaction.
We will furnish without charge to any
stockholder, upon written or oral request, any documents filed by us pursuant to
the Securities Exchange Act. Requests for such documents should be addressed to
105 Baishi Road, Jiuzhou West Avenue, Zhuhai 519070, People’s Republic of
China.
You may
read and copy any reports, statements or other information that CAE files with
the SEC directly from the SEC. You may either:
·
read
and copy any materials we have filed with the SEC at the SEC’s Public
Reference Room maintained at 100 F Street, N.E., Washington, D.C. 20549;
or
·
visit
the SEC’s Internet site at http://www.sec.gov, which contains reports,
proxy and information statements, and other information regarding us and
other issuers that file electronically with the
SEC.
You may
obtain more information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
You
should rely only on the information contained (or incorporated by reference) in
this Information Statement. We have not authorized anyone to provide you with
information that is different from what is contained in this Information
Statement. This Information Statement is dated January [__], 2010. You should
not assume that the information contained in this Information Statement is
accurate as of any date other than that date (or as of an earlier date if so
indicated in this Information Statement).
China
Architectural Engineering, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
“Corporation”),
DOES
HEREBY CERTIFY:
FIRST:
That Article IV of the Certificate of Incorporation of the Corporation, as
amended, is hereby amended in its entirety to read as follows:
"ARTICLE
IV
Section
1. Number of Authorized Shares. The total number of shares of stock which the
Corporation shall have the authority to issue shall be One Hundred Sixty Million
(160,000,000) shares. The Corporation shall be authorized to issue two classes
of shares of stock, designated, "Common Stock" and "Preferred Stock." The
Corporation shall be authorized to issue One Hundred Fifty Million
(150,000,000) shares of Common Stock, each share to have a par value
of $0.001 per share, and Ten Million (10,000,000) shares of Preferred Stock,
each share to have a par value of $0.001 per share.
Section
2. Common Stock. The Board of Directors of the Corporation may authorize the
issuance of shares of Common Stock from time to time. The Corporation may
reissue shares of Common Stock that are redeemed, purchased, or otherwise
acquired by the Corporation unless otherwise provided by law.
Section
3. Preferred Stock. The Board of Directors of the Corporation may by resolution
authorize the issuance of shares of Preferred Stock from time to time in one or
more series. The Corporation may reissue shares of Preferred Stock that are
redeemed, purchased, or otherwise acquired by the Corporation unless otherwise
provided by law. The Board of Directors is hereby authorized to fix or alter the
designations, powers and preferences, and relative, participating, optional or
other rights, if any, and qualifications, limitations or restrictions thereof,
including, without limitation, dividend rights (and whether dividends are
cumulative), conversion rights, if any, voting rights (including the number of
votes, if any, per share, as well as the number of members, if any, of the Board
of Directors or the percentage of members, if any, of the Board of Directors
each class or series of Preferred Stock may be entitled to elect), rights and
terms of redemption (including sinking fund provisions, if any), redemption
price and liquidation preferences of any wholly unissued series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, and to increase or decrease the number of shares of any such series
subsequent to the issuance of shares of such series, but not below the number of
shares of such series then outstanding.
Section
4. Dividends and Distributions. Subject to the preferences applicable to
Preferred Stock outstanding at any time, the holders of shares of Common Stock
shall be entitled to receive such dividends, payable in cash or otherwise, as
may be declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefore.
Section
5. Voting Rights. Each share of Common Stock shall entitle the holder thereof to
one vote on all matters submitted to a vote of the stockholders of the
Corporation.”
THIRD: The amendment set forth has been duly
approved by the Board of Directors of the Corporation and by the Stockholder
entitled to vote thereon.
FOURTH: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
A-1
IN WITNESS WHEREOF, I, the undersigned,
being the Chief Executive Officer of the Corporation, for the purpose of
amending the Certificate of Incorporation of the Corporation pursuant to Section
242 of the Delaware General Corporation Law, do make and file this Certificate
of Amendment, hereby declaring and certifying that the facts herein stated are
true and accordingly have hereunto set my hand, as of this __ day of
_____________ 2010.
By:
Name:
Title:
A-2
Dates Referenced Herein and Documents Incorporated by Reference
