Subjects: Merger/Acquisition, Proxy/Proxy Vote

Hollysys Engages With Buyer Consortium Led by Dazheng Group Following Recommendations Against Ascendent Transaction from Leading Proxy Advisors

Buyer Consortium ("the Consortium") led by Dazheng Group Acquisition Limited ("Dazheng Group") today provided an update to Hollysys shareholders regarding recent negotiations between the Consortium and the Special Committee of the board of directors of Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys"). Members of the consortium also include TFI Asset Management Limited and GA Technologies Limited.

The Special Committee of the Hollysys Board engaged with the Consortium over the weekend, only after adverse recommendations from both ISS and Glass Lewis regarding the proposed Ascendent Capital transaction.

The Special Committee has informed the Consortium of its intention to enter negotiations with the Consortium at 1:29 AM HKT on January 28, to move forward to a potential agreed deal by January 29 HKT, regarding the Consortium's then all-cash offer of US$29.00 per share, or approximately US$1.8 Billion, to acquire all outstanding shares of Hollysys. These discussions, spanning less than 40 hours, primarily involved the Consortium providing documentation to and addressing ad hoc requests from the Special Committee and its advisors.

The Consortium suspects that the long-awaited discussions with the Special Committee and its advisors, which started after nearly five weeks of silence following the Consortium's entry into a confidentiality agreement on December 25, 2023, were merely perfunctory. This engagement, coinciding with leading proxy advisors ISS and Glass Lewis advising Hollysys shareholders to vote against the Ascendent transaction, appears to be more of a superficial gesture rather than a sincere attempt at meaningful dialogue.

Despite the Special Committee and its advisors allocating less than 40 hours for the Consortium to furnish additional details about its proposal and to finalize numerous legal documents overnight, the Consortium diligently tried to meet these demands. Engaging in good faith, the Consortium aimed to present a Superior Proposal. At 9:00 AM HKT on January 29, the Consortium proposed an increased bid, raising the purchase price from US$29.00 to US$29.50. Regrettably, these efforts proved futile, prompting the Consortium to pursue remedies against what it perceives as a problematic and ill-intentioned sales process.

The Consortium maintains a cautious stance, interpreting the Special Committee's engagement as potentially indicative of apprehensions that Hollysys shareholders might not approve the Ascendant transaction in the forthcoming EGM scheduled for February 8, 2024. Regrettably, the Consortium must inform Hollysys shareholders that their opportunity to receive a Superior Proposal of US$29.50, backed by a substantial parent break-up fee of RMB1 billion held in an escrow account under the name of one of the Company's subsidiaries, is jeopardized by the actions of the Special Committee and its advisors.

In light of this situation, the Consortium urges Hollysys shareholders to consider the findings of ISS and Glass Lewis and to be wary of any claims suggesting that the Special Committee and its advisors has acted transparently or in the best interest of maximizing shareholder value. The Consortium underscores that its offer of US$29.50 per share is evidently more advantageous than the proposed Ascendent Capital transaction of US$26.50 per share. Hollysys shareholders fundamentally deserve the opportunity to consider the Consortium's Superior Proposal.

The Consortium strongly urges Hollysys shareholders to vote AGAINST the proposed Ascendent Capital transaction.

The Consortium has remained steadfast in its pursuit to acquire Hollysys, a journey that began with its initial offer on December 3, 2021. With unwavering confidence, the Consortium believes that its proposal, offering an attractive premium and supported by reliable financing, stands as the superior option for Hollysys shareholders. The strategic and financial advantages of the Consortium's proposal include:

• Highest Price: An 11.3% increase on the Consortium's previous offer of US$26.50 per share, which was presented to the Hollysys Board on November 8, 2023. This also represents an 11.3% higher offer price than the proposed Ascendent Capital transaction.
• Attractive Premium: An attractive and immediate premium for Hollysys shareholders. At US$29.50 per share, this offer represents:
  • A 58.1% premium to Hollysys' closing share price of US$18.66 on August 23, 2023 ? the undisturbed price before the Consortium resubmitted its previous bid to the Company on August 24;
  • A 46.1% premium to Hollysys' closing share price of US$20.60 on November 3, 2023 ? the undisturbed price before Ascendent Capital announced its takeover offer on November 6.

• Credible Financing: The Consortium's proposal is backed by secured and credible financing, which has been further strengthened by the inclusion of GA Technologies Limited. The latest structure of source of funding include an entity associated with a well-known institutional investor, backed by a bank letter as of January 25 evidencing over US$500m cash without liens or pledge. In addition, the Consortium also had pledged to deposit RMB1 billion in an escrow account opened by one of Hollysys' subsidiaries, serving the purpose of guaranteeing the reverse breakup fee. The Consortium remains confident that its financing provides the most certainty to Hollysys shareholders; and
• Regulatory Confidence: The Consortium has analyzed the potential regulatory aspects and is very confident that it will be able to obtain all necessary approvals in a timely manner.

Prominent proxy advisors, ISS and Glass Lewis, have advised shareholders to reject the proposed Ascendent Capital transaction and both research reports support the position of the Consortium.

In a detailed 27-page report issued to Hollysys shareholders on January 26, 2024, ISS explicitly recommended voting AGAINST the proposed Ascendent Capital transaction and all related proposals put forth by the Hollysys Board. This comprehensive analysis raises several concerns regarding the process conducted by the Special Committee and the Hollysys Board's governance approach, particularly in relation to safeguarding shareholder rights. These concerns include:

• "Given the questionable effort to maximize price, the unreasonably high standard to which Ascendent's main competitor has been held, and the inexplicably truncated process, votes against the proposed transaction are warranted."
• "In short, the special committee appears to be holding the Recco consortium to a considerably higher standard than the standard to which it held Ascendent."
• "The process was relatively short and appears to have included little effort at price maximization. The sale process ended on December 11, 2023, with the announcement of an agreement with Ascendent. The announcement was followed by an unusually short 15-day go-shop period, which ended on the day after Christmas."
• "The meeting to consider the proposed transaction would represent only the second time in the over 15-year publicly-traded history of the company that it has convened a shareholder meeting."
• "Nonetheless, the committee set an accelerated timeline for the process, leaving little time for interested parties to sign confidentiality agreements, not to speak or engage in negotiations or conduct due diligence."
• "The special committee was authorized to hire its own independent advisors, but chose to use the advisors that the board had already hired. In light of the potential conflict of interest created by CEO Changli Wang's membership on the board and his participation in a 2021 buyout effort, the special committee's decision to use the same advisors is concerning."

Additionally, in a report to Hollysys shareholders published on January 25, 2024, Glass Lewis also recommended Hollysys shareholders vote AGAINST the proposed Ascendent Capital transaction and all proposals sponsored by the Hollysys Board. Similar to the ISS report, the detailed 14-page analysis shares many concerns with the Special Committee and its advised process:

• "When placed in full context, we believe there is vanishingly small cause for shareholders to endorse an arrangement derived from what we consider to be a flawed, low accountability process seemingly engineered in its later stages to blunt the shareholder franchise and trade potentially materially greater value for deference to a deal with Ascendent on an accelerated basis."
• "In particular, notwithstanding what appears to be a meaningful and credible series of inbounds through the tail end of 2021 ? all notably at or above the price offered by Dr. Wang [Founding Managing Partner and CEO of Ascendent Capital] and the Ascendent affiliate ? we see no indication the board substantively engaged with any of these entities regarding their interest in the Company."
• "In an unsurprising development, the follow-on go-shop period offers very little cause to burnish impressions of the board's efforts. First and foremost, we note the period in question spanned a period of just 15 days in the back half of December, a window so brief in the context of complex diligence that it arguably offers the value nominally superior to side-stepping a go-shop altogether."
• "On October 2, 2023, HAT announced a formal sale process led by a special committee of three purportedly independent directors (an unusually shaky and low-utility distinction here, given that it appears no sitting director of HAT has ever been subject to election by the Company's investors)."

The Consortium's interactions with the Special Committee and its advisors corroborate the concerns highlighted by ISS and Glass Lewis in their reports, which are based on impartial observations by these third-party independent proxy advisors. The Consortium has documented evidence suggesting a biased process and misconduct by the Special Committee and its advisors. Key examples include:

• The hasty execution of a merger agreement with Ascendent, the day before the hearing of an application for an injunction by the BVI court intended to halt any agreements until an independent Board of Directors could be elected in the special meeting in the week of January 22. As a reminder to shareholders, the directors that sit on the Hollysys Board were never subject to election by Hollysys shareholders.
• Following the Consortium's disclosure of its largest single investor's identity to the Special Committee and its advisors, Ascendent allegedly engaged in intimidation tactics against this investor.

Such instances raise significant concerns about the integrity of this sales process, especially when viewed in the context of the company's long-standing issues with corporate governance.

Finally, the Consortium wishes to present certain statistics to illustrate the challenges encountered throughout this process, providing shareholders with a clearer picture of the situation:

• A striking 4,966 consecutive days have passed without any shareholder meetings being held by Hollysys.
• It has been 787 days since the Consortium initially announced its intention to bid.
• There was a significant delay of 91 days from the receipt of the shareholder requisition to the announcement of the first-ever shareholder-requested special meeting, which ultimately did not occur.
• The sales process, from its commencement to the signing of the definitive agreement with Ascendent, only spanned 70 days.
• In the 34 days following the signing of the NDA with the Special Committee, the Consortium faced restricted engagement, including:
  • Less than 40 hours of negotiations, confined to weekends, before our proposal was rejected as the Superior Proposal.
  • Only 12 hours of access to the VDR, with very limited information.

The independent research reports and recommendations from both leading proxy advisors send a message loud and clear: the Hollysys Board has consistently taken actions that have not been in the best interests of shareholders. With regards to the sales process, it is clear the Board has put forth a questionable effort to maximize price, held the Consortium to unreasonable standards, and has run an opaque and expedited sales process.

Despite the above concerns, the Consortium remains committed to negotiating its latest proposal of US$29.50 and determined to acquire Hollysys.

Additionally, the Consortium reserves all rights to pursue legal remedies against Hollysys to ensure that public shareholders are not foreclosed from receiving the benefits presented by the Consortium's Superior Proposal, including its US$ 29.5 per share offer price, reemphasizes the importance for public shareholders to defend their legitimate interests by voting against the Ascendent Capital transaction at the EGM on February 8, 2024, and further encourages shareholders to defend their lawful rights by taking legal actions against the Ascendent Capital transaction. The Ascendent Capital transaction, which is substantially inferior to the Consortium's bid, is not the only option for the shareholders and no one will be allowed to cram it down on the shareholders.

About Dazheng Group

Dazheng Group Acquisition Limited is a BVI-incorporated financial investor founded by sophisticated entrepreneurs and investment banking professionals.

About TFI

TFI Asset Management Limited is a Hong Kong-based asset management firm which is an indirect subsidiary of Tianfeng Securities Co., Ltd. (also known as TF Securities, SH: 601162).

About GA Technologies Limited

GA Technologies Limited is an investment platform founded and backed by a group of sophisticated financial and private equity investors including, among others, Yafu Private Equity and Catalpa Capital.

Cautionary Statement Regarding Forward-looking Statements

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are statements that are not historical facts. These statements include projections and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "believe," "envision," "will," "expect," "anticipate," "intend," "estimate," "plan" and similar expressions. Although the management of Dazheng Group, TFI and GA Technologies Limited believe that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of any of Dazheng Group, TFI and GA Technologies Limited, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Other than as required by applicable law, none of Dazheng Group, TFI and GA Technologies Limited undertakes any obligation to update or revise any forward-looking information or statements. The information and opinions contained herein do not take into account the particular investment objectives, financial situation, or needs of any recipient and should not be construed as an offer to buy or sell or the solicitation of an offer to buy or sell the securities mentioned or an invitation to the public. Under no circumstances shall the information contained herein or the opinions expressed herein constitute a personal recommendation to anyone.

News published on 29 january 2024 at 13:35 and distributed by: