Buyer Consortium Commences a Solicitation of Consents from Shareholders of Hollysys Automation Technologies to Seek Support on Shareholder Resolutions Regarding its $17.10 Per Share in Cash Acquisition Proposal - Seite 3

the Company shall not issue (or agree to issue) any shares with special rights or at a discount to the current market value of the ordinary shares of the Company without the prior approval of a resolution of the Company’s shareholders; and

each director of the Company shall take all other actions necessary or desirable to give effect to the foregoing resolutions, including taking all actions (or refraining from taking any actions, as the case may be) necessary to render all rights under the Rights Agreement unexercisable in respect of the Proposed Acquisition, the Tender Offer or Consortium Action.

Why We Need Shareholders’ Support

Five months have passed since the Consortium submitted the Acquisition Proposal on January 29, 2021, and yet the Board has not provided any updates on its review of the Acquisition Proposal. Neither did the Board ever engage with the Consortium to discuss the Acquisition Proposal despite our frequent public urging to the Board to do so and multiple warnings to the Board of it breaching its fiduciary duties for not acting on the Acquisition Proposal.

In the meantime, the Board and management are running the Company into the ground. The Company’s operational and financial conditions have been in a downward spiral since the abrupt removal of previous management without cause in July 2020. A close look at the financial results of operations for the nine-month period ended March 31, 2021 reveals significantly deteriorating financial and operational conditions of the Company. For example:

• Net operating cash flow has fallen from a positive $33.4 million as of December 31, 2020 to a negative $6.4 million as of March 31, 2021, a shocking $40 million drop in just one quarter.
• Net operation cash inflow dwindled from $117.5 million for the first three quarters of fiscal year 2020 to $48.6 million for the same period of fiscal year 2021, an almost 60% drop.
• Revenue and gross margin all decreased compared to pre-pandemic periods in 2019, while total operating expenses jumped 48% compared to 2019.
• Net income in the quarter and the nine-month period ended March 31, 2021 reduced significantly by 44% and 33%, respectively, compared to the same periods in 2019.

While the Company is being badly mismanaged, the Company has issued an astonishing number of shares to its management and board members, presumably for nominal consideration, at an accelerating pace. Based on the information disclosed in the Company’s quarterly financials, the Company issued 318,000 new shares in the second fiscal quarter of 2021 (from October 1, 2020 to December 31, 2020), and another 420,000 new shares in the most recent third fiscal quarter of 2021 (from January 1, 2021 to March 31, 2021) – 738,000 new shares in two quarters. By contrast, the Company only issued a total of 195,000 new shares for whole fiscal year 2020 (from July 1, 2019 to June 30, 2020).