IN THE FIRST JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA IN AND FOR CARSON CITY 1 ALEX LOEB, Derivatively on Behalf of UNIVERSAL TRAVEL GROUP, vs. Plaintiff, JIANGPING JIANG, JING XIE, HUJIE GAO, JIDUAN YUAN, LIZONG WANG, WENBIN AN, LAWRENCE JIANG, YIZHAO ZHANG, and LIQUAN WANG, and Defendants, UNIVERSAL TRAVEL GROUP, a Nevada Corporation, Nominal Defendant. Case No. 0C001B Dept. No. I (Derivative Action NOTICE OF PENDENCY AND PROPOSED SETTLEMENT OF SHAREHOLDER DERIVATIVE ACTION
1 TO: ALL HOLDERS OF UNIVERSAL TRAVEL GROUP ("UTG" OR "THE COMPANY" COMMON STOCK AS OF JANUARY, ("CURRENT UTG SHAREHOLDERS". PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE AFFECTED BY LEGAL PROCEEDINGS IN THE ACTION. THIS NOTICE RELATES TO A PROPOSED SETTLEMENT AND DISMISSAL OF SHAREHOLDER DERIVATIVE LITIGATION AND CONTAINS IMPORTANT INFORMATION REGARDING YOUR RIGHTS. IF THE COURT APPROVES THE SETTLEMENT AND DISMISSAL OF THE ACTION, YOU WILL BE FOREVER BARRED FROM CONTESTING THE APPROVAL OF THE PROPOSED SETTLEMENT AND FROM PURSUING THE SETTLED CLAIMS. THE ACTION IS NOT A "CLASS ACTION." THUS, THERE IS NO COMMON FUND UPON WHICH YOU CAN MAKE A CLAIM FOR A MONETARY PAYMENT. THE COURT HAS MADE NO FINDINGS OR DETERMINATIONS RESPECTING THE MERITS OF THE ACTION. THE RECITATION OF THE BACKGROUND AND CIRCUMSTANCES OF THE SETTLEMENT CONTAINED HEREIN DO NOT CONSTITUTE THE FINDINGS OF THE COURT. IT IS BASED ON REPRESENTATIONS MADE TO THE COURT BY COUNSEL FOR THE PARTIES. This Notice is given pursuant to the Preliminary Approval Order of the First Judicial District Court of the State of Nevada in and for Carson City (the "Court". The purpose of the Notice is to advise you that the parties in the lawsuit captioned Loeb v. Jiang, Case No. 0C001B (Nev. Jud. Dist. Ct. filed May,, have agreed to settle the Action on the terms and conditions set forth in the Stipulation of Settlement dated January, (the "Stipulation". A copy of the Stipulation may be inspected at the Clerk of the Court's Office for the First Judicial District Court for the State of Nevada in and for Carson City, East Musser Street, Suite 01, Carson City, Nevada 01. The Stipulation also is available for viewing and/or downloading at the website of Robbins Arroyo LLP at www.robbinsarroyo.com/notices. All capitalized terms used herein, unless otherwise defined, shall have the same meanings as set forth in the Stipulation. As explained below, the Court will hold a Settlement Hearing on April, at 1:0 p.m., before the Honorable James T. Russell, District Court Judge of the First Judicial District Court of the State of Nevada, located at East Musser Street, Department I, Carson City, Nevada 01, to determine whether to approve the Settlement. You have the right to object to the Settlement in the manner provided herein. If you fail to object in the manner US_1v1_-0000 /1/ 1: PM - 1 -
1 provided herein at least fourteen calendar days prior to the Settlement Hearing, you will be deemed to have waived your objections and will be bound by the Judgment to be entered and the releases as provided in the Stipulation, unless otherwise ordered by the Court. This Notice is not an expression of any opinion by the Court with respect to the merits of the allegations or claims made in the Action, the merits of the defenses asserted, or the fairness or adequacy of the proposed Settlement. This Notice is merely to advise you of the pendency and terms of the proposed Settlement, and your rights thereto. I. SUMMARY OF THE ACTION AND SETTLEMENT NEGOTIATIONS The Action was filed by Plaintiff solely on behalf of and for the benefit of UTG and Current UTG Shareholders and against the Defendants. Plaintiff generally alleges, among other things, that the Individual Defendants' breached their fiduciary duties by knowingly or recklessly mismanaging the Company's operations, and issuing, or causing the Company to issue, improper statements concerning the Company's financial results and business operations. In particular, the Individual Defendants allegedly directed the Company to execute several acquisitions in while knowing or recklessly disregarding the fact that the revenue and earnings figures for the targeted entities were significantly lower than reported in UTG's public filings, thereby causing the Company to grossly overpay in acquisition consideration. The Complaint further alleges that the Individual Defendants overstated UTG's earnings, revenue, and cash balance figures to make the Company appear more profitable, and grossly exaggerated the value of the entities acquired by the Company in. After substantial litigation, counsel for the Parties engaged in arm's-length negotiations concerning the terms and conditions of a potential resolution of the Action with the assistance of mediator Hunter Hughes ("Mediator", to attempt to resolve the Action. The Parties' settlement discussions were hard-fought, and ultimately resulted in the Mediator issuing a mediator's proposal which, in the Mediator's professional opinion, was a resolution of the Action in the Company's best interests. On December,, the Parties accepted the Mediator's proposal and reached an agreement-in-principle to resolve the Action. US_1v1_-0000 /1/ 1: PM - -
II. THE SETTLEMENT TERMS The terms and conditions of the proposed Settlement are set forth in the Stipulation, 1 which was executed on January,. The Company acknowledges and agrees that Plaintiff's filing and prosecution of the Action was a substantial and material factor in the "tone at the top" changes that have been made at the Company, including the resignations of defendants Jiduan Yuan, Huijie Gao, Lizong Wang, Lawrence Lee, Jing Xie, and Jiangping Jiang from their respective positions; and that the Company acknowledges that these "tone at the top" changes are a substantial and material benefit to the Company. The Company also acknowledges and agrees that the prosecution and settlement of the Action was a substantial and material factor in helping the Company to favorably resolve the related federal Securities Class Action. III. RELEASES Upon the Effective Date, Plaintiff, UTG, and Current UTG Shareholders shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever settled, released, discharged, extinguished, and dismissed with prejudice the Released Claims against the Released Persons; provided, however, that such release shall not affect any claims to enforce the terms of the Stipulation or the Settlement. Also upon the Effective Date, each of the Defendants shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever settled, released, discharged, extinguished, and dismissed with prejudice the Defendants' Released Claims against Plaintiff and Plaintiff's Counsel; provided, however, that such release shall not affect any claims to enforce the terms of the Stipulation or the Settlement. IV. PLAINTIFF'S COUNSEL'S POSITION CONCERNING SETTLEMENT Plaintiff's Counsel conducted extensive investigation and work in the Action, including, but not limited to: (1 inspecting, analyzing, and reviewing UTG's public filings with the SEC, press releases, announcements, transcripts of investor conference calls, securities analysts' US_1v1_-0000 /1/ 1: PM - -
1 reports, advisories, media reports, and news articles; ( drafting and filing the Complaint in the Action; ( researching the applicable law with respect to the claims asserted in the Action and the potential defenses thereto; ( conducting comprehensive damages analyses; ( reviewing and analyzing the relevant pleadings in the Securities Class Action; ( researching corporate governance issues and best practices, in particular issues relating to companies listed on U.S. stock exchanges whose primary operations are located in China, and comparing such to UTG's governance structures and policies; ( participating in a Nevada Rule of Civil Procedure.1 conference to discuss matters such as the exchanging of initial disclosures and other discovery; ( preparing and exchanging initial disclosures; ( propounding discovery requests for production; ( drafting an opposition to the Motion to Stay Discovery; ( reviewing documents produced in response to discovery requests; (1 conducting a thorough search of public records for the residence of each of the Individual Defendants; ( preparing and filing a the Motion for Publication; ( preparing and filing the Petition regarding the denial of the Motion for Publication and appearing before the Nevada Supreme Court in support of the Petition; ( attempting service of process via the terms of the Hague Convention; ( preparing and filing several motions to enlarge time to serve process; ( preparing and filing an ex parte motion for order permitting service by publication; ( serving the Individual Defendants via publication; ( preparing and filing an application for entry of default as to each of the Individual Defendants; and ( participating in extensive settlement discussions with UTG's Counsel, including many follow-up settlement discussions, most of which included the Mediator. Based on the information obtained through these efforts, Plaintiff believes the Action has substantial merit. Nonetheless, Plaintiff and Plaintiff's Counsel also recognize and acknowledge the significant litigation risks and expense associated with continuing the lengthy proceedings that would be necessary to prosecute the Action against the Individual Defendants and through possible appeals. Plaintiff's Counsel also have taken into account the uncertain outcome and the risk of any litigation, especially in complex cases such as this Action, as well as the difficulties US_1v1_-0000 /1/ 1: PM - -
and delays inherent in such litigation. This matter poses additional risks associated with 1 collecting any judgment against the Individual Defendants, the vast majority of whom reside in China. Plaintiff's Counsel also is mindful of the possible defenses to the claims alleged in the Action. Plaintiff's Counsel has conducted a thorough review and analysis of the relevant facts, allegations, defenses, and controlling legal principles, and Plaintiff and Plaintiff's Counsel believe that the Settlement set forth in the Stipulation is fair, reasonable, and adequate, and confers substantial benefits upon UTG and its shareholders. Based upon Plaintiff's Counsel's evaluation, Plaintiff has determined that the Settlement is in the best interests of UTG and its shareholders and has agreed to settle the Action upon the terms and subject to the conditions set forth in the Stipulation. V. DEFENDANTS' POSITION CONCERNING SETTLEMENT The Individual Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Plaintiff in the Action. The Individual Defendants assert that their conduct was proper and that there was no breach of fiduciary or other duties, and deny any liability or wrongdoing whatsoever, including, but not limited to, each of the allegations asserted in the Action and assert that the Action is subject to a number of procedural defenses. The Individual Defendants have further asserted, and continue to assert, that at all relevant times, they acted in good faith, and in a manner they reasonably believed to be in the best interests of UTG and its shareholders. Nonetheless, the Individual Defendants and UTG have concluded that further conduct of the Action would be protracted and expensive, and that it is desirable that the Action be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation in order to limit further expense, inconvenience, and distraction, to dispose of the burden of protracted litigation, and to permit the operation of the Company's business without further distraction and diversion of the Company's executive personnel with respect to matters at issue in the Action. The Defendants also have taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like this litigation. US_1v1_-0000 /1/ 1: PM - -
1 UTG has, therefore, determined that it is desirable and beneficial to them that the Action be settled in the manner and upon the terms and conditions set forth in the Stipulation. UTG enters into the Stipulation and Settlement without in any way admitting to or acknowledging any fault, liability, or wrongdoing of any kind. There has been no adverse determination by any court against any of the Defendants on the merits of the claims asserted by Plaintiff. Neither the Stipulation, nor any of its terms or provisions, nor any of the negotiations or proceedings connected with it, shall be construed as an admission or concession by any of the Defendants of the merit or truth of any of the allegations or wrongdoing of any kind on the part of any of the Defendants. UTG enters into the Stipulation and Settlement based upon, among other things, the Parties' agreement herein that, to the fullest extent permitted by law, neither the Settlement nor any of the terms or provisions of the Stipulation, nor any of the negotiations or proceedings connected therewith, shall be offered as evidence in the Action or in any pending or future civil, criminal, or administrative action or other proceeding to establish any liability or admission by any of the Defendants, or to any of the Released Persons, or any other matter adverse to any of the Defendants, or any of the Released Persons, except as expressly set forth in the Stipulation. UTG acknowledges that the Settlement is fair, reasonable, adequate, and in the best interests of UTG and its shareholders. UTG also acknowledges and agrees that: (i Plaintiff's filing and prosecution of the Action was a substantial and material factor in the "tone at the top" changes at the Company, including the resignations of defendants Jiduan Yuan, Huijie Gao, Lizong Wang, Lawrence Lee, Jing Xie, and Jiangping Jiang from their respective positions; and (ii the prosecution and Settlement of the Action was a substantial and material factor in helping the Company to favorably resolve the Securities Class Action, as part of a global resolution with this Action. VI. ATTORNEYS' FEES AND EXPENSES FOR PLAINTIFF'S COUNSEL AND INCENTIVE AWARD FOR PLAINTIFF Plaintiff's Counsel have not received any payment for work in connection with the Action, nor been reimbursed for out-of-pocket expenses. In recognition of the substantial benefits conferred upon UTG and its shareholders as a direct result of the prosecution and US_1v1_-0000 /1/ 1: PM - -
Settlement of the Action, and subject to Court approval, the Company agrees to cause UTG's insurance carrier to pay Plaintiff's Counsel attorneys' fees and expenses in the agreed-to amount of $,000 (the "Fee and Expense Amount. In addition, Plaintiff's Counsel may apply to the Court for an Incentive Amount of up to $,000 for Plaintiff, only to be paid upon Court approval, in recognition of Plaintiff's participation and efforts in the prosecution and Settlement of the Action. The Incentive Amount, if approved by the Court, shall be paid to Plaintiff from the Fee and Expense Amount. VII. THE SETTLEMENT HEARING On April, at 1:0 p.m., the Court will hold the Settlement Hearing before the 1 Honorable James T. Russell, District Court Judge of the First Judicial District Court of the State of Nevada, located at East Musser Street, Department I, Carson City, Nevada, 01. At the Settlement Hearing, the Court will consider: (1 whether the Settlement of the Action on the terms and conditions provided for in the Stipulation is fair, reasonable, and adequate to UTG and Current UTG Shareholders and should be approved by the Court; ( whether, thereafter, the Action should be dismissed with prejudice as set forth in the Stipulation; and ( whether the agreed-upon Fee and Expense Amount for the payment of attorneys' fees and expenses and the Incentive Amount for the Plaintiff should be approved. VIII. YOUR RIGHT TO BE HEARD AT THE SETTLEMENT HEARING Any Current UTG Shareholder may, but is not required to, appear in person at the Settlement Hearing if you have any reasons why the Settlement should not be finally approved as fair, reasonable, and adequate, or why the Judgment should not be entered thereon, or why the Fee and Expense Amount or Incentive Amount should not be finally approved. If you want to be heard at the Settlement Hearing, then you must first comply with the procedures for objecting, which are set forth below. The Court has the right to change the date or time of the Settlement Hearing without further notice. Thus, if you are planning to attend the Settlement Hearing, you should confirm the date and time before going to the Court. CURRENT UTG US_1v1_-0000 /1/ 1: PM - -
SHAREHOLDERS WHO HAVE NO OBJECTION TO THE SETTLEMENT DO NOT NEED TO APPEAR AT THE SETTLEMENT HEARING OR TAKE ANY OTHER ACTION. IX. PROCEDURES FOR OBJECTING TO THE SETTLEMENT Current UTG Shareholders have the right to object to any aspect of the Settlement. You 1 must object in writing, and you may request to be heard at the Settlement Hearing. If you choose to object, then you must follow these procedures. A. Any Objections Must be in Writing Any objection must be presented in writing and must contain the following information: 1. Your name, legal address, and telephone number;. Proof of being a Current UTG Shareholder as of January,, the date of execution of the Stipulation through date of the Settlement Hearing, including the number of shares of UTG common stock and the date of purchase;. Notice of whether you intend to appear at the Settlement Hearing (attendance is not required if you timely have lodged your objection with the Court;. A statement of each objection being made to the Settlement and the grounds for each objection;. Any documentation in support of such objection; and. If you intend to appear and request to be heard at the Settlement Hearing, copies of any papers you intend to submit to the Court, along with the names of any witness(es you intend to call to testify at the Settlement Hearing and a statement as to subject(s of their testimony. The Court may not consider any objection that does not comply with these requirements. US_1v1_-0000 /1/ 1: PM - -
B. You Must Timely Deliver Written Objections to the Court, Plaintiff's Counsel, and Defendants' Counsel YOUR WRITTEN OBJECTIONS MUST BE ON FILE WITH THE CLERK OF THE COURT NO LATER THAN FOURTEEN CALENDAR DAYS BEFORE THE SETTLEMENT HEARING. The Court Clerk's address is: Clerk of the Court FIRST JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA IN AND FOR CARSON CITY East Musser Street, Suite 01 Carson City, NV 01 YOU MUST ALSO DELIVER COPIES OF THE MATERIALS TO PLAINTIFF'S COUNSEL AND DEFENDANTS' COUNSEL SO THEY ARE RECEIVED NO LATER THAN 1 FOURTEEN CALENDAR DAYS BEFORE THE SETTLEMENT HEARING. addresses are: Plaintiff's Counsel: Counsel's ROBBINS ARROYO LLP Kevin A. Seely, Esq. 00 B Street, Suite 00 San Diego, CA 01 Counsel for Defendants: MCDONALD CARANO WILSON LLP Matthew Addison, Esq. 0 West Liberty Street, th Floor Reno, NV 01 Any Current UTG Shareholder who fails to object or otherwise request to be heard in the manner prescribed above will be deemed to have waived the right to object to any aspect of the Settlement or otherwise request to be heard (including the right to appeal and will be forever barred from raising such objection to the Settlement or request to be heard regarding the Settlement in this or any other action or proceeding, and shall be bound by the Settlement, the Judgment, and the releases given. US_1v1_-0000 /1/ 1: PM - -
X. CONDITIONS FOR SETTLEMENT The Settlement is conditioned upon the occurrence of certain events described in the Stipulation, which requires, among other things: (i court approval of the Settlement following notice to Current UTG Shareholders and the Settlement Hearing; (ii entry of the Judgment in the Action; (iii payment to Plaintiff's Counsel of the Fee and Expense Amount as approved by the Court; and (v the passing of the date upon which the Judgment becomes Final. If, for any reason, any one of the conditions described in the Stipulation is not met and the entry of the Judgment does not occur, the Stipulation will become null and void, and the Parties to the Stipulation will be restored to their respective positions as of the date immediately prior to the execution date of the Stipulation. 1 XI. HOW TO OBTAIN ADDITIONAL INFORMATION This Notice summarizes the Stipulation. It is not a complete statement of the events of the Action or the Stipulation. There is additional information concerning the Settlement available in the Stipulation, which may be inspected during business hours at the office of the Clerk of the Court, at First Judicial District Court of the State of Nevada, located at East Musser Street, Suite 01, Carson City, Nevada 01, or on Robbins Arroyo LLP's website at www.robbinsarroyo.com/notices. PLEASE DO NOT CALL, WRITE, OR OTHERWISE DIRECT QUESTIONS TO THE COURT, THE CLERK'S OFFICE, OR UTG REGARDING THIS NOTICE. For more information concerning the Settlement, you may also call or write to: Robbins Arroyo LLP, c/o Darnell R. Donahue, 00 B Street, Suite 00, San Diego, California 01, Telephone: ( -0. 1 US_1v1_-0000 /1/ 1: PM - -