EX-99.(A)(1) 2 d461081dex99a1.htm EX-99.(A)(1) EX-99.(A)(1)

Exhibit (a)-(1)

Focus Media Holding Limited

March 25, 2013

Shareholders of Focus Media Holding Limited

Re: Notice of Extraordinary General Meeting of Shareholders

Dear Shareholder:

You are cordially invited to attend an extraordinary general meeting of shareholders of Focus Media Holding Limited (the “Company”) to be held on April 29, 2013 at 10:00 a.m. (Hong Kong Time). The meeting will be held at 26th Floor, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong. The attached notice of the extraordinary general meeting and proxy statement provide information regarding the matters to be acted on at the extraordinary general meeting, including at any adjournment or postponement thereof.

At the extraordinary general meeting you will be asked to consider and vote upon a proposal to authorize and approve the agreement and plan of merger dated as of December 19, 2012, (the “merger agreement”), among the Company, Giovanna Parent Limited (“Parent”) and Giovanna Acquisition Limited (“Merger Sub”), the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands, substantially in the form attached as Annex A to the merger agreement (the “plan of merger”) and the transactions contemplated by the merger agreement, including the merger (the “merger”). Copies of the merger agreement and the plan of merger are attached as Annex A to the accompanying proxy statement.

Under the terms of the merger agreement, Merger Sub, a company wholly-owned by Parent, will be merged with and into the Company, with the Company continuing as the surviving company after the merger. Merger Sub is a Cayman Islands company formed solely for purposes of the merger. Parent is a Cayman Islands company which, at the effective time of the merger, will be beneficially owned, indirectly, by Mr. Jason Nanchun Jiang (the “Chairman”) and certain entities controlled by the Chairman (collectively, the “Chairman Parties”), Fosun International Limited, a Hong Kong company (“Fosun”), Giovanna Investment Holdings Limited, a Cayman Islands company (“Giovanna Investment Holdings”), Gio2 Holdings Ltd, a Cayman Islands company (“Gio2 Holdings”), Power Star Holdings Limited, a Cayman Islands company (“Power Star Holdings”), and State Success Limited, a British Virgin Islands company (“State Success”, and collectively with Giovanna Investment Holdings, Gio2 Holdings and Power Star Holdings, the “Sponsors”). The Sponsors, the Chairman Parties and Fosun are collectively referred to herein as the “Consortium.” As of the date of this proxy statement, the Consortium beneficially owns approximately 36.20% of the Company’s outstanding ordinary shares, referred to herein as the “Shares.” If the merger is completed, the Company will continue its operations as a privately held company and will be beneficially owned by the Consortium and, as the result of the merger, the Company’s American depositary shares, each representing five Shares (“ADSs”), will no longer be listed on the NASDAQ Global Market and the American depositary shares program for the ADSs will terminate.

If the merger is completed, at the effective time of the merger, each outstanding Share (including Shares represented by ADSs), other than (a) a portion of the Shares beneficially owned by the Chairman Parties and by Fosun (collectively, the “Rollover Shares”), (b) Shares owned by the Company or its subsidiaries, if any, (c) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenter rights under the Cayman Companies Law (the “Dissenting Shares”), and (d) Shares held by Citibank, N.A., in its capacity as ADS depositary (the “ADS depositary”), that underlie ADSs reserved (but not yet allocated) by the Company for settlement upon the exercise of any Company option or restricted share unit issued under the Company Incentive Plans (as defined below) (Shares described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), will be cancelled in exchange for the right to receive

 

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$5.50 in cash without interest, and for the avoidance of doubt, because each ADS represents five Shares, each issued and outstanding ADS (other than any ADS that represents Excluded Shares) will represent the right to surrender the ADS in exchange for $27.50 in cash per ADS without interest (less $0.05 per ADS cancellation fees pursuant to the terms of the amended and restated deposit agreement, dated as of April 9, 2007, by and among the Company, the ADS depositary and the holders and beneficial owners of ADSs issued thereunder, or the ADS deposit agreement), in each case, net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration.

If the merger is completed, at the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company’s 2003 Employee Share Option Scheme, 2005 Employee Share Option Plan, 2006 Employee Share Option Plan, 2007 Employee Share Option Plan, 2010 Employee Share Option Plan and/or 2013 Employee Share Option Plan (collectively, the “Company Share Incentive Plans”) will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

Furthermore, except as provided under (i) the chairman rollover agreement (the “Chairman Rollover Agreement”) entered into concurrently with the execution and delivery of the merger agreement by and among Holdco, Parent and the Chairman Parties, (ii) the management rollover agreements (the “Management Rollover Agreements”) entered into concurrently with the execution and delivery of the merger agreement by and between Holdco and certain members of the senior management of the Company, namely Gancong Deng, Xiaomin Du, Kit Leong Low, Jun Long, Lan Luo, Wei Ni, Qian Qian, Yafang Tu, Yuchun Wang, Yan Chen and Chenjun Tao (the “Management Rollover Securityholders”) and (iii) the arrangement with respect to restricted share units held by certain non-management directors, namely Fumin Zhuo, Nanpeng Shen, Daqing Qi, David Ying Zhang, Ying Wu, Charles Chao, and certain consultants, namely Wei Gong, Junyan Li and Alex Deyi Yang (collectively, the “Director and Consultant Parties”), at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than a portion of the restricted share units held by the Chairman Parties (such portion being the “Chairman Rollover RSUs”), each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

 

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Under the terms of the Management Rollover Agreements, each restricted share unit held by the Management Rollover Securityholders as of January 1, 2013 (together with the Rollover Shares and the Chairman Rollover RSUs, the “Rollover Securities”) will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

An independent committee of the board of directors of the Company, composed solely of directors unrelated to the management of the Company, the Consortium, Holdco, Parent or Merger Sub, reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger. The independent committee unanimously (a) determined that the merger agreement is fair to and in the best interests of, the Company and its unaffiliated security holders, (b) declared it advisable to enter into the merger agreement, (c) recommended that the board of directors of the Company approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and (d) recommended that the board of directors of the Company direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a special resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger.

On December 19, 2012, the board of directors of the Company (with the Chairman abstaining), after carefully considering all relevant factors, including the unanimous determination and recommendation of the independent committee, (a) determined that it is fair to and in the best interests of the Company and its unaffiliated security holders, and declared it advisable, to enter into the merger agreement, (b) authorized and approved the execution, delivery and performance of the merger agreement, the plan of merger and the consummation of the transactions contemplated by the merger agreement, including the merger, and (c) resolved to direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company.

After careful consideration and upon the unanimous recommendation of the independent committee of the board of directors of the Company, the Company’s board of directors (with the Chairman abstaining) authorized and approved the merger agreement and recommends that you vote FOR the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, 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 to pass the special resolution during the extraordinary general meeting.

 

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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 Securities and Exchange Commission, referred to herein as the “SEC,” which are available for free at the SEC’s website www.sec.gov.

Regardless of the number of Shares you own, your vote is very important. In order for the merger to be completed, the merger agreement, the plan of merger and the merger must be authorized and approved by a special resolution of the Company passed by an affirmative vote of at least two-thirds of such shareholders of the Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting. As of the date of this proxy statement, the Consortium and the Management Rollover Securityholders together beneficially owned approximately 36.27% of the total issued and outstanding Shares entitled to vote. Based on the number of Shares expected to be outstanding on the record date, approximately 47.70% of the total outstanding Shares entitled to vote owned by the remaining shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting. Whether or not you plan to attend the extraordinary general meeting, please complete the enclosed proxy card, in accordance with the instructions set forth on your proxy card, as promptly as possible. The deadline to lodge your proxy card is April 27, 2013 at 10:00 a.m. (Hong Kong Time). Each shareholder has one vote for each Share held as of the close of business in the Cayman Islands on April 17, 2013.

Voting at the extraordinary general meeting will take place by poll voting, as the chairman of the Company’s board of directors has undertaken to demand poll voting at the meeting.

As the record holder of the Shares represented by ADSs, 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 at the close of business in New York City on March 28, 2013, the ADS record date. The ADS depositary must receive such instructions no later than 10:00 a.m. (New York City Time) on April 25, 2013. If the ADS depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the ADS depositary is to vote the Shares represented by the holder’s ADS, the ADS depositary will deem such holder to have instructed the ADS depositary to vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, and FOR any adjournment of the extraordinary general meeting.

Holders of ADSs will not be able to attend the extraordinary general meeting unless they cancel their ADSs and become holders of Shares prior to the close of business in the Cayman Islands on April 17, 2013, the Share record date. ADS holders who wish to cancel their ADSs need to make arrangements to deliver the ADSs to the ADS depositary for cancellation before the close of business in New York City on April 12, 2013 together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of the Shares), (b) payment of the ADS cancellation fees ($0.05 per ADS to be cancelled) and any applicable taxes, and (c) a certification that the ADS holder either (i) held the ADSs as of the applicable ADS record date for the extraordinary general meeting and has not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled, or has given voting instructions to the ADS depositary as to the ADSs being cancelled but undertakes not to vote the corresponding Shares at the extraordinary general meeting, or (ii) did not hold the ADSs as of the applicable ADS record date for the extraordinary general meeting and undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS depositary will arrange for Citibank Hong Kong, 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 registrar of the Shares to issue and mail a certificate to your attention. If the

 

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merger is not completed, the Company would continue to be a public company in the U.S. and the Company’s ADSs would continue to be listed on NASDAQ. The Company’s Shares are not listed and cannot be traded on any stock exchange other than 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 completed and you wish to be able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s American depositary shares program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the ADS deposit agreement, including, among other things, payment of relevant fees of the ADS depositary for the issuance of ADSs (up to $0.05 per ADS issued) and any applicable stock transfer taxes (if any) and related charges pursuant to the ADS deposit agreement.

        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 held of record by 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 submit a signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the resolution to authorize and approve the merger agreement, the plan of merger, and the transactions contemplated by the merger agreement, including the merger, and FOR the resolution to instruct the chairman of the extraordinary general meeting to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger in the event that there are insufficient proxies received to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines. Furthermore, if holders of ADSs do not timely deliver specific voting instructions to the ADS depositary, they may, under the terms of the ADS deposit agreement, be deemed to have instructed the ADS depositary to give a discretionary proxy to a member of the independent committee of the board of directors of the Company (the “Designee”). Unless the Company notifies the ADS depositary that there exists substantial opposition on the matters to be voted on at the extraordinary general meeting or that such matters would have a material adverse impact on the holders of ADSs or on the holders of Shares, the Designee will receive a discretionary proxy from the ADS depositary and will vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting.

Shareholders who dissent from the merger will have the right to receive payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote 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 Companies Law for the exercise of dissenter rights, which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under that statute 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 dissenter 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 DISSENTER 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 DISSENTER 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, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE THE

 

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CLOSE OF BUSINESS IN NEW YORK CITY ON APRIL 12, 2013, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON APRIL 17, 2013. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTER RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE U.S. AND THE COMPANY’S ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. THE COMPANY’S SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS OR HER ADSs TO EXERCISE DISSENTER RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS OR HER SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS OR HER SHARES INTO THE COMPANY’S AMERICAN DEPOSITARY SHARES PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE ADS DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (UP TO $0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE ADS 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 in voting your Shares or ADSs, you can contact MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, at +1 212-929-5500 or toll free at +1 800-322-2885.

Thank you for your cooperation and continued support.

 

Sincerely,     Sincerely,

/s/  Daqing Qi

   

/s/  Jason Nanchun Jiang

On behalf of the Independent Committee     Chairman of the Board

The proxy statement is dated March 25, 2013, and is first being mailed to the shareholders on or about March 29, 2013.

 

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Focus Media Holding Limited

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 29, 2013

Dear Shareholder:

Notice is hereby given that an extraordinary general meeting of the members of Focus Media Holding Limited (the “Company”) will be held on April 29, 2013 at 10:00 a.m. (Hong Kong Time) at 26th Floor, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong.

Only holders of ordinary shares, par value $0.00005, of the Company (the “Shares”) of record on the close of business in the Cayman Islands on April 17, 2013 or their proxy holders are entitled to vote at this extraordinary general meeting or any adjournment or postponements thereof. At the meeting, you will be asked to consider and vote upon the following resolutions:

 

   

as a special resolution:

THAT the agreement and plan of merger dated as of December 19, 2012 (the “merger agreement”) among Giovanna Parent Limited (“Parent”), Giovanna Acquisition Limited (“Merger Sub”) and the Company (such merger agreement being in the form attached 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 (the “plan of merger”) among Merger Sub and the Company required to be registered with the Registrar of Companies of the Cayman Islands for the purposes of the merger (such plan of merger being in the form attached to the merger agreement and which will be produced and made available for inspection at the extraordinary general meeting) and any and all transactions contemplated by the merger agreement, including the merger (the “merger”), be and are hereby authorized and approved; and

 

   

as an ordinary resolution:

THAT the chairman of the extraordinary general meeting be instructed 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 resolution to be proposed at the extraordinary general meeting.

A list of the ordinary shareholders of the Company will be available at its principal executive offices at Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, during ordinary business hours for the two business days immediately prior to the extraordinary general meeting.

If you own American depositary shares of the Company, each representing five Shares (“ADSs”), you cannot vote at the extraordinary general meeting directly, but you may instruct the ADS depositary (as the holder of the Shares underlying the ADSs) how to vote the Shares underlying your ADSs. The ADS depositary must receive such instructions no later than 10:00 a.m. (New York City Time) on April 25, 2013 in order to vote the underlying Shares at the extraordinary general meeting. Alternatively, you may vote directly at the extraordinary general meeting if you surrender your 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 you have not given, and will not give, voting instructions as to the ADSs (or alternatively, you will not vote the Shares) before the close of business in New York City on April 12, 2013, and become a registered holder of Shares by the close of business in the Cayman Islands on April 17, 2013. In addition, if you hold your ADSs through a financial intermediary such as a broker, you must rely on the procedures of the financial intermediary through which you hold your ADSs if you wish to vote at the extraordinary general meeting.

Furthermore, if holders of ADSs do not timely deliver specific voting instructions to the ADS depositary, they may, under the terms of the ADS deposit agreement, be deemed to have instructed the ADS depositary to

 

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give a discretionary proxy to a member of the independent committee of the board of directors of the Company (the “Designee”). Unless the Company notifies the ADS depositary that there exists substantial opposition on the matters to be voted on at the extraordinary general meeting or that such matters would have a material adverse impact on the holders of ADSs or on the holders of Shares, the Designee will receive a discretionary proxy from the ADS depositary and will vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting.

        After careful consideration and upon the unanimous recommendation of the independent committee of the board of directors of the Company composed solely of directors unrelated to any of the management members of the Company, the Consortium, Parent or Merger Sub, the Company’s board of directors (with Mr. Jason Nanchun Jiang abstaining) authorized and approved the merger agreement and recommends that you vote FOR the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, 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 to pass the special resolution during the extraordinary general meeting.

In order for the merger to be completed, the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger must be authorized and approved by a special resolution of the Company passed by an affirmative vote of at least two-thirds of such shareholders of the Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting.

As of the date of this proxy statement, the Consortium and certain members of the senior management of the Company who have entered into management rollover agreements together beneficially owned approximately 36.27% of the total issued and outstanding Shares entitled to vote. Based on the number of Shares expected to be outstanding on the record date, approximately 47.70% of the total outstanding Shares entitled to vote owned by the remaining shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

Regardless of the number of Shares that you own, your vote is very important. Even if 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. You should simply indicate on your proxy card how you want to vote, sign and date the proxy card, and mail the proxy card in the enclosed return envelope as soon as possible to ensure that it will be received by the Company no later than April 27, 2013 at 10:00 a.m. (Hong Kong Time), which is the deadline to lodge your proxy card. The proxy card is the “instrument of proxy” as referred to in the Company’s articles of association. Voting at the extraordinary general meeting will take place by poll voting, as the chairman of the Company’s board of directors has undertaken to demand poll voting at the meeting. Each shareholder has one vote for each Share held as of the close of business in the Cayman Islands on April 17, 2013.

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, dealer, commercial bank, trust company or other nominee, your vote will not be counted.

 

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If you fail to complete your proxy card in accordance with the instructions set forth on the proxy card or if you abstain from voting, your vote will not be counted.

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 each such proxy card.

If you submit your signed proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting referred to above unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.

Shareholders who dissent from the merger will have the right to receive payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law for the exercise of dissenter rights, which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under that statute 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 dissenter 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 DISSENTER 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 DISSENTER 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, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON APRIL 12, 2013, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON APRIL 17, 2013. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTER RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW.

PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR SHARE CERTIFICATES.

If you have any questions or need assistance voting your Shares, please call MacKenzie Partners, Inc., the firm assisting us with this proxy solicitation, at +1 212-929-5500 or toll free at +1 800-322-2885.

The merger agreement, the plan of merger and the merger are described in the accompanying proxy statement. A copy of the merger agreement and a copy of the plan of merger are included as Annex A to the accompanying proxy statement. We urge you to read the entire proxy statement carefully.

Notes:

1. In the case of joint holders the vote of the senior holder who tenders a vote whether in person or by proxy will be accepted to the exclusion of the votes of the joint holders and for this purpose seniority will be determined by the order in which the names stand in the register of members of the Company.

 

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2. The instrument appointing a proxy must be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorized in writing.

3. A proxy need not be a member (registered shareholder) of the Company.

4. The chairman of the meeting may at his discretion direct that a proxy card shall be deemed to have been duly deposited. A proxy card that is not deposited in the manner permitted shall be invalid.

5. Votes given in accordance with the terms of a proxy card shall 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, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the registered office of the Company at c/o Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-111, Cayman Islands before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.

 

BY ORDER OF THE BOARD OF DIRECTORS,

/s/  Jason Nanchun Jiang

Director
March 25, 2013

Registered Office:

c/o Codan Trust Company (Cayman) Limited

Cricket Square, Hutchins Drive

P.O. Box 2681

Grand Cayman KY1-111

Cayman Islands

Head Office Address:

Unit No. 1, 20th Floor, The Centrium

60 Wyndham Street

Central

Hong Kong

 

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Table of Contents

 

     Page  

SUMMARY TERM SHEET

     1   

QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER

     21   

SPECIAL FACTORS

     30   

MARKET PRICE OF THE COMPANY’S ADSs, DIVIDENDS AND OTHER MATTERS

     84   

THE EXTRAORDINARY GENERAL MEETING

     86   

THE MERGER AGREEMENT AND PLAN OF MERGER

     92   

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

     109   

DISSENTER RIGHTS

     110   

FINANCIAL INFORMATION

     112   

TRANSACTIONS IN THE SHARES AND ADSs

     114   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY

     117   

FUTURE SHAREHOLDER PROPOSALS

     118   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     119   

WHERE YOU CAN FIND MORE INFORMATION

     121   

ANNEX A: Agreement and Plan of Merger

     A-1   

ANNEX B: Opinion of J.P. Morgan Securities (Asia Pacific) Limited as Financial Advisor

     B-1   

ANNEX C: Cayman Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) – Section 238

     C-1   

ANNEX D: Directors and Executive Officers of Each Filing Person

     D-1   

ANNEX E: Form of Management Rollover Agreement

     E-1   

ANNEX F: Chairman Rollover Agreement

     F-1   

ANNEX G: Fosun Rollover Agreement

     G-1   

ANNEX H: Voting Agreement

     H-1   

ANNEX I: Indemnification Agreement

     I-1   

ANNEX J: Non-Compete Agreement

     J-1   

ANNEX K: Interim Sponsors Agreement

     K-1   

PROXY CARD

  

DEPOSITARY’S NOTICE

  

ADS VOTING INSTRUCTIONS CARD

  


SUMMARY TERM SHEET

This “Summary Term Sheet,” together with the “Questions and Answers about the Extraordinary General Meeting and the Merger,” highlights selected information contained in this proxy statement regarding the merger and may not contain all of the information that may be important to your consideration of the merger. 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 121. In this proxy statement, the terms “we,” “us,” “our,” and the “Company” refer to Focus Media Holding Limited and its subsidiaries. All references to “dollars” and “$” in this proxy statement are to U.S. dollars.

The Parties Involved in the Merger

The Company

We are China’s leading multi-platform digital media company, operating the largest LCD display network in China using audiovisual digital displays in commercial and residential locations, based on the number of locations and number of flat-panel digital displays in our network, the largest poster frame network, based on the number of locations and number of traditional poster frames and digital poster frames in our network, and the largest LCD display network in China using audiovisual digital displays in supermarkets and hypermarkets. The Company operates five networks: (i) an LCD display network, (ii) a poster frame network, (iii) an in-store network, (iv) a movie theater advertising network and (v) a traditional outdoor billboards network.

Our principal executive offices are located at Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong. Our telephone number at this address is +852-3752-8009 and our fax number is +852-3583-0082. Our registered office in the Cayman Islands is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-111, Cayman Islands .

For a description of our history, development, business and organizational structure, see our Annual Report on Form 20-F for the year ended December 31, 2011, as amended, originally filed on April 27, 2012, which is incorporated herein by reference. Please see “Where You Can Find More Information” beginning on page 121 for a description of how to obtain a copy of our Annual Report.

Holdco

Giovanna Group Holdings Limited (“Holdco”), a Cayman Islands exempted company with limited liability owned by Giovanna Investment Holdings Limited, Gio2 Holdings Ltd and Power Star Holdings Limited, was formed for the purpose of consummating certain transactions in connection with the merger. Holdco does not currently hold any Shares. The registered office of Holdco is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The telephone number of Holdco is +1 345 949-1040.

Midco

Giovanna Intermediate Limited (“Midco”), a Cayman Islands exempted company with limited liability and a direct, wholly-owned subsidiary of Holdco, was formed solely for the purpose of owning Parent. Midco does not currently hold any Shares. The registered office of Midco is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The telephone number of Midco is +1 345 949-1040.

 

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Parent

Giovanna Parent Limited (“Parent”), a Cayman Islands exempted company with limited liability and a direct, wholly-owned subsidiary of Midco, was formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Parent does not currently hold any Shares. The registered office of Parent is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The telephone number of Parent is +1 345 949-1040.

Merger Sub

Giovanna Acquisition Limited (“Merger Sub”), a Cayman Islands exempted company with limited liability and a direct, wholly-owned subsidiary of Parent, was formed by Parent solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Merger Sub does not currently hold any Shares. The registered office of Merger Sub is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The telephone number of Merger Sub is +1 345 949-1040.

The Chairman Parties

Jason Nanchun Jiang

Mr. Jason Nanchun Jiang (the “Chairman”), a Singapore citizen, has served as chairman of the board of directors of the Company since April 22, 2003 and chief executive officer of the Company since January 23, 2009. The business address of the Chairman is c/o Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

During the last five years, the Chairman has not been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

JJ Media Investment Holding Limited

JJ Media Investment Holding Limited (“JJ Media”), a British Virgin Islands company with limited liability, is wholly-owned by the Chairman. The business address of JJ Media is c/o Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

Target Sales International Limited

Target Sales International Limited (“Target Sales”), a British Virgin Islands company with limited liability, is wholly-owned by JJ Media. The business address of Target Sales is c/o Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

Top Notch Investments Holdings Ltd.

Top Notch Investments Holdings Ltd (“Top Notch”), a British Virgin Islands company, is wholly-owned by the Chairman. The business address of Top Notch is c/o Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

 

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Target Management Group Limited

Target Management Group Limited (“Target Management” and together with the Chairman, JJ Media, Target Sales and Top Notch, the “Chairman Parties”), a British Virgin Islands company with limited liability, is wholly-owned by the Chairman. The business address of Target Management is c/o Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

The Sponsors

Giovanna Investment Holdings Limited

Giovanna Investment Holdings Limited (“Giovanna Investment Holdings”) is a Cayman Islands company with limited liability that is owned and controlled by Carlyle Asia Partners III, L.P. for the purpose of holding interests in Holdco and completing the transactions contemplated by the merger agreement and the related financing transactions. The principal business address and telephone number of Giovanna Investment Holdings are set forth in Annex D, which is attached hereto and incorporated by reference.

Gio2 Holdings Ltd

Gio2 Holdings Ltd (“Gio2 Holdings”) is a Cayman Islands company with limited liability that is owned and controlled by FountainVest China Growth Capital Fund, L.P., FountainVest China Growth Capital Fund II, L.P. and their respective parallel funds and affiliates as described in Annex D, for the purpose of holding interests in Holdco and completing the transactions contemplated by the merger agreement and the related financing transactions. The principal business address and telephone number of Gio2 Holdings are set forth in Annex D, which is attached hereto and incorporated by reference.

Power Star Holdings Limited

Power Star Holdings Limited (“Power Star Holdings”) is a Cayman Islands company with limited liability that is owned and controlled by CITIC Capital China Partners II, L.P. for the purpose of holding interests in Holdco and completing the transactions contemplated by the merger agreement and the related financing transactions. The principal business address and telephone number of Power Star Holdings are set forth in Annex D, which is attached hereto and incorporated by reference.

State Success Limited

State Success Limited (“State Success”) is a British Virgin Islands company that is owned and controlled by China Everbright Structured Investment Holdings Limited for the purpose of holding interests in Holdco and completing the transactions contemplated by the merger agreement and the related financing transactions. The principal business address and telephone number of State Success are set forth in Annex D, which is attached hereto and incorporated by reference.

Fosun International Limited

Fosun International Limited (“Fosun”), is a Hong Kong company, whose principal businesses include: (i) insurance; (ii) pharmaceuticals and healthcare; (iii) property; (iv) steel; (v) mining; (vi) retail, services, finance and other investments; and (vii) asset management, which mainly operate through its subsidiaries. Fosun is owned and controlled by Fosun Holdings Limited, which in turn is a wholly-owned subsidiary of Fosun International Holdings Ltd. Fosun’s principal business address and telephone number are set forth in Annex D, which is attached hereto and incorporated by reference.

Throughout this proxy statement, Giovanna Investment Holdings, Gio2 Holdings, Power Star Holdings and State Success are collectively referred to as the “Sponsors,” and the Sponsors, the Chairman Parties and Fosun are collectively referred to as the “Consortium.” Holdco, Midco, Parent, Merger Sub, the Sponsor Filing Persons (as defined in Annex D), the Chairman Parties and Fosun are collectively referred to as the “Buyer Group.”

 

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The Merger (Page 92)

You are being asked to vote to authorize and approve the agreement and plan of merger dated as of December 19, 2012 (the “merger agreement”) among the Company, Parent and Merger Sub, the plan of merger required to be filed with the Registrar of Companies of the Cayman Islands, substantially in the form attached as Annex A to the merger agreement (the “plan of merger”) and the transactions contemplated by the merger agreement, including the merger (the “merger”). Once the merger agreement and plan of merger are authorized and approved by the requisite vote of the shareholders of the Company and the other conditions to the consummation of the transactions contemplated by the merger agreement are satisfied or waived in accordance with the terms of the merger agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company. The Company, as the surviving company, will continue to do business under the name “Focus Media Holding Limited” following the merger. If the merger is completed, the Company will cease to be a publicly traded company. Copies of the merger agreement and the plan of merger are attached as Annex A 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 92)

Under the terms of the merger agreement, at the effective time of the merger, each of our outstanding ordinary shares, par value $0.0005 per share (each, a “Share” and collectively, the “Shares”), including Shares represented by American Depositary Shares, each representing five Shares (the “ADSs”), issued and outstanding immediately prior to the effective time of the merger, other than (a) a portion of the Shares beneficially owned by the Chairman Parties and by Fosun (collectively, the “Rollover Shares”), (b) Shares owned by the Company or its subsidiaries, if any, (c) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenter rights under the Cayman Companies Law (the “Dissenting Shares”), and (d) Shares held by Citibank, N.A., in its capacity as ADS depositary (the “ADS depositary”), that underlie ADSs reserved (but not yet allocated) by the Company for settlement upon the exercise of any Company option or restricted share unit issued under the Company Incentive Plans (as defined below) (Shares described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), will be cancelled in exchange for the right to receive $5.50 in cash without interest, and each outstanding ADS (other than any ADS that represents Excluded Shares) will represent the right to receive $27.50 in cash per ADS without interest (less $0.05 per ADS cancellation fees pursuant to the terms of the amended and restated deposit agreement, dated as of April 9, 2007, by and among the Company, the ADS depositary and the holders and beneficial owners of ADSs issued thereunder), in each case, net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled for their fair value in accordance with the Cayman Islands Companies Law. Please see “Dissenter Rights” beginning on page 110 for additional information.

Treatment of Share Options (Page 93)

In addition, at the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company’s 2003 Employee Share Option Scheme, 2005 Employee Share Option Plan, 2006 Employee Share Option Plan, 2007 Employee Share Option Plan, 2010 Employee Share Option Plan and/or 2013 Employee Share Option Plan (collectively, the “Company Share Incentive Plans”) will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to

 

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purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

Treatment of Restricted Share Units (Page 93)

Except as provided under (i) the chairman rollover agreement (the “Chairman Rollover Agreement”) entered into concurrently with the execution and delivery of the merger agreement by and among Holdco, Parent and the Chairman Parties, (ii) the management rollover agreements (the “Management Rollover Agreements”) entered into concurrently with the execution and delivery of the merger agreement by and between Holdco and certain members of the senior management of the Company, namely Gancong Deng, Xiaomin Du, Kit Leong Low, Jun Long, Lan Luo, Wei Ni, Qian Qian, Yafang Tu, Yuchun Wang, Yan Chen and Chenjun Tao (the “Management Rollover Securityholders”) and (iii) the arrangement with respect to restricted share units held by certain non-management directors, namely Fumin Zhuo, Nanpeng Shen, Daqing Qi, David Ying Zhang, Ying Wu, Charles Chao, and certain consultants, namely Wei Gong, Junyan Li and Alex Deyi Yang (collectively, the “Director and Consultant Parties”), at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than a portion of the restricted share units held by the Chairman Parties (such portion being the “Chairman Rollover RSUs”), each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each restricted share unit held by the Management Rollover Securityholders as of January 1, 2013 (collectively, the “Management Rollover RSUs” and, together with the Rollover Shares and the Chairman Rollover RSUs, the “Rollover Securities”) will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date. A copy of the Form of Management Rollover Agreement is attached as Annex E to this proxy statement.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

 

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Chairman Rollover Agreement (Annex F)

Concurrently with the execution and delivery of the merger agreement, the Chairman Parties entered into a rollover agreement (the “Chairman Rollover Agreement”) with Holdco and Parent, pursuant to which Holdco will issue to the Chairman Parties, and the Chairman Parties will subscribe for, an aggregate of 309,074 ordinary shares of Holdco immediately prior to the closing of the merger. The aggregate subscription price will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of 124,743,100 Shares and 875,833 restricted share units for ADSs being cancelled in the merger for nil consideration. On receipt of 309,074 ordinary shares of Holdco, the Chairman Parties will have no right to any merger consideration in respect of such rollover securities. A copy of the Chairman Rollover Agreement is attached as Annex F to this proxy statement.

Fosun Rollover Agreement (Annex G)

Concurrently with the execution and delivery of the merger agreement, Fosun entered into a rollover agreement (the “Fosun Rollover Agreement”) with Holdco and Parent, pursuant to which Holdco will issue to Fosun or any designated affiliate of Fosun, and Fosun or such affiliate will subscribe for, an aggregate of 174,084 ordinary shares of Holdco at the closing of the merger. The aggregate subscription price will be offset by the merger consideration otherwise payable to Fosun in respect of 14,545,455 ADSs representing 72,727,275 Shares being cancelled in the merger for nil consideration. On receipt of 174,084 ordinary shares of Holdco, Fosun will have no right to any merger consideration in respect of such rollover shares. A copy of the Fosun Rollover Agreement is attached as Annex G to this proxy statement.

Voting Agreement (Annex H)

Concurrently with the execution and delivery of the merger agreement, each of the Chairman Parties, Fosun and Management Rollover Securityholders (collectively, the “Rollover Securityholders”) entered into a voting agreement with Parent (the “Voting Agreement”), pursuant to which the Rollover Securityholders, from and after the date of the merger agreement and until the earlier of the effective time or the termination of the merger agreement pursuant to its terms, irrevocably granted to, and appointed Parent or its designee, as the Rollover Securityholders’ proxy and attorney-in-fact, to vote or cause to be voted all of the Shares owned by them, aggregating approximately 36.27% of the outstanding Shares of the Company entitled to vote as of the date of this proxy statement, among other things, in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and against any acquisition proposal from any third party without regard to its terms. If for any reason the proxy granted therein is not irrevocable, the Rollover Securityholders have also agreed to, among other things, vote the Shares subject to the Voting Agreement, as instructed by Parent, in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger, and against any acquisition proposal from any third party without regard to its terms. The Voting Agreement will terminate upon the termination of the merger agreement. The Voting Agreement is attached as Annex H to this proxy statement.

Indemnification Agreement (Annex I)

Concurrently with the execution and delivery of the merger agreement, the Chairman Parties and Parent, and solely for purposes of certain specific provisions, Holdco and the Sponsors, entered into an indemnification agreement, pursuant to which each of the Chairman Parties agrees to jointly and severally indemnify and hold harmless Parent from and against any losses asserted against, incurred or sustained by any of Parent, the Company or any of its subsidiaries and affiliates, or any of their successors and assigns, up to $140,000,000 in the aggregate, in connection with any current and future regulatory proceedings against the Company or its subsidiaries (the “Relevant Regulatory Proceedings”) and putative class actions arising out of, relating to or by reason of the subject matters of any Relevant Regulatory Proceedings, subject to certain conditions and

 

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limitations thereto. The Chairman Parties’ obligations under the indemnification agreement will become effective at the effective time of the merger (but will apply to all losses incurred or sustained by any of Parent, the Company or any of its subsidiaries and affiliates, or any of their successors and assigns from the date of the merger agreement), and terminate on the fifth anniversary of the closing date of the merger. The parties to the indemnification agreement currently expect to amend the indemnification agreement after the closing of the merger to limit the Relevant Regulatory Proceedings to the SEC Inquiry (as defined below) and those initiated based on one or more facts or circumstances that are the subject matters of the SEC Inquiry.

With respect to putative class actions: (i) in the case where the Company is entitled under any then-effective insurance policies to recovery of any of the relevant losses, the Chairman Parties will only be liable for all such losses not actually recovered under such insurance policies; and (ii) in all other cases where the Company is not entitled under any insurance policies to recovery of any of such losses, the Chairman Parties will only be liable to indemnify Parent for the aggregate amount of all such losses for all such putative class actions in excess of $5,000,000, in each case subject to the $140,000,000 cap. The Chairman Parties also agree to deposit an amount of $40,000,000 into an escrow account to support their indemnification obligations upon closing of the merger, for a period of five years from the closing date of the merger. See “Special Factors – Interests of Certain Persons in the Merger – Indemnification Agreement”.

Non-Compete Agreement (Annex J)

Concurrently with the execution and delivery of the merger agreement, Holdco and the Chairman entered into a non-compete agreement, which will take effect at the effective time of the merger, pursuant to which the Chairman agrees to not participate or engage in any competitive business with the Company for as long as he is a member of the board of directors of Holdco and for five years thereafter.

Interim Sponsors Agreement (Annex K)

Concurrently with the execution and delivery of the merger agreement, Holdco, the Sponsors and certain affiliates of the Sponsors entered into an interim sponsors agreement which governs the relationship among the parties with respect to the merger agreement and matters relating thereto until the consummation of the merger. The interim sponsors 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 and the ancillary agreements pending consummation of the merger, (ii) the entrance into, concurrent with the consummation of the merger, a shareholders agreement of Holdco by the Sponsors, the Chairman Parties and Fosun, (iii) the right of the Sponsors to enforce (including by specific performance) the provisions of each equity commitment letter, and (iv) the payment or reimbursement by Holdco or the Company of certain expenses incurred by Holdco, Parent, Merger Sub and the Sponsors in connection with the merger agreement and the transactions contemplated thereby if the merger is consummated.

Record Date and Voting (Page 87)

You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the Cayman Islands on April 17, 2013, the Share record date for voting at the extraordinary general meeting. If you own ADSs on March 28, 2013, the ADS record date (and do not cancel 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 instruct the ADS depositary (as the holder of the Shares underlying the ADSs) on 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 April 25, 2013 in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, if you own ADSs on the ADS record date, you may vote at the extraordinary general meeting by cancelling your ADSs (and certifying you have not instructed, and will not instruct, the ADS depositary to vote the Shares represented by your ADSs) before the close of business in New York City on April 12, 2013 and becoming a registered holder of Shares prior to the close of business in the Cayman Islands on April 17, 2013, the Share record date. Each outstanding

 

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Share on the Share record date entitles the holder to one vote on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share record date, there will be 660,351,771 Shares entitled to be voted at the extraordinary general meeting. If you have Shares registered in your name on the Share record date, the deadline for you to lodge your proxy card and vote is April 27, 2013 at 10:00 a.m. (Hong Kong Time). See “ – Voting Information” below.

Shareholder Vote Required to Authorize and Approve the Merger Agreement and Plan of Merger (Page 87)

In order for the merger to be completed, the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger must be authorized and approved by a special resolution of the Company passed by an affirmative vote of at least two-thirds of such shareholders of the Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting. The authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, are not subject to the authorization and approval of holders of a majority of the Shares unaffiliated with the Buyer Group.

Based on the number of Shares we expect to be issued and outstanding and entitled to vote on the record date, approximately 440,234,514 Shares must be voted in favor of the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, in order for the proposal to be authorized and approved, assuming all shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

As of the date of this proxy statement, the Rollover Securityholders as a group beneficially owned in the aggregate 239,504,650 Shares, which represents 36.27% of the total outstanding voting Shares. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 117 for additional information. Pursuant to the terms of the Voting Agreement, these Shares will be voted in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger at the extraordinary general meeting of the Company. Based on the number of Shares expected to be outstanding on the record date, approximately 47.70% of the total outstanding Shares entitled to vote owned by the remaining shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

If your Shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not vote your Shares in the absence of specific instructions from you. These non-voted Shares are referred to as “broker non-votes.”

Voting Information (Page 88)

Before voting your Shares, we encourage you to read this proxy statement in its entirety, including all of the annexes, attachments, exhibits and materials incorporated by reference, and carefully consider how the merger will affect you. To ensure that your Shares can be voted at the extraordinary general meeting, please complete the enclosed proxy card in accordance with the instructions set forth on the proxy card as soon as possible. The deadline for you to lodge your proxy card is April 27, 2013 at 10:00 a.m. (Hong Kong Time).

        If you own ADSs as of the close of business in New York City on March 28, 2013, the ADS record date (and do not cancel 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 instruct the ADS depositary (as the holder of the Shares underlying the ADSs) how to vote the Shares underlying your ADSs. The ADS depositary must receive such instructions no later than 10:00 a.m. (New York City Time) on April 25, 2013 in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, you may vote at the extraordinary general meeting if you cancel your ADSs and become a holder of Shares prior to the close of

 

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business in the Cayman Islands on April 17, 2013. If you wish to cancel your ADSs for the purpose of voting 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 April 12, 2013 together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares), (b) payment of the ADS cancellation fees ($0.05 per ADS to be cancelled) and any applicable taxes, and (c) a certification that you held the ADSs as of the ADS record date and you have not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled or have given voting instructions to the ADS depositary as to the ADSs being cancelled but undertake not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS depositary will arrange for Citibank Hong Kong, 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 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 registrar of the Shares to issue and mail a certificate to your attention.

If the ADS depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the ADS depositary is to vote the Shares represented by the holder’s ADSs, the ADS depositary will deem such holder to have instructed the ADS depositary to vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, and FOR any adjournment of the extraordinary general meeting. Furthermore, if holders of ADSs do not timely deliver specific voting instructions to the ADS depositary, they may, under the terms of the ADS deposit agreement, be deemed to have instructed the ADS depositary to give a discretionary proxy to a member of the independent committee of the board of directors of the Company (the “Designee”). Unless the Company notifies the ADS depositary that there exists substantial opposition on the matters to be voted on at the extraordinary general meeting or that such matters would have a material adverse impact on the holders of ADSs or on the holders of Shares, the Designee will receive a discretionary proxy from the ADS depositary and will vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting.

Dissenter Rights of Shareholders (page 110)

Shareholders who dissent from the merger will have the right to receive payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law for the exercise of dissenter rights. The fair value of your Shares as determined under that statute 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 dissenter 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 DISSENTER 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 DISSENTER 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, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON APRIL 12, 2013 AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON APRIL 17,

 

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2013. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTER RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW.

We encourage you to read the section of this proxy statement entitled “Dissenter Rights” as well as Annex C to this proxy statement carefully and to consult your Cayman Islands legal counsel if you desire to exercise your dissenter rights.

Purposes and Effects of the Merger (page 58)

The purpose of the merger is to enable Parent to acquire 100% control of the Company in a transaction in which the Company’s shareholders other than the holders of Excluded Shares will be cashed out in exchange for $5.50 per Share, so that Parent will bear the rewards and risks of the sole 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. Please see “Special Factors – Buyer Group’s Purpose of and Reasons for the Merger” beginning on page 58 for additional information.

        ADSs representing the Shares are currently listed on the Nasdaq Global Market (“NASDAQ”) under the symbol “FMCN”. It is expected that, immediately following the completion of the merger, the Company will cease to be a publicly traded company and will instead become a privately-held company directly owned by Parent and indirectly, through Holdco, by the Sponsors and the Rollover Securityholders. Following the completion of the merger, the ADSs will cease to be listed on NASDAQ, and price quotations with respect to sales of the ADSs in the public market will no longer be available. In addition, registration of the ADSs and the underlying Shares under the Exchange Act may be terminated upon the Company’s application to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. Ninety days after the filing of Form 15 in connection with the completion of the merger or such longer period as may be determined by the SEC, registration of the ADSs and the underlying Shares under the Exchange Act will be terminated and the Company will no longer be required to file periodic reports with the SEC. Furthermore, following the completion of the merger, the American depositary shares program for the ADSs will terminate. Please see “Special Factors – Effect of the Merger on the Company” beginning on page 59 for additional information.

Plans for the Company after the Merger (Page 63)

After the effective time of the merger, Parent anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will (i) cease to be an independent public company and will instead be a wholly owned subsidiary of Parent and (ii) have substantially more debt than it currently has. As of the date of this proxy statement, there are no plans to repay the debt incurred to finance the merger, other than in accordance with the terms of the facilities agreement for the Senior Secured Credit Facilities (as defined below). Please see “Special Factors – Financing – Debt Financing” beginning on page 66 for additional information.

Recommendations of the Independent Committee and the Board of Directors (Page 41)

The independent committee unanimously (a) determined that it is fair to and in the best interests of the Company and its unaffiliated security holders, and declared it advisable, to enter into the merger agreement, (b) recommended that the board of directors of the Company approve the execution, delivery and performance of the merger agreement, the plan of merger and the consummation of the transactions contemplated by the merger agreement, including the merger, and (c) resolved to recommend the authorization and approval of the merger agreement, the plan of merger and the transaction contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of a special resolution the merger agreement, the plan of merger and the transaction contemplated by the merger

 

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agreement, including the merger. ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE AND APPROVE THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER, 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 TO PASS THE SPECIAL RESOLUTION DURING THE EXTRAORDINARY GENERAL MEETING.

Position of Buyer Group as to Fairness (Page 47)

Each member of the Buyer Group believes that the merger is fair (both substantively and procedurally) to the Company’s unaffiliated security holders. Their belief is based upon the factors discussed under the caption “Special Factors – Position of the Buyer Group as to the Fairness of the Merger” beginning on page 47.

Each member of the Buyer Group is making the statements included in this paragraph 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 on the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger.

Financing of the Merger (Page 65)

Parent estimates that the total amount of funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated security holders pursuant to the merger agreement, is anticipated to be approximately $3.823 billion. This amount is expected to be provided through a combination of (a) aggregate equity commitments of $1.181 billion from certain affiliates of the Sponsors, including the Sponsor Guarantors, (b) a rollover commitment from the Chairman Parties of 124,743,100 Shares and restricted share units representing the right to receive 4,379,165 Shares, having an aggregate value of approximately $710 million, (c) a rollover commitment from Fosun of 14,545,455 ADSs representing 72,727,275 Shares having an aggregate value of approximately $400 million, (d) rollover commitments from Management Rollover Securityholders of restricted share units representing the right to receive 1,285,020 Shares in total having an aggregate value of approximately $7 million and (e) a debt commitment up to $1.525 billion under the Senior Secured Credit Facilities (as defined below). The funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated security holders, will be paid from accounts outside China, and such payment will not be subject to any restriction, registration, approval or procedural requirements under applicable PRC laws, rules and regulations.

Limited Guarantee (Page 68)

Certain affiliates of the Sponsors (the “Sponsor Guarantors”) have agreed to guarantee the obligations of Parent under the merger agreement to pay a termination fee to the Company under certain circumstances in which the merger agreement is terminated.

Share Ownership of the Company Directors and Officers and Voting Commitments (Page 117)

As of the record date, we expect that the Chairman Parties will beneficially own approximately 18.89% of our issued and outstanding Shares entitled to vote, and Fosun will beneficially own approximately 16.82% of our issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 117 for additional information.

 

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Pursuant to the Voting Agreement, the Rollover Securityholders, including the Chairman Parties, Fosun and the Management Rollover Securityholders, have agreed to vote all of the Shares they beneficially own in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger.

Opinion of the Independent Committee’s Financial Advisor (Page 52)

        On December 19, 2012, J.P. Morgan Securities (Asia Pacific) Limited (“J.P. Morgan”) rendered an oral opinion to the independent committee (which was confirmed in writing by delivery of written opinion by J.P. Morgan dated the same date), as to the fairness, from a financial point of view, of the $5.50 per Share and the $27.50 per ADS merger consideration to be received by holders of the Shares and the ADSs (other than the Excluded Shares) in the merger, as of December 19, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by J.P. Morgan in preparing its opinion.

The opinion of J.P. Morgan was addressed to the independent committee and only addressed the fairness from a financial point of view of the consideration to be received by holders of the Shares and the ADSs (other than the Excluded Shares) in the merger, and does not address any other aspect or implication of the merger. The summary of the opinion of J.P. Morgan in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by J.P. Morgan in preparing its opinion. We encourage holders of the Shares and the ADSs to read carefully the full text of the written opinion of J.P. Morgan. However, the opinion of J.P. Morgan and 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 holder of the Shares or the ADSs as to how to act or vote with respect to the merger or related matters. Please see “Special Factors – Opinion of the Independent Committee’s Financial Advisor” beginning on page 52 for additional information.

Interests of the Company’s Executive Officers and Directors in the Merger (Page 69)

In considering the recommendations of the board of directors, the Company’s shareholders should be aware that certain of the Company’s directors and executive officers have interests in the transaction 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 Chairman;

 

   

the potential enhancement or decline of share value for Parent, of which the Chairman partially beneficially owns, as a result of the merger and future performance of the surviving company;

 

   

the acceleration of the vesting of restricted share units beneficially owned by the Chairman, the replacement of a portion of those restricted share units by a grant in a certain number of ordinary shares of Holdco and the cash-out of the remaining restricted share units;

 

   

replacement of restricted share units beneficially held by the Management Rollover Securityholders (including certain executive officers of the Company) by a grant in a certain number of restricted share units of Holdco;

 

   

the exchange of the restricted share units held by non-executive directors of the Company (including members of the independent committee) with restricted cash awards representing the right to receive cash amounts equal to the product of $27.50 and the number of ADSs underlying such restricted share units, which will vest as soon as practicable after the closing of the merger to be determined by Parent;

 

   

cash-out of Company share options and certain restricted share units beneficially held by employees, directors and the Chairman;

 

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continued indemnification rights, rights to advancement of fees and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company;

 

   

the monthly compensation of $10,000 of members of the independent committee in exchange for their services in such capacity (and, in the case of the chairman of the independent committee, monthly compensation of $15,000) (the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger); and

 

   

the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions.

In addition, at the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

Furthermore, except as provided under the Chairman Rollover Agreement, the Management Rollover Agreements and the arrangement with respect to restricted share units held by the Director and Consultant Parties, at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than the Chairman Rollover RSUs, each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each Management Rollover RSU will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted

 

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share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

As of January 17, 2013, the Company’s directors and executive officers, as a group (excluding the Chairman Parties), held an aggregate of 5,379,597 Shares, options to purchase 1,385,000 Shares and 1,933,365 restricted share units. Together, the Shares held by such person represent approximately 1.16% of the total Shares that are subject to purchase as part of the merger. The maximum total amount of all cash payments our directors and executive officers may receive in respect of their Shares, options and restricted share units if the merger is consummated is approximately $79 million, which for the avoidance of doubt, exclude the Chairman Rollover RSUs, the Chairman’s Rollover Shares and Kit Leong Low’s Management Rollover RSUs. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for additional information.

The independent committee and our board of directors 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. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for additional information.

Conditions to the Merger (Page 102)

The completion of the transactions contemplated by the merger agreement, including the merger, is subject to the satisfaction of the following conditions:

 

   

the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger being authorized and approved by a special resolution of the Company’s shareholders;

 

   

no governmental entity having enacted, issued, promulgated, enforced or entered any law which shall have become final and non-appealable that has or would have the effect of making the merger illegal or otherwise prohibiting consummation of the transactions contemplated by the merger agreement, including the merger; and

 

   

all required regulatory approvals having been obtained and being in full force and effect, including the PRC antitrust clearance under certain limited circumstances, and all other regulatory approvals having been obtained and being in full force and effect, except where failing to obtain such other regulatory approvals would not, individually or in the aggregate, have a Company Material Adverse Effect (as defined below) or prevent the consummation of the transactions contemplated by the merger agreement, including the merger.

The obligations of Parent and Merger Sub to consummate the merger are also subject to the satisfaction, or waiver by Parent, of the following conditions:

 

   

(1) representations and warranties of the Company in the merger agreement regarding the Company’s capitalization being true and correct in all but de minimis respects as of the date of the merger agreement and as of the closing date of the merger as if made on such date and time, (2) representations and warranties of the Company in the merger agreement regarding the Company’s options and restricted share units being true and correct in all but immaterial respects as of the date of the merger agreement and as of the closing date as if made on such date and time, (3) representations and warranties of the Company in the merger agreement regarding there being (a) no credible evidence of bad faith conduct of certain senior officers of the Company and (b) no default under the $200 million term loan facility agreement between the Company

 

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and DBS Bank Ltd. (the “SBLC Agreement”) being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger as if made on such date and time, and (4) certain representations and warranties of the Company set forth in the merger agreement being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger, as if made on such date and time, in each case interpreted without giving effect to the words “materially” or “material” or to any qualifications based on such terms or based on the defined term “Company Material Adverse Effect,” except where the failure of such representations and warranties to be true and correct in all respects, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect;

 

   

the Company having performed or complied: (i) in all respects with the covenant not to commence any material action (other than in respect of collection of amounts owed in the ordinary course of business) or settle any action naming the Company and/or its directors or officers, and the agreement to cooperate with all governmental authorities in all material respects in connection with any actions naming the Company or its directors or executive officers; and (ii) in all material respects with substantially all covenants and agreements required to be performed or complied with by it under the merger agreement prior to or at the time of closing;

 

   

the Company having delivered to Parent a certificate, dated the closing date, signed by a senior executive officer of the Company, certifying as to the fulfillment of the above conditions;

 

   

since the date of the merger agreement, there not having occurred and be continuing a Company Material Adverse Effect;

 

   

no action or formal recommendation of any action by any governmental authority be pending against the Company or any of certain senior officers of the Company (including the Chairman and the CFO), alleging bad faith conduct of any senior officer with respect to the Company or its shareholders, which conduct would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under applicable rules and regulations thereof; and

 

   

the Company having delivered to Parent and Merger Sub satisfactory written evidence that the aggregate amount standing to the credit of certain onshore bank designated accounts and certain offshore bank designated accounts is not less than $450,000,000, and the aggregate amount standing to the credit of certain company designated accounts is not less than the equivalent of $150,000,000, with such written evidence having been certified as true and correct by the chief financial officer of the Company.

The obligations of the Company to consummate the merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:

 

   

the representations and warranties of Parent and Merger Sub in the merger agreement being true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger, as if made on and at such date and time, in each case interpreted without giving effect to the limitation or qualification by “materiality”, except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to prevent the consummation of any of the transactions contemplated by the merger agreement, including the merger;

 

   

each of Parent and Merger Sub having performed or complied in all material respects with all covenants and agreements required to be performed or complied with by it under the merger agreement prior to or at the time of closing; and

 

   

Parent having delivered to the Company a certificate, dated the closing date, signed by an executive officer of Parent, certifying as to the fulfillment of the above conditions.

 

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Acquisition Proposals (Page 100)

 

   

Neither the Company nor its subsidiaries nor any officer, director, or representative of the Company or any of its subsidiaries will, directly or indirectly, (a) solicit, initiate or encourage, or take any other action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, any competing transaction, (b) enter into, maintain or continue discussions or negotiations with, or provide any nonpublic information relating to the Company or the merger to, any person or entity in furtherance of, or in order to obtain, a proposal or offer for a competing transaction, (c) agree to, approve, endorse or recommend any competing transaction or enter into any letter of intent or contract or commitment contemplating or otherwise relating to any competing transaction other than a superior proposal, or (d) authorize or permit any of the officers, directors or representatives of the Company or any of its subsidiaries acting directly or indirectly under the direction of the Company or any of its subsidiaries, to take any action set forth in (a) through (c) above. The Company will immediately cease and cause to be terminated all discussions with any third parties existing as of the date of the merger agreement regarding a competing transaction.

 

   

Prior to obtaining the required shareholder authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, if the Company receives a proposal relating to a competing transaction from any person that did not result from a breach by the Company of its obligations set forth in the above paragraph, (a) the Company and its representatives may contact such person to clarify the terms and conditions of the proposal so as to determine whether such proposal constitutes or is reasonably expected to result in a superior proposal and (b) if the independent committee determines in good faith, after consultation with and based upon the advice of its financial advisor and outside legal counsel, that such proposal constitutes or is reasonably likely to result in a superior proposal, and failure to furnish information or enter into discussions with such person would be reasonably likely to violate its fiduciary obligation under applicable law, then the Company and its representatives may, pursuant to an executed confidentiality agreement on terms no less favorable to the Company in the aggregate than those contained in the confidentiality agreements between the Company and the members of the Consortium, furnish information to, and enter into discussions with, the person who has made such proposal.

Termination of the Merger Agreement (Page 104)

The merger agreement may be terminated at any time prior to the effective time, whether before or after shareholder approval has been obtained:

 

   

by mutual written consent of the Company and Parent;

 

   

by either Parent or the Company, if:

 

   

the merger is not completed by June 19, 2013 (which may be extended at the written request of the Company or Parent to October 19, 2013, to satisfy any condition for which the consent or approval of any governmental authority is being sought), provided that this termination right is not available to a party if the failure of the merger to have been completed on or before the termination date is primarily caused by such party’s failure to comply with its obligations under the merger agreement;

 

   

any governmental authority has enacted, issued, promulgated, enforced or entered any law that has or would have the effect of making the merger illegal or otherwise prohibiting consummation of the transactions contemplated by the merger agreement, including the merger, which shall have become final and non-appealable; provided, that this termination right is not available to a party if the circumstances described in the foregoing are primarily caused by such party’s failure to comply with its obligations under the merger agreement;

 

   

any governmental authority having commenced an action against the Company or any of certain senior officers of the Company (including the Chairman and the CFO) alleging bad faith conduct

 

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of any senior officer with respect to the Company or its shareholders, which conduct would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under applicable rules and regulations thereof; or

 

   

our shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof.

 

   

by the Company, if:

 

   

Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by Parent or Merger Sub under the merger agreement shall not be true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the termination date, or if curable, is not cured within 15 days after written notice thereof from the Company; provided that this termination right is not available to the Company if it is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement;

 

   

prior to the receipt of the shareholders’ approval, (a) the board of directors of the Company determines (in its good faith judgment upon the recommendation of the independent committee), that failure to enter into a definitive agreement relating to a superior proposal would be reasonably likely to violate its fiduciary obligations under applicable law, and shall have authorized the Company to enter into such definitive agreement, (b) the Company, concurrently with or immediately after the termination of the merger agreement, enters into such definitive agreement, (c) such superior proposal did not result from any breach by the Company’s non-solicitation obligations under the merger agreement, (d) the Company has delivered notice of such superior proposal to Parent, and if requested by Parent, has made its representatives available to Parent to discuss proposed changes to the merger agreement, and (e) the Company pays in full a termination fee to Parent prior to or concurrently with such termination;

 

   

all of the closing conditions that are the obligation of the Company are otherwise satisfied and Parent and Merger Sub shall not have received the proceeds of the debt financing, the equity financing or any alternative financing on or prior to the date the closing should have occurred; provided that the Company has delivered to Parent an irrevocable commitment in writing that it is ready, willing and able to consummate the merger and provided further that the Company cannot so terminate the merger agreement prior to June 19, 2013 (or October 19, 2013, as the case may be) if the failure to receive the proceeds of the debt financing or any alternative financing is because the transactions pursuant to the SBLC Agreement and its related documents, in the written opinion of the outside counsel to the debt financing sources, result in a conflict or violation of PRC law due to a change in applicable PRC law after the date of the merger agreement.

 

   

by Parent, if:

 

   

the Company has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by it under the merger agreement shall not be true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Company by the termination date, or if curable, is not cured, within 15 days after written notice thereof from Parent; provided that Parent cannot so terminate the merger agreement prior to June 19, 2013 (or October 19, 2013, as the case may be) due to the Company having received a notice of default or there being an event or potential event of default under the SBLC Agreement and its related documents so long as such default is reasonably capable of being cured before June 19, 2013 (or October 19, 2013, as the case may be), and provided further that this termination right is not available to Parent if it is then in material breach of any of its representations, warranties, covenants or other agreements under the merger agreement;

 

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the board of directors of the Company has changed its recommendation to the shareholders of the Company;

 

   

the board of directors of the Company has recommended publicly to the shareholders of the Company a competing transaction or has entered into any letter of intent, contract, commitment or similar document with respect to any competing transaction;

 

   

the Company has failed to include the recommendation of its board of directors to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement, including the merger, in this proxy statement; or

 

   

a tender offer or exchange offer by a third party for 20% or more of the outstanding Shares is commenced, and the board of directors of the Company does not recommend against accepting such tender offer or exchange offer by its shareholders (including by taking no position with respect to the acceptance of such tender offer or exchange offer by its shareholders).

Termination Fee (Page 106)

The Company is required to pay Parent a termination fee of $40 million, if:

 

   

the merger agreement is terminated by the Company in order to enter into a definitive agreement relating to a superior proposal;

 

   

the merger agreement is terminated by Parent due to a breach by the Company of its representations, warranties, covenants or agreements in the merger agreement, or a failure of any of the Company’s representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied, other than as a result of a failure of representations and warranties of the Company regarding there being (a) no credible evidence of bad faith conduct of certain senior officers of the Company and (b) no default under the SBLC Agreement being true and correct in all respects on the closing date of the merger;

 

   

(a) either the merger is not completed by June 19, 2013 (which may be extended at the written request of the Company or Parent to October 19, 2013, to satisfy any condition for which the consent or approval of any governmental authority is being sought), or the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof, (b) neither Parent nor Merger Sub has materially breached any of its representations, warranties or covenants under the merger agreement, (c) at or prior to the time of termination of the merger agreement, a third party publicly disclosed a proposal or offer for a competing transaction meeting certain thresholds, and (d) at any time within 12 months after the date of termination of the merger agreement, the Company enters into a definitive agreement with respect to a competing transaction; or

 

   

(a) the board of directors of the Company has changed its recommendation to the shareholders of the Company, (b) the board of directors of the Company has recommended publicly to the shareholders of the Company a competing transaction or has entered into any letter of intent, contract, commitment or similar document with respect to any competing transaction, (c) the Company failed to include the recommendation of its board of directors to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement, including the merger, in this proxy statement, or (d) a tender offer or exchange offer by a third party for 20% or more of the outstanding Shares is commenced, and the board of directors of the Company does not recommend against accepting such tender offer or exchange offer by its shareholders (including by taking no position with respect to the acceptance of such tender offer or exchange offer by its shareholders).

 

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Parent is required to pay the Company a termination fee of $60 million, if:

 

   

the merger agreement is terminated by the Company due to a breach by Parent or Merger Sub of their representations, warranties, covenants or agreements in the merger agreement, or a failure of any of their representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied; or

 

   

the merger agreement is terminated by the Company because Parent and Merger Sub have not received the proceeds of the debt financing, the equity financing or any alternative financing on or prior to the date the closing should have occurred (but not if Parent’s failure to receive the proceeds of the debt financing is because the transactions pursuant to the SBLC Agreement and its related documents, in the written opinion of the outside counsel to the debt financing sources, result in a conflict or violation of PRC law due to a change in applicable PRC law after the date of the merger agreement), although all of the closing conditions that are the obligation of the Company are otherwise satisfied and the Company has delivered to Parent an irrevocable commitment in writing that it is ready, willing and able to consummate the merger.

Fees and Expenses (Page 77)

All reasonable out-of-pocket expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement, including the merger, shall be paid by the party incurring such expenses, whether or not the transactions are consummated.

However, if the merger agreement is terminated because (a) the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof, or (b) the Company’s representation and warranty regarding there being no credible evidence of bad faith conduct of certain senior officers of the Company on the date of the merger agreement is breached, then the Company will reimburse Parent and Merger Sub for up to $6 million of their reasonably documented reasonable out-of-pocket expenses incurred prior to such termination; provided that if the Company becomes obligated to pay Parent a termination fee after such termination pursuant to clause (a) because the Company enters into a definitive agreement for a competing transaction within 12 months after the date of termination, the Company will be entitled to credit the amount of any expenses reimbursed by the Company to Parent against the amount of such termination fee.

Material U.S. Federal Income Tax Consequences (Page 79)

The receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local and other tax laws. Please see “Special Factors – Material U.S. Federal Income Tax Consequences” beginning on page 79 for additional information. The tax consequences of the merger to you will depend upon your personal circumstances. You should consult your tax advisors for a full understanding of the U.S. federal, state, local, foreign and other tax consequences of the merger to you.

Material PRC Income Tax Consequences (Page 82)

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 gain recognized on the receipt of cash for our 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 gain 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

 

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enterprise, gain recognized on the receipt of cash for Shares or ADSs is subject to PRC tax if the holders of such Shares or ADSs are PRC resident individuals. 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 – Material PRC Income Tax Consequences” beginning on page 82 for additional information.

Material Cayman Islands Tax Consequences (Page 83)

The Cayman Islands currently have 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 our Shares under the terms of the merger. This is subject to the qualification that (a) Cayman Islands stamp duty may be payable if any original transaction documents are brought to or executed in the Cayman Islands; and (b) registration fees will be payable to the Registrar of Companies to register the plan of merger. Please see “Special Factors – Material Cayman Islands Tax Consequences” beginning on page 83 for additional information.

Regulatory Matters (Page 78)

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the merger other than the approvals, filings or notices required under the federal securities laws and the filing of the plan of merger (and supporting documentation as specified in the Cayman Companies Law) with the Cayman Islands Registrar of Companies and in the event the merger becomes effective, a copy of the certificate of merger being given to the shareholders and creditors of the Company and Merger Sub as at the time of the filing of the plan of merger.

Litigation Related to the Merger (Page 78)

In February 2013, the Company, members of the board of directors of the Company, Parent and Merger Sub were named as defendants in a putative class action complaint filed in the United States District Court for the Northern District of California in San Francisco, California by shareholders of the Company in connection with the proposed merger. In this complaint, the representative plaintiff asserts claims against the defendants for violations of the Exchange Act and the Cayman Islands Companies Law, and seeks, among other things, injunctive relief preventing consummation of the proposed merger. The Company, the board of directors of the Company, Parent and Merger Sub believe that the claims in this complaint are without merit and intend to defend against them vigorously.

One of the conditions to the closing of the merger is that no final order by a court or other governmental entity shall be in effect that prohibits the consummation of the merger or that makes the consummation of the merger illegal. As such, if the representative plaintiff is successful in obtaining an injunction prohibiting the defendants from completing the merger on the agreed-upon terms and such injunction has not been reversed and is non-appealable, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe. Please see “Special Factors—Litigation Related to the Merger” beginning on page 78 for additional information.

Accounting Treatment of the Merger (Page 78)

Upon completion of the merger, the Company would cease to be a publicly traded company, and the Company expects to account for the merger at historical cost.

Market Price of the Shares (Page 84)

The closing price of the ADSs on NASDAQ on August 10, 2012, the last trading date immediately prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal, was $23.38 per ADS. The merger consideration of $5.50 per Share, or $27.50 per ADS, to be paid in the merger represents a premium of approximately 17.6% to that closing price.

 

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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: What is the merger?

 

A: The merger is a going private transaction pursuant to which Merger Sub will merge with and into the Company. Once the merger agreement is authorized and approved by the shareholders of the Company and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into the Company, with the Company continuing as the surviving company after the merger. If the merger is completed, the Company will be a privately held company beneficially owned by the Consortium, and as a result of the merger, the ADSs will no longer be listed on NASDAQ, and the Company will cease to be a publicly traded company.

 

Q: What will I receive in the merger?

 

A: If you own Shares and the merger is completed, you will be entitled to receive $5.50 in cash, without interest and net of any applicable withholding taxes, for each Share you own as of the effective time of the merger (unless you validly exercise and have not effectively withdrawn or lost your dissenter rights under Section 238 of the Cayman Companies Law with respect to the merger, in which event you will be entitled to the fair value of each Share pursuant to the Cayman Companies Law).

If you own ADSs and the merger is completed, you will be entitled to receive $27.50 per ADS (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement) in cash, without interest and net of any applicable withholding taxes, for each ADS you own as of the effective time of the merger unless you (a) surrender your ADS to the ADS depositary, pay the ADS depositary’s fees required for the cancellation of ADSs, provide instructions for the registration of the corresponding Shares, and certify that you have not given, and will not give, voting instructions as to the ADSs (or, alternatively, you will not vote the Shares) before the close of business in New York City on April 12, 2013 and become a registered holder of Shares by the close of business in the Cayman Islands on April 17, 2013 and (b) comply with the procedures and requirements for exercising dissenter rights for the Shares under Section 238 of the Cayman Islands Companies Law.

Please see “Special Factors – Material U.S. Federal Income Tax Consequences,” “Special Factors – Material PRC Income Tax Consequences” and “Special Factors – Material Cayman Islands Tax Consequences” beginning on page 79 for a more detailed description of the tax consequences of the merger. You should consult with your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local, foreign and other taxes.

 

Q: How will the Company’s restricted share units be treated in the merger?

 

A: If the merger is completed, except as provided under the Chairman Rollover Agreement, the Management Rollover Agreements and the arrangement with respect to restricted share units held by the Director and Consultant Parties, at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

 

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All restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than the Chairman Rollover RSUs, each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each restricted share unit held by the Management Rollover Securityholders as of January 1, 2013 will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

 

Q: How will the Company’s share options be treated in the merger?

 

A: If the merger is completed, at the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

 

Q: After the merger is completed, how will I receive the merger consideration for my Shares?

 

A. If you are a registered holder of Shares, promptly after the effective time of the merger (in any event within three business days after the effective time of the merger), an exchange agent appointed by Parent will mail you (a) a form of letter of transmittal specifying how the delivery of the merger consideration to you will be effected and (b) instructions for effecting the surrender of share certificates in exchange for the applicable merger consideration. You will receive cash for your Shares from the exchange agent after you comply with these instructions. Upon surrender of your share certificates or a declaration of loss or non-receipt, you will receive an amount equal to the number of your Shares multiplied by $5.50 in cash, without interest and net of any applicable withholding tax, in exchange for the cancellation of your Shares.

 

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If your Shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee on how to surrender your Shares and receive the merger consideration for those Shares.

 

Q: After the merger is completed, how will I receive the merger consideration for my ADSs?

 

A: If your ADSs are represented 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 of the merger, upon your surrender of the ADRs (or an affidavit and indemnity of 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 of the merger), the ADS depositary will send you a check for the per ADS merger consideration of $27.50 (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement), without interest and net of any applicable withholding taxes, for each ADS represented by the ADRs, in exchange for the cancellation of your ADRs after the completion of the merger. If you hold your ADSs in uncertificated form, that is, without an ADR, unless you have surrendered your ADSs to the ADS depositary for cancellation prior to the effective time of the merger, the ADS depositary will automatically send you a check for the per ADS merger consideration of $27.50 (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement), without interest and net of any applicable withholding taxes, in exchange for the cancellation of each of your ADSs after the completion of the merger. 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.

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 the transferee 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 with The Depository Trust Company (the clearance and settlement system for the ADSs) for distribution to your broker, bank or nominee on your behalf. If you have any questions concerning the receipt of the per ADS merger consideration, please contact your broker, bank or nominee.

 

Q: When and where will the extraordinary general meeting be held?

 

A: The extraordinary general meeting will take place on April 29, 2013, at 10:00 a.m. (Hong Kong Time) at 26th Floor, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong.

 

Q: What matters will be voted on at the extraordinary general meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

   

to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger; and

 

   

to approve any motion to adjourn or postpone the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting.

 

Q: What vote of our shareholders is required to authorize and approve the merger agreement and the plan of merger?

 

A:

In order for the merger to be completed, the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger must be authorized and approved by a special resolution of the Company passed by an affirmative vote of at least two-thirds of such shareholders of the

 

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  Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting. At the close of business in the Cayman Islands on April 17, 2013, the record date for the extraordinary general meeting, we expect that there will be 660,351,771 Shares issued and outstanding and entitled to vote at the extraordinary general meeting. Pursuant to the Voting Agreement, the Rollover Securityholders, including the Chairman Parties, Fosun and the Management Rollover Securityholders, have agreed to vote all of the Shares beneficially owned by them in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger. As of the date of this proxy statement, the Chairman Parties, Fosun and the Management Rollover Securityholders beneficially owned approximately 18.89%, 16.82% and 0.56% of the total issued and outstanding Shares entitled to vote, respectively. Based on the number of Shares expected to be outstanding on the record date, approximately 47.70% of the total outstanding Shares entitled to vote owned by the remaining shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

 

Q: What vote of our shareholders is required to approve the proposal to adjourn and postpone the extraordinary general meeting, if necessary, to solicit additional proxies?

 

A: The authorization and approval of the merger agreement, the plan of merger and the merger must be authorized and approved by a special resolution of the Company passed by an affirmative vote of at least two-thirds of such shareholders of the Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting. If there are insufficient votes at the time of the extraordinary general meeting to authorize and approve the merger agreement, the plan of merger and the merger, you will also be asked to vote on the proposal to adjourn the extraordinary general meeting to allow us to solicit additional proxies.

The proposal to adjourn and postpone the extraordinary general meeting, if necessary, to solicit additional proxies must be authorized and approved by an affirmative vote of the majority of such shareholders of the Company as, being entitled to do so, vote in person or by proxy as a single class at the extraordinary general meeting. Based on the number of Shares we expect to be issued and outstanding and entitled to vote on the record date, approximately 330,175,886 Shares must be voted in favor of the proposal to adjourn and postpone the extraordinary general meeting, if necessary, to solicit additional proxies.

 

Q: How does the Company board of directors recommend that I vote on the proposals?

 

A: After careful consideration and upon the unanimous recommendation of the independent committee, our board of directors by a unanimous vote (with the Chairman abstaining) recommends that you vote:

 

   

FOR the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger; and

 

   

FOR the proposal to approve any motion 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 to pass the special resolution during the extraordinary general meeting.

 

Q: Who is entitled to vote at the extraordinary general meeting?

 

A: The share record date is April 17, 2013. Only shareholders entered in the register of members of the Company at the close of business in the Cayman Islands on the share record date or their proxy holders are entitled to vote at the extraordinary general meeting or any adjournment thereof. The record date for ADS holders entitled to instruct the ADS depositary to vote at the extraordinary general meeting is March 28, 2013. Only ADS holders of the Company at the close of business in New York City on the ADS record date are entitled to instruct the ADS depositary to vote at the extraordinary general meeting. Alternatively, you may vote at the extraordinary general meeting if you cancel your ADSs by the close of business in New York City on April 12, 2013 and become a holder of Shares by the close of business in the Cayman Islands on the Share record date.

 

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Q: What constitutes a quorum for the extraordinary general meeting?

 

A: The presence, in person or by proxy, of shareholders holding one-third of the issued and outstanding Shares that are entitled to vote on the record date will constitute a quorum for the extraordinary general meeting.

 

Q: What effects will the merger have on the Company?

 

A: As a result of the merger, the Company will cease to be a publicly-traded company and will be indirectly wholly-owned by an investor group composed of the Chairman, the Sponsors, Fosun and certain other members of the management of the Company. You will no longer have any interest in our future earnings or growth. Following consummation of the merger, the registration of our Shares and ADSs and our reporting obligations with respect to our Shares and ADSs under the Exchange Act, will be terminated upon application to the SEC. In addition, upon completion of the merger, our ADSs will no longer be listed or traded on any stock exchange, including the NASDAQ and the American depositary shares program for the ADSs will terminate.

 

Q: When do you expect the merger to be completed?

 

A: We are working toward completing the merger as quickly as possible and currently expect the merger to close in the second quarter of 2013. In order to complete the merger, we must obtain shareholder approval of the merger at the extraordinary general meeting and the other closing conditions under the merger agreement must be satisfied or waived in accordance with the merger agreement.

 

Q: What happens if the merger is not completed?

 

A: If our shareholders do not authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, or if the merger is not completed for any other reason, our shareholders will not receive any payment for their Shares or ADSs pursuant to the merger agreement nor will the holders of any options or restricted share units receive payment pursuant to the merger agreement. In addition, the Company will remain a publicly traded company. The ADSs will continue to be listed and traded on NASDAQ, provided that the Company continues to meet NASDAQ’s listing requirements. In addition, the Company will remain subject to SEC reporting obligations. Therefore, our shareholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Shares or ADSs.

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described under the caption “The Merger Agreement and Plan of Merger – Termination Fees” beginning on page 106.

 

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: How do I vote if my Shares are registered in my name?

 

A: If Shares are registered in your name (that is, you do not hold ADSs) as of the record date, you should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible but in any event at least 48 hours before the time of the extraordinary general meeting so that your Shares will be represented and may be voted at the extraordinary general meeting.

Alternatively, you can attend the extraordinary general meeting and vote in person. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, the Shares represented by your proxy will be voted FOR the proposal to authorize and approve the merger agreement, the plan of merger and transactions contemplated by the merger agreement, including the merger, and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in the event

 

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that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting unless you appoint a person other than the chairman of the meeting as proxy, in which case the Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines. 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 March 28, 2013, the ADS record date (and do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained below), you cannot vote at the meeting directly, but you may instruct the ADS depositary (as 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 but, in any event, so as to be received by the ADS depositary no later than 10:00 a.m. (New York City Time) on April 25, 2013. The ADS depositary will endeavor, in so far as practicable, to vote or cause to be voted the number of Shares represented by your ADSs in accordance with your voting instructions. If the ADS depositary timely receives valid voting instructions from an ADS holder which fail to specify the manner in which the ADS depositary is to vote the Shares represented by ADSs held by such ADS holder, such ADS holder will be deemed to have instructed the ADS depositary to vote in favor of the items set forth in the voting instructions.

Alternatively, you may vote at the extraordinary general meeting if you cancel your ADSs prior to the close of business in New York City on April 12, 2013 and become a holder of Shares by the close of business in the Cayman Islands on April 17, 2013, the share record date. If you hold your ADSs through a financial intermediary such as a broker, you must rely on the procedures of the financial intermediary through which you hold your ADSs if you wish to vote. If your ADSs are held by your broker, bank or other nominee, see below.

If you wish to cancel your ADSs, you need to make arrangements to deliver your ADSs to the ADS depositary for cancellation prior to the close of business in New York City on April 12, 2013 together with (a) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares), (b) payment of the ADS cancellation fees ($0.05 per ADS to be cancelled) and any applicable taxes, and (c) a certification that the ADS holder held the ADSs as of the ADS record date for the extraordinary general meeting and has not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled, or has given voting instructions to the ADS depositary as to the ADSs being cancelled but undertakes not to vote the corresponding Shares at the extraordinary general meeting. If you hold your ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the ADSs on your behalf. Upon cancellation of the ADSs, the ADS depositary will arrange for Citibank Hong Kong, the custodian holding the Shares, to transfer registration of the Shares to the former ADS holder. If after 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 registrar of the Shares to issue and mail a certificate to your attention.

 

Q: If my Shares or ADSs are held in a brokerage account, will my broker vote my Shares on my behalf?

 

A: Your broker, bank or other nominee will only vote your Shares on your behalf or give voting instructions with respect to the Shares underlying your ADSs if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or nominee regarding how to instruct it to vote your Shares. If you do not instruct your broker, bank or other nominee how to vote your Shares that it holds, those Shares may 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 and the plan of merger?

 

A: If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to your broker, dealer, commercial bank, trust company or other nominee, your vote will not be counted.

 

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Q: May I change my vote?

 

A: Yes, you may change your vote in one of three ways:

 

   

first, you may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong;

 

   

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 no less than 48 hours prior to the extraordinary general meeting; or

 

   

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.

If you hold Shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee to vote your Shares, you must follow directions received from the broker, bank or other nominee to change your instructions.

Holders of our 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 April 25, 2013. 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; and

 

   

second, a holder of ADSs can 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 ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the ADS depositary, you must follow the directions of your broker, bank or nominee to change those instructions.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxy or voting instruction cards. For example, if you hold your Shares or ADSs in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold Shares or ADSs. 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 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. After the merger is completed, you will be sent a form of letter of transmittal with detailed written instructions for exchanging your share certificates for the merger consideration. Please do not send in your certificates now. Similarly, you should not send in the ADRs that represent your ADSs at this time. Promptly after the merger is completed, the ADS depositary will call for the surrender of all ADRs for delivery of the merger consideration. ADR holders will be receiving a similar form of letter of transmittal and written instructions from the ADS depositary relating to the foregoing.

All holders of uncertificated Shares and uncertificated ADSs (i.e., holders whose Shares or ADSs are held in book entry) will automatically receive their cash consideration shortly after the merger is completed without any further action required on the part of such holders. If your Shares or your ADSs are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your share certificates or ADRs in exchange for the merger consideration.

 

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Q: Am I entitled to dissenter rights?

 

A: Shareholders who dissent from the merger will have the right to receive payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the merger and they subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law for the exercise of dissenter rights. The fair value of your Shares as determined under that statute 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 dissenter 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 dissenter 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 dissenter rights must surrender their ADSs to the ADS depositary, pay the ADS depositary’s fees required for such surrender, provide instructions for the registration of the corresponding Shares, and certify that they have not given, and will not give, voting instructions as to the ADSs (or alternatively, they will not vote the Shares) before the close of business in New York City on April 12, 2013, and become registered holders of Shares by the close of business in the Cayman Islands on April 17, 2013. Thereafter, such former ADS holders must comply with the procedures and requirements for exercising dissenter rights with respect to the Shares under Section 238 of the Cayman Islands Companies Law.

 

Q: If I own ADSs and seek to exercise dissenter rights, how do I convert my ADSs to Shares, and when is the deadline for completing the conversion of ADSs to Shares?

 

A:

If you own ADSs and wish to exercise dissenter rights, you must surrender your ADSs to the ADS depositary (in the case of a certificated ADS by delivering the certificate to Citibank, N.A. at 480 Washington Boulevard, 30th floor, Jersey City, New Jersey 07310). Upon your payment of its fees, including the applicable ADS cancellation fee ($0.05 per ADS) and any applicable taxes, and a certification that you have not given, and will not give, voting instructions to the ADS depositary in respect of the ADSs being cancelled (or, alternatively, that you will not vote the Shares), the ADS depositary will transfer the Shares and any other deposited securities underlying the ADSs to such ADS holder or a person designated by such ADS holder. The deadline for surrendering ADSs to the ADS depositary for these purposes is the close of business in New York City on April 12, 2013.

You must become a registered holder of your Shares and lodge a written notice of objection to the plan of merger prior to the extraordinary general meeting.

We encourage you to read the information set forth in this proxy statement carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenter rights. Please see “Dissenter Rights” beginning on page 110 as well as “Annex C – Cayman Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) – Section 238” to this proxy statement for additional information.

 

Q: Will any proxy solicitors be used in connection with the extraordinary general meeting?

 

A: Yes. To assist in the solicitation of proxies, the Company has engaged MacKenzie Partners, Inc. as its proxy solicitor.

 

Q: Do any of the Company’s directors or executive officers have interests in the merger that may differ from those of other shareholders?

 

A: Yes. Some of the Company’s directors or executive officers have interests in the merger that may differ from those of other shareholders, including:

 

   

the beneficial ownership of equity interests in Parent by the Chairman;

 

   

the potential enhancement or decline in value of Parent’s shares, of which the Chairman is a beneficial owner, as a result of the merger and future performance of the surviving company;

 

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the acceleration of the vesting of restricted share units beneficially owned by the Chairman, the replacement of a portion of those restricted share units by a grant of a certain number of ordinary shares of Holdco and the cash-out of the remaining restricted share units;

 

   

replacement of restricted share units beneficially held by the Management Rollover Securityholders (including certain executive officers of the Company) by a grant of a certain number of restricted share units of Holdco;

 

   

the exchange of the restricted share units held by non-executive directors of the Company (including members of the independent committee) with restricted cash awards representing the right to receive cash amounts equal to the product of $27.50 and the number of ADSs underlying such restricted share units, which will vest as soon as practicable after the closing of the merger to be determined by Parent;

 

   

cash-out of Company share options and certain restricted share units beneficially held by employees, directors and the Chairman;

 

   

continued indemnification, rights to advancement of fees and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company;

 

   

the monthly compensation of $10,000 of members of the independent committee in exchange for their services in such capacity (and, in the case of the chairman of the independent committee, monthly compensation of $15,000) (the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger); and

 

   

the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions.

Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for a more detailed discussion of how some of our Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our shareholders generally.

 

Q: How will our directors vote on the proposal to authorize and approve the merger agreement and the plan of merger?

 

A: Pursuant to the Voting Agreement, each of the Rollover Securityholders, including the Chairman Parties, Fosun and the Management Rollover Securityholders has agreed to vote all of the Shares beneficially owned by him, her or it in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger. As of the record date, we expect that the Chairman Parties will beneficially own approximately 18.89% of the total issued and outstanding Shares entitled to vote.

 

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 enclosed proxy card, you should contact MacKenzie Partners, Inc., our proxy solicitor, toll free at +1 800-322-2885 (or +1 212-929-5500 outside of the United States).

 

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SPECIAL FACTORS

Background of the Merger

Events leading to the execution of the merger agreement described in this Background of the Merger occurred in China and Hong Kong. As a result, China Standard Time is used for all dates and times given.

The board of directors and senior management of the Company have been reviewing periodically the Company’s long-term strategic plan with the goal of maximizing shareholder value. As part of this ongoing process, the board of directors and senior management also have periodically reviewed strategic alternatives that may be available to the Company.

From time to time, a number of parties have approached the Chairman about possible transactions involving the Company. Between mid- to late March 2012, representatives of FountainVest and another private equity firm separately approached the Chairman regarding a potential transaction involving the Company, including an acquisition of the Company, on a highly preliminary basis and asked the Chairman whether he would be interested in participating in such a transaction. Over the course of the next month or so, representatives of Carlyle and two other investment firms also separately indicated their respective interests to the Chairman regarding a potential transaction involving the Company, including an acquisition of the Company, and their willingness to form a consortium with other interested parties. Carlyle and the two other investment firms likewise asked the Chairman whether he would be interested in participating in such a transaction.

In late March 2012, in response to the preliminary inquiries from FountainVest and the other private equity firm, and in April 2012, in response to the preliminary inquiries from Carlyle and the two other investment firms, the Chairman informed the other directors of the Company at these times of the potential interest in a transaction involving the Company from FountainVest, Carlyle and the three other private equity and investment firms, and their invitations to him to participate in such a transaction. During these conversations, the Chairman expressly indicated to the other directors of the Company that he had not determined whether he might be interested in participating in a transaction of this nature, but thought such a transaction might present an attractive alternative to the Company’s shareholders and requested that the board of directors consider allowing such interested parties to conduct due diligence on the Company, subject to such interested parties entering into confidentiality agreements with the Company. After considering the issue at each of these times, the board of directors approved allowing FountainVest, Carlyle and the three other private equity and investment firms to commence due diligence on the Company, subject to each of them entering into a confidentiality agreement on terms reasonably satisfactory to the Company.

With the assistance of Simpson, Thacher and Bartlett LLP (“Simpson Thacher”), the Company’s U.S. legal counsel, the Company negotiated and entered into confidentiality agreements with each of FountainVest, Carlyle and the three other private equity and investment firms between late March and late April 2012. Each such interested party commenced due diligence shortly after executing a confidentiality agreement with the Company. At different times between mid-April to early July 2012, the three private equity and investment firms separately indicated to the Company and/or Carlyle or FountainVest that each of them had decided not to pursue participation in a potential transaction and ceased their respective due diligence activities.

In June and July 2012, CITIC Capital Partners, China Everbright and a private equity firm (“Party A”) indicated their interest to the Company regarding a potential transaction involving the Company, including an acquisition of the Company, and the possibility of forming a consortium with the other parties then interested in pursuing such a transaction. The Company entered into confidentiality agreements with each of CITIC Capital Partners, China Everbright and Party A between late June and early August 2012, and each such party commenced due diligence shortly after executing a confidentiality agreement with the Company.

We refer to the private equity sponsors then contemplating joining together as a consortium in respect of a potential transaction involving the Company – namely, Carlyle, FountainVest, CITIC Capital Partners, China Everbright and Party A – as the “Sponsor Group”.

 

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From late March 2012 through August 2012, representatives of Simpson Thacher discussed with representatives of the Company various questions regarding process and disclosure obligations with respect to a potential transaction involving the Company, and assisted the Company in negotiating confidentiality agreements and coordinating the due diligence process with the parties potentially interested in the transaction.

Fried, Frank, Harris, Shriver and Jacobson (“Fried Frank”) and Sullivan & Cromwell (Hong Kong) (“Sullivan & Cromwell”) were engaged by certain members of the Sponsor Group between May 22, 2012 and August 23, 2012 as co-counsel to the contemplated consortium in connection with a potential transaction. Fried Frank was engaged as legal counsel to the consortium with primary responsibility for the acquisition-related aspects of a potential transaction and Sullivan & Cromwell was engaged as legal counsel with primary responsibility for the financing-related aspects of a potential transaction. On August 12, 2012, the Chairman engaged Skadden, Arps, Slate, Meagher and Flom LLP (“Skadden”) as his legal counsel in connection with the potential transaction involving the Company.

From March 20, 2012 and leading up to delivery of the Proposal Letter (as defined below) by the Sponsor Group and the Chairman on August 12, 2012, representatives of the Sponsor Group and the Chairman held a number of discussions to explore the feasibility of a possible going private transaction with respect to the Company.

Over the course of April through December 2012, the Sponsor Group continued their due diligence with respect to the Company, including the SEC Inquiry. Please see “Special Factors – Regulatory Matters” beginning on page 78.

In June 2012, the Sponsor Group engaged in preliminary discussions with potential debt financing sources, including Citigroup Global Markets Asia Limited (“Citi”), Credit Suisse AG, Singapore Branch (“Credit Suisse”) and DBS Bank Ltd. (“DBS”), regarding the feasibility of financing a potential transaction with the Company, including an acquisition of the Company. On June 25, 2012, representatives from Carlyle, FountainVest, Fried Frank and Sullivan & Cromwell held organizational meetings with representatives of Citi, Credit Suisse and DBS, at the offices of Fried Frank. Representatives from Carlyle and FountainVest addressed due diligence-related questions from Citi, Credit Suisse and DBS at the meeting. The Chairman and another representative of the Company also attended a portion of the meeting to answer due diligence-related questions regarding the Company.

In late June 2012, Fosun, the Company’s second largest shareholder which holds approximately 16.82% of the outstanding Shares (as of the date of this proxy statement), was contacted by representatives of the Sponsor Group inquiring whether Fosun would be prepared to issue a letter of support with respect to a potential going private proposal contemplated by the Chairman and the Sponsor Group. There was no discussion at that time regarding the terms of any specific proposal. Although Fosun made no decision at that time regarding the requested letter of support, it engaged Morrison & Foerster LLP to advise it in relation to the potential going private transaction. On July 12, 2012, Fosun received from representatives of the Sponsor Group a form of support agreement which contemplated that Fosun would roll over a portion of its Shares and would agree to vote in favor of a going private proposal to be presented by the Chairman and the Sponsor Group. No other specific terms for the going private proposal were presented or discussed. Fosun declined to enter into the support agreement, but indicated it would evaluate any going private proposal made by the Sponsor Group and the Chairman.

On August 12, 2012, the Sponsor Group and the Chairman and certain controlled affiliates of the Chairman signed a consortium agreement, pursuant to which the Chairman and the Sponsor Group agreed to participate, on an exclusive basis for 12 months following the date of the consortium agreement, in a potential going private transaction involving the Company, and submitted to the board of directors of the Company a preliminary non-binding proposal (the “Proposal Letter”) to acquire the Company in a going private transaction for $5.40 in

 

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cash per Share (or $27.00 in cash per ADS), other than any Shares or ADSs beneficially held by the Chairman and his controlled affiliated entities that may be rolled over in connection with the proposed acquisition (the “Proposal”).

On the same day, the Chairman convened a meeting of the board of directors of the Company during which he submitted to the board of directors the Proposal Letter. The Proposal Letter indicated that the Sponsor Group had entered into a consortium agreement with the Chairman and had agreed to work with each other exclusively in pursuing a proposed acquisition of the Company. The Proposal Letter also stated that the Consortium intended to finance the acquisition with a combination of debt and equity capital, and that certain members of the Sponsor Group had obtained a letter from Citi, Credit Suisse, and DBS indicating that they were highly confident of their ability to fully underwrite the debt financing for the acquisition.

The Sponsor Group subsequently engaged Citigroup Global Markets Inc. (“Citigroup”) and Credit Suisse (Hong Kong) Limited as co-lead M&A financial advisors to the Sponsor Group and the Chairman Parties, effective as of August 12, 2012.

On August 13, 2012, the board of directors held a telephonic meeting to discuss, among other things, the Proposal Letter. During the meeting, representatives of Simpson Thacher provided the board of directors with an overview of the procedures, process and duties of directors under applicable law in connection with the Proposal Letter and the possibility of establishing a committee of independent directors to evaluate the Proposal. Thereafter, the Chairman provided an overview of the Proposal, disclosed his interest in the subject matter of the Proposal Letter and recused himself from the remainder of the meeting due to potential conflicts of interest arising from his role as the chairman of the board of directors of the Company and his interest in the merger as a member of the Buyer Group.

        After the presentation and a thorough discussion, the board of directors determined that it was in the best interests of the Company and its shareholders to establish a committee of independent directors, consisting of Professor Daqing Qi, David Ying Zhang and Fumin Zhuo, with Professor Qi serving as chairman of the independent committee, to consider and, if determined advisable, attend to and do any and all matters in connection with the Proposal and the proposed acquisition, including among other things: (1) the evaluation, communication with relevant parties, negotiation, response, rejection and, if appropriate, the approval and effectuation of the proposed acquisition, and determination of whether the proposed acquisition is fair to, and in the best interests of, the Company and its shareholders, (2) if applicable, the evaluation, communication with relevant parties, negotiation, response, rejection and, if appropriate, the approval and effectuation of any other potential transaction or strategic alternative (in lieu of the proposed acquisition), and determination of whether any such other potential transaction is fair to, and in the best interests of, the Company and its shareholders, (3) making such reports and recommendations to the entire board of directors at such times and in such manner as the independent committee considers appropriate, (4) the determination of whether to recommend the proposed acquisition or, if applicable, any other potential transaction or strategic alternative deemed by the independent committee to be in the best interests of the Company and its shareholders to the shareholders of the Company, (5) the execution of any documentation for and on behalf of the Company, (6) the appointment of any adviser (legal, financial or otherwise) to assist the independent committee and (7) exercise any other power that may be otherwise exercised by the board of directors and that the independent committee may determine is necessary or advisable to carry out and fulfill its duties and responsibilities.

Later that day, the Company issued a press release regarding its receipt of the Proposal Letter and the transaction proposed therein, and furnished the press release as an exhibit to its Current Report on Form 6-K.

On August 14, 2012, the Chairman Parties filed with the SEC Amendment No. 6 to their Schedule 13D announcing the execution and submission of the Proposal Letter to the board of directors. According to the Schedule 13D, as of August 12, 2012, the Chairman Parties beneficially owned approximately 18.49% of the outstanding Shares.

 

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Also on August 14, 2012, Fosun, which at that time was not yet a member of the Consortium, issued a press release indicating, among other things, that, while it had not made any commitment with respect to the going private proposal, it did not anticipate supporting any competing proposal not including the Chairman as a participant.

On August 17, 2012, after considering proposals from multiple prospective U.S. legal advisors, the independent committee determined to retain Kirkland & Ellis International LLP (“Kirkland & Ellis”) as its U.S. legal advisor.

Later that day, the independent committee authorized Kirkland & Ellis to contact five of the investment banks that had expressed interest in being considered for the role of financial advisor to the independent committee and to request that they submit detailed proposals, including their qualifications, advisory experience and a fee proposal for consideration by the independent committee.

In the morning of August 21, 2012, the independent committee convened an organizational meeting by telephone with representatives of Kirkland & Ellis. During the meeting, the independent committee ratified the retention of Kirkland & Ellis as U.S. legal counsel and approved the retention of Maples and Calder and Fangda Partners as its Cayman Islands legal counsel and PRC legal counsel, respectively. Kirkland & Ellis also discussed with the independent committee certain criteria that the independent committee should consider when evaluating the candidates for financial advisor during the interviews that were scheduled for later that morning. Kirkland & Ellis then led the independent committee in a discussion of its key duties, responsibilities and guidelines and highlighted to the independent committee members that they should substantively engage with the Consortium only if the independent committee determined to do so following its review of the Proposal, as assisted by its financial and legal advisors.

Later that day, the independent committee conducted telephonic interviews with three candidates for financial advisor.

On August 22, 2012, after deliberation on the experience, qualifications and reputation of each of the potential financial advisors, the independent committee decided to engage J.P. Morgan Securities (Asia Pacific) Limited as its financial advisor. Among the reasons for J.P. Morgan’s selection were its extensive experience in M&A transactions, including representing special committees in going private transactions, its strong reputation, its leading media investment banking franchise, its significant experience dealing with China-based companies, its lack of existing material relationships with the Company, the Sponsor Group or the Chairman Parties and its ability to interact in both English and Chinese. The independent committee, on behalf of the Company, subsequently entered into an engagement letter with J.P. Morgan on August 28, 2012.

On August 24, 2012, the Company issued a press release regarding the independent committee’s appointment of J.P. Morgan as its financial advisor and Kirkland & Ellis as its U.S. legal counsel and furnished the press release as an exhibit to its Current Report on Form 6-K.

On August 27, 2012, the independent committee held a telephonic meeting with representatives of Kirkland & Ellis, Maples and Calder and J.P. Morgan. Kirkland & Ellis and Maples and Calder gave the independent committee a presentation regarding the duties and obligations of the committee members under applicable law in connection with the proposed transaction. Thereafter, the independent committee engaged in a discussion with its advisors regarding establishing a process and adopting a strategy and practices designed to maximize shareholder value in light of the circumstances, including the fact that the Chairman, beneficial owner (together with his controlled affiliated entities) of approximately 18.49% of the outstanding Shares (as of August 27, 2012), had committed in a consortium agreement with the Sponsor Group to work exclusively with the Sponsor Group until August 12, 2013 in respect of a transaction, and Fosun, beneficial owner of approximately 17.10% of the outstanding Shares (as of August 27, 2012) and at that time, not yet a member of the Consortium, had issued a press release indicating that it did not anticipate supporting any competing proposal

 

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which does not include the Chairman as a participant. The independent committee requested that its advisors seek to obtain clarification from the Chairman and Fosun as to whether and under what circumstances they might be willing to support an alternative transaction. Finally, the independent committee concluded that it was in the best interests of the Company at that stage to enter into new confidentiality agreements with each member of the Sponsor Group and authorized Kirkland & Ellis to negotiate such confidentiality agreements on behalf of the Company.

Later that day, Kirkland & Ellis sent a form of confidentiality agreement to Fried Frank that all members of the Sponsor Group were requested to sign and that was intended to supersede previous confidentiality agreements entered into between the Company and the Sponsor Group. Following negotiations between Kirkland & Ellis and Fried Frank, on August 31, 2012 the independent committee, on behalf of the Company, entered into confidentiality agreements with each member of the Sponsor Group (the “Confidentiality Agreements”).

On August 31, 2012, Kirkland & Ellis held a telephone conference with Skadden in order to explore the Chairman’s willingness to consider potential alternatives to the transaction proposed by the Consortium in the Proposal Letter. During this telephone conference, Skadden confirmed on behalf of the Chairman that the Chairman, in his capacity as a shareholder of the Company, had agreed to work exclusively with the Sponsor Group until August 12, 2013. Skadden also informed Kirkland & Ellis that, as a shareholder of the Company, the Chairman did not intend to participate in any alternative transaction; however, as chairman and chief executive officer of the Company, the Chairman would provide his cooperation with respect to any alternative transaction as reasonably requested by the independent committee.

On September 7, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis and Simpson Thacher regarding the SEC Inquiry (as defined below). During the meeting, Simpson Thacher outlined for the independent committee the communications between the Company and the SEC since the commencement of the SEC Inquiry and the types of information that had been requested by and provided to the SEC. Simpson Thacher provided an update with respect to the ongoing due diligence being conducted by the Sponsor Group and their legal counsel regarding the SEC Inquiry. The independent committee then discussed with Kirkland & Ellis and Simpson Thacher the potential impact that the SEC Inquiry could have on the Company, including, among other things, that there could be no assurance that the SEC Inquiry would not result in (1) a settlement involving significant monetary penalties and/or other sanctions or (2) commencement of an enforcement action against the Company and/or its directors and executive officers. The independent committee then discussed with Kirkland & Ellis and Simpson Thacher that these potential adverse effects could reduce a potential acquiror’s willingness to enter into the proposed transaction or any other alternative transaction. After thorough discussion with Kirkland & Ellis and Simpson Thacher, the independent committee in executive session determined that (1) a settlement with the SEC involving significant monetary penalties and/or other sanctions or (2) any enforcement action by the SEC against the Company and/or its directors and executive officers would either be neutral or potentially adverse to, but in any event would likely not have a positive impact on, the Company’s business, financial condition, results of operations and/or prospects due to the potential monetary cost to the Company and demand on management’s time and attention. As the Consortium would be buying the Company pursuant to the proposed transaction, while the Company’s unaffiliated security holders would be selling their shares in the Company to the Consortium, the independent committee further determined that the foregoing potential adverse impact that the SEC Inquiry could have on the Company was more relevant for the Consortium than for the Company’s unaffiliated security holders to consider in the context of the proposed transaction. Therefore, the independent committee determined that it was in the best interests of the Company and its unaffiliated security holders to continue evaluating the Proposal and the Company’s alternatives, notwithstanding the pending SEC Inquiry.

On September 10, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis and J.P. Morgan. At this meeting, Kirkland & Ellis and J.P. Morgan provided an update to the independent committee regarding the various due diligence work streams being conducted by all parties. The independent committee also requested that J.P. Morgan continue to reach out to Fosun in an attempt to clarify Fosun’s intentions with respect to the proposed transaction.

 

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On September 12, 2012, the Chairman had a telephonic meeting with J.P. Morgan. During the meeting, the Chairman confirmed his agreement, in his capacity as a shareholder of the Company, to work exclusively with the Sponsor Group until August 12, 2013 and his intention, as a shareholder of the Company, not to pursue any other transaction.

On September 14, 2012, at J. P. Morgan’s request, Fosun had a telephonic meeting with J. P. Morgan. During the meeting, Fosun confirmed that, while it had not decided if it would support the pending going private proposal, it would not support any competing proposals not including the Chairman as a participant. Fosun also advised J.P. Morgan that it was not at that time prepared to join the Consortium and that it was continuing to evaluate the terms of the going private proposal.

        On September 17, 2012, the independent committee held a telephonic meeting attended by Kirkland & Ellis, Maples and Calder and J.P. Morgan. After a brief update from its advisors regarding ongoing work streams, the independent committee then engaged in a discussion with its financial and legal advisors regarding whether to perform an active market check or otherwise conduct a broader sale process. After a review by Kirkland & Ellis and Maples and Calder of the independent committee’s duties in this regard under applicable law, J.P. Morgan noted that the Chairman, in his capacity as a shareholder of the Company, had confirmed through his legal advisor that he was committed to supporting the current proposal only and that Fosun had indicated to J.P. Morgan that it did not anticipate supporting any competing proposal that did not include the Chairman as a participant. J.P. Morgan then provided the independent committee with an overview of the advertising industry and likely lack of potential alternative bidders, noting that since the public disclosure of the Proposal Letter on August 13, 2012, there had been no inquiries from third parties. After discussion with its legal and financial advisors, and taking into consideration all available facts, including (1) the Chairman’s and Fosun’s beneficial ownership of approximately 18.49% and 17.10%, respectively, of the total outstanding Shares (as of August 27, 2012) and their collective ability to veto any other transaction by voting against it, (2) the absence of any indication of interest to J.P. Morgan or the independent committee by any potential bidder in making an alternative offer since the public announcement of the Proposal Letter on August 13, 2012 and (3) the significant disruption to the operations of the Company that a pre-signing market check may cause, the independent committee concluded that reaching out to third parties to assess their interest in an alternative transaction would be futile and would not be in the best interests of the Company or its shareholders and therefore, although the independent committee would not pursue an active market check at that stage, it would remain open to any competing bids received. In light of the Chairman’s commitment to work exclusively with the Sponsor Group and Fosun’s stated position against joining in any alternative transaction which did not include the Chairman as a participant, the independent committee believed that, unlike a situation where a company is for “sale,” any third parties that may have otherwise been interested in acquiring the Company would most likely not be willing to devote the effort and resources that would be necessary in order to prepare and make a bona fide superior offer to purchase the Company when it appeared that the Chairman and Fosun, who collectively owned over 35% of the total outstanding Shares (as of August 27, 2012), would not participate in such an offer. For these reasons, the independent committee considered that an active market check process, among other things, would potentially risk the withdrawal of the Consortium’s offer or an adverse change in such offer given the inevitable delay that such a process would entail, and would in any event be unlikely to produce a competing offer on terms better than the Consortium’s offer.

During the period from the announcement of the Proposal through September 20, 2012, various representatives of the Sponsor Group met with the Chairman in person or telephonically to discuss various aspects of the proposed transaction, including deal structure, financing and process related matters.

On September 21, 2012, Fried Frank sent an initial draft of the merger agreement to Kirkland & Ellis.

On September 24, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis and J.P. Morgan during which meeting Kirkland & Ellis summarized the draft merger agreement, including, among others things, (1) the lack of overall certainty of closing provided by the draft merger agreement due to, among

 

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other things, conditioning the closing upon no adverse change or development with respect to the SEC Inquiry, the Company not becoming aware of any evidence which would be reasonably likely to delay or materially adversely affect the outcome or resolution of the SEC Inquiry and upon the running of a high-yield bond marketing period after all other closing conditions had been satisfied, and (2) the inability of the Company to terminate the agreement if it received a superior proposal following execution of a definitive agreement. After discussion with Kirkland & Ellis and J.P. Morgan, the independent committee then instructed Kirkland & Ellis to convey to Fried Frank that any deal would require the Consortium to increase deal certainty by, among other things, accepting a certain degree of risk with respect to the SEC Inquiry by limiting the scope of its proposed closing conditions and not conditioning the transaction on the ability to run a high-yield bond marketing period.

Later that day and over the course of approximately the next week, Kirkland & Ellis and Fried Frank met in Hong Kong on multiple occasions to discuss the transaction and how to increase the overall certainty of closing.

On October 3, 2012, the independent committee convened a telephonic meeting with Kirkland & Ellis and J.P. Morgan. After Kirkland & Ellis provided the independent committee with an update on its discussions with Fried Frank regarding transaction structure and certainty of closing, J.P. Morgan then provided the independent committee with an overview of China’s outdoor advertising market and an update on the status of due diligence on the Company’s financial projections provided by management. Kirkland & Ellis then provided the independent committee with a detailed overview of the draft merger agreement. After a lengthy discussion with its advisors regarding the merger agreement and the Consortium’s offer price, the independent committee instructed Kirkland & Ellis to prepare comments to the merger agreement and J.P. Morgan to ask the Consortium to increase its offer price to $5.70 in cash per Share (or $28.50 in cash per ADS).

On October 8, 2012, representatives of Simpson Thacher met with Kit Leong Low, director and chief financial officer of the Company, to obtain the Company’s feedback with respect to the representations, warranties, covenants and certain other provisions in the draft merger agreement. Representatives of Simpson Thacher and representatives of Kirkland & Ellis held multiple discussions over the course of the following two months with respect to, among other matters, the merger agreement and the due diligence process.

        On October 10, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis and Simpson Thacher. During the meeting, Simpson Thacher provided the independent committee with an update regarding its communications with the SEC in connection with the SEC Inquiry. Simpson Thacher reviewed the current state of the production of documents to the SEC, including an overview of those documents that had already been produced and an estimate of the extent of the remaining document production. Simpson Thacher also reported on communications and correspondence it had had with the SEC to date in response to the SEC’s request for information. Thereafter, the independent committee once again discussed with Kirkland & Ellis and Simpson Thacher the risk to the Company that the SEC Inquiry could result in, among other things, (1) a settlement involving significant monetary penalties and/or other sanctions or (2) commencement of an enforcement action against the Company and/or its directors and executive officers. The independent committee then considered and determined that the foregoing risks could impact the proposed transaction and the anticipated timing for the proposed transaction by reducing a potential acquiror’s willingness to enter into the proposed transaction or any alternative transaction with the Company. Notwithstanding the potential negative impact the SEC Inquiry could have on the proposed transaction, the independent committee determined that, from a strategic alternative perspective, it remained in the best interests of the Company and its shareholders to continue evaluating the proposed transaction because the SEC Inquiry, however concluded, would not be likely to enhance the Company’s future business, financial condition, results of operations and/or prospects.

Later that day, Kirkland & Ellis delivered its initial comments to the merger agreement to Fried Frank. The revised merger agreement reflected the independent committee’s perspective that, among other things (1) the transaction should not be contingent upon the expiration of a high-yield bond marketing period that commences only after all closing conditions have been satisfied, (2) the closing conditions and representations and warranties should be customary for transactions of this type, (3) the independent committee must have the right to change its

 

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recommendation to its shareholders with respect to the transaction if failure to do so would be inconsistent with its duties under applicable law, (4) the independent committee must be able to terminate the agreement if it received a superior proposal following execution of a definitive agreement and (5) the Consortium should accept a certain degree of risk with respect to the SEC Inquiry.

On October 11, 2012, the Company notified Simpson Thacher that it had been contacted by representatives of Fosun expressing their interest in the possibility of Fosun joining the Consortium. On the same day, Simpson Thacher notified Kirkland & Ellis of this development, and later that day Kirkland & Ellis sent a confidentiality agreement for Fosun to Fried Frank, who then forwarded it on to representatives of Fosun. On October 17, 2012, following negotiations with representatives of Fosun, the independent committee entered into a confidentiality agreement on behalf of the Company with Fosun.

On October 12, 2012, Kirkland & Ellis met in Hong Kong with Fried Frank to discuss the merger agreement, and on October 16, 2012, Fried Frank sent a revised draft of the merger agreement to Kirkland & Ellis.

On October 16, 2012, the Chairman and Mr. Kit Leong Low, the Chief Financial Officer of the Company, held a telephonic meeting with representatives of the financing banks to discuss business-related due diligence matters, which included, among other things, the status of the SEC Inquiry, the management’s views towards the sustainability of the Company’s business model as a multi-platform digital media company, the competitive landscape of China’s advertising industry and the Company’s ability to maintain its market share in the relevant advertising markets where it operates.

On October 22, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis, Maples and Calder and J.P. Morgan, during which meeting Kirkland & Ellis summarized the revised draft of the merger agreement, including, among others things, that the Consortium continued to (1) resist accepting risk with respect to the SEC Inquiry and (2) condition the closing of the transaction upon the running of a high-yield bond marketing period. Following a discussion with Kirkland & Ellis and J.P. Morgan, the independent committee instructed Kirkland & Ellis to reach out to Fried Frank to continue discussing ways to increase the certainty of closing under the merger agreement.

On October 23, 2012, Kirkland & Ellis sent a revised draft of the merger agreement to Fried Frank representing the independent committee’s positions on the open issues, including, among other things, that the closing of the transaction should not be contingent upon the expiration of a then-contemplated high-yield bond marketing period, that the Company’s dividend policy should remain in effect pending the closing, the size of the termination fees and that the Consortium should accept a certain degree of risk with respect to the SEC Inquiry by limiting the scope of its proposed closing conditions.

On October 25, 2012, Kirkland & Ellis met in Hong Kong with Fried Frank to discuss the merger agreement, and later that day, held a telephonic meeting with Fried Frank and Sullivan & Cromwell to discuss the Consortium’s proposed debt financing arrangements.

Later that day, representatives of the independent committee, Carlyle, FountainVest, J.P. Morgan, Kirkland & Ellis and Fried Frank met in Shenzhen, China, to discuss the merger agreement and the open issues, including, among other things, the offer price and future dividends, the size of the termination fees, the Consortium’s debt financing and the SEC Inquiry.

Following the meeting in Shenzhen, representatives of Kirkland & Ellis, Simpson Thacher, Fried Frank and Sullivan & Cromwell held multiple in-person and telephonic meetings to discuss the merger agreement and the Consortium’s debt financing arrangements.

 

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On October 29, 2012, Kirkland & Ellis, Fried Frank and Sullivan & Cromwell had a telephonic meeting to discuss open issues in the merger agreement, including, among other things, allocation of risk among the Company and the Consortium with respect to the SEC Inquiry and the Consortium’s proposed debt financing.

On November 9, 2012, Fried Frank sent a revised draft of the merger agreement to Kirkland & Ellis representing the Consortium’s positions on, among other things, (1) certain closing conditions (i.e., (i) the accuracy of the Company’s representations and warranties regarding the absence of bad faith conduct by its executive officers and (ii) the absence of any action by a governmental authority against the Company or any of its executive officers) and (2) the situations in which the Company would be required to pay a termination fee.

On November 12, 2012, the independent committee held a telephonic meeting with Kirkland & Ellis, Maples and Calder and J.P. Morgan, during which meeting Kirkland & Ellis summarized the revised draft of the merger agreement, including, among other things, (1) the Consortium’s proposed closing conditions (i.e., (i) the accuracy of the Company’s representations and warranties regarding the absence of bad faith conduct by its executive officers and (ii) the absence of any action by a governmental authority against the Company or any of its executive officers) and (2) the situations in which the Company would be required to pay a termination fee. Following a discussion with Kirkland & Ellis and J.P. Morgan, the independent committee instructed Kirkland & Ellis to provide their comments on the merger agreement to the Consortium.

On November 13, 2012, Kirkland & Ellis sent a revised draft of the merger agreement to Fried Frank representing the independent committee’s positions on the open issues.

On November 14, 2012, Kirkland & Ellis and Fried Frank met in Hong Kong to discuss the merger agreement.

On November 16, 2012, the independent committee and representatives of Carlyle, FountainVest, Party A, J.P. Morgan, Kirkland & Ellis and Fried Frank met in Shanghai, with representatives of Sullivan & Cromwell participating by conference call, in order to discuss the merger agreement and open issues, including, among other things, the offer price increase previously requested by the independent committee and whether the Company would be permitted to continue to pay dividends according to its previously announced dividend policy, the amount of the termination fees, the extent to which the transaction may be conditioned upon the SEC Inquiry and the Consortium’s proposed debt and equity financing arrangements, including the possibility that the Consortium might add additional equity providers to the Consortium. During this meeting, the Consortium suggested the possibility of raising the offer price to $5.60 per Share in cash (or $28.00 per ADS in cash), but conditioned any such price increase on, in addition to the resolution of other open issues, the Company immediately suspending its previously announced dividend policy.

On November 21, 2012, Fried Frank, on behalf of the Consortium, reached out to Kirkland & Ellis in order to seek consent from the independent committee to share confidential information with a potential investor as a potential new member of the Consortium. Later that night, the potential investor signed a confidentiality agreement with the Company and commenced due diligence. Also that night Fried Frank delivered a revised draft of the merger agreement to Kirkland & Ellis.

Also on November 21, 2012, representatives of the Company, certain representatives of the Sponsor Group, Simpson Thacher, Skadden, Citi, Credit Suisse, DBS, Clifford Chance (counsel to the financing banks), Fried Frank and Sullivan & Cromwell met in Hong Kong, with Zhong Lun Law Firm (PRC counsel to the Consortium), Fangda Partners and certain other representatives of the Sponsor Group participating by telephone, to discuss various issues relating to the merger agreement and financing arrangements.

On November 25, 2012, the independent committee and representatives of Carlyle, FountainVest, J.P. Morgan, Kirkland & Ellis and Fried Frank held a telephonic meeting to discuss open commercial terms. During the meeting, FountainVest and Carlyle suggested that the Consortium may consider raising its offer price to

 

38


$5.63 per Share in cash (or $28.15 per ADS in cash), subject to, among other things, the Company agreeing to suspend its previously announced share repurchase and dividend policy and reciprocal Company and Parent termination fees equal to $60 million. During the meeting, the independent committee indicated that, subject to reaching mutually satisfactory arrangements on any open non-financial terms, the independent committee was prepared to move forward on this basis.

During the ensuing days, Kirkland & Ellis, Fried Frank and Sullivan & Cromwell continued to negotiate the representations and warranties, covenants and other non-financial terms of the merger agreement and related documentation during multiple telephone conferences and by exchanging drafts of the various documents.

Throughout October and November 2012 and leading up to the execution of the merger agreement, various representatives of the Sponsor Group met with the Chairman in person or telephonically to discuss the merger agreement and the ancillary agreements, including the number of Shares or ADSs that may be rolled over by the Chairman Parties in connection with the proposed transaction. During the same period, Fried Frank, Skadden, Sullivan & Cromwell and Kirkland & Ellis exchanged various drafts of the ancillary agreements.

Throughout November 2012, representatives of the Buyer Group approached and invited the Management Rollover Securityholders, and the Management Rollover Securityholders agreed, to roll over in the merger their restricted share units. The Buyer Group and the Management Rollover Securityholders then discussed and agreed on the terms of the Management Rollover Agreements.

On November 27, 2012, the Company announced its unaudited financial results for the third quarter ended September 30, 2012, which included, among other things, the Company’s guidance with respect to the quarter ending December 31, 2012 that net revenues for the Company’s core business (inclusive of the LCD display network, the in-store network, the poster frame network and the movie theater network) were expected to be in the range of $237-$246 million, the mid-point of which would represent year-on-year growth of 1% and a quarter-on-quarter decline of 3%.

On November 28, 2012, Party A indicated to Carlyle, FountainVest and the Chairman that it had decided to cease its participation in the potential transaction as a member of the Consortium, effective as of that day.

On December 13, 2012, Citigroup, on behalf of the Consortium, informed J.P. Morgan and Kirkland & Ellis that, while the Consortium remained committed to pursuing the transaction without Party A as a member of the Sponsor Group, the Sponsor Group was unprepared to proceed at the previously conditioned proposal of $5.63 per Share price (or $28.15 per ADS) and that the Sponsor Group was revising its proposal to $5.45 per Share (or $27.25 per ADS). Citigroup communicated that while the reduction was primarily due to the Consortium’s belief that the outlook for the Company had declined since the Consortium’s most recent proposal, due in part to the guidance for the fourth quarter provided in the Company’s recent earnings announcement of year-on-year growth of 1% and a quarter-on-quarter decline of 3% for its core business, compared to year-on-year growth of 26% and quarter-to-quarter growth of 13% for its core business as reflected in its third quarter unaudited financial results, and in part to projected weak advertising spending in China throughout the fourth quarter and in 2013. However, at the same time, Citigroup confirmed that the Consortium remained committed to pursuing the transaction in a timely manner.

Later that day, the independent committee convened a meeting with J.P. Morgan, Kirkland & Ellis and Maples and Calder to discuss the revised proposal from the Consortium. In consultation with J.P. Morgan and Kirkland & Ellis, the independent committee considered the course of dealings with the Consortium and various options available to the Company, including, among other things, responding to the Consortium with an improved price or other terms, and discussed the best course of dealings for maximizing shareholder value under the circumstances. The independent committee also discussed the market and competitive environment, including among other things, recent and projected future financial results, the market reaction to the Company’s recently announced financial results and guidance, and Party A’s withdrawal from the Consortium and the impact on the Company’s ADS price and the likely duration of that effect given market conditions.

 

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After extensive discussion, the independent committee determined that the likelihood of the Consortium raising its offer price back up to the previously proposed price was low in light of the relevant above factors, and therefore, the Company would be willing to proceed with a transaction at a price below the previously proposed price, but only on the condition that the Consortium revise certain other aspects of the draft merger agreement that had previously been agreed. The independent committee then instructed J.P. Morgan to request a price of $5.55 per Share (or $27.75 per ADS), a reduction in the amount of the Company’s termination fee and expense reimbursement cap and an increase in the amount of Parent’s termination fee.

On December 15, 2012, the independent committee and representatives of Carlyle, FountainVest, J.P. Morgan and Kirkland & Ellis held a telephonic meeting to discuss the independent committee’s counterproposal. During the meeting, the Consortium indicated that it would be prepared to raise its offer price to $5.50 per Share (or $27.50 per ADS) and would accept a reduced Company termination fee of $40 million and an expense reimbursement cap of $6 million, but would not accept raising the amount of Parent’s termination fee from $60 million. After discussion, the independent committee indicated that, subject to reaching mutually satisfactory arrangements on any open non-financial terms, the independent committee was prepared to move forward on this basis. During the meeting, the Consortium also notified the independent committee that the most recent potential investor would not become a member of the Consortium, as had been indicated to the Sponsor Group by such potential investor on the previous day.

During the next few days, Kirkland & Ellis and Fried Frank continued to negotiate and finalize the merger agreement and related documentation.

On December 19, 2012, the independent committee held a meeting with Kirkland & Ellis, Maples and Calder and J.P. Morgan. Following an update from Kirkland & Ellis on the status of negotiations with the Consortium and a recap of previous fiduciary duty presentations by Maples and Calder and Kirkland & Ellis, Kirkland & Ellis summarized for the independent committee the key terms and final resolution of all open items on the merger agreement and other transaction documents. J.P. Morgan then made a financial presentation regarding the Company and the consideration that would be paid to the Company’s shareholders in the potential merger. Thereafter, J.P. Morgan provided its oral opinion, subsequently confirmed in writing and attached hereto as Annex B, to the independent committee to the effect that, as of December 19, 2012, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein, the $5.50 per Share (or $27.50 per ADS) cash merger consideration to be received by the holders of Company’s Shares and ADSs, respectively (other than holders of Excluded Shares), pursuant to the merger agreement was fair, from a financial point of view, to such holders. After considering the proposed terms of the merger agreement and the other transaction agreements and the various presentations of Kirkland & Ellis and J.P. Morgan, including receipt of J.P. Morgan’s oral opinion, and taking into account the other factors described below under the heading titled “– Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” the independent committee then unanimously determined that the merger agreement, plan of merger and the merger and the other transactions contemplated by the merger agreement were fair (both substantively and procedurally) to and in the best interests of the Company and its unaffiliated security holders and declared it advisable for the Company to enter into the Merger Agreement and the other transaction agreements and recommended that the board of directors adopt a resolution approving and declaring the advisability of the merger agreement, the merger and the other transactions contemplated by the merger agreement and recommending that the shareholders of the Company authorize and approve the merger agreement, the plan of merger and the merger.

Following the meeting of the independent committee, the board of directors convened on December 19, 2012, with Kirkland & Ellis, Simpson Thacher, Maples and Calder and J.P. Morgan. The Chairman did not attend, participate in or vote upon any matters discussed during the meeting. After a recap from Maples and Calder regarding the directors’ fiduciary duties, Kirkland & Ellis gave a presentation to the board of directors on the key terms of the proposed transaction. There was then a discussion of whether any participants in the meeting had interests with any members of the Sponsor Group, which interests are described under the heading titled “–Interests of Certain Persons in the Merger.” J.P. Morgan then shared the financial presentation previously given

 

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to the independent committee regarding the Company and the consideration that would be paid to the Company’s holders of Shares and ADSs in the potential merger, and indicated that the board of directors (other than those members of the board of directors who recused themselves from voting on the approval of the merger and the merger agreement) was entitled to rely on the opinion that J.P. Morgan had orally provided to the independent committee, as subsequently confirmed in writing, to the effect that, as of December 19, 2012, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein, the $5.50 per Share (or $27.50 per ADS) cash merger consideration to be received by the holders of Company’s Shares and ADSs, respectively (other than holders of Excluded Shares), pursuant to the merger agreement was fair, from a financial point of view, to such holders. Thereafter the independent committee presented its recommendation to the board of directors. After considering the proposed terms of the merger agreement and the other transaction agreements and the various presentations of Kirkland & Ellis and J.P. Morgan, including J.P. Morgan’s fairness opinion provided to the independent committee that the board of directors (other than those members of the board of directors who recused themselves from voting on the approval of the merger and the merger agreement) was entitled to rely upon, and taking into account the other factors described below under the heading titled “– Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors,” the board of directors, with the Chairman not present or participating, unanimously determined that it was fair (both substantively and procedurally) to and in the best interests of the Company and its unaffiliated security holders, and declared it advisable, to enter into the merger agreement and the transaction agreements contemplated by the merger agreement and approved the execution, delivery and performance of the merger agreement and the transaction agreements contemplated by the merger agreement and the consummation of the transactions contemplated thereby, including the merger and directed that the authorization and approval of the merger agreement, the plan of merger and the merger be submitted to a vote at an extraordinary general meeting of the shareholders with the recommendation of the board of directors that the shareholders of the Company authorize and approve by way of special resolution the merger agreement, the plan of merger and the merger. See “– Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” for a full description of the resolutions of the Board at this meeting.

Late in the evening on December 19, 2012, the Company, Parent and Merger Sub executed the merger agreement and the Company issued a press release announcing the execution of the merger agreement.

Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors

Our board of directors, acting upon the unanimous recommendation of the independent committee, which independent committee acted with the advice and assistance of our management (other than the Chairman) and its financial and legal advisors, evaluated the merger, including the terms and conditions of the merger agreement.

At a meeting on December 19, 2012, the independent committee unanimously recommended that our board of directors adopt resolutions that:

 

   

determine that the merger, on the terms and subject to the conditions set forth in the merger agreement, is fair to and in the best interests of, the Company and its unaffiliated security holders, and declare it advisable to enter into the merger agreement;

 

   

authorize and approve the execution, delivery and performance by the Company of the merger agreement and the completion of the transactions contemplated thereby, including the merger; and

 

   

direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company with the recommendation that the shareholders of the Company authorize and approve by way of a special resolution the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger.

 

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On December 19, 2012, our board of directors (with the Chairman abstaining) approved and adopted the resolutions recommended by the independent committee. The Chairman abstained from voting because of the potential conflicts of interest arising from his role as the chairman of the board of directors of the Company and his interest in the transactions contemplated under the merger agreement, including the merger. Please see “Special Factors—Interests of Certain Persons in the Merger” beginning on page 69 for additional information.

In the course of reaching their respective determinations, the independent committee and our board of directors considered the following substantive factors and potential benefits of the merger, each of which the independent committee and our board of directors believed supported their respective decisions, but which are not listed in any relative order of importance:

 

   

the current and historical market prices of our ADSs, including the fact that the merger consideration offered to our unaffiliated security holders represents a 17.6% premium to the closing price of our ADSs on August 10, 2012, the last trading day immediately prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal. The $5.50 per Share or $27.50 per ADS merger consideration to be paid to unaffiliated security holders in the merger also represents a (a) 15% premium over the closing price of $23.91 per ADS on December 18, 2012, the trading day immediately before the merger agreement was signed, and (b) 36.6% and 33.9% premium over the volume-weighted average closing price of the ADSs during the 30 and 60 days, respectively, prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal;

 

   

the purchase by JJ Media of 712,896 ADSs (representing 3,564,480 Shares) of the Company at a price of $15.43 per ADS (approximately $3.08 per Share) on November 22, 2011 in a block trade;

 

   

the possibility that it could take a considerable period of time before the trading price of the ADSs would reach and sustain at the per ADS merger consideration of $27.50, as adjusted for present value;

 

   

the negotiations with respect to the merger consideration and the independent committee’s determination that, following extensive negotiations with the Consortium, $5.50 per Share or $27.50 per ADS was the highest price that the Consortium would agree to pay, with the independent committee basing its belief on a number of factors, including the duration and tenor of negotiations and the experience of the independent committee and its advisors;

 

   

the all-cash merger consideration, which will allow our unaffiliated security holders to immediately realize liquidity for their investment and provide them with a specific amount of cash consideration for their Shares or ADSs;

 

   

the financial analysis reviewed and discussed with the independent committee by representatives of J.P. Morgan, as well as the oral opinion of J.P. Morgan to the independent committee on December 19, 2012 (which was subsequently confirmed by delivery of a written opinion of J.P. Morgan dated the same date) with respect to the fairness, from a financial point of view, of the $5.50 per Share and $27.50 per ADSs merger consideration to be received by holders of the Shares and ADSs (other than the Excluded Shares) in the merger, as of December 19, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by J.P. Morgan in preparing their opinions. Please see “Special Factors – Opinion of the Independent Committee’s Financial Advisor” beginning on page 52 for additional information;

 

   

the independent committee’s belief that it was unlikely that any transaction with a third party could be completed at this time in light of the Chairman’s express intent not to sell or offer to sell his Shares to any third party;

 

   

global economic conditions since the second half of 2008, which have resulted in reduced liquidity, greater volatility, widening of credit spreads, lack of price transparency in credit markets, a reduction in available financing and reduced market confidence, and that the uncertainty and volatility of credit and capital markets and the overall slowdown in the PRC economy may have an adverse effect on the Company’s business, financial condition and results of operations;

 

42


   

estimated forecasts of our future financial performance prepared by our management, together with our management’s view of our financial condition, results of operations, business and prospects, including, among others, the fact that the Company’s net revenues increased by approximately 53.5% from 2010 to 2011, compared to a projected increase in net revenues of 18.3% from 2011 to 2012, indicating that the Company may face uncertain business conditions in China, which made the transaction desirable at this time as compared with other times since the Company’s initial public offering in 2005;

 

   

the belief of the independent committee that the terms of the merger agreement, including the parties’ representations, warranties and covenants and the conditions to their respective obligations, are reasonable;

 

   

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

 

   

the absence of a financing condition in the merger agreement;

 

   

the likelihood and anticipated timing of completing the merger in light of the scope of the conditions to completion, including the absence of significant required regulatory approvals; and

 

   

the fact the merger agreement provides that, in the event of a failure of the merger to be completed under certain circumstances, Parent will pay the Company a $60 million termination fee, and the guarantee of such payment obligation by the Sponsor Guarantors pursuant to the limited guarantees;

 

   

our ability, subject to compliance with the terms and conditions of the merger agreement, to terminate the merger agreement prior to the completion of the merger in order to accept an alternative transaction proposed by a third party that is a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – Acquisition Proposals” beginning on page 100);

 

   

our ability, under certain circumstances, to change, withhold, withdraw, qualify or modify our recommendation that our shareholders vote to authorize and approve the merger agreement;

 

   

our ability, under certain circumstances, to specifically enforce the terms of the merger agreement;

 

   

the consideration and negotiation of the merger agreement was conducted entirely under the control and supervision of the independent committee, which consists of three independent directors, each of whom is an outside, non-employee director, and that no limitations were placed on the independent committee’s authority; and

In addition, the independent committee and our board of directors believed that sufficient procedural safeguards were and are present to ensure that the merger is procedurally fair to our unaffiliated security holders and to permit the independent committee and our board of directors to represent effectively the interests of such unaffiliated security holders. These procedural safeguards, which are not listed in any relative order of importance, are discussed below:

 

   

in considering the merger with the Consortium, the independent committee acted solely to represent the interests of the unaffiliated security holders, and the independent committee had independent control of the extensive negotiations with the Consortium and its legal and financial advisors on behalf of such unaffiliated security holders;

 

   

all of the directors serving on the independent committee during the entire process were and are independent directors and free from any affiliation with the Consortium. In addition, none of such directors 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 (i) the directors’ receipt of board compensation in the ordinary course, (ii) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or board’s recommendation of the merger), (iii) the exchange of the restricted share units held by non-executive directors of the Company (including members of the

 

43


 

independent committee) with the restricted cash awards in the amounts in cash that are the equivalent of the product of $27.50 and the number of ADSs underlying such restricted share units, which will vest as soon as practicable after the closing of the merger to be determined by Parent, and (iv) the directors’ indemnification and liability insurance rights under the merger agreement;

 

   

following its formation, the independent committee’s independent control of the sale process with the advice and assistance of J.P. Morgan, as its financial advisor, and Kirkland & Ellis, Maples and Calder and Fangda Partners, as its legal advisors, each reporting solely to the independent committee;

 

   

the independent committee was empowered to consider, attend to and take any and all actions in connection with the written proposal from the Consortium and the transactions contemplated thereby from the date the committee was established, and no evaluation, negotiation, or response regarding the transaction or any documentation in connection therewith from that date forward was considered by our board of directors for authorization and approval unless the independent committee had recommended such action to our board of directors;

 

   

the independent committee had the authority to reject the terms of any strategic transaction, including the merger;

 

   

the independent committee met regularly to consider and review the terms of the merger;

 

   

the recognition by the independent committee and our board of directors that it had no obligation to recommend the authorization and approval of the proposal from the Consortium or any other transaction;

 

   

the recognition by the independent committee and our board of directors that, under the terms of the merger agreement, it has the ability to consider any proposal regarding a competing transaction reasonably likely to lead to a superior proposal until the date our shareholders vote upon and authorize and approve the merger agreement;

 

   

the ability of the Company to terminate the merger agreement in connection with a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – Acquisition Proposals” beginning on page 100) subject to compliance with the terms and conditions of the merger agreement; and

 

   

the availability of dissenter rights to the shareholders, other than the Rollover Securityholders, who comply with all of the required procedures under the Cayman Companies Law for exercising dissenter rights, which allow such holders to receive the fair value of their Shares as determined by the Grand Court of the Cayman Islands.

The independent committee and board of directors also considered a variety of potentially negative factors discussed below concerning the merger agreement and the merger, which are not listed in any relative order of importance:

 

   

the fact that authorization and approval of the merger agreement are not subject to the authorization and approval of holders of a majority of the Company’s outstanding Shares unaffiliated with the Buyer Group;

 

   

due to the exclusivity arrangement with the Chairman under the consortium agreement prohibiting the Chairman from considering any other transaction involving a sale of the Company, no attempt was made to solicit third parties that might otherwise consider an acquisition of the Company;

 

   

the fact that the Company’s shareholders, other than the Rollover Securityholders, will have no ongoing equity participation in the Company following the merger, and that they will cease to participate in our future earnings or growth, if any, or to benefit from increases, if any, in the value of the Shares, 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 completion of the merger, including, among other things, restrictions on: (i) the amendment of the organizational documents of the Company or

 

44


 

any of its subsidiaries, (ii) the issuance, sale, pledge or disposal of any securities of the Company or any of its subsidiaries, (iii) the sale, transfer, pledge or disposal of any property or assets of any subsidiary except in the ordinary course of business or any property or assets directly held by the Company, (iv) the declaration or payment of any dividend, (v) capital contributions or investments in any business or acquisitions of any assets or business in excess of $1 million individually or $5 million in the aggregate, (vi) the grant of severance or termination payments to or any material increase in compensation of directors, officers and employees or acceleration of vesting or payment of benefits under an employee benefits plan, (vii) the incurrence of any debt or borrowings (with certain exceptions), (viii) the entry into any settlement agreement with any governmental authority and (ix) entering into, termination or modification of material contracts. See “The Merger Agreement and Plan of Merger – Conduct of Business Prior to Closing” beginning on page 97 for additional information;

 

   

the risks and costs to the Company if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on business and customer relationships;

 

   

the Company will be required to, under certain circumstances, pay Parent a termination fee of $40 million in connection with the termination of the merger agreement;

 

   

the fact that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity financing commitments for the merger, and that the Company’s legal remedy in the event of breach of the merger agreement by Parent or Merger Sub is limited to receipt of a termination fee of $60 million, and that the Company may not be entitled to a termination fee at all if, among other things, (i) the merger is not completed by June 19, 2013 (which may be extended at the written request of the Company or Parent to October 19, 2013, to satisfy any condition for which the consent or approval of any governmental authority is being sought), (ii) the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting or (iii) PRC counsel issues a legal opinion stating that due to a change in applicable PRC laws, rules or regulations, certain existing debt of the Company would no longer be permissible. See “The Merger Agreement and Plan of Merger – Termination of the Merger Agreement” beginning on page 104 and “The Merger Agreement and Plan of Merger – Termination Fee” beginning on page 106 for additional information;

 

   

the terms of the Chairman Parties’ participation in the merger and the fact that the Chairman may have interests in the transaction that are different from, or in addition to, those of our unaffiliated security holders, as well as the other interests of the Company’s directors and officers in the merger. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for additional information;

 

   

the rights of Parent and Merger Sub under the merger agreement not to consummate the merger and/or to terminate the merger agreement if certain events that are not within our control take place, including certain negative developments in connection with the SEC Inquiry;

 

   

the possibility that the merger might not be completed and the negative impact of a public announcement of the merger on our sales and operating results and our ability to attract and retain key management, marketing and technical personnel; and

 

   

the taxability of an all-cash transaction to our unaffiliated security holders that are U.S. holders as defined below in “Special Factors – Material U.S. Federal Income Tax Consequences.”

        The foregoing discussion of information and factors considered by the independent committee and our board of directors is not intended to be exhaustive, but includes the material factors considered by the independent committee and our board of directors. In view of the wide variety of factors considered by the independent committee and our board of directors, neither the independent committee nor our board of directors found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the independent committee and our board of directors may have given different weights to different factors and may have viewed some factors more positively or negatively than

 

45


others. The independent committee recommended that our board of directors authorize and approve, and our board of directors authorized and approved, the merger agreement based upon the totality of the information presented to and considered by it.

In the course of 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 contemplated by the merger agreement, including the merger, the independent committee considered financial analyses presented by J.P. Morgan as an indication of the going concern value of the Company. These analyses included, among others, discounted cash flow analysis, selected public company analysis, selected transactions analysis, analysis of sales and EBITDA multiples, premium analysis and industry analysis. All of the material analyses as presented to the independent committee on December 19, 2012 are summarized below under the caption “Special Factors – Opinion of the Independent Committee’s Financial Advisor” beginning on page 52. The independent committee expressly adopted these analyses and the opinion of J.P. Morgan, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement, including the merger.

Neither the independent committee nor our board of directors considered the liquidation value of 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 independent committee and the board of directors 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. Each of the independent committee and the board of directors believes the analyses and additional factors it reviewed provided an indication of our going concern value. Each of the independent committee and board of directors also considered the historical market prices of our ADSs as described under the caption “Market Price of the Company’s ADSs, Dividends and Other Matters – Market Price of the ADSs” beginning on page 84. Each of the independent committee and the board of directors considered the purchase prices paid in previous purchases as described under the caption “Transactions in the Shares and ADSs.” Neither the independent committee nor our board of directors considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the shareholders of the Company, as a factor. The independent committee and board of directors believe that net book value is not a material indicator of the value of the Company as a going concern. The Company’s net book value per Share as of September 30, 2012 is $2.15, based on the weighted average number of outstanding Shares during the nine months ended September 30, 2012. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry related to the operation and development of digital media advertising network or the business risks inherent in competing with larger companies in that industry. 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, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

In reaching its determination that the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and our unaffiliated security holders and its decision to authorize and approve the merger agreement and recommend the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated thereby, including the merger, by our shareholders, our board of directors, on behalf of the Company, considered the analysis and recommendation of the independent committee and the factors examined by the independent committee as described above under this section and adopted such recommendations and analysis. For the foregoing reasons, each of the Company and our board of directors believes that the merger agreement, the plan of merger and the transactions contemplated thereby are substantively and procedurally fair to and in the best interests of the Company and our unaffiliated security holders.

Except as discussed in “Special Factors – Background of the Merger,” “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and our Board of Directors,” and “Special Factors – Opinion of the Independent Committee’s Financial Advisor,” no director who is not an employee of the

 

46


Company has retained an unaffiliated representative to act solely on behalf of unaffiliated security holders for purposes of negotiating the terms of the transaction and/or preparing a report concerning the fairness of the transaction.

Position of the Buyer Group as to the Fairness of the Merger

Under the rules governing “going private” transactions, each member of the Buyer Group may be deemed to be an affiliate of the Company, and therefore, required to express its belief as to the fairness of the merger to the Company’s unaffiliated security holders. Each member of the Buyer Group is making the statements included in this section solely for the purposes 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 and should be construed as a recommendation to any shareholder of the Company as to how that shareholder or holder of ADS should vote on the proposal to adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger. The Buyer Group has 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. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for additional information. The Buyer Group believes the proposed merger is fair for the Company’s unaffiliated security holders on the basis of the factors described in “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 41 and the additional factors described below.

The Buyer Group believes the interests of the Company’s unaffiliated security holders were represented by the independent committee, which negotiated the terms and conditions of the merger agreement with the assistance of its legal and financial advisors. The Buyer Group attempted to negotiate a transaction that would be most favorable to them, and not to the Company’s unaffiliated security holders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The Buyer Group did not participate in the deliberations of the independent committee regarding, and did not receive any advice from the independent committee’s legal or financial advisors as to, the fairness of the merger to the Company’s unaffiliated security holders. Furthermore, the members of the Buyer Group did not perform, or engage a financial advisor to perform, any independent valuation or other analysis to assist them in assessing the fairness of the merger consideration to the Company’s unaffiliated security holders.

Based on their knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the independent committee and the Company’s board of directors discussed in “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 35, the Buyer Group believes the merger is substantively and procedurally fair to the Company’s unaffiliated security holders. In particular, the Buyer Group believes that the proposed merger is both procedurally and substantively fair to the unaffiliated security holders of the Company based on their consideration of the following factors, which are not listed in any relative order of importance, among others:

 

   

the fact that the independent committee and, acting upon the unanimous recommendation of the independent committee, the Company’s board of directors determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of the Company’s unaffiliated security holders;

 

   

the fact that the independent committee, consisting entirely of directors who are not officers or employees of the Company and who are not affiliated with any member of the Buyer Group, was established and given authority to, among other things, review, evaluate and negotiate the terms of the merger and to recommend to the Company’s board of directors what action should be taken by the Company, including not to engage in the merger;

 

47


   

the fact that the members of the independent committee do not have any interests in the merger different from, or in addition to, those of the Company’s unaffiliated security holders, other than (i) the directors’ receipt of board compensation in the ordinary course, (ii) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or board’s recommendation of the merger), (iii) the exchange of the restricted share units held by non-executive directors of the Company (including members of the independent committee) with restricted cash awards representing the right to receive cash amounts equal to the product of $5.50 and the number of Shares underlying such restricted share units, which will vest as soon as practicable after the closing of the merger to be determined by Parent, and (iv) the directors’ indemnification and liability insurance rights under the merger agreement;

 

   

the fact that the independent committee retained and was advised by its legal and financial advisors who are experienced in advising committees such as the independent committee in similar transactions;

 

   

the fact that the independent committee and the Company’s board of directors had no obligation to recommend the authorization and approval of the merger agreement and the transactions contemplated thereby, including the merger, or any other transaction;

 

   

the current and historical market prices of the Company’s ADSs and the fact that the merger consideration represents a (a) 17.6% premium of over the closing price of the Company’s ADS August 10, 2012, the last trading day immediately prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal, (b) 15% premium over the closing price of $23.91 per ADS on December 18, 2012, the trading day immediately before the merger agreement was signed, and (c) 36.6% and 33.9% premium over the volume-weighted average closing price of the ADSs during the 30 and 60 days, respectively, prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal;

 

   

the fact that the merger consideration is all cash, which provides a specific amount of cash consideration for Shares and ADSs held by, and liquidity to, unaffiliated security holders and allows the unaffiliated security holders not to be exposed to risks and uncertainties relating to the prospects of the Company;

 

   

the fact that the merger consideration, other terms and conditions of the merger agreement and the transactions contemplated thereby were the result of extensive negotiations over an extended period of time between the independent committee, its advisors and the Buyer Group;

 

   

the fact that Parent and Merger Sub obtained debt and equity financing commitments for the transaction, the limited number and nature of the conditions to the debt and equity financing, and the obligation of Parent to use its reasonable best efforts to obtain the debt financing;

 

   

the fact that the independent committee received from its financial advisor, J.P. Morgan, an opinion, dated December 19, 2012, as to the fairness, from a financial point of view, of the $5.50 per Share and $27.50 per ADS merger consideration to be received by holders of the Shares and ADSs (other than the Excluded Shares) in the merger, as of December 19, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by J.P. Morgan in preparing their opinion;

 

   

the fact that in certain circumstances under the terms of the merger agreement, the independent committee and the board of directors of the Company are able to change, withhold, withdraw, qualify or modify their recommendation of the merger;

 

   

the fact that the fee payable by the Company to Parent if the merger agreement is terminated under certain circumstances will not exceed $40 million, or approximately 1.1% of the Company’s total equity value implied by the merger consideration;

 

   

the fact that the Company is able to, subject to compliance with the terms and conditions of the merger agreement, terminate the merger agreement prior to the completion of the merger in order to accept an

 

48


 

alternative transaction proposed by a third party that is a “superior proposal” (as defined in the merger agreement and further explained under the caption “The Merger Agreement and Plan of Merger – Acquisition Proposals” beginning on page 100);

 

   

the fact that the Company, under certain circumstances, is able to specifically enforce the terms of the merger agreement;

 

   

the availability of dissenter rights to the shareholders, other than the Rollover Securityholders, who comply with all of the required procedures under the Cayman Companies Law for exercising dissenter rights, which allow such holders to receive the fair value of their Shares as determined by the Grand Court of the Cayman Islands;

 

   

the fact that adoption of the merger agreement is subject to approval by the affirmative vote of at least two-thirds of the shareholders present and voting in person or by proxy as a single class in accordance with the Cayman Companies Law and the Company’s memorandum and articles of association;

 

   

that the board of directors was fully informed about the extent to which the interests of the Rollover Securityholders in the merger differed from those of the Company’s other shareholders; and

 

   

the fact that neither the Chairman, Fosun nor any of their advisors participated in or sought to influence the deliberative process of the independent committee.

The Buyer Group did not consider the Company’s net book value, which is an accounting concept based on historical costs, as a factor because it believed that net book value is not a material indicator of the Company’s value as a going concern but rather is indicative of historical costs. The Buyer Group notes, however, that the merger consideration of $27.50 per ADS (or $5.50 per Share) is higher than the net book value of the Shares disclosed in the Company’s most recent public filings with the SEC.

In its consideration of the fairness of the proposed merger, the Buyer Group did not undertake an appraisal of the assets of the Company to determine the Company’s liquidation value for the Company’s unaffiliated security holders due to the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, since it considered the Company to be a viable going concern where value is derived from cash flows generated from its continuing operations, and because the Company will continue to operate its business following the merger.

The Buyer Group did not seek to establish a pre-merger going concern value for the Company’s Shares and ADSs to determine the fairness of the merger consideration to the Company’s unaffiliated security holders because following the merger the Company will have a significant different capital structure. However, to the extent the pre-merger going concern value was reflected in the pre-announcement price of the Company’s ADSs, the merger consideration represented a premium to the going concern value of the Company.

The Buyer Group did not specifically consider the purchase prices paid in the transactions described under “Transactions in the Shares and ADSs” beginning on page 114 but notes that the consideration to be received by the Company’s unaffiliated security holders generally represents a premium over such prices.

The members of the Buyer Group are not aware of, and thus did not consider in their fairness determination, any offers or proposals made by any unaffiliated third parties with respect to (a) a merger or consolidation of the Company with or into another company, (b) a sale of all or a substantial part of the Company’s assets, or (c) the purchase of the Company voting securities that would enable the holder to exercise control over the Company.

The foregoing discussion of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the substantive and procedural fairness of the merger to the Company’s unaffiliated security holders is not intended to be exhaustive, but is believed to include all material factors considered. The Buyer Group found it impracticable to assign, and did not assign, relative weights to the

 

49


foregoing factors considered in reaching its conclusions as to the substantive and procedural fairness of the merger to the Company’s unaffiliated security holders. Rather, the Buyer Group made the fairness determinations after considering all of the foregoing as a whole.

The Buyer Group believes these factors provide a reasonable basis for its belief that the merger is both substantively and procedurally fair to the Company’s unaffiliated security holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any shareholder or ADS holder of the Company to approve the merger agreement. The Buyer Group does not make any recommendation as to how such shareholders or ADS holders should vote relating to the proposal to approve the merger agreement and the merger at the extraordinary general meeting.

None of the members of the Buyer Group performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the proposed merger to the Company’s unaffiliated security holders.

Certain Financial Projections

The Company does not generally make 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, 2012 through the fiscal year ending December 31, 2017 for the independent committee and J.P. Morgan in connection with the financial analysis of the merger. These financial projections, which were based on 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 J.P. Morgan in its financial analyses, and were not prepared with a view toward 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. generally accepted accounting principles.

The financial projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. In compiling the projections, our management took into account historical performance, combined with estimates regarding net revenue, gross profit, EBIT, EBITDA and net income. Although the projections are presented with numerical specificity, they were based on numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the projections were prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of actual future results. In addition, factors such as industry performance, the market for our 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 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 our 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, Deloitte Touche Tohmatsu CPA Ltd., 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 independent committee and J.P. Morgan, and are not included in this proxy statement in order to induce any holder of Shares or ADSs to vote in favor of approval of the merger agreement or to elect not to seek appraisal for his or her Shares.

 

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The following table summarizes the financial projections prepared by our management and considered by the independent committee and J.P. Morgan in connection with their analysis of the proposed transaction:

 

     Management Projections  
     2012E(1)     2013E     2014E     2015E     2016E     2017E  
     (USD, in millions)  

Net revenue

     938        1,127        1,376        1,645        1,922        2,172   

% growth

       20.1     22.1     19.6     16.8     13.0

Gross Profit

     618        744        913        1,099        1,282        1,450   

% net revenue

     65.8     66.0     66.3     66.8     66.7     66.8

EBITDA(2)

     417        491        606        737        878        990   

% net revenue

     44.5     43.6     44.0     44.8     45.7     45.6

Depreciation and Amortization

     33        38        49        70        95        104   

EBIT(3)

     384        453        557        667        783        886   

% net revenue

     40.9     40.2     40.5     40.5     40.7     40.8

Net income

     333        393        482        546        640        684   

% net revenue

     35.5     34.8     35.0     33.2     33.3     31.5

Capex

     33        51        62        105        131        174   

% net revenue

     3.5     4.5     4.5     6.4     6.8     8.0

 

(1) 

These projections were prepared by our management during the fourth quarter of the fiscal year ended December 31, 2012. At the time these projections were prepared, the audit for the fiscal year ended December 31, 2012 has not been completed. Accordingly, management estimates for fiscal year ended December 31, 2012 may vary from our audited financial statements.

(2) 

“EBITDA” refers to earnings before interest, taxes, depreciation and amortization.

(3) 

“EBIT” refers to earnings before interest and taxes.

EBIT and EBITDA are non-GAAP measures that are used by management as supplemental financial measures to evaluate the Company’s operational trends. Neither metric should be relied upon as an alternative to net income. Neither EBIT nor EBITDA is defined under U.S. GAAP and, accordingly, they may not be comparable measurements to those used by other companies.

NONE OF THE COMPANY OR OUR 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 are forward-looking statements. For information on factors which may cause our future financial results to materially vary, please see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 119, and “Item 3. Key Information – D. Risk Factors” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2011, incorporated by reference into this proxy statement.

 

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Opinion of the Independent Committee’s Financial Advisor

Pursuant to an engagement letter dated August 28, 2012, the independent committee retained J.P. Morgan as its financial advisor to deliver a fairness opinion in connection with the merger. J.P. Morgan 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.

At the meeting of the independent committee on December 19, 2012, J.P. Morgan rendered its oral opinion to the independent committee that, as of such date and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the per Share merger consideration to be paid to the holders of the Shares and the per ADS merger consideration to be paid to the holders of the ADSs (in each case, other than holders of Excluded Shares, including Excluded Shares represented by ADSs) in the merger was fair, from a financial point of view, to such holders. J.P. Morgan has confirmed its December 19, 2012 oral opinion by delivering its written opinion to the independent committee, dated as of the same date, that, as of such date, the per Share merger consideration to be paid to the holders of the Shares and the per ADS merger consideration to be paid to the holders of the ADSs (in each case, other than holders of Excluded Shares, including Excluded Shares represented by ADSs) in the merger was fair, from a financial point of view, to such holders. No limitations were imposed by the independent committee upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinions.

The full text of the written opinion of J.P. Morgan dated December 19, 2012, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The shareholders of the Company are urged to read the opinion in its entirety. J.P. Morgan’s written opinion is addressed to the independent committee (in its capacity as such), is directed only to the per Share merger consideration and the per ADS merger consideration to be paid in the merger and does not constitute a recommendation to any shareholder, or holder of ADSs, of the Company as to how such shareholder, or holder of ADSs, should vote with respect to the merger or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed the merger agreement;

 

   

reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;

 

   

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration received for such companies;

 

   

compared the financial and operating performance of the Company with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of the Company’s ADSs and certain publicly traded securities of such other companies;

 

   

reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business; and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

J.P. Morgan also held discussions with certain members of the management of the Company and the Consortium with respect to certain aspects of the merger, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

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J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company and the Consortium or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify (nor did J.P. Morgan assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct or was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management of the Company as to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will be consummated as described in the merger agreement. J.P. Morgan also assumed that the representations and warranties made by the Company and the Consortium in the merger agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan did not act as legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material 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 on the contemplated benefits of the merger.

The financial projections furnished to J.P. Morgan for the Company and used in connection with its analysis of the merger were prepared by or at the direction of the management of the Company. The Company does not publicly disclose internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the merger, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

J.P. Morgan’s opinion is based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. Subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the per Share merger consideration to be paid to the holders of Shares and the per ADS merger consideration to be paid to the holders of the ADSs (in each case, other than holders of Excluded Shares, including Excluded Shares represented by ADSs) in the proposed merger, and J.P. Morgan expressed no opinion as to the fairness of the merger to, or any consideration paid in connection with the merger to, the holders of any other class of securities, creditors or other constituencies of the Company or the underlying decision by the Company to engage in the merger. J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the per Share merger consideration or the per ADS merger consideration to be paid to the holders of the Shares or ADSs (other than holders of Excluded Shares, including Excluded Shares represented by ADSs) in the merger or with respect to the fairness of any such compensation.

J.P. Morgan was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of the Company or any other alternative transaction.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. J.P. Morgan has consented to the inclusion and disclosure of its financial analyses in this proxy statement. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone. In order to fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each

 

53


summary. Considering the data in the tables 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 J.P. Morgan’s financial analyses.

All values in the sections “Public Trading Multiples,” “Selected Transaction Analysis” and “Discounted Cash Flow Analysis” below are presented on an equity value per ADS basis. In arriving at equity value per ADS for the Company, the analysis started with the determination of firm value, or “FV”, for the Company. Firm value was then adjusted by subtracting total debt outstanding as of September 30, 2012, adding total cash and cash equivalents outstanding as of September 30, 2012, subtracting minority interests, and adding equity value of non-controlling interests to arrive at equity value for the Company. Equity value was then divided by the diluted ADS count to arrive at equity value per ADS. In arriving at the equity value per ADS for purposes of the ADS price to estimated earnings per ADS ratio, or “P/E”, the earnings per ADS was multiplied by the relevant public trading multiple. All market data used by J.P. Morgan in its analyses was as of December 17, 2012.

Public Trading Multiples

Using publicly available information, J.P. Morgan compared selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be most similar to the Company. The companies selected by J.P. Morgan were:

 

   

JCDecaux S.A.

 

   

Lamar Advertising Company

 

   

Clear Channel Outdoor Holdings, Inc

 

   

APG|SGA SA

 

   

Ströer Out-of-Home Media AG

 

   

Clear Media Limited

These companies were selected, among other reasons, because they represent the main publicly traded peers in the global outdoor advertising industry with operations and businesses that, for purpose of J.P. Morgan’s analysis, may be considered similar to that of the Company. However, none of the selected companies reviewed is identical to the Company. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the selected companies compared to the Company’s and other factors that could affect the public trading value of the selected companies and the Company.

In all instances, multiples were based on closing share prices on December 17, 2012. For each of the following analyses performed by J.P. Morgan, estimated financial data for the selected companies were based on the selected companies’ filings with the SEC and any other relevant stock exchanges as well as the publicly available consensus estimates of Wall Street analysts.

 

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In conducting its analyses, J.P. Morgan reviewed the selected companies’ trading multiples based on (1) ratio of FV to estimated sales for calendar year 2013, (2) ratio of FV to estimated EBITDA for calendar year 2013, and (3) ratio of market capitalization to estimated net income, referred to as the P/E multiple, for calendar year 2013. Results of the analyses were presented for the selected companies, as indicated in the following table:

 

     Market value      Firm value      FV/Sales      FV/EBITDA      P/E  
Company    ($mm)      ($mm)      2013E      2013E      2013E  

JCDecaux S.A.

     5,385         5,515         1.6x         7.1x         17.7x   

Lamar Advertising Company

     3,810         5,848         4.7x         10.9x         NM   

Clear Channel Outdoor Holdings, Inc

     2,443         6,877         2.2x         9.5x         NM   

APG|SGA SA

     637         581         1.6x         7.3x         13.2x   

Ströer Out-of-Home Media AG

     387         849         1.1x         5.8x         11.8x   

Clear Media Limited

     297         157         0.7x         NA         9.0x   

Based on the above analyses, J.P. Morgan applied a multiple reference range of (1) 1.5x to 2.5x for FV to the Company’s estimated sales for calendar year 2013 based on management estimates, (2) 6.0x to 9.0x for FV to the Company’s estimated EBITDA for calendar year 2013 based on management estimates, and (3) 9.0x to 12.0x for equity value to the Company’s estimated net income for calendar year 2013 based on management estimates. In comparison to the per ADS consideration, the analyses indicated the following equity values per ADS:

 

FV/Sales    FV/EBITDA    P/E
2013E    2013E    2013E
$17.58 to $25.85    $26.79 to $37.51    $26.01 to $34.59

Selected Transaction Analysis

J.P. Morgan reviewed publicly available information to identify comparable transactions where the acquirer sought significant ownership of an outdoor advertising company since January 1, 2007, and focused primarily on the selected transactions that it deemed relevant in the exercise of its professional judgment. No target company utilized in the selected transaction analysis is identical to the Company, nor is any precedent transaction utilized identical to the transactions contemplated by the merger agreement. In evaluating the precedential value of transactions listed below, J.P. Morgan made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters.

 

55


        For each of the selected transactions, J.P. Morgan calculated, to the extent information was publicly available, (1) FV of the company divided by the company’s sales for the twelve-month period immediately preceding the announcement of the respective transaction, or “LTM FV/ Sales,” (2) FV of the company divided by the company’s EBITDA for the twelve-month period immediately preceding the announcement of the respective transaction, or “LTM FV/ EBITDA”. The transactions considered the month and year each transaction was announced; the resulting LTM FV/ Sales and LTM FV/ EBITDA are as follows:

 

Announcement date

  Target   Acquiror   %  stake
acquired
    Firm value
($mm)
    LTM
FV/ Sales
    LTM
FV/
EBITDA
 

July 20, 2012

  Eye Corp Pty Limited   CHAMP Private Equity     100.0     114        0.8x        NA   

October 24, 2011

  Mediakiosk   JCDecaux S.A.     95.0     83        2.3x        5.7x   

Feb 28, 2008

  Vista Media Group   Lamar Advertising
Company
    100.0     66        1.8x        22.6x   

August 31, 2007

  Primesight Limited   GMT Communications
Partners
    100.0     125        NA        8.0x   

April 23, 2007

  Affichage Holding   Compagnie Nationale à
Portefeuille S.A.
    25.3     413        1.5x        7.7x   

Based on the results of this analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan applied a LTM FV/ Sales multiple of 1.0x to 2.5x to the Company’s estimated sales for the twelve-month period ended September 30, 2012; J.P. Morgan applied a LTM FV/ EBITDA multiple of 6.0x to 8.0x to the Company’s estimated EBITDA for the twelve-month period ended September 30, 2012. In comparison to the per ADS consideration, the analyses indicated the following equity values per ADS:

 

LTM FV/Sales    LTM FV/EBITDA
$12.04 to $22.35    $23.67 to $29.81

Discounted Cash Flow Analysis

J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the equity value per ADS for the ADSs. J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during the fourth quarter of 2012 through fiscal years 2013 to 2017 based upon financial projections prepared by the management of the Company. See “Special Factors – Certain Financial Projections” beginning on page 50 for additional information.

J.P. Morgan also calculated a range of terminal asset values of the Company at the end of the projection period ending 2017 by applying a perpetual growth rate ranging from 2% to 4%. The unlevered free cash flows and the range of terminal asset values were then discounted to present values using a range of discount rates from 14% to 18%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of the Company. The present value of the unlevered free cash flows and the range of terminal asset values were then adjusted by subtracting total debt outstanding as of September 30, 2012, adding total cash and cash equivalents outstanding as of September 30, 2012, subtracting minority interests and adding equity interests. Based on these assumptions, the discounted cash flow analysis indicated a range of equity values per ADS of between $22.35 and $31.17:

 

     Terminal growth  

Discount rate

   2.0%      3.0%      4.0%  

14.0%

     28.10         29.49         31.17   

15.0%

     26.33         27.47         28.82   

16.0%

     24.81         25.76         26.86   

17.0%

     23.50         24.29         25.21   

18.0%

     22.35         23.03         23.80   

 

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J.P. Morgan noted that historical stock trading, precedent privatization premium analysis, and analyst price targets analyses are not valuation methodologies but were presented merely for informational purposes.

J.P. Morgan reviewed the trading range of the ADSs for the 52-week period ended August 10, 2012, which represents the last trading day prior to the announcement of receipt of the merger proposal. During that period, the range of closing prices of the ADSs was $8.79 and $32.93. J.P. Morgan observed that the volume weighted average prices of the ADSs for the 60-days and 30-days prior to the announcement of receipt of the merger proposal, dated August 13, 2012, were $20.53 and $20.14, respectively. Based on publicly available information, J.P. Morgan also observed that precedent privatization premiums for Cayman-incorporated PRC companies listed in the U.S. over the last trading day prior to announcement of a privatization offer ranges from 17% to 34%, which implied an equity value per ADS range of $27.35 to $31.33 when applied to the closing price of the ADSs of $23.38 on August 10, 2012, the last trading day prior to the announcement of receipt of the merger proposal. Precedent privatization premiums for Cayman-incorporated PRC companies listed in the U.S. over the 30-day volume weighted average price prior to announcement of a privatization offer ranges from 22% to 39%, which implied an equity value per ADS range of $24.57 to $27.99 when applied to the 30-day volume weighted average price of $20.14. Analyst price targets for equity value per ADS ranged from $26.00 to $43.00.

        The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to the Company, and none of the selected transactions reviewed was identical to the merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the merger.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to deliver an opinion to the independent committee with respect to the merger on the basis of such experience and its familiarity with the Company.

Under the terms of J.P. Morgan’s engagement and for its service, the Company has agreed to pay J.P. Morgan (1) a fee of $2 million upon delivery of the Opinion, (2) an additional fee of $500,000, payable upon closing of the merger, and (3) a discretionary fee of $500,000, payable in the sole discretion of the independent committee upon closing of the merger. In addition, the Company has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of outside legal counsel

 

57


engaged by J.P. Morgan in connection with its performance of services hereunder. The Company has also agreed to indemnify J.P. Morgan for certain liabilities arising out of J.P. Morgan’s engagement.

In addition, during the two years preceding the date of J.P. Morgan’s opinion, J.P. Morgan and its affiliates have had, and may continue to have in the future, commercial and/or investment banking relationships with the Company and affiliates of certain members of the Consortium, for which J.P. Morgan and such affiliates have received and may in the future receive customary compensation. Such services for the Company and affiliates of certain members of the Consortium during such period have included providing or arranging debt and equity financing, M&A advisory services, treasury and securities services and asset and wealth management services to affiliates of certain members of the Consortium. In addition, our commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of affiliates of certain members of the Consortium, for which it receives customary compensation or other financial benefits. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of the Company for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

Buyer Group’s Purpose of and Reasons for the Merger

Under the rules governing “going private” transactions, each member of the Buyer Group may be deemed to be engaged in a “going private” transaction and, therefore, required to express their reasons for the merger to the Company’s unaffiliated security holders, as 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 Exchange Act.

For the Sponsor Filing Persons (as defined in Annex D to this proxy statement), Holdco, Midco, Parent and Merger Sub, the primary purpose of the merger is to benefit from any future earnings and growth of the Company after the merger of Merger Sub with and into the Company, making the Company privately held and wholly-owned by Parent. The Sponsor Filing Persons, Holdco, Midco, Parent and Merger Sub believe that structuring the transaction in such manner is preferable to other transaction structures because it will enable Parent to acquire 100% control of the Company, it represents an opportunity for the Company’s unaffiliated security holders and ADS holders to receive $5.50 per Share or $27.50 per ADS in cash for their Shares, and it also allows the Chairman and other Rollover Securityholders to maintain a significant portion of their investment in the Company through their respective commitments to subscribe for equity interests of Holdco.

For the Chairman Parties and Fosun, the primary purpose of the merger for the Company is to enable the Company’s unaffiliated security holders and ADS holders to immediately realize the value of their investment in the Company through their receipt of $5.50 per Share or $27.50 per ADS in cash for their Shares. The merger will also allow each of the Chairman Parties and Fosun to immediately realize in cash the value of a portion of their respective equity interests in the Company. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 69 for additional information.

The Buyer Group also believes that the merger will provide the Company with flexibility to pursue certain strategic alternatives that it would not be practicable to pursue as a public company, including the ability to pursue business initiatives without focusing on the short-term market reaction of the Company’s public shareholders with respect to such initiatives or the collective risk tolerance of such public shareholders as it relates to such initiatives. Further, as a privately-held entity, the Company will be relieved of many of the other expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the federal securities laws of the United States, including the Exchange Act and Sarbanes-Oxley Act of 2002. The need for the management of the Company to be responsive to unaffiliated security holders’ concerns and to engage in an ongoing dialogue with unaffiliated security holders can at times distract management’s time and attention from the effective operation and improvement of the business. The Buyer Group decided to undertake the going private transaction at this time because it wants to take advantage of the benefits of the

 

58


Company’s being a privately-held company as described above. In the course of considering the going private transaction, the Buyer Group did not consider alternative transaction structures.

Effect of the Merger on the Company

Private Ownership

ADSs representing Shares of the Company are currently listed on NASDAQ under the symbol “FMCN.” It is expected that, immediately following the completion of the merger, the Company will cease to be a publicly traded company and will instead become a privately-held company directly owned by Parent and indirectly, through Holdco, by the Sponsors and the Rollover Securityholders. Following the completion of the merger, the ADSs will cease to be listed on NASDAQ, and price quotations with respect to sales of the ADSs in the public market will no longer be available. In addition, registration of the ADSs and the underlying Shares under the Exchange Act may be terminated upon the Company’s application to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders of the Shares. Ninety days after the filing of Form 15 in connection with the completion of the merger or such longer period as may be determined by the SEC, registration of the ADSs and the underlying Shares under the Exchange Act will be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the United States federal securities laws, including Sarbanes-Oxley, applicable to public companies, and our shareholders will no longer enjoy the rights or protections that the United States federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company.

At the effective time of the merger, each outstanding Share (including Shares represented by ADSs), other than (a) a portion of the Shares beneficially owned by the Chairman Parties and by Fosun (collectively, the “Rollover Shares”), (b) Shares owned by the Company or its subsidiaries, if any, (c) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenter rights under the Cayman Companies Law (the “Dissenting Shares”), and (d) Shares held by Citibank, N.A., in its capacity as ADS depositary (the “ADS depositary”), that underlie ADSs reserved (but not yet allocated) by the Company for settlement upon the exercise of any Company option or restricted share unit issued under the Company Incentive Plans (as defined below) (Shares described under (a) through (d) above are collectively referred to herein as the “Excluded Shares”), will be cancelled in exchange for the right to receive $5.50 in cash without interest, and for the avoidance of doubt, because each ADS represents five Shares, each issued and outstanding ADS (other than any ADS that represents Excluded Shares) will represent the right to surrender the ADS in exchange for $27.50 in cash per ADS without interest (less $0.05 per ADS cancellation fees pursuant to the terms of the amended and restated deposit agreement, dated as of April 9, 2007, by and among the Company, the ADS depositary and the holders and beneficial owners of ADSs issued thereunder), in each case, net of any applicable withholding taxes. The Excluded Shares other than Dissenting Shares will be cancelled for no consideration.

At the effective time of the merger, each outstanding Share (including Shares represented by ADSs), except for the Excluded Shares, will be cancelled in exchange for the right to receive $5.50 in cash without interest, and for the avoidance of doubt, because each ADS represents five Shares, each issued and outstanding ADS (other than any ADS that represents Excluded Shares) will represent the right to surrender the ADS in exchange for $27.50 in cash per ADS without interest (less $0.05 per ADS cancellation fees), in each case, net of any applicable withholding taxes. At the effective time of the merger, the Excluded Shares other than the Dissenting Shares will be cancelled for no consideration (please see “Dissenter Rights” beginning on page 110). At the effective time of the merger, each outstanding ordinary share of Merger Sub will be converted into one fully paid and non-assessable ordinary share of the surviving company. As a result, current shareholders of the Company, other than the Rollover Securityholders, will no longer have any equity interest in, or be shareholders of, the Company upon completion of the merger. As a result, our shareholders, other than the Rollover Securityholders, will not have the opportunity to participate in the earnings and growth of the Company and they will not have the right to vote on corporate matters. Similarly, our current shareholders, other than the Rollover Securityholders, will not be exposed to the risk of loss in relation to their investment in the Company.

 

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At the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

Furthermore, except as provided under the Chairman Rollover Agreement, the Management Rollover Agreements and the arrangement with respect to restricted share units held by the Director and Consultant Parties, at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than the Chairman Rollover RSUs, each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each Management Rollover RSU will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

 

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Directors and Management of the Surviving Company

If the merger is completed, the current memorandum and articles of association of the Company will be replaced in its entirety by the memorandum and articles of association in the form attached as Appendix II to the plan of merger (which is substantially the form of the memorandum and articles of association of Merger Sub, as in effect prior to the completion of the merger except that at the effective time of the merger, the memorandum and articles of association shall refer to the name of the surviving company as “Focus Media Holding Limited.”) In addition, the directors of Merger Sub immediately prior to the effective time (identified below in Annex D – “Directors and Executive Officers of each Filing Person”) will become the directors of the surviving company and the officers (other than those officers who also were directors) of the Company immediately prior to the effective time will become the officers of the surviving company.

Primary Benefits and Detriments of the Merger

The primary benefits of the merger to the Company’s unaffiliated security holders include, without limitation, the following:

 

   

the receipt by such security holders of $5.50 per Share or $27.50 per ADS in cash, representing a premium of 36.6% over the Company’s 30 trading day volume-weighted average closing price as quoted by NASDAQ on August 10, 2012, the last trading day prior to the Company’s announcement on August 13, 2012 that it had received a “going private” proposal; and

 

   

the avoidance of the risk associated with any possible decrease in our future revenues and free cash flow, growth or value, and the risks related to our substantial leverage, following the merger.

 

   

The primary detriments of the merger to the Company’s unaffiliated security holders include, without limitation, the following:

 

   

such security holders will cease to have an interest in the Company and, therefore, will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the Shares, if any; and

 

   

in general, the receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws. As a result, a U.S. Holder (as defined under “Special Factors – Material U.S. Federal Income Tax Consequences”) of the Shares or ADSs who receives cash in exchange for all of such U.S. Holder’s Shares or ADSs in the merger generally will be required to recognize gain as a result of the merger for U.S. federal income tax purposes if the amount of cash received exceeds such U.S. Holder’s aggregate adjusted tax basis in such Shares.

The primary benefits of the merger to the Company’s directors and executive officers (other than the Chairman) include, without limitation, the following:

 

   

replacement of restricted share units beneficially held by the Management Rollover Securityholders (including certain executive officers of the Company) by a grant in a certain number of restricted share units of Holdco;

 

   

the exchange of the restricted share units held by non-executive directors of the Company (including members of the independent committee) with restricted cash awards representing the right to receive cash amounts equal to the product of $27.50 and the number of ADSs underlying such restricted share units, which will vest as soon as practicable after the closing of the merger to be determined by Parent;

 

   

cash-out of Company share options and certain restricted share units beneficially held by employees, directors and the Chairman;

 

   

continued indemnification rights, rights to advancement of fees and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company;

 

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the monthly compensation of $10,000 of members of the independent committee in exchange for their services in such capacity (and, in the case of the chairman of the independent committee, monthly compensation of $15,000) (the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger); and

 

   

the continuation of service of the executive officers of the Company with the surviving company in positions that are substantially similar to their current positions.

The primary detriments of the merger to the Company’s directors and executive officers (other than the Chairman) include, without limitation, the following:

 

   

such directors and officers (other than the Management Rollover Securityholders) will no longer benefit from possible increases in the future revenues and free cash flow, growth or value of the Company or payment of dividends on the Shares, if any; and

 

   

in general, the receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under other applicable tax laws.

The primary benefits of the merger to the Buyer Group include the following:

 

   

if the Company successfully executes its business strategies, the value of their equity investment could increase because of possible increases in future revenues and free cash flow, increases in the underlying value of the Company or the payment of dividends, if any, that will accrue to Parent;

 

   

the Company will no longer have continued pressure to meet quarterly forecasts set by analysts. In contrast, as a publicly traded company, the Company currently faces public shareholders and investment analyst pressure to make decisions that may produce better short term results, but which may not over the long term lead to a maximization of its equity value;

 

   

the Company will have more freedom to focus on long-term strategic planning in a highly competitive business;

 

   

the Company will have more flexibility to change its capital spending strategies without public market scrutiny or analysts’ quarterly expectations;

 

   

the Company will be able to deploy new services or change its pricing strategies to attract customers without public market scrutiny or the pressure to meet quarterly forecasts set by analysts;

 

   

there will be a reduction of the costs and administrative burden associated with operating the Company as a U.S. publicly traded company, including the costs associated with regulatory filings and compliance requirements. In 2012, such costs that would be reduced as a result of the Company no longer being publicly listed totaled approximately $2.3 million and included, but were not limited to, (i) fees and expenses related to Sarbanes-Oxley compliance and valuation services, (ii) fees and expenses of U.S. securities counsel and investor relations firm, (iii) printing costs and (iv) and directors’ and officers’ liability insurance. Such cost savings will directly benefit the Buyer Group following the closing of the merger, and will be recurring in nature if and for so long as the Company remains private; and

 

   

the Company had net operating loss carry forwards of $19,252,222 for the year ended December 31, 2011, which the Company may be able to use to offset future taxable income. After the merger, the Buyer Group would indirectly benefit from any tax savings generated by such net operating loss carry forwards, if and to the extent actually used by the Company to offset future taxable income. The Buyer Group did not consider such tax savings (to the extent available) to be material in connection with their review and evaluation of the merger.

 

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The primary detriments of the merger to the Buyer Group include the following:

 

   

all of the risk of any possible decrease in our revenues, free cash flow or value following the merger will be borne by the Buyer Group;

 

   

risks associated with pending legal and regulatory proceedings against the Company will be borne by the Buyer Group;

 

   

the business risks facing the Company, will be borne by the Buyer Group;

 

   

an equity investment in the surviving company by Parent following the merger will involve substantial risk resulting from the limited liquidity of such an investment; and

 

   

following the merger, there will be no trading market for the surviving company’s equity securities.

Effect of the Merger on the Company’s Net Book Value and Net Earnings

Parent does not currently own any interest in the Company. Immediately after the closing of the merger, Parent will own 100% of the outstanding common stock of the Company and will have a corresponding interest in our net book value and net earnings. Parent is indirectly wholly-owned by Holdco and immediately after the closing of the merger, each shareholder of Holdco will have an indirect interest in our net book value and net earnings in proportion to such shareholder’s ownership interest in Holdco. Our net income attributable to our shareholders for the fiscal year ended December 31, 2011 was approximately $162.7 million and our net book value as of December 31, 2011 was approximately $1,272.8 million.

The table below sets out the direct or indirect interest in the Company’s net book value and net earnings for the Chairman Parties, Fosun and the Sponsors before and immediately after the merger, based on the historical net book value and net earnings of the Company as of and for the year ended December 31, 2011.

 

     Ownership Prior to the Merger(1)      Ownership After the Merger(2)  
     Net Book Value      Net Earnings      Net Book Value      Net Earnings  

Name

   $’000      %      $’000      %      $’000      %      $’000      %  

Chairman Parties

     235,651         18.5         30,118         18.5         393,396         30.9         50,279         30.9   

Fosun

     215,657         16.9         27,563         16.9         221,578         17.4         28,319         17.4   

Sponsors

     —           —           —           —           653,933         51.4         83,578         51.4   

 

(1) Ownership percentages are based on 655,589,716 Shares outstanding as of December 19, 2012, the reference date used in the merger agreement.
(2) Ownership percentages are subject to adjustment pursuant to the terms and conditions of the equity commitment letters of affiliates of the Sponsors. Ownership percentages are calculated on a fully-diluted basis. In the case of the Management Rollover Securityholders, their ownership interest in Holdco will be in the form of restricted stock units of Holdco.

For more information on the Rollover Securityholders and their relationships with certain members of the Consortium, please see “Annex D” attached to the proxy statement.

Plans for the Company after the Merger

After the effective time of the merger, Parent anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will (i) cease to be an independent public company and will instead be a wholly owned subsidiary of Parent and (ii) have substantially more debt than it currently has. As of the date of this proxy statement, there are no plans to repay the debt incurred to finance the merger, other than in accordance with the terms of the facilities agreement for the Senior Secured Credit Facilities. Please see “Special Factors – Financing – Debt Financing” beginning on page 66 for additional information.

 

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Other than as described in this proxy statement and transactions already under consideration by the Company, there are no present plans or proposals that relate to or would result in an extraordinary corporate transaction involving the Company’s corporate structure, business, or management, such as a merger, reorganization, liquidation, relocation of any material operations, or sale or transfer of a material amount of assets. However, Parent will continue to evaluate the Company’s entire business and operations from time to time, and may propose or develop plans and proposals which they consider to be in the best interests of the Company and its equity holders, including the disposition or acquisition of material assets, alliances, joint ventures, and other forms of cooperation with third parties or other extraordinary transactions, including the possibility of relisting the Company or a substantial part of its business on another internationally recognized stock exchange. Following the effective time of the merger, Parent expects that it will adopt one or more share-based compensation plans for certain employees and officers of the Company, including the Chairman and the Management Rollover Securityholders. At this time, no actual agreement or understanding as to the particulars of such plans has been determined or agreed upon. The implementation, terms and cost allocations of such plan or plans will need the approval of the board and/or shareholders of Holdco in accordance with a shareholders agreement to be entered into following the effective time of the merger.

Subsequent to the completion of the merger and the termination of registration of the Company’s ADSs and underlying Shares under the Exchange Act, the Company will no longer be subject to the Exchange Act and NASDAQ compliance and reporting requirements 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.

Alternatives to the Merger

The board of directors of the Company did not independently determine to initiate a process for the sale of the Company. The independent committee was formed on August 13, 2012, in response to the receipt of the going private proposal letter from the Consortium on August 12, 2012. In light of the Chairman’s express intention not to sell his Shares to any third party, the independent committee determined that there was no viable alternative to the proposed sale of the Company to the Consortium, and in light thereof, no attempt was made to contact third parties who might otherwise consider an acquisition of the Company. Since the Company’s receipt of the proposal letter from the Consortium on August 12, 2012, the Company has not received any actionable offer from any third party for (a) a merger or consolidation of the Company with another company, (b) the sale or transfer of all or substantially all of the Company’s assets or (c) 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 independent committee also took into account that, prior to the receipt of shareholder approval, the Company can terminate the merger agreement in order to enter into an acquisition agreement with respect to a superior proposal, subject to the payment of a termination fee to the extent provided in the merger agreement. In this regard, the independent committee recognized that it has flexibility under the merger agreement to respond to an alternative transaction proposed by a third party that is or is reasonably likely to result in a superior proposal, including the ability to provide information to and engage in discussions and negotiations with such party (and, if such proposal is a superior proposal, recommend such proposal to the Company’s shareholders).

Effects on the Company if the Merger is not Completed

If the merger agreement and the plan of merger are not authorized and approved by the Company’s shareholders or if the merger is not completed for any other reason, shareholders will not receive any payment for their Shares or ADSs in connection with the merger nor will the holders of any options or restricted share units receive payment pursuant to the merger agreement. Instead, the Company will remain a publicly traded company, the ADSs will continue to be listed and traded on NASDAQ, provided that the Company continues to meet NASDAQ’s listing requirements, and the Company will remain subject to SEC reporting obligations. Therefore, the Company’s shareholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Shares or ADSs. Accordingly, if the merger is not completed,

 

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there can be no assurance as to the effect of these risks and opportunities on the future value of your Shares or ADSs, including the risk that the market price of the ADSs may decline to the extent that the current market price reflects a market assumption that the merger will be completed.

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee of $40 million, or Parent may be required to pay the Company a termination fee of $60 million, in each case, as described under the caption “The Merger Agreement and Plan of Merger – Termination Fees” beginning on page 106.

If the merger is not completed, from time to time, the Company’s board of directors will evaluate and review, among other things, the business, operations, dividend policy and capitalization of the Company and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance shareholder value. If the merger agreement is not authorized and approved by the Company’s shareholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered, or that the business, prospects or results of operations of the Company will not be adversely impacted.

Financing

Parent estimates that the total amount of funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated security holders pursuant to the merger agreement, is anticipated to be approximately $3.823 billion. This amount is expected to be provided through a combination of (a) aggregate equity commitments of $1.181 billion from certain affiliates of the Sponsors, including the Sponsor Guarantors, (b) a rollover commitment from the Chairman Parties of 124,743,100 Shares and restricted share units representing the right to receive 4,379,165 Shares, having an aggregate value of approximately $710 million, (c) a rollover commitment from Fosun of 72,727,275 Shares having an aggregate value of approximately $400 million, (d) rollover commitments from Management Rollover Securityholders of restricted share units representing the right to receive 1,285,020 Shares in total having an aggregate value of approximately $7 million and (e) a debt commitment up to $1.525 billion under the Senior Secured Credit Facilities (as defined below). The funds necessary to complete the merger and the related transactions at the closing of the merger, including for the payment of the merger consideration to our unaffiliated security holders, will be paid from accounts outside China, and such payment will not be subject to any restriction, registration, approval or procedural requirements under applicable PRC laws, rules and regulations. As of the date of this proxy statement, there is no alternative financing arrangements or plans in place to acquire the funds necessary for the merger and the related transactions.

Equity Financing

        Prior to the execution of the merger agreement, certain affiliates of the Sponsors, including the Sponsor Guarantors, entered into equity commitment letters pursuant to which each such affiliate has committed to purchase, or cause the purchase of, for cash, subject to the terms and conditions therein, equity securities of Holdco for an aggregate amount equal to $1.181 billion.

Each such affiliate’s commitment is conditioned upon (i) the execution and delivery of the merger agreement by the Company, (ii) the satisfaction or waiver at the closing of the merger of each of the conditions to Parent’s and Merger Sub’s obligations to consummate the transactions contemplated by the merger agreement, including the merger, (iii) either the contemporaneous consummation of the closing of the merger or the obtaining by the Company in accordance with the terms and conditions of the merger agreement of an order requiring Parent to cause the equity financing to be funded and to consummate the merger, (iv) the contemporaneous funding of debt financing (as described below) and/or the alternative financing (in the event the debt financing becomes unavailable), and (v) the substantially contemporaneous closing of the contributions contemplated by the other equity commitment letters which shall not be modified, amended or altered in any manner adverse to such affiliate without such affiliate’s prior written consent.

 

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The obligation of such affiliates of the Sponsors to fund the commitment will terminate automatically upon the earliest to occur of (a) the closing of the merger, (b) one year from the date of the equity commitment letters, (c) the valid termination of the merger agreement in accordance with its terms, or (d) the company or any of its affiliates asserting a claim against the Sponsor Guarantors or certain other affiliates of the Sponsors under the merger agreement or ancillary agreements other than certain specified retained claims.

The Company has the right to seek specific performance of each of the equity commitments under the circumstances in which the Company would be permitted under the merger agreement to obtain specific performance requiring Holdco to enforce the equity commitments and consummate the merger.

Rollover Equity

Concurrent with the execution of the merger agreement, the Rollover Securityholders entered into rollover agreements pursuant to which, subject to the terms and conditions set forth therein, the Rollover Securityholders have agreed to the subscription of newly issued shares or restricted share units, as applicable, in Holdco and the cancellation at or immediately prior to the effective time of the merger of a certain number of Shares and/or restricted share units, as applicable, held by each of them having an aggregate value of approximately $1.117 billion, such that the Rollover Securityholders will have no right to any merger consideration in respect of their rollover securities.

The obligation by Holdco to issue shares and the willingness of Parent and Merger Sub to enter into the merger agreement and consummate the transactions contemplated therein, including the merger, depend in part on the representations and warranties of each Rollover Securityholder set forth in the rollover agreements being true and correct as of the closing of the merger.

Debt Financing

Merger Sub has received a debt commitment letter, dated as of December 19, 2012, from Bank of America, N.A., China Development Bank Corporation Hong Kong Branch, China Minsheng Banking Corp., Ltd., Hong Kong Branch, Citigroup Global Markets Asia Limited, Citibank, N.A., Hong Kong Branch, Credit Suisse AG, Singapore Branch, DBS Bank Ltd., Deutsche Bank AG, Singapore Branch, ICBC International Capital Limited, ICBC International Holdings Limited, UBS AG, Hong Kong Branch, and UBS AG, Singapore Branch (collectively and together with such additional financing sources that may become an underwriter pursuant to the terms of the debt commitment letter, the “Debt Financing Sources”) to provide, by themselves or through their affiliates, senior secured credit facilities in the aggregate principal amount of up to $1.525 billion (the “Senior Secured Credit Facilities”), subject to the conditions set forth therein for the purpose of financing the consideration for the merger, refinancing existing indebtedness of the Company and its subsidiaries that is not permitted indebtedness under the terms of the Senior Secured Credit Facilities, if any, funding a debt service reserve account and paying fees and expenses incurred in connection with the merger (collectively, the “Debt Financing Purposes”).

The debt commitments will expire on June 19, 2013, the date that is six months after the date of the Merger Agreement, or such earlier date on which the merger agreement is terminated or Merger Sub has informed the Debt Financing Sources that the Merger has been abandoned or withdrawn, unless definitive documents are entered into in respect of the Senior Secured Credit Facilities set forth in the debt commitment letter. The major definitive documents governing the Senior Secured Credit Facilities have been substantially negotiated, and a form of each such document is attached to the debt commitment letter. Subject to the conditions set forth in the debt commitment letter, Merger Sub may require the Debt Financing Sources to execute such definitive documents upon three business days’ notice. If definitive documents are executed, Merger Sub would be permitted to extend the availability period of the Senior Secured Credit Facilities to up to October 19, 2013, if Parent or the Company extends the termination date of the Merger Agreement for the purpose of satisfying any condition for which the consent or approval of any governmental authority is being sought. See “The Merger

 

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Agreement and Plan of Merger – Termination of the Merger Agreement.” The definitive documents governing the Senior Secured Credit Facilities have not been executed as of the date hereof and, accordingly, the actual terms of the Senior Secured Credit Facilities may differ from those described in this proxy statement. Except as described herein, there is no other plan or arrangement to finance the merger or repay the Senior Secured Credit Facilities.

Terms of the Senior Secured Credit Facilities

General. The borrower under the Senior Secured Credit Facilities as of the date of the definitive documents governing such facilities will be Merger Sub. After consummation of the merger, the Company will become the borrower. The Senior Secured Credit Facilities consist of a $1,075 million facility A term loan with a term of five years (“Facility A”) and a $450 million facility B short-term loan with a term of 10 months (“Facility B”), provided that a certain amount not exceeding $70 million (the “Bridge to Offshore Cash Amount”) of the loan under Facility B may be required to be repaid within five business days of the date of utilization of Facility B to the extent it is supported by cash of the Company held outside the PRC. No alternative financing arrangements or alternative financing plans have been made in the event that any of the Senior Secured Credit Facilities becomes unavailable.

The Debt Financing Sources have been appointed as joint arranging parties for the Senior Secured Credit Facilities. Citicorp International Limited is expected to be appointed as the agent and DBS Bank Ltd., Hong Kong Branch is expected to be appointed as the security agent for the Senior Secured Credit Facilities.

Conditions Precedent. The availability of the Senior Secured Credit Facilities is subject to, among other things, (a) that all conditions precedent to the merger (including any no material adverse effect condition included therein) having been satisfied in full without any waiver (other than any waiver that would not reasonably be expected to be materially adverse to the interests of the lenders in respect of the Senior Secured Credit Facilities), and no provision to the merger agreement or other merger documents being waived or amended in a manner materially adverse to the lenders without the consent of the Debt Financing Sources, (b) evidence of the deposit of sufficient cash of the Company in certain designated accounts to repay the outstanding amount of the loan under Facility B, (c) execution of the security documents required under the facilities agreement, (d) the absence of a negative legal opinion issued by PRC counsel in respect of certain of the Company’s existing debt financing, (e) the completion and sufficiency of the equity commitment funding, (f) the payment of fees and expenses, and (g) arrangements for the discharge of certain existing indebtedness of the Company and its subsidiaries that is not permitted indebtedness under the terms of the Senior Secured Credit Facility, if any.

Interest Rate and Fees. A loan under Facility A is expected to bear interest at a rate equal to LIBOR (London interbank offer rate) plus mandatory costs (if applicable) and a margin of 5.25% per annum, which margin shall be reduced to 4.75% per annum at any time when no loan under Facility B is outstanding. After the expiry of 12 months following the closing date of the merger, the applicable margin for the loan under Facility A will be further subject to reduction pursuant to a leverage-based pricing grid. The Bridge to Offshore Cash Amount portion of Facility B will bear interest at LIBOR plus mandatory costs (if applicable) and a margin of 2.0%, while the remainder of the loan under Facility B will initially bear interest at LIBOR plus mandatory costs (if applicable) and a margin of 3.0% per annum for the first six months following the first date on which the facility is utilized, which margin will increase to 3.25% per annum thereafter.

Prepayments and Amortization. The borrower will be permitted to make voluntary prepayments of the loans under the Senior Secured Credit Facilities at any time, without premium or penalty. The borrower will be required to immediately repay the entire amount of any loan then outstanding under both Facility A and Facility B in the event of a change of control, which, (a) prior to a qualifying public offering and listing, would be triggered by a reduction in the voting ownership or economic interest in the borrower by the group comprising Carlyle, FountainVest, CITIC Capital Partners and China Everbright to below 50.1%, of the group comprising

 

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Chairman and his family to below 20%, of either of Carlyle or FountainVest to below 10%, or of Carlyle and FountainVest, in the aggregate, to below that of the other Sponsors, and (b) following a qualifying public offering and listing, would be triggered by either a reduction in the voting ownership or economic interest in the borrower by the group comprising Carlyle, FountainVest, CITIC Capital Partners and China Everbright to below 35%, of the group comprising Chairman and his family to below 10%, of either of Carlyle or FountainVest to below 5.5%, of Carlyle and FountainVest, in the aggregate, to below that of the other Sponsors, or of the Sponsors, in the aggregate, to below that of any other person or group. The borrower will also be required to make mandatory prepayments of the loan under Facility A with (1) net cash proceeds of asset sales, claims against certain report providers, and insurance claims, in each case, subject to reinvestment rights, receipt of proceeds outside the PRC, and certain agreed exclusions, (2) a certain percentage of proceeds from a public offering or listing of the borrower or any holding company of the borrower subject to a leverage-based grid, and (3) all of the surviving company’s excess cash flow (as defined in the definitive facilities agreement for the Senior Secured Credit Facilities). The loan under Facility A is expected to be repaid in semi-annual installments in aggregate annual amounts following the closing of the merger. No loan under Facility A or Facility B may be re-borrowed. The short-term loan under Facility B has one repayment installment at maturity (except for the Bridge to Offshore Cash Amount which is required to be repaid within five business days of the date of utilization of Facility B) and may only be repaid or prepaid from cash held in certain designated accounts of the Company.

Guarantors. All obligations under the Senior Secured Credit Facilities will be guaranteed by the direct parent of the Company and by each of the Company’s existing and future subsidiaries incorporated or to be incorporated from time to time outside the PRC (excluding certain dormant subsidiaries).

Security. The obligations of the borrower and the guarantors under the Senior Secured Credit Facilities will be secured, subject to permitted liens and other agreed upon exceptions, by: (1) a first-priority lien on all the capital stock of the borrower, the Company, the direct parent of the Company and each guarantor of such facilities, and on the equity interests in onshore subsidiaries that are directly held by the Company’s subsidiaries incorporated outside the PRC; and (2) substantially all the Company’s present and future assets and those of each guarantor, in each case to the extent otherwise permitted by applicable law and subject to certain security principles set forth in the definitive facilities agreement. Delivery of security of the Company or its subsidiaries will not be a condition precedent to the availability of the Senior Secured Credit Facilities on the closing date, but will be required to be delivered following the closing date.

Other Major Terms. The Senior Secured Credit Facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, investments, sales of assets, mergers and consolidations, prepayments of subordinated indebtedness and certain other indebtedness, liens, transactions with affiliates, and dividends and other distributions. The Senior Secured Credit Facilities will also include events of default.

Upon the initial funding of the Senior Secured Credit Facilities, Merger Sub has also agreed to pay upfront fees to the Debt Financing Sources in relation to the facilities.

Limited Guarantees

Concurrently with the execution of the merger agreement, each of the Sponsor Guarantors entered into a limited guarantee in favor of the Company, pursuant to which it agreed to guarantee, a percentage of the obligations of Parent under the merger agreement to pay a termination fee to the Company, subject to the terms and conditions of the merger agreement; provided that in no event, the aggregate liability of each guarantor thereunder will exceed its pro rata share of the termination fee.

Each limited guarantee will terminate as of the earliest of (a) the effective time of the merger, (b) the termination of the merger agreement by mutual consent of Parent and the Company or under circumstances

 

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where Parent will not be obligated to pay the termination fee, (c) the first anniversary of the date of the limited guarantee, and (d) 60 days after the termination of the merger agreement under circumstances set forth therein where Parent will be obligated to pay a termination fee if the Company has not presented a claim for payment by such 60th day.

Remedies and Limitations on Liability

The Company is entitled to an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub and to specifically enforce the terms and provisions thereof against Parent and Merger Sub, which remedies are in addition to any other remedy to which the Company is entitled at law or in equity; provided, that the Company expressly disclaims its right to specifically enforce Parent’s and Merger Sub’s rights to cause the equity financing to be funded in certain circumstances; provided, further, in all other circumstances, the Company is entitled to specifically enforce Parent’s and Merger Sub’s rights to cause the equity financing to be funded and to consummate the merger only in the event that (i) all of the closing conditions that are the obligations of the Company have been satisfied and Parent and Merger Sub fail to complete the closing by the date the closing is required to have occurred in accordance with the merger agreement, (ii) the debt financing or, if applicable, alternative financing has been funded or will be funded at the closing if the equity financing is funded at the closing, and (iii) the Company has irrevocably confirmed in a written notice delivered to Parent and Parent’s debt financing source that if the financing is funded, it would be ready, willing and able to consummate the merger. Other than the equitable remedies described in the foregoing sentence, the Company’s right to receive payment of a termination fee from Parent (or the Sponsor Guarantors pursuant to the limited guarantees) is our sole and exclusive remedy against Parent, Merger Sub, the Sponsors, the Sponsor Guarantors and their respective affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform by Parent or Merger Sub under the merger agreement or otherwise.

Parent and Merger Sub are entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions thereof against the Company, which remedies are in addition to any other remedy to which they are entitled at law or in equity. Other than the equitable remedies described in the foregoing sentence, Parent’s right to receive payment of a termination fee from the Company is the sole and exclusive remedy of Parent and Merger Sub against the Company and its affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform under the merger agreement by the Company or otherwise.

While the Company, Parent and Merger Sub may pursue both a grant of specific performance and monetary damages, none of them will be permitted or entitled to receive both a grant of specific performance that results in the completion of the merger and monetary damages.

The maximum aggregate liability of Parent and Merger Sub for monetary damages in connection with the merger agreement is limited to a termination fee of $60 million, and the maximum aggregate liability of the Company for monetary damages in connection with the merger agreement is limited to a termination fee of $40 million, in each case absent fraud.

Interests of Certain Persons in the Merger

In considering the recommendation of the independent committee and our board of directors with respect to the merger, you should be aware that the Rollover Securityholders, including the Chairman, have interests in the transaction that are different from, and/or in addition to, the interests of our shareholders generally. The Company’s board of directors and independent committee were aware of such interests and considered them, among other matters, in reaching their decisions to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, and recommend that our shareholders vote in favor of authorizing and approving the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger.

 

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Interests of Rollover Securityholders

Concurrent with the execution of the merger agreement, the Rollover Securityholders entered into rollover agreements pursuant to which, subject to the terms and conditions set forth therein, the Rollover Securityholders have agreed to the subscription of newly issued shares or restricted share units, as applicable, in Holdco and the cancellation at or immediately prior to the effective time of the merger of a certain number of Shares and/or Company restricted share units, as applicable, held by each of them having an aggregate value of approximately $1.117 billion. At the closing of the merger, (i) the Chairman Parties will hold in aggregate approximately 30.9% of the outstanding interests in Holdco, (ii) Fosun will hold approximately 17.4% of the outstanding interests in Holdco, and (iii) the Management Rollover Securityholders will hold approximately 0.3% of the outstanding interests in Holdco (in the form of restricted share units of Holdco), on a fully-diluted basis.

Given the Company will become a privately-held company following the completion of the merger, the Rollover Securityholders’ interests in the surviving company will be illiquid, with no public trading market for the surviving company’s shares and no certainty of an opportunity to sell their beneficial interests in the surviving company at an attractive price, or that any dividends paid by the surviving company will be sufficient to recover their investment. Each of the Rollover Securityholders may also enjoy benefits from future earnings and growth of the surviving company.

Shares, Options and Restricted Share Units Held by Officers and Directors

As of January 17, 2013, our directors and executive officers (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 117), as a group and excluding the Chairman Parties, beneficially own an aggregate of 6,764,597 Shares. These consist of: (a) 5,379,597 issued and outstanding Shares and (b) outstanding and unexercised options to purchase 1,385,000 Shares exercisable within 60 days from the date of this proxy statement pursuant to the Company Share Incentive Plans. As of January 17, 2013, 1,385,000 of the options held by our directors and executive officers other than the Chairman Parties have vested. Such options have a weighted average exercise price of $4.10 per Share.

At the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such vested option. At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares underlying such option immediately prior to the effective time of the merger multiplied by the amount by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price per Share or ADS of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted.

Furthermore, except as provided under the Chairman Rollover Agreement, the Management Rollover Agreements and the arrangement with respect to restricted share units held by the Director and Consultant Parties, at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted.

 

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Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested. Other than the Chairman Rollover RSUs, each restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each Management Rollover RSU will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted shares units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director and Consultant Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

 

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The table below sets forth, as of January 17, 2013, for each of our directors and officers:

 

   

the number of Shares issuable under, and the exercise price payable per Share for, the outstanding and unexercised vested options held by such person; and

 

   

the cash payment to be received in respect of such vested options as soon as practicable after the effective time of the merger, calculated by multiplying (a) the total number of Shares subject to such vested options by (b) the excess of $5.50 over the exercise price of such vested options.

 

    

Title

   No. of Shares
Issuable
Under the
Vested
Options
    Exercise Price
Payable Per
Share
     Cash Consideration
Upon Completion
of the Merger
 

Jason Nanchun Jiang

  

Chairman and Chief Executive Officer

    

 

 

500,000

3,080,000

501,100

(1) 

(2) 

(2) 

   

 

 

5.72

2.70

5.72

  

  

  

   $ 8,627,080   

Fumin Zhuo

  

Independent Director

     200,000 (3)      5.72         N/A   

Neil Nanpeng Shen

  

Independent Director

    

 

412,500

300,000

  

  

   

 

0.58

5.72

  

  

   $ 2,031,563   

Charles Chao

  

Director

     200,000        5.72         N/A   

Daqing Qi

  

Independent director

    

 

205,835

66,665

  

  

   

 

5.09

5.72

  

  

   $ 83,775   

David Ying Zhang

  

Independent Director

     —          N/A         N/A   

Ying Wu

  

Independent Director

     —          N/A         N/A   

Kit Leong Low

  

Director and Chief Financial Officer

     —          N/A         N/A   

 

(1) Held by Target Management Group Limited. Target Management Group Limited is 100% owned by JJ Media Investment Holding Limited , which is 100% owned by Jason Nanchun Jiang.
(2) Held by Target Sales International Limited and Target Sales International Limited is 100% owned by JJ Media Investment Holding Limited, which is 100% owned by Jason Nanchun Jiang.
(3) Held by Chapman Technology Limited. Chapman Technology Limited is 100% owned by Fumin Zhuo.

 

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The table below sets forth, as of the date of this proxy statement, for each of our directors and officers:

 

   

the number of Shares subject to, and the exercise price payable per Share for, the outstanding and unexercised unvested options held by such person;

 

   

the number of restricted share units held by such person;

 

   

the cash payment to be received in respect of such restricted share units held by Jason Nanchun Jiang other than the Chairman Rollover RSUs at the closing, calculated by multiplying 5,704,170 Shares subject to such restricted share units by $5.50; and

 

   

the value of restricted cash awards to be received in respect of such restricted share units held by such directors other than Jason Nanchun Jiang and Kit Leong Low (who holds Management Rollover RSUs) as soon as practicable after the effective time of the merger, calculated by multiplying the number of Shares subject to such restricted share units by $5.50. Pursuant to the merger agreement, such restricted cash awards will vest as soon as practicable after the closing of the merger, as determined by the Parent.

 

    

Title

   No. of
Shares
Issuable
Under
the
Unvested
Options
     Exercise
Price
Payable
Per
Share
     No. of
Restricted
Share Units
    Cash
Consideration
Upon
Completion of
the Merger
     Value of
Restricted
Cash
Awards to
be Granted
After
Completion
of the
Merger
 

Jason Nanchun Jiang

  

Chairman and Chief Executive Officer

     —           N/A         10,083,335 (1)    $ 31,372,935         N/A   

Fumin Zhuo

  

Independent Director

     —           N/A         250,005 (2)      N/A       $ 1,375,028   

Neil Nanpeng Shen

  

Independent Director

     —           N/A         200,005        N/A       $ 1,100,028   

Charles Chao

  

Director

     —           N/A         200,005        N/A       $ 1,100,028   

Daqing Qi

  

Independent director

     —           N/A         250,005        N/A       $ 1,375,028   

David Ying Zhang

  

Independent Director

     —           N/A         200,005        N/A       $ 1,100,028   

Ying Wu

  

Independent Director

     —           N/A         200,005        N/A       $ 1,100,028   

Kit Leong Low

  

Director and Chief Financial Officer

     —           N/A         633,335 (3)      N/A         N/A   

 

(1) Held by Target Sales International Limited and Target Management Group Limited. Each of Target Sales International Limited and Target Management Group Limited is 100% owned by JJ Media Investment Holding Limited, which is 100% owned by Jason Nanchun Jiang. At the closing of the merger, 4,379,165 Shares subject to the Chairman Rollover RSUs will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco.
(2) Held by Chapman Technology Limited. Chapman Technology Limited is 100% owned by Fumin Zhuo.
(3) Held by Frame Up Limited. Frame Up Limited is 100% owned by Kit Leong Low. At the closing of the merger, all of the 633,335 restricted share units held by Mr. Low will be cancelled without consideration and Mr. Low will subscribe for newly issued restricted share units of Holdco.

 

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After the completion of the merger, the maximum amount of cash payments our directors and executive officers may receive in respect of their Shares, vested and unvested options and restricted share units is approximately $79 million, including approximately $30 million in respect of Shares and approximately $49 million in respect of vested and unvested options and restricted share units, which, for the avoidance of doubt, exclude the Chairman Rollover RSUs, the Chairman’s Rollover Shares and Kit Leong Low’s Management Rollover RSUs.

Indemnification Agreement

Concurrently with the execution and delivery of the merger agreement, the Chairman Parties and Parent, and solely for purposes of certain specific provisions, Holdco and the Sponsors, entered into an indemnification agreement, pursuant to which each of the Chairman Parties agrees to jointly and severally indemnify and hold harmless Parent from and against any losses asserted against, incurred or sustained by any of Parent, the Company or any of its subsidiaries and affiliates, or any of their successors and assigns, up to $140,000,000 in the aggregate, in connection with any current and future regulatory proceedings against the Company or its subsidiaries (the “Relevant Regulatory Proceedings”) and putative class actions arising out of, relating to or by reason of the subject matters of any Relevant Regulatory Proceedings, subject to certain conditions and limitations thereto. The Chairman Parties’ obligations under the indemnification agreement will become effective at the effective time of the merger (but will apply to all losses incurred or sustained by any of Parent, the Company or any of its subsidiaries and affiliates, or any of their successors and assigns from the date of the merger agreement), and terminate on the fifth anniversary of the closing date of the merger. The parties to the indemnification agreement currently expect to amend the indemnification agreement after the closing of the merger to limit the Relevant Regulatory Proceedings to the SEC Inquiry and those initiated based on one or more facts or circumstances that are the subject matters of the SEC Inquiry, if any.

With respect to putative class actions: (i) in the case where the Company is entitled under any then-effective insurance policies to recovery of any of the relevant losses, the Chairman Parties will only be liable for all such losses not actually recovered under such insurance policies; and (ii) in all other cases where the Company is not entitled under any insurance policies to recovery of any of such losses, the Chairman Parties will only be liable to indemnify Parent for the aggregate amount of all such losses for all such putative class actions in excess of $5,000,000, in each case subject to the $140,000,000 cap. The Chairman Parties also agree to deposit an amount of $40,000,000 into an escrow account to support their indemnification obligations upon closing of the merger, for a period of five years from the closing date of the merger. See “Special Factors – Interests of Certain Persons in the Merger – Indemnification Agreement”.

Non-Compete Agreement

Concurrently with the execution and delivery of the merger agreement, Holdco and the Chairman entered into a non-compete agreement, which will take effect at the effective time of the merger, pursuant to which the Chairman agrees to not participate or engage in any competitive business with the Company for as long as he is a member of the board of directors of Holdco and for five years thereafter.

Interim Sponsors Agreement

Concurrently with the execution and delivery of the merger agreement, Holdco, the Sponsors and certain affiliates of the Sponsors entered into an interim sponsors agreement which governs the relationship among the parties with respect to the merger agreement and matters relating thereto until the consummation of the merger. The interim sponsors 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 and the ancillary agreements pending consummation of the merger, (ii) the entrance into, concurrent with the consummation of the merger, of a shareholders agreement of Holdco by the Sponsors, the Chairman Parties and Fosun, (iii) the right of the Sponsors to enforce (including by specific performance) the provisions of each equity commitment letter, and

 

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(iv) the payment or reimbursement by Holdco or the Company of certain expenses incurred by Holdco, Parent, Merger Sub and the Sponsors in connection with the merger agreement and the transactions contemplated thereby if the merger is consummated.

Indemnification and Insurance

Pursuant to the merger agreement, Parent and Merger Sub have agreed that:

 

   

The memorandum and articles of association of the surviving company shall contain provisions no less favorable with respect to exculpation, advancement of expenses and indemnification than are set forth in the memorandum and articles of association of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the effective time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the effective time, were directors, officers, employees, fiduciaries or agents of the Company, unless such modification shall be required by law.

 

   

The surviving company will maintain the Company’s and its subsidiaries’ directors and officers liability insurance for a period of six years after the effective time on terms with respect to coverage no less favorable than the existing insurance; provided that the surviving company will not be required to expend in any one year an amount in excess of 300% of the current annual premium paid by the Company for such insurance. The Company may purchase a six-year “tail” prepaid policy prior to the effective time on terms and conditions no less advantageous to the indemnified parties than the existing directors’ and officers’ liability insurance maintained by the Company.

 

   

From and after the effective time, the surviving company will comply with all of the Company’s obligations and will cause its subsidiaries to comply with their respective obligations to indemnify the current and former directors or officers of the Company or any subsidiaries against liabilities arising out of or in connection with (a) the fact that such party is or was a director or officer of the Company or such subsidiary, or (b) any acts or omissions occurring before or at the effective time to the extent provided under the Company and its subsidiaries’ respective organizational and governing documents or agreements effective on the date of the merger agreement and to the fullest extent permitted by the Cayman Companies Law or any other applicable law.

The Independent Committee

On August 13, 2012, our board of directors established an independent committee of directors to consider the proposal from the Consortium and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The independent committee is composed of independent directors – Professor Daqinq Qi (who will serve as the chairman), David Y. Zhang and Fumin Zhuo. All such directors are free from any affiliation with the Buyer Group, and none of such directors is or was ever an employee of the Company or any of its subsidiaries or has any financial interest in the merger that is different from that of the unaffiliated security holders other than (i) the directors’ receipt of board compensation in the ordinary course, (ii) independent committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the independent committee’s or board’s recommendation of the merger), (iii) the acceleration of the vesting of restricted share units held by non-executive directors of the Company (including members of the independent committee) upon completion of the merger, and (iv) the directors’ indemnification and liability insurance rights under the merger agreement. Our board of directors did not place any limitations on the authority of the independent committee regarding its investigation and evaluation of the merger.

The Company has compensated the members of the independent committee in exchange for their service in such capacity an aggregate monthly amount of $10,000 per member (and, in the case of the chairman of the independent committee, a monthly amount of $15,000), the payment of which is not contingent upon the completion of the merger or the independent committee’s or the board’s recommendation of the merger. In addition, as noted above, the restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive

 

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restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director and Consultant Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash award was converted.

Position with the Surviving Company

After completion of the merger, the Chairman expects to continue to serve as chairman of the board of directors of the surviving company and chief executive officer of the surviving company. It is anticipated that the other executive officers of the Company will hold positions with the surviving company that are substantially similar to their current positions.

Related Party Transactions

Sale of Shares by JJ Media

On September 13, 2010, the Chairman, through JJ Media, sold 8,100,000 of our ADSs at a price of $18.90 per ADS in an underwritten public offering.

Concurrent with the pricing of such public offering, JJ Media entered into three capped call transaction confirmations (the “Options Agreements”) pursuant to which JJ Media purchased call options relating to 10,100,000 ADSs with a hedge reference price of $19.25 per ADS. These Option Agreements were subsequently amended on June 22, 2011, September 30, 2011 and November 22, 2011, which had the effect of amending the applicable strike and cap prices, changing the timing of settlement of various components of the capped call transactions to May and June 2012, and changing amounts due upon such settlements.

On September 7, 2010, JJ Media also entered into a share swap transaction confirmation (the “Swap Agreement”), with a maturity date on or about October 28, 2010, pursuant to which variable price seller acquired “long” exposure, and JJ Media acquired “short” exposure, to 2,000,000 ADSs. The notional amount of the swap was based on such number of ADSs and an initial price of $18.90 per ADS. Under a pledge and security agreement, JJ Media pledged 2,000,000 ADSs to secure its obligations under the Swap Agreement. On the same date, JJ Media Investment Holding Limited also entered into a share sales plan (the “Sales Plan”) in reliance on Rule 144 under the Securities Act and Rule 10b5-1 under the Exchange Act with a broker-dealer affiliated with Goldman Sachs International (the “Seller”). Under the Sales Plan, the Seller sold on behalf of JJ Media up to a maximum of 2,000,000 ADSs subject to the conditions and terms of the Sales Plan. The dates of the sales under the Sales Plan were intended to coincide with the valuation period under the Swap Agreement. All sales occurred during the period between October 7, 2010 and October 22, 2010. These sales resulted in net proceeds of $47.8 million under the Sales Plan which, less $10.0 million in swap payments under the swap unwinds during that period, resulting in a total settlement amount to JJ Media of $37.8 million.

On September 7, 2010, the Chairman entered into a guaranty (the “Guaranty”) in favor of Goldman Sachs International. The Guaranty was entered into to guarantee the payment of all amounts, and the performance of all obligations, by JJ Media under the Options Agreements, Swap Agreement and the other transaction documents relating to the Options Agreements and Swap Agreement. Documentation relating to these transactions has been filed by JJ Media in a Schedule 13D, as amended.

Share Subscription by JJ Media

On September 23, 2009, JJ Media and the Company entered into a subscription agreement pursuant to which the Company issued and sold to JJ Media, and JJ Media subscribed for and purchased 75 million Shares at a subscription price of $1.899 per Share, representing the average closing price of implied price per Share based on ADS during the twenty consecutive trading days preceding the signing of the agreement. On November 18,

 

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2009, the private placement was consummated and the Company received gross proceeds of $142,425,500. The Shares issued to JJ Media were subject to a six month lock-up and had customary registration rights pursuant to a registration rights agreement entered into between the Company and JJ Media.

Purchase of ADSs by JJ Media

On November 22, 2011, JJ Media purchased 712,896 ADSs (representing 3,564,480 Shares) at a price of $15.43 per ADS (approximately $3.08 per Share) in a block trade.

Other Related Party Transactions

We have adopted an audit committee charter, which requires the audit committee to review and approve all related party transactions as defined in Item 404 of Regulation S-K on an ongoing basis. For a description of our related party transactions, please see “Item 7. Major Shareholders and Related Party Transactions” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2011, incorporated by reference into this proxy statement. Please see “Where You Can Find More Information” beginning on page 121 for a description of how to obtain a copy of our Annual Report.

Except for the arrangements in connection with the merger discussed elsewhere in this proxy statement, during the past two years (i) there were no negotiations, transactions or material contacts between the Company and its affiliates, on the one hand, and any member of the Buyer Group, on the other hand, concerning any merger, consolidation, acquisition, tender offer for or other acquisition of any class of the Company’s securities; election of the Company’s directors or sale or other transfer of a material amount of assets of the Company; (ii) the Company and its affiliates did not enter into any other transaction with an aggregate value exceeding 1% of our consolidated revenues with any member of the Buyer Group, and (iii) none of the Company’s executive officers, directors or affiliates that is a natural person entered into any transaction during the past two years with an aggregate value (in respect of such transaction or series of similar transactions with that person) exceeding $60,000 with any member of the Buyer Group.

Fees and Expenses

Fees and expenses incurred or to be incurred by the Company and the Buyer Group in connection with the merger are estimated at the date of this proxy statement and set forth in the table below. Such fees are subject to change pending completion of the merger.

 

Description

   Amount
(in ‘000)
 

Legal fees and expenses

   $ 21,850   

Financial advisory fees and expenses

   $ 11,000   

Accounting expenses

   $ 1,000   

Independent committee fees

   $ 2,000   

Printing, proxy solicitation and mailing costs

   $ 150   

Filing fees

   $ 357   

Miscellaneous

   $ 1,800   

Total

   $ 38,157   

These expenses will not reduce the merger consideration to be received by the Company shareholders. If the merger is completed, the party incurring any costs and expenses in connection with the merger and the merger agreement will pay those costs and expenses.

 

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Voting by the Rollover Securityholders at the Extraordinary General Meeting

Pursuant to the Voting Agreement, the Rollover Securityholders have agreed to vote all of the Shares they beneficially own in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting of the Company. As of the record date, we expect that the Rollover Securityholders as a group will beneficially own, in the aggregate, 239,504,650 outstanding Shares, which represents 36.27% of the total issued and outstanding Shares entitled to vote.

Litigation Related to the Merger

On or about February 26, 2013, the Company became aware that a putative class action had been filed against the Company, members of the board of directors of the Company, Parent and Merger Sub in the United States District Court for the North District of California in San Francisco, California in connection with the proposed merger. The case is captioned Iron Workers Mid-South Pension Fund v. Focus Media Holding Limited, et al., Case No. C-13-0827-JST. The representative plaintiff alleges, among other things, that (i) the proposed purchase price for the shares pursuant to the merger agreement and related sale process were unfair and inadequate; (ii) the defendants disseminated a false and materially misleading proxy statement which failed to disclose all of the material information concerning the proposed merger; and (iii) the members of the board of directors acted in a manner oppressive or otherwise prejudicial to the shareholders of the Company. The representative plaintiff seeks, among other things, (i) injunctive relief preventing consummation of the proposed merger, unless the Company adopts and implements a procedure or process to obtain a transaction that provides the best possible terms for shareholders, and the defendants disclose all the material information to shareholders; (ii) a directive to members of the board of directors to comply with their duties under applicable law by obtaining a transaction which is in the best interest of the Company’s shareholders; and (iii) rescission of the merger agreement or any of the terms thereof.

The Company, the board of directors of the Company, Parent and Merger Sub believe that the claims in this complaint are without merit and intend to defend against them vigorously.

One of the conditions to the closing of the merger is that no final order by a court or other governmental entity shall be in effect that prohibits the consummation of the merger or that makes the consummation of the merger illegal. As such, if the representative plaintiff is successful in obtaining an injunction prohibiting the defendants from completing the merger on the agreed-upon terms and such injunction has not been reversed and is non-appealable, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe.

Accounting Treatment of the Merger

Upon completion of the merger, the Company would cease to be a publicly traded company, and the Company expects to account for the merger at historical cost.

Regulatory Matters

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the merger other than the approvals, filings or notices required under the federal securities laws and the registration of the plan of merger (and supporting documentation as specified in the Cayman Companies Law) with the Cayman Islands Registrar of Companies and, in the event the merger becomes effective, a copy of the certificate of merger being given to the shareholders and creditors of the Company and Merger Sub as at the time of the filing of the plan of merger, and notification of the merger being published in the Cayman Islands Government Gazette.

On March 14, 2012, the SEC informed the Company that it was initiating a non-public investigation into whether there had been any violations of the federal securities laws related to the Company (the “SEC

 

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Inquiry”). The SEC advised the Company that the existence of the investigation should not be construed as an indication by the SEC or its staff that the Company or any of its officers or directors had violated any of the federal securities laws.

As part of its investigation, the SEC requested that the Company voluntarily provide certain documents and other information. The Company agreed to voluntarily cooperate with the SEC and, through its legal counsel, has been cooperating with the investigation by providing the SEC with documents and information as well as having its legal counsel meet with the SEC.

The SEC’s initial and follow-up information requests cover a broad range of documents and information related to the operations, finances and transactions of the Company and its subsidiaries, with a primary focus on the Company’s (i) acquisitions, investments, restructurings and divestitures, including those transactions related to Allyes Online Media Holding Ltd. (“Allyes”) (including (a) the management buy-out of a 38% ownership interest in Allyes from the Company in 2010, (b) the Company’s subsequent sale of its remaining ownership interest in Allyes to one or more funds affiliated with or advised by affiliates of Silver Lake Management, L.L.C. in July 2010, (c) dividend payments and other financial and accounting aspects of Allyes’ business, (d) the Company’s acquisition, restructuring and divestiture of its internet advertising subsidiaries and other variable interest entity affiliates, and (e) financial and accounting records pertaining to these transactions); (ii) disclosures, re-categorizations and operational data related to the LCD display network, poster frame network and movie theater business; (iii) corporate structure, including the use of wholly-foreign owned operating subsidiaries and variable interest entities; (iv) financial records and general financial condition; (v) director and officer compensation and relationships with Company affiliates and third parties; (vi) corporate governance and internal control practices; (vii) share offerings, including the secondary offering conducted on September 7, 2010, buy-backs, cancellations, and dividends; (viii) communications with various third parties, including Deloitte, Goldman Sachs and Fosun; and (ix) documents discussing or responding to some allegations made against the Company in the market.

The Company intends to continue to cooperate fully with the SEC’s investigation and will continue to provide the SEC with the requested information and documentation. Because this matter is ongoing, the Company cannot predict the scope, duration or outcome of the investigation.

Dissenter Rights

Please see “Dissenter Rights” beginning on page 110.

Material U.S. Federal Income Tax Consequences

The following is a general discussion of material U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) of the Shares who exchange Shares for cash pursuant to the merger agreement. For purposes of this discussion, except as otherwise noted, references to Shares include ownership interests in Shares through ADSs. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, referred to as the “Code”, final and temporary U.S. Treasury Regulations promulgated thereunder, administrative pronouncements, and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and to differing interpretation, which may result in tax consequences different from those described below. This discussion is not binding on the U.S. Internal Revenue Service, referred to as the “IRS”, and the IRS may challenge any of the conclusions set forth below and a U.S. court may sustain such a challenge.

This discussion does not address any U.S. federal estate, gift, or other non–income tax, or any state, local, or non–U.S. tax, consequences of the merger. This discussion is a summary for general information purposes only and does not consider all aspects of U.S. federal income taxation that may be relevant to particular shareholders in light of their individual investment circumstances or to certain types of shareholders subject to special tax rules, including holders that are (i) banks, financial institutions, or insurance companies; (ii) regulated investment companies, mutual funds, or real estate investment trusts; (iii) brokers or dealers in securities or currencies or traders in securities that elect to apply a mark–to–market accounting method; (iv) tax–exempt organizations;

 

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(v) holders that own Shares as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated investment; (vi) holders that acquired Shares in connection with the exercise of employee share options or otherwise as compensation for services; (vii) U.S. Holders (as defined below) that have a “functional currency” other than the U.S. dollar; (viii) retirement plans, individual retirement accounts, or other tax–deferred accounts; (ix) U.S. expatriates; (x) persons subject to alternative minimum tax; (xi) U.S. Holders that actually or constructively own 10% or more of our voting stock or (xii) holders that are not U.S. Holders. This discussion assumes that Shares are held as capital assets, within the meaning of Section 1221 of the Code, at all relevant times.

As used herein, a “U.S. Holder” is any beneficial owner of Shares that is (i) a citizen or individual resident of the United States for U.S. federal income tax purposes; (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust which (a) is subject to the primary jurisdiction of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions, or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

If a partnership (including any entity classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of Shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. Any partner of a partnership holding Shares is urged to consult its own tax advisor.

ALL HOLDERS OF SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR SITUATIONS, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON–U.S. AND OTHER LAWS.

Consequences of Participation in the Merger or an Exercise of Dissenter Rights

For U.S. federal income tax purposes, the merger will be treated as a taxable sale of Shares for cash. Accordingly, the U.S. federal income tax consequences of the receipt of cash, either as consideration in the merger or as a result of a U.S. Holder exercising its Dissenter Rights (as described under “Dissenter Rights”), will generally be that a U.S. Holder will recognize gain or loss in an amount equal to the difference between (i) the amount of cash received and (ii) such U.S. Holder’s adjusted tax basis in the Shares exchanged therefor. Subject to the discussion under “Passive Foreign Investment Company” below, such recognized gain or loss will generally be capital gain or loss, and will constitute long–term capital gain or loss if the U.S. Holder’s holding period for the Shares exchanged is greater than one year at the effective time of the merger.

Long–term capital gains of non–corporate U.S. Holders are generally subject to U.S. federal income tax at reduced rates. The ability to use any capital loss to offset other income or gain is subject to certain limitations under the Code. If a U.S. Holder acquired different blocks of Shares at different times and different prices, such U.S. Holder must determine the adjusted tax basis and holding period separately with respect to each such block of Shares.

Any gain or loss recognized by U.S. Holders will generally be treated as United States source gain or loss. However, in the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law and gain from the disposition of the Shares is subject to tax in the PRC, you may be eligible to elect to treat such gain as PRC source gain under the income tax treaty between the United States and the PRC (the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion With Respect to Taxes on Income, referred to as the “Treaty”). If you are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the exchange of Shares pursuant to the merger agreement unless such credit can be applied (subject to applicable

 

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limitations) against tax due on other income treated as derived from foreign sources. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax is imposed on gain on a disposition of our Shares, including the availability of the foreign tax credit under their particular circumstances.

Passive Foreign Investment Company

Based on the past composition of our income and valuation of our assets, including goodwill, we believe that we were not a passive foreign investment company, or a “PFIC”, for U.S. federal income tax purposes for our taxable year ended December 31, 2012, and we do not expect to become one for our current taxable year, although there can be no assurance in this regard.

In general, we will be a PFIC for any taxable year in which (i) at least 75% of our gross income is passive income or (ii) at least 50% of the value of our assets (based on an average of the quarterly values) is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). If we own, directly or indirectly, at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current taxable year due to changes in our asset or income composition. Because we have valued our goodwill based on the market value of the ADSs, a decrease in the price of the ADSs may also result in our becoming a PFIC.

If we are a PFIC for the current taxable year or have been a PFIC during any prior year in which a U.S. Holder held Shares, and the U.S. Holder has not made a valid mark–to–market election or qualified electing fund election, any gain recognized by such U.S. Holder on the disposition of Shares generally would be allocated ratably over such U.S. Holder’s holding period for the Shares. The amount allocated to the taxable year of the disposition and to any year before we became a PFIC would be treated as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that year and the interest charge generally applicable to underpayments of tax would be imposed on the resulting tax attributable to each such year. If a U.S. Holder has made a valid mark–to–market with respect to its Shares, any gain the U.S. Holder recognizes would be treated as ordinary income and any loss would be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark–to–market election.

If we are a PFIC for the current taxable year or have been a PFIC during any prior year in which a U.S. Holder held Shares, a U.S. Holder generally would be required to file IRS Form 8621 with respect to the disposition of Shares. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors regarding the applicable consequences of the merger to it if we are a PFIC or have been a PFIC during any prior year in which such U.S. Holder held Shares.

Information Reporting and Backup Withholding

A U.S. Holder will generally be subject to information reporting with respect to the amount of cash received in the merger, unless such U.S. Holder is a corporation or other exempt recipient. A U.S. Holder may also be subject to backup withholding unless the U.S. Holder is an exempt recipient and, when required, demonstrates this fact or provides a taxpayer identification number, makes certain certifications on IRS Form W–9, and otherwise complies with the applicable requirements. A U.S. Holder that does not provide its correct taxpayer identification number may also be subject to penalties imposed by the IRS.

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that the required procedures are followed. U.S. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption.

 

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Medicare Tax

For taxable years beginning after December 31, 2012, a U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) such holder’s “net investment income” (or undistributed “net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of such holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. Holder’s net investment income will generally include gains from the sale or other disposition of capital assets. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this tax on their ownership and disposition of their Shares.

Material PRC Income Tax Consequences

Under the EIT Law, which took effect on January 1, 2008, enterprises established outside of China whose “de facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council promulgated the Regulation on the Implementation of PRC Enterprise Income Tax Law, effective as of January 1, 2008, which defines the “de facto management body” as an establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. Further, on April 22, 2009, the State Administration of Taxation issued a Tax Circular, Guoshuifa [2009] No. 82 on Certain Issues regarding the Determination of Offshore Companies Controlled by PRC Companies as Resident Enterprises pursuant to “De Facto Management Bodies” Standard, or Circular 82, which took effect on January 1, 2008. According to Circular 82, any company established pursuant to laws and regulations other than PRC laws but that is controlled by companies or company groups within China shall be deemed as a resident enterprise for PRC tax purposes if all the following conditions are met: (i) the senior management in charge of the daily operation and management of the company are based within China or the premises where the senior management performs its duties are located within China; (ii) the financial matters (such as raising funds, financing or financial risk management) and human resources matters (such as appointment and dismissal of employees or their payrolls) are decided by companies or individuals within China or require approval from companies or individuals within China; (iii) primary property, books and accounts, company seals and board and shareholder meeting minutes are kept or placed within China; and (iv) 50% or more of the directors with voting rights or senior management habitually reside within China. According to Circular 82, in determining the location of de facto management, the principle of “substance over form” should be followed. Although Circular 82 was issued to regulate the PRC tax resident judgment of companies established overseas and controlled by PRC companies, which is not applicable in our case, the criteria in Circular 82 may be used as a reference for the State Administration of Taxation’s view on this issue. Under the EIT Law and its implementation regulations, PRC income tax at the rate of 10% is applicable to any gain recognized by a “non–resident enterprise” from transfer of its equity in a resident enterprise, provided that the “non–resident enterprise” (i) does not have an establishment or place of business in the PRC or (ii) has an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business, to the extent such gain is derived from sources within the PRC.

In addition, under the PRC Individual Income Tax Law, a PRC resident who disposes of an asset in or outside of China is subject to PRC income tax at the rate of 20%; and a non PRC resident who disposes of an asset in China is also subject to the same tax rate (subject to applicable tax treaty relief, if any).

The EIT Law and its implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to resident enterprise issues. Therefore, there is uncertainty regarding whether PRC tax authorities would deem the Company to be a resident enterprise. However, the Company does not believe that it should be considered a resident enterprise under the EIT Law or that the gain recognized on the receipt of cash for your Share should otherwise be subject to PRC income tax to holders of such Shares that are not PRC residents. The Company’s belief is based on the following reasons: (i) most of the Company’s major

 

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board decisions, such as those relating to strategic planning, significant investments, raising fund and all matters related to capital market activities are made outside of the PRC; (ii) the Company’s principal executive offices are located in Hong Kong; (iii) the Company’s chief financial officer, appointed in January 2010 who is in charge of the Company’s investments, financial management, internal control and compliance, spends most of his working hours in our offices located in Hong Kong; (iv) the Company appointed a general manager of sales in July 2010, who habitually resides in Hong Kong; and (v) the Company’s senior management spends a significant amount of time outside of the PRC developing and managing investor relations. Due to the aforementioned uncertainty, the Company cannot assure you, however, that it will not be deemed to be a resident enterprise under the EIT Law and its implementation rules.

        In addition, under the Circular on Strengthening the Administration of Enterprises Income Tax on Non–resident Enterprises’ Equity Transfer Income, or Circular 698, issued by the State Administration of Taxation, which became effective retroactively as of January 1, 2008, and the Bulletin on Certain Issues regarding Administration of Income Tax on Non–resident Enterprises, or Bulletin 24, which was issued by the State Administration of Taxation and became effective as of April 1, 2011, if any non–resident enterprise transfers equity of a resident enterprise, the non–resident enterprise may be subject to a 10% PRC income tax on the gain from such equity transfer, unless the amount of the equity interest to be transferred and the transfer price are determined pursuant to standard trading rules of a public security market other than being determined by the purchaser and the seller by mutual agreement prior to such transactions. According to Circular 698 and Bulletin 24, where the non–resident enterprise indirectly holds and transfers equity of a resident enterprise held through an offshore holding company, which was established in a jurisdiction with either (i) an effective tax rate imposed on the gain from such equity transfer of less than 12.5% or (ii) a tax exemption for the foreign–sourced income arising out of such equity transfer, the non–resident enterprise is required to file with the relevant PRC taxation authorities certain information regarding the transfer. If the local PRC taxation authorities, upon review and examination of the documents submitted by the non–resident enterprise, deem the indirect transfer arrangement to be mainly for the purpose of PRC tax avoidance, then they have the power to re–characterize the offshore share transfer transaction, deny the existence of the offshore holding company, and impose a 10% income tax on the gain from such offshore share transfer after a review and approval by the State Administration of Taxation.

There has not been a definitive determination on whether a purchase or sale of a public company’s shares or ADSs would be subject to Circular 698. Although there has not been a definitive determination on whether a purchase or sale of a public company’s shares would be subject to Circular 698, the Company does not believe that the gain recognized on the receipt of cash for its Shares or ADSs pursuant to the merger by its corporate shareholders or ADS holders who are not PRC residents should be subject to Circular 698. If, however, the PRC tax authorities were to determine that the Company should be considered a resident enterprise or that the receipt of cash for its Shares or ADSs should otherwise be subject to PRC tax, then any gain recognized on the receipt of cash for its Shares or ADSs pursuant to the merger by its shareholders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of up to 10%.

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.

Material Cayman Islands Tax Consequences

The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will 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 our Shares and ADSs under the terms of the merger. This is subject to the qualification that (a) Cayman Islands stamp duty may be payable if any original transaction documents, including the merger agreement, are brought to or executed in or produced before a court in the Cayman Islands; and (b) registration fees will be payable to the Registrar of Companies to register the plan of merger.

 

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MARKET PRICE OF THE COMPANY’S ADSs, DIVIDENDS AND OTHER MATTERS

Market Price of the ADSs

The following table provides the high and low sales prices for our ADSs on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “FMCN,” for each quarter during the past two years:

 

     Sales Price Per
ADS

(in $)
 
     High      Low  

Quarterly:

     

2011

     

First quarter

     30.73         21.91   

Second quarter

     37.58         25.77   

Third quarter

     34.51         16.54   

Fourth quarter

     28.60         8.79   

2012

     

First quarter

     30.08         18.03   

Second quarter

     26.00         18.87   

Third quarter

     26.46         16.80   

Fourth quarter

     26.17         22.58   

2013

     

First quarter (through March 22, 2013)

     26.31         23.74   

On August 10, 2012, the last trading day immediately prior to the Company’s announcement on August 13, 2012 that it had received a going private proposal, the reported closing price of our ADSs on NASDAQ was $23.38 per ADS. The merger consideration of $5.50 per Share, or $27.50 per ADS, represents a premium of 16.7% over the closing price of $23.38 per ADS on August 13, 2012, and a 36.6% premium over the Company’s 30 trading day volume-weighted average closing price as quoted by NASDAQ on August 10, 2012, the last trading day prior to the Company’s announcement on August 13, 2012 that it had received a “going-private” proposal. On March 22, 2013, the most recent practicable date before the date of this proxy statement, the high and low reported sales prices of our ADSs were $26.23 and $26.13, respectively. You are urged to obtain a current market price quotation for your Shares in connection with voting your Shares.

Dividend Policy

We did not declare any dividends from our founding until 2012. On January 10, 2012, we announced a policy starting from 2012 to issue a recurring dividend with payments expected to equal approximately 25% of our annual non-GAAP net income of the preceding fiscal year and to reserve up to an additional 30% of our annual non-GAAP net income of the preceding fiscal year (starting from 2012 earnings) that can be used, at the discretion of the board of directors, to increase the dividend payment or the size of our share purchase program in effect at that time (the “dividend policy”). The dividends are to be paid out on a quarterly basis in the calendar year to shareholders of record as of June 30, September 30 and December 31, respectively. The dividend payments commenced in 2012 in respect of our non-GAAP net income for 2011. A dividend of $17.9 million, or $0.0274 per Share, was paid out on April 16, 2012 to the shareholders of record on March 30, 2012; a dividend of $17.4 million, or $0.0272 per Share, was paid out on July 16, 2012 to shareholders of record on June 10, 2012; and a dividend of $17.6 million, or $0.0272 per Share, was paid out on October 16, 2012 to shareholders of record as of September 28, 2012.

On November 27, 2012, the board of directors resolved to postpone the determination of the timing of announcement and payment of the remaining cash dividends in respect of 2011 due to the possible going private transaction.

 

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Under the terms of the merger agreement, the Company is not permitted to pay any dividends or repurchase any of its Shares pending consummation of the merger. As a result, on December 19, 2012, the Company’s board of directors resolved to suspend the Company’s previously announced share repurchase program and dividend policy.

We are a holding company incorporated in the Cayman Islands. Our current and future ability to pay dividends depends substantially on the payment of dividends to us by our PRC operating subsidiaries through our wholly foreign owned enterprise, or WFOE, operating subsidiaries. If any of our WFOE operating subsidiaries incurs debt on its own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Furthermore, relevant PRC laws and regulations permit payments of dividends by our PRC operating subsidiaries and PRC operating affiliates only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, each of our PRC operating subsidiaries and PRC operating affiliates is also required to set aside a portion of its net income each year to fund specific reserve funds. These reserves are not distributable as cash dividends. In particular, our PRC subsidiaries and our PRC affiliates are required to set aside minimum 10% of after tax income to their statutory capital reserve fund until the cumulative amount of such reserve reaches 50% of their respective registered capitals.

Moreover, cash transfers from our PRC subsidiaries to us are subject to the PRC government’s currency conversion policy, and our PRC subsidiaries may not be able to obtain the relevant approvals or complete the requisite registrations for distributing dividends to us. Any failure by any of our shareholders or any beneficial owner of our Shares who is a PRC resident to comply with the approval or registration requirements imposed by the State Administration of Foreign Exchange with respect to their investment in us could also subject us to legal sanctions, including a restriction on our PRC subsidiaries’ ability to distribute dividends to us. As a result of the foregoing restrictions on our PRC subsidiaries and PRC operating affiliates, our ability to pay dividends on our Shares, or indirectly on our ADSs, could be significantly limited.

We may be treated as a resident enterprise for PRC tax purposes and be obligated to withhold PRC income tax on payments of dividends on our Shares and ADSs to investors that are non–resident enterprises of the PRC. The withholding tax rate would generally be 10% on dividends paid to non-resident enterprises and 20% on dividends paid to non-resident individuals, subject to applicable tax treaty reliefs. Pursuant to a tax treaty between the PRC and the United States, a 10% rate will apply to dividends paid to non-resident individuals provided certain conditions are met. In addition, pursuant to a tax treaty between the PRC and Hong Kong, the withholding tax rate may be lowered to 5% if at least 25% of equity in the resident enterprise is held by a Hong Kong company and other conditions set forth by the relevant tax authorities have been met. See “Item 3. Key Information – D. Risk Factors-Risks Relating to the People’s Republic of China – Dividends payable by us to our foreign investors and gain on the sale of our ADSs or Shares may become subject to taxes under PRC tax laws” in our Annual Report on Form 20-F for the year ended December 31, 2011, which are incorporated herein by reference.

 

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THE EXTRAORDINARY GENERAL MEETING

We are furnishing this proxy statement to you, as a holder of our Shares, as part of the solicitation of proxies by the Company’s board of directors for use at the extraordinary general meeting described below.

Date, Time and Place of the Extraordinary General Meeting

The extraordinary general meeting will be held on April 29, 2013, at 10:00 a.m. (Hong Kong Time) at 26th Floor, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong.

Proposals to be Considered at the Extraordinary General Meeting

At the meeting, you will be asked to consider and vote upon:

 

   

as a special resolution:

THAT the agreement and plan of merger dated as of December 19, 2012 (the “merger agreement”) among Parent, Merger Sub and the Company (such merger agreement being in the form attached as Annex A to this proxy statement, which will be produced and made available for inspection at the extraordinary general meeting), the plan of merger among Merger Sub and the Company required to be registered with the Registrar of Companies of the Cayman Islands for the purposes of the merger (such plan of merger being in the form attached to the merger agreement and which will be produced and made available for inspection at the extraordinary general meeting) and any and all transactions contemplated by the merger agreement, including the merger, be and are hereby authorized and approved; and

 

   

as an ordinary resolution:

THAT the chairman of the extraordinary general meeting be instructed 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 resolution to be proposed at the extraordinary general meeting.

If the merger is completed, at the effective time of the merger, each outstanding Share (including Shares represented by ADSs), other than the Excluded Shares, will be cancelled in exchange for the right to receive $5.50 in cash without interest, and for the avoidance of doubt, because each ADS represents five Shares, each issued and outstanding ADS (other than ADS that represents Excluded Shares), will represent the right to surrender the ADS in exchange for $27.50 in cash per ADS without interest (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement), in each case, net of any applicable withholding taxes, in accordance with the terms and conditions set forth in the merger agreement. At the effective time, all of the Shares will be cancelled and cease to exist. Each Dissenting Share will thereafter represent only the right to receive the fair value of such Share as determined under the Cayman Companies Law. Each Excluded Share other than Dissenting Share will be cancelled for no consideration. At the effective time, each outstanding ordinary share, par value $0.00005 per share, of Merger Sub will be converted into one fully paid and non-assessable ordinary share, par value $0.00005 per share, of the surviving company.

Our Board’s Recommendation

Our board of directors, acting upon the unanimous recommendation of the independent committee of our board of directors:

 

   

determined that it is fair to and in the best interests of the Company and its shareholders (other than holders of Excluded Shares), and declared it advisable, to enter into the merger agreement;

 

   

authorized and approved the execution, delivery and performance of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger; and

 

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resolved to direct that the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, be submitted to a vote at an extraordinary general meeting of the shareholders of the Company.

Quorum

Two or more shareholders on record holding not less than an aggregate of one-third in nominal value of the total issued voting Shares in the Company throughout the meeting in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative or proxy and entitled to vote will constitute a quorum.

Record Date; Shares and ADSs Entitled to Vote

You are entitled to attend and vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the Cayman Islands on April 17, 2013, or if you are a holder of ADSs at the close of business in New York City on March 28, 2013, the Share record date and the ADS record date for voting at the extraordinary general meeting, respectively. If you own ADSs on the ADS record date (and do not cancel 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 instruct the ADS depositary (as the registered holder of the Shares underlying the ADSs) on 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 April 25, 2013 in order to ensure your Shares are properly voted at the extraordinary general meeting. Alternatively, if you own ADSs on the ADS record date, you may vote at the extraordinary general meeting by cancelling your ADSs (and certifying you have not instructed, and will not instruct, the ADS depositary to vote the Shares represented by your ADSs) before the close of business in New York City on April 12, 2013 and becoming a holder of Shares prior to the close of business in the Cayman Islands on April 17, 2013, the share record date. Each outstanding Share on the share record date entitles the holder to one vote on each matter submitted to the shareholders for authorization and approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the share record date, there will be 660,351,771 Shares entitled to be voted at the extraordinary general meeting. If you have Shares registered in your name on the share record date, the deadline for you to lodge your proxy card and vote is April 27, 2013 at 10:00 a.m. (Hong Kong Time). Please see “Procedures for Voting” below for additional information. If the merger is not completed, the Company would continue to be a public company in the U.S. and the Company’s ADSs would continue to be listed on NASDAQ. The Company’s Shares are not listed and cannot be traded on any stock exchange other than 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 completed and you wish to be able to sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s American depositary shares program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the ADS deposit agreement, including, among other things, payment of relevant fees of the ADS depositary for the issuance of ADSs (up to $0.05 per ADS issued) and any applicable stock transfer taxes (if any) and related charges pursuant to the ADS deposit agreement.

Vote Required

Under the Cayman Companies Law and the merger agreement, we cannot complete the merger unless the merger agreement, the transactions contemplated by the merger agreement, including the merger, are adopted by an affirmative vote of shareholders representing at least two-thirds of the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting. As of January 17, 2013, the Rollover Securityholders as a group beneficially owned, in the aggregate, 239,504,650 Shares, which represents 36.27% of the total issued and outstanding Shares entitled to vote. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 117 for additional information. Pursuant to the terms of the Voting Agreement, these Shares will be voted in favor of the authorization and approval of the merger agreement, the plan of merger the transactions contemplated by the merger agreement, including and the merger at the extraordinary general meeting of the Company. Based on the number of Shares expected to be

 

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outstanding on the record date, approximately 47.70% of the total outstanding Shares entitled to vote owned by the remaining shareholders must be voted in favor of the proposal in order for the merger to be approved, assuming all remaining shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

Shareholders and ADS Holders Entitled to Vote; Voting Materials

Only holders of Shares entered in the register of members of the Company at the close of business on April 17, 2013 (Cayman Islands Time), the share record date, will receive the final proxy statement and proxy card directly from the Company. Shareholders registered in the register of members of the Company as of the share record date or their proxy holders are entitled to vote and may participate in the extraordinary general meeting or any adjournment thereof. Shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event so that it is received by the Company no later than 10:00 a.m. on April 23, 2013 (Hong Kong Time).

Holders of ADSs as of the close of business on March 28, 2013 (New York City Time), the ADS record date, will receive the final proxy statement and ADS voting instruction card either directly from the Company’s ADS depositary (in the case of holders of ADSs who hold the ADSs in certificated form, i.e., in the form of ADRs) or these materials will be forwarded to them by a third party service provider (in the case of beneficial owners of ADSs who do not hold the ADSs in the form of ADRs). Holders of ADSs as of the close of business on March 28, 2013 (New York City Time) (who do not cancel such ADSs and become a registered holder of the Shares underlying such ADSs as explained in the following paragraph) cannot attend or vote at the extraordinary general meeting directly, but may instruct the ADS depositary how to vote the Shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the ADS depositary and returning it in accordance with the instructions printed on it. The ADS depositary must receive the ADS voting instruction card no later than 10:00 a.m. (New York City Time) on April 25, 2013. The ADS depositary shall endeavor, in so far as practicable, to vote or cause to be voted the Shares represented by ADSs in accordance with your voting instructions.

        Holders of ADSs may vote at the extraordinary general meeting if they cancel their ADSs and become a holder of Shares by the close of business on April 17, 2013 (Cayman Islands Time). ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the ADS depositary for cancellation prior to the close of business in New York City on April 12, 2013 and complete certain other procedures required by the ADS depositary. Persons who hold ADSs in a brokerage, bank or nominee account, must contact their broker, bank or nominee to find out what actions they need to take to instruct the broker, bank or nominee to cancel the ADSs on their behalf.

Persons holding ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee with instructions on how to vote their ADSs.

Each ADS represents five Shares. As of January 17, 2013, there were 660,523,316 Shares issued and outstanding (including Shares represented by ADSs), 660,351,771 of which are entitled to vote on the proposals at the extraordinary general meeting, subject to the procedures described above. As of January 17, 2013, there were 128,934,253 ADSs outstanding; subject to the cancellation procedures described above, none of the holders of these ADSs may vote in person at the extraordinary general meeting.

Persons who have acquired Shares and whose names are entered in the Company’s register of members before the close of business on April 17, 2013 (Cayman Islands Time) will receive the proxy form (including the voting material) before the extraordinary general meeting, and persons who are ADS holders as of the close of business on March 28, 2013 (New York City Time) will receive the ADS voting instruction card from the ADS depositary before the extraordinary general meeting. Shareholders who have acquired Shares after the close of business on April 17, 2013 (Cayman Islands Time) may not attend the extraordinary general meeting unless they receive a proxy from the person or entity who had sold them the Shares.

 

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Proxy Holders for Registered Shareholders

Shareholders registered in the register of members of the Company as of the share record date who are unable to participate in the extraordinary general meeting may appoint as a representative another shareholder, a third party or the Company as proxy holder by completing and returning the form of proxy in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, the Company as proxy holder will vote in favor of the merger according to the recommendation of the board of directors of the Company. If new proposals (other than those on the agenda) are put forth before the extraordinary general meeting, the Company as proxy holder will vote in accordance with the position of the board of directors of the Company.

Voting of Proxies and Failure to Vote; Discretionary Proxy of the Company Under the Deposit Agreement

All Shares represented by valid proxies will be voted at the extraordinary general meeting in the manner specified by the holder. If a shareholder returns a properly signed proxy card but does not indicate how the shareholder wants to vote, Shares represented by that proxy card will be voted FOR the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, 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 to pass the special resolution during the extraordinary general meeting unless the shareholder appoints a person other than the chairman of the meeting as proxy, in which case the Shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. Shareholders who fail to cast their vote in person or by proxy will not have their votes counted.

If the ADS depositary timely receives voting instructions from an ADS holder which fail to specify the manner in which the ADS depositary is to vote the Shares represented by the holder’s ADS, the ADS depositary will deem such holder to have instructed the ADS depositary to vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, and FOR any adjournment of the extraordinary general meeting. Furthermore, if holders of ADSs do not timely deliver specific voting instructions to the ADS depositary, they may, under the terms of ADS deposit agreement, be deemed to have instructed the ADS depositary to give a discretionary proxy to a member of the independent committee of the board of directors of the Company (the “Designee”). Unless the Company notifies the ADS depositary that there exists substantial opposition to the matters to be voted on at the extraordinary general meeting or that such matters would have a material adverse impact on the holders of the ADSs or on the holders of the Shares, the Designee will receive a discretionary proxy from the ADS depositary and will vote all Shares underlying such uninstructed ADSs FOR the authorization and approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and FOR any adjournment of the extraordinary general meeting.

Revocability of Proxies

Registered holders of our Shares may revoke their proxies in one of three ways:

 

   

first, a registered shareholder may revoke a proxy by written notice of revocation given to the chairman of the extraordinary general meeting before the extraordinary general meeting commences. Any written notice revoking a proxy should be sent to Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong;

 

   

second, a registered shareholder may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked to the Company no less than 48 hours prior to the extraordinary general meeting; or

 

   

third, a registered shareholder 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.

 

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If a shareholder holds Shares through a broker, bank or other nominee and has instructed the broker, bank or other nominee to vote the shareholder’s Shares, the shareholder must follow directions received from the broker, bank or other nominee to change those instructions.

Holders of our 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 April 25, 2013. 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; or

 

   

second, a holder of ADSs can 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 ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the ADS depositary, you must follow the directions of your broker, bank or nominee to change those instructions.

Rights of Shareholders Who Object to the Merger

Shareholders who continue to hold their Shares in their own name until the completion of the merger will have the right to dissent from the merger and receive payment of the fair value of their Shares if the merger is completed, but only if they deliver to the Company, before the vote is taken, a written objection to the merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law, which is attached as Annex C to this proxy statement, for the exercise of dissenter rights. The fair value of your Shares as determined under that statute 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 dissenter 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 DISSENTER 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 DISSENTER 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, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THE ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE SHARES) BEFORE THE CLOSE OF BUSINESS IN NEW YORK CITY ON APRIL 12, 2013, AND BECOME REGISTERED HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON APRIL 17, 2013. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTER RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN ISLANDS COMPANIES LAW. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE U.S. AND THE COMPANY’S ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. THE COMPANY’S SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE OTHER THAN NASDAQ, AND IN SUCH CASE ONLY IN THE FORM OF ADSs. AS A RESULT, IF A FORMER ADS HOLDER HAS CANCELLED HIS OR HER ADSs TO EXERCISE DISSENTER RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER ADS HOLDER WISHES TO BE ABLE TO SELL HIS OR HER SHARES ON A STOCK EXCHANGE, SUCH FORMER ADS HOLDER WOULD NEED TO DEPOSIT HIS OR HER SHARES INTO THE COMPANY’S AMERICAN DEPOSITARY SHARES PROGRAM FOR THE ISSUANCE OF THE

 

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CORRESPONDING NUMBER OF ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE ADS DEPOSIT AGREEMENT, INCLUDING, AMONG OTHER THINGS, PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF ADSs (UP TO $0.05 PER ADS ISSUED) AND ANY APPLICABLE STOCK TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE ADS DEPOSIT AGREEMENT.

Whom to Call for Assistance

If you need assistance, including help in changing or revoking your proxy, please contact MacKenzie Partners, Inc., which is acting as a proxy solicitation agent and information agent in connection with the merger as follows:

MacKenzie Partners, Inc.

Shareholders may call toll free +1 800-322-2885

Banks and Brokers may call collect +1 212-929-5500

Email: proxy@mackenziepartners.com

Solicitation of Proxies

        We have engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies from banks, brokerage firms, nominees, institutional holders and individual investors for the extraordinary general meeting. We expect that MacKenzie Partners, Inc.’s fees for its services will be approximately $14,000 plus certain costs associated with telephone solicitations, if required, and reimbursement of out-of-pocket expenses. 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 reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of our Shares and in obtaining voting instructions from those owners.

Other Business

We are not currently aware of any business to be acted upon at the extraordinary general meeting other than the matters discussed in this proxy statement.

 

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THE MERGER AGREEMENT AND PLAN OF MERGER

This section of the proxy statement describes the material terms of the merger agreement and the plan of merger but does not purport to describe all of the terms of the merger agreement and the plan of merger. The following summary is qualified in its entirety by reference to the complete text of the merger agreement and the plan of merger, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. 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. This description of the merger agreement and the plan of merger have been included to provide you with information regarding their terms.

Structure and Completion of the Merger

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the merger agreement and the plan of merger, with the Company as the surviving entity of the merger. If the merger is completed, the Company will cease to be a publicly traded company. The closing will occur on the fifteenth business day immediately after all of the closing conditions have been satisfied or waived. At the closing, Merger Sub and the Company will execute the plan of merger and register the plan of merger and other related documents with the Registrar of Companies of the Cayman Islands. The merger will become effective on the date specified in the plan of merger.

We expect that the merger will be completed during the second calendar quarter of 2013, after all conditions to the merger have been satisfied or waived. We cannot specify when, or assure you that, all conditions to the merger will be satisfied or waived; however, we intend to complete the merger as promptly as practicable.

Memorandum and Articles of Association; Directors and Officers of the Surviving Company

Upon completion of the merger, the memorandum and articles of association in the form attached as Appendix II to the plan of merger (which are substantially in the form of the memorandum and articles of association of Merger Sub, as in effect at the effective time of the merger, except that at the effective time, the memorandum and articles of association will refer to the name of the surviving company as “Focus Media Holding Limited”) will be the memorandum and articles of association of the surviving company. The directors of Merger Sub immediately prior to the effective time will become the directors of the surviving company and the officers (other than those officers who also were directors) of the Company immediately prior to the effective time will become the officers of the surviving company.

Merger Consideration

At the effective time, each issued and outstanding Share, other than the Excluded Shares, will be cancelled in exchange for the right to receive $5.50 in cash, without interest and net of any applicable withholding taxes. Each outstanding ADS, other than any ADS that represents Excluded Shares, will represent the right to surrender the ADS in exchange for $27.50 in cash (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement) without interest and net of any applicable withholding taxes.

The Excluded Shares (other than the Dissenting Shares) will be cancelled for no consideration. Each Dissenting Share will be entitled to receive only the payment resulting from the procedures set forth in Section 238 of the Cayman Companies Law. Please see “Dissenter Rights” beginning on page 110 for additional information.

At the effective time, each outstanding ordinary share, par value $0.00005 per share, of Merger Sub will be converted into one fully paid and non-assessable ordinary share, par value $0.00005 per share, of the surviving company.

 

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Treatment of Share Options

At the effective time of the merger, each outstanding vested and unexercised option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a cash amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount, if any, by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price of such vested option.

At the effective time of the merger, each outstanding unvested option to purchase Shares or ADSs granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such option immediately prior to the effective time of the merger multiplied by the amount, if any, by which $5.50 (in the case of an option to purchase Shares) or $27.50 (in the case of an option to purchase ADSs) exceeds the exercise price of such unvested option. Such restricted cash awards will be subject to the same vesting terms applicable to the unvested options from which they were converted. On the date that the unvested options would have become vested without giving effect to the merger, the corresponding portion of the restricted cash awards will be delivered to the holder of the restricted cash awards, less any applicable withholding taxes.

Treatment of Restricted Share Units

Except as provided under the Chairman Rollover Agreement, the Management Rollover Agreements and the arrangement with respect to restricted share units held by the Director and Consultant Parties, at the effective time of the merger, each outstanding restricted share unit granted under the Company Share Incentive Plans will be cancelled and converted into the right to receive, as soon as practicable after the effective time of the merger, a restricted cash award in an amount equal to the number of Shares or ADSs underlying such restricted share unit immediately prior to the effective time of the merger multiplied by $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs), as applicable, and subject to the same vesting terms applicable to the unvested restricted share unit from which it was converted. On the date that the unvested restricted share units would have become vested without giving effect to the merger, the corresponding portion of the restricted cash awards will be delivered to the holder of the restricted cash awards, less any applicable withholding taxes.

Immediately prior to the closing of the merger, all restricted share units held by the Chairman Parties that are outstanding as of January 1, 2013 will become vested pursuant to resolutions of the board of directors of the Company. Other than the Chairman Rollover RSUs, each such restricted share unit held by the Chairman Parties will be cancelled and converted into the right to receive cash in an amount equal to $5.50 (for a restricted share unit representing the right to receive Shares) or $27.50 (for a restricted share unit representing the right to receive ADSs) as soon as practicable after the effective time of the merger. Pursuant to the Chairman Rollover Agreement, at the closing of the merger, each Chairman Rollover RSU will be cancelled without consideration and the Chairman Parties will subscribe for newly issued ordinary shares of Holdco at an aggregate subscription price that will be offset by the merger consideration otherwise payable to the Chairman Parties in respect of the Chairman Rollover RSUs and the Chairman’s Rollover Shares.

Under the terms of the Management Rollover Agreements, each Management Rollover RSU will be cancelled at the closing of the merger and, as soon as reasonably practicable following the closing of the merger, replaced by a number of restricted share units of Holdco, which are exchangeable for ordinary shares of Holdco, equal to the product (rounded down to the nearest whole share) of (x) the number of restricted share units subject to rollover multiplied by (y) the ratio of the per Share merger consideration to the per share value of each ordinary share of Holdco (which is obtained by dividing the aggregate equity contribution to Holdco on the closing of the merger by the number of ordinary shares of Holdco issued on the closing date). The restricted

 

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share units of Holdco granted to each Management Rollover Securityholder will vest on the dates set forth in his or her Management Rollover Agreement if such Management Rollover Securityholder remains continuously employed by the Company after the merger on each applicable vesting date.

The restricted share units held by the Director and Consultant Parties as of the effective time of the merger will be cancelled at the effective time of the merger and converted into the right to receive restricted cash awards, which will vest as soon as practicable after the closing of the merger to be determined by Parent. Upon vesting, each Director Party will be paid a cash amount equal to the product of $5.50 and the number of Shares underlying the restricted share units from which the restricted cash awards were converted.

At the effective time, all Company Share Incentive Plans and all relevant award agreements applicable to the Company Share Incentive Plans will be terminated. In addition, each option, whether or not vested, and restricted share unit that is outstanding and unexercised at the effective time will be cancelled.

Exchange Procedures

Prior to the effective time, Parent will deposit with the paying agent for the benefit of the holders of the Shares and the ADSs, vested options to purchase Shares or ADSs, and restricted shares units, an amount in cash sufficient for the exchange agent to make payments under the merger agreement. Promptly after the effective time, the paying agent will mail to each registered holder of the Shares (other than to members of the Consortium or to the holders of Dissenting Shares) (a) a form of letter of transmittal specifying how the delivery of the merger consideration to registered holders of the Shares will be effected and (b) instructions for effecting the surrender of share certificates in exchange for the applicable merger consideration. Upon surrender of a share certificate or a declaration of loss, each registered holder of the Shares will receive an amount equal to (a) the number of Shares multiplied by (b) the per Share merger consideration.

Promptly after the effective time of the merger, the paying agent will transmit to the ADS depositary a cash amount equal to (a) the number of ADSs issued and outstanding, less any ADSs representing Excluded Shares, multiplied by (b) the per ADS merger consideration. The ADS depositary will distribute the merger consideration for the ADSs (less $0.05 per ADS cancellation fees pursuant to the terms of the ADS deposit agreement) to ADS holders pro rata to their holdings of ADSs immediately prior to the effective time, without interest and net of any applicable withholding taxes, upon surrender by them of the ADSs. The surviving corporation will pay any applicable fees, charges and expenses of the ADS depositary (other than the ADS cancellation fee) and government charges (other than withholding taxes, if any) due to or incurred by the ADS depositary in connection with the distribution of the ADS merger consideration.

Representations and Warranties

The merger agreement contains representations and warranties made by the Company to Parent and Merger Sub and representations and warranties made by Parent and Merger Sub to the Company, in each case, as of specific dates. The statements embodied in those representations and warranties were made for purposes of the merger agreement and are subject to important qualifications and limitations agreed by the parties in connection with negotiating the terms of the merger agreement (including those set forth in the disclosure schedules delivered by the Company and Parent in connection therewith). In addition, some of those representations and warranties may be subject to a contractual standard of materiality different from that generally applicable to shareholders, may have been made for the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise and allocating risk between the parties to the merger agreement rather than establishing matters as facts. Moreover, the representations and warranties made by the Company were qualified by its public disclosure with the SEC since January 1, 2010 and prior to the date of the merger agreement.

 

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The representations and warranties made by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:

 

   

due organization, existence, good standing and authority to carry on the Company’s businesses;

 

   

the Company’s capitalization, the absence of preemptive or other rights with respect to securities of the Company, or any securities that give their holders the right to vote with the Company’s shareholders;

 

   

the Company’s corporate power and authority to execute and deliver, to perform its obligations under and to consummate the transactions under the merger agreement, and the enforceability of the merger agreement against the Company;

 

   

the declaration of advisability and recommendation to the shareholders of the Company of the merger agreement and the merger by the independent committee and by the board of directors of the Company, and the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated under the merger agreement, including the merger by the board of directors of the Company;

 

   

the receipt of opinion from J.P. Morgan;

 

   

the absence of violations of, or conflict with, the governing documents of the Company, laws applicable to the Company and certain agreements of the Company as a result of the Company entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

 

   

compliance with applicable laws, licenses and permits;

 

   

the Company’s SEC filings since January 1, 2010 and the financial statements included therein;

 

   

the Company’s disclosure controls and procedures and internal controls over financial reporting;

 

   

compliance with the applicable rules and regulations of NASDAQ;

 

   

the absence of any “Company Material Adverse Effect” (as defined below) on the Company or certain other changes or events since September 30, 2012;

 

   

the absence of any legal proceedings and governmental orders against the Company;

 

   

the absence of any credible evidence that any of certain senior officers of the Company (including the Chairman and the CFO) has engaged in bad faith conduct with respect to the Company or its shareholders that would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under applicable rules and regulations thereof;

 

   

to the Company’s knowledge, as of the date of the merger agreement (i) no governmental authority has commenced or formally recommended any action against the Company or any of certain senior officers of the Company (including the Chairman) arising from, relating to or in connection with the subject matters of the SEC Inquiry, or notified the Company or any of its executive officers and directors, orally or in writing, of its intention to take any of the foregoing actions; (ii) neither the Company nor any such senior officer has, without the prior written consent of Parent, entered into any settlement agreement with any governmental authority, in respect of any such action commenced by such governmental authority against the Company or any such senior officer arising from, relating to or in connection with the subject matters of the SEC Inquiry; (iii) the Company and its representatives have fully cooperated with the governmental authority in all material respects in connection with the SEC Inquiry (including any other action by any other governmental authority against the Company or any of its executive officers and directors arising out of, relating to or in connection with the subject matters of such SEC Inquiry, whether commenced prior to or following December 19, 2012); and (iv) the Company has made available or known to Parent and/or its representatives all documents, communications and other evidence (or the existence thereof) known to the Company to be material to the SEC Inquiry or the subject matters thereof. See “Special Factors – Regulatory Matters” beginning on page 78;

 

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labor and employment matters;

 

   

real property;

 

   

intellectual property;

 

   

tax matters;

 

   

the absence of secured creditors;

 

   

material contracts and the absence of any default under, or breach or violation of, any material contract;

 

   

customers and suppliers;

 

   

insurance matters;

 

   

the absence of a shareholder rights agreement and the inapplicability of any anti-takeover law to the merger;

 

   

the absence of any undisclosed broker’s or finder’s fees; and

 

   

acknowledgement by Parent and Merger Sub as to the absence of any other representations and warranties by the Company, other than the representations and warranties made by the Company contained in the merger agreement and the disclosure schedules delivered by the Company.

Many of the representations and warranties made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, a “Company Material Adverse Effect” means any event, circumstance, change or effect that, individually or in the aggregate with all other events, circumstances, changes and effects, is or would reasonably be expected to (a) be materially adverse to the business, condition (financial or otherwise), or results of operations of the Company and the subsidiaries taken as a whole or (b) prevent or materially delay the consummation of the transactions contemplated by the merger agreement, including the merger. However, none of the following events will constitute a Company Materially Adverse Effect or will be taken into account, individually or in the aggregate, in determining whether a Company Material Adverse Effect has occurred or may, or would occur:

 

i. changes affecting the economic conditions or financial markets generally in any country or region in which the Company or any of its subsidiaries conducts business;

 

ii. changes in law or in generally accepted accounting principles or the interpretation or enforcement thereof after the date of the merger agreement;

 

iii. changes that are the result of factors generally affecting the industries in which the Company and its subsidiaries operate;

 

iv. changes affecting the financial, credit or securities markets in which the Company or any of its subsidiaries operates, including changes in interest rates or foreign exchange rates;

 

v. effects resulting from the public announcement of the merger;

 

vi. natural disasters, declarations of war, acts of sabotage or terrorism or armed hostilities, occurring after the date of the merger agreement; or

 

vii. actions taken (or omitted to be taken) at the request of Parent or Merger Sub;

provided, however, that events, circumstances, changes or effects set forth in clauses (i), (ii), (iii), (iv) and (vi) will be taken into account in determining whether a “Company Material Adverse Effect” has occurred or reasonably would be expected to occur if and to the extent such events, circumstances, changes or effects, individually or in the aggregate, have a materially disproportionate impact on the Company and its subsidiaries, taken as a whole, relative to the other participants in the industries and geographic markets in which the Company and its subsidiaries conduct their businesses.

 

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The representations and warranties made by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:

 

   

their due organization, existence and good standing;

 

   

capitalization of Parent and Merger Sub, Parent ownership of Merger Sub and the operations of Parent and Merger Sub;

 

   

their corporate power and authority to execute, deliver and perform their obligations under and to consummate the transactions contemplated by the merger agreement, and the enforceability of the merger agreement against them;

 

   

the absence of violations of, or conflict with, the governing documents of Parent or Merger Sub, laws applicable to Parent or Merger Sub and certain agreements of Parent or Merger Sub as a result of Parent and Merger Sub entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

 

   

governmental consents and approvals;

 

   

sufficiency of funds in the financing for the merger, subject to certain conditions;

 

   

the execution and validity of the limited guarantees provided by the Sponsor Guarantors and the lack of any default thereunder;

 

   

the absence of legal proceedings against Parent and Merger Sub;

 

   

the absence of certain agreements, or compensation or voting arrangements involving Parent, Merger Sub or any of their affiliates, in each case relating to the merger;

 

   

the absence of any agreements among the Buyer Group or any of their respective affiliates with respect to any securities of the Company;

 

   

the absence of undisclosed Shares or other securities of, any rights to acquire the Shares or other securities of, or any other economic interest in, the Company, beneficially owned by Parent or Merger Sub;

 

   

solvency of the surviving company immediately following completion of the merger;

 

   

the absence of any undisclosed broker’s or finder’s fees;

 

   

the absence of secured creditors;

 

   

independent investigation conducted by Parent and Merger Sub and non-reliance on the Company’s estimates; and

 

   

acknowledgement by the Company as to the absence of any other representations and warranties by Parent or Merger Sub, other than the representations and warranties made by Parent and/or Merger Sub contained in the merger agreement and the disclosure schedules delivered by Parent and Merger Sub.

Conduct of Business Prior to Closing

The Company has agreed that from the date of the merger agreement until the effective time (a) the businesses of the Company will be conducted only in, and the Company will not take any action except in, a lawfully permitted manner in the ordinary course of business and in the same general nature as at the date of the merger agreement, and (b) the Company shall use its reasonable best efforts to preserve substantially intact the business organization of the Company, to keep available the services of the current officers, key employees, and key consultants and contractors of the Company and to preserve the current relationships of the Company with governmental authorities, key customers and suppliers, and any other persons with which the Company has relations that are material to the Company.

 

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From the date of the merger agreement until the effective time, without the prior written consent of Parent, the Company will not and will not permit any of its subsidiaries to, among other things:

 

   

amend its organizational or governing documents;

 

   

issue, sell, transfer, lease, sublease, license, pledge, dispose of, grant or encumber, or authorize the issuance, sale, transfer, lease, sublease, license, pledge, disposition, grant or encumbrance of, (i) with limited exceptions, any shares of any class of the Company or any of its subsidiaries, or any options, warrants, convertible securities or other rights of any kind to acquire any shares, or any other ownership interest of the Company or any subsidiary, or (ii) any property or assets (a) of any subsidiary, except in the ordinary course of business, or (b) directly held by the Company (including Shares or other securities of any subsidiary);

 

   

declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its Shares, other than dividends or other distributions from any subsidiary of the Company to the Company or another subsidiary of the Company;

 

   

with limited exceptions, reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its Shares, or any options, warrants, convertible securities or other rights exchangeable into or convertible or exercisable for any of its Shares;

 

   

effect or commence any liquidation, dissolution, scheme of arrangement, merger, consolidation, amalgamation, restructuring, reorganization or similar transaction involving the Company or any of its subsidiaries (other than the merger or any merger or consolidation among wholly-owned subsidiaries of the Company), or create any new subsidiaries;

 

   

enter into, or propose to enter into, any transaction involving any earn-out, installment or similar payment payable by the Company or any of its subsidiaries, other than in connection with purchases of vehicles, plant, equipment, supplies or computers in the ordinary course of business;

 

   

acquire or make any capital contribution or investment in any corporation, partnership, other business organization or any division thereof or acquire any significant amount of assets, except any such acquisitions, contributions or investments by PRC subsidiaries in entities established in the PRC in respect of which, the higher of (x) the consideration therefore or (y) the book value thereof is not in excess of $1 million individually or $5 million in the aggregate;

 

   

incur or assume any new debt or borrowings, amend or guarantee any debt or borrowings, issue any new debt securities, or make any loans or advances, in each case except for (a) debt or borrowings incurred by a PRC subsidiary constituted by finance or capital leases of vehicles, plant, equipment, supplies or computers in an aggregate principal amount not exceeding $5 million at any time, (b) pursuant to the SBLC Agreement, not exceeding $200 million at any time, (c) in addition to (a) and (b) above, debt or borrowings incurred by a PRC subsidiary not exceeding $5 million at any time and (d) debt or borrowings owed by any of the wholly-owned subsidiaries of the Company to the Company or to another wholly-owned subsidiary;

 

   

guarantee the performance or other obligations of any person, other than guarantees in connection with indebtedness permitted in the preceding clause, including in connection with the SBLC Agreement;

 

   

create or grant any lien on any assets of the subsidiaries other than permitted liens;

 

   

authorize any new capital expenditure or expenditures that is individually in excess of $2 million or in the aggregate in excess of $10 million;

 

   

except for limited exceptions, (a) enter into any new employment agreement or terminate or amend current employment agreements with any director, officer, employee or consultant with annual base compensation in excess of $125,000, (b) grant or provide any severance or termination payments or benefits to any director, officer, employee or consultant of the Company or any of its subsidiaries with annual base compensation in excess of $125,000,(c) materially increase the compensation, bonus or pension, welfare, severance or other benefits of, pay any bonus to, or make any new equity awards to any director, officer, employee or consultant with annual base compensation in excess of $125,000, (d) establish, adopt, amend or

 

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terminate any employee plan or amend the terms of any outstanding share awards, (e) take any action to accelerate or otherwise alter the vesting or payment, or fund or in any other way secure the payment, of compensation or benefits under an employee plan, to the extent not already required in any such plan, including voluntarily accelerating the vesting of any share award in connection with the merger, (f) materially change any actuarial or other assumptions used to calculate funding obligations with respect to any employee plan or to change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP, or (g) forgive any loans to directors, officers or employees of the Company or any of its subsidiaries;

 

   

make any material changes with respect to any method of financial accounting, or financial accounting policies or procedures;

 

   

enter into, or materially amend or modify, or consent to the termination of, any material contract, or any contract that would be a material contract if it had been entered into prior to the date hereof, or amend, alter, vary, supplement, waive, modify or consent to the termination of the Company’s or any subsidiary’s material rights under any such contract;

 

   

except as otherwise permitted, enter into any contract between the Company or any of its subsidiaries, on the one hand, and any of their respective directors or executive officers, on the other hand, in each case as would be required to be disclosed pursuant to Item 7B or Item 19 of Form 20-F under the Exchange Act;

 

   

terminate or cancel, let lapse, or amend or modify in any material respect, other than renewals in the ordinary course of business, any material insurance policies maintained by the Company which is not promptly replaced by a comparable amount of insurance coverage with reputable independent insurance companies or underwriters;

 

   

commence any material action (other than in respect of collection of amounts owed in the ordinary course of business) or settle any action naming the Company and/or its directors or officers, other than certain specified permitted settlements;

 

   

engage in the conduct of any new line of business material to the Company and its subsidiaries, taken as a whole;

 

   

make or revoke any material tax election, or materially amend any tax return (except as required by applicable law) or settle or compromise any material tax liability, or change any material aspect of its method of accounting for tax purposes;

 

   

transfer or permit any transfers of cash from the Company and/or any of its subsidiaries outside of the PRC to any of its subsidiaries inside the PRC;

 

   

permit the Company to directly or indirectly through any of its subsidiaries, acquire any share capital in any person other than an entity incorporated or established under the laws of the PRC; or

 

   

take, propose to take, or agree in writing or otherwise to take any of the foregoing actions.

Shareholders’ Meeting

The Company will cause an extraordinary general meeting of its shareholders to be duly called and held promptly after the SEC confirms that it has no further comments on the Schedule 13E-3 and this proxy statement. The board of directors of the Company will recommend the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, by the Company’s shareholders and include its recommendation in this proxy statement and will use its reasonable best efforts to solicit proxies from its shareholders to obtain the required shareholder authorization and approval. In the event that the board of directors of the Company changes, withholds, withdraws, qualifies or modifies its recommendation to the shareholders of the Company, the Company will nevertheless submit the merger agreement and the plan of merger to the shareholders of the Company for authorization and approval at the extraordinary general meeting unless the merger agreement is terminated by the Company prior to obtaining the

 

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required shareholder authorization and approval, in order to facilitate the signing of a definitive agreement relating to a superior proposal and the Company has paid a company termination fee either prior to or concurrently with such termination.

Acquisition Proposals

Neither the Company nor its subsidiaries nor any officer, director, or representative of the Company or any of its subsidiaries will, directly or indirectly, (a) solicit, initiate or encourage, or take any other action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, any competing transaction, (b) enter into, maintain or continue discussions or negotiations with, or provide any nonpublic information relating to the Company or the merger to, any person or entity in furtherance of, or in order to obtain, a proposal or offer for a competing transaction, (c) agree to, approve, endorse or recommend any competing transaction or enter into any letter of intent or contract or commitment contemplating or otherwise relating to any competing transaction other than a superior proposal, or (d) authorize or permit any of the officers, directors or representatives of the Company or any of its subsidiaries acting directly or indirectly under the direction of the Company or any of its subsidiaries, to take any action set forth in (a) through (c) above. The Company will immediately cease and cause to be terminated all discussions with any third parties existing as of the date of the merger agreement regarding a competing transaction.

Prior to obtaining the required shareholder authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, if the Company receives a proposal relating to a competing transaction from any person that did not result from a breach by the Company of its obligations set forth in the above paragraph, (a) the Company and its representatives may contact such person to clarify the terms and conditions of the proposal so as to determine whether such proposal constitutes or is reasonably expected to result in a superior proposal and (b) if the independent committee determines in good faith, after consultation with and based upon the advice of its financial advisor and outside legal counsel, that such proposal constitutes or is reasonably likely to result in a superior proposal, and failure to furnish information or enter into discussions with such person would be reasonably likely to violate its fiduciary obligation under applicable law, then the Company and its representatives may, pursuant to an executed confidentiality agreement on terms no less favorable to the Company in the aggregate than those contained in the confidentiality agreements between the Company and the members of the Consortium, furnish information to, and enter into discussions with, the person who has made such proposal.

No Change of Recommendation

The board of directors of the Company will not:

 

   

withhold, withdraw, qualify or modify, or propose (publicly or otherwise) to withhold, withdraw, qualify or modify, in a manner adverse to Parent or Merger Sub, the recommendation to the shareholders of the Company to vote in favor of the authorization and approval of the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger; or

 

   

subject to certain exceptions, approve or recommend, or cause or permit the Company to enter into any letter of intent, agreement or obligation with respect to any competing transaction.

However, prior to obtaining the required shareholder authorization and approval of the merger agreement, the board of directors of the Company may change, withhold, withdraw, qualify or modify its recommendation to the shareholders of the Company if the board of directors of the Company (acting upon recommendation of the independent committee) has determined in good faith, after consultation with outside legal counsel, that failure to take such action would be reasonably likely to violate the directors’ fiduciary obligations under applicable law; provided, however, that prior to taking such action:

 

   

in response to a superior proposal, the board of directors of the Company has given Parent at least five business days’ prior written notice of its intention to take such action and a description of the material terms and conditions of such proposal and identifying the person making such proposal;

 

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the Company has negotiated in good faith with Parent during such notice period, to the extent Parent wishes to negotiate, to enable Parent to revise the terms of the merger agreement, so that the proposal would cease to constitute a superior proposal; and

 

   

the Company has permitted Parent to make a presentation, to the extent Parent desires to make such presentation, to the board of directors of the Company and the independent committee regarding the merger agreement and any adjustments with respect thereto.

Indemnification; Directors’ and Officers’ Insurance

Pursuant to the merger agreement, Parent and Merger Sub have agreed that:

 

   

The memorandum and articles of association of the surviving company will contain provisions no less favorable with respect to exculpation, advancement of expenses and indemnification than are set forth in the memorandum and articles of association of the Company, which provisions will not be amended, repealed or otherwise modified for a period of six years from the effective time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the effective time, were directors, officers, employees, fiduciaries or agents of the Company, unless such modification is required by law.

 

   

The surviving company will maintain the Company’s and its subsidiaries’ directors and officers liability insurance for a period of six years after the effective time on terms with respect to coverage no less favorable than the Company’s existing insurance; provided that the surviving company will not be required to expend in any one year an amount in excess of 300% of the current annual premium paid by the Company for such insurance. The Company may purchase a six-year “tail” prepaid policy prior to the effective time on terms and conditions no less advantageous to the indemnified parties than the existing directors’ and officers’ liability insurance maintained by the Company.

 

   

From and after the effective time, the surviving company will comply with all of the Company’s obligations and will cause its subsidiaries to comply with their respective obligations to indemnify the current and former directors and officers of the Company or any subsidiaries against liabilities arising out of or in connection with (a) the fact that such party is or was a director or officer of the Company or such subsidiary, or (b) any acts or omissions occurring before or at the effective time to the extent provided under the Company and its subsidiaries’ respective organizational and governing documents or agreements effective on the date of the merger agreement and to the fullest extent permitted by the Cayman Companies Law or any other applicable law.

Financing

As of the date of the merger agreement, Parent has delivered to the Company copies of (a) the executed equity commitment letters from certain affiliates of the Sponsors, including the Sponsor Guarantors, pursuant to which each of such affiliates committed to purchase for cash, subject to the terms and conditions therein, equity securities of Holdco in the aggregate amount set forth therein, (b) the executed debt commitment letter and redacted fee letter from the financial institutions named therein, pursuant to which such financial institutions, by themselves or through their affiliates, committed to provided, subject to the terms and conditions therein, debt financing to Parent in the aggregate amount set forth therein, and (c) the executed rollover agreements from the Rollover Securityholders.

Parent and Merger Sub will use their reasonable best efforts to arrange and obtain the financing for the merger on the terms and conditions described in the financing commitments described in the above paragraph, by (a) maintaining in effect the financing commitments, (b) satisfying all conditions in the financing commitments that are within its control on a timely basis, (c) consummating the financing at or prior to the effective time of the merger, and (d) enforcing the funding obligation under the financing commitments. Neither Parent nor Merger Sub will amend or waive any terms of the financing commitments without the prior written consent of the board of directors of the Company if such amendments or waivers would reduce the amount of the debt financing or impose additional conditions that would reasonably be expected to prevent or materially delay the ability of Parent or Merger Sub to consummate the merger.

 

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If any portion of the debt financing becomes unavailable on the terms and conditions contemplated by the debt commitment letter, Parent and Merger Sub will promptly notify the Company and use their reasonable best efforts to arrange and obtain alternative financing from alternative sources in an amount sufficient to consummate the transactions contemplated under the merger agreement, including the merger, with terms and conditions that are not less favorable from the standpoint of the Company in any material respect than as set forth in the debt commitment letter as promptly as practicable.

Parent will notify the Company within one business day of (a) the expiration or termination of any financing commitment, (b) any breach of any material provisions of any of the financing commitments, or (c) any refusal or stated intent of refusal, or expression of concern or reservation regarding the obligation of or ability by the parties to the financing commitments to provide the full financing as contemplated by the financing commitments.

The Company and its subsidiaries will use their reasonable efforts to provide to Parent and Merger Sub all cooperation reasonably requested by Parent in connection with the arrangement of the debt financing and any alternative financing, which reasonable efforts include, among other things, (a) participating in meetings, presentations, due diligence sessions, road shows, sessions with rating agencies and other meetings, (b) using reasonable best efforts to, as promptly as practicable, furnish Parent and its financing sources with financial and other pertinent information regarding the Company and its subsidiaries as reasonably requested and is customary in connection with the debt financing or any alternative financing, (c) cooperating with advisors, consultants and accountants with respect to the conduct of any examination, appraisal or review of the financial condition or any of the assets or liabilities of the Company or any of its subsidiaries, (d) using reasonable best efforts to execute and deliver any pledge and security documents, commitment letters, underwriting or placement agreements or other financing documents or other ancillary documentation, or otherwise facilitate the pledging of collateral, the delivery of pay-off letters and other cooperation in connection with the pay-off of existing indebtedness and release of all related liens, (e) taking all actions reasonably necessary to permit the prospective lenders to evaluate the Company’s current assets, cash management and accounting systems, policies and procedures, (f) entering into one or more credit or other agreements in connection with the debt financing or any alternative financing immediately prior to the effective time of the merger, and (g) using reasonable best efforts to maintain the SBLC Agreement without the occurrence of any event of default.

Conditions to the Merger

The completion of the transactions contemplated by the merger agreement, including the merger, is subject to the satisfaction of the following conditions:

 

   

the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger being authorized and approved by a special resolutions of the Company’s shareholders;

 

   

no governmental entity having enacted, issued, promulgated, enforced or entered any law which shall have become final and non-appealable that has or would have the effect of making the merger illegal or otherwise prohibiting consummation of the transactions contemplated by the merger agreement, including the merger; and

 

   

all required regulatory approvals having been obtained and being in full force and effect, and all other regulatory approvals having been obtained and being in full force and effect except where failing to obtain such other regulatory approvals would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent the consummation of the transactions contemplated by the merger agreement, including the merger.

Under the merger agreement, PRC antitrust clearance in connection with the merger would be deemed to be a required regulatory approval in the event (a) PRC legal counsel to the Debt Financing Sources is unable to

 

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deliver, on or prior to the date the Debt Financing is utilized, a legal opinion that, subject to the limitations, qualifications and assumptions therein, PRC antitrust clearance is not required in connection with the merger, or (b) the PRC anti-monopoly bureau notifies the Company, Parent, Merger Sub or any of their affiliates in writing that a filing for PRC antitrust clearance is required. In such event, the Company agrees to use its reasonable best efforts to take any and all steps reasonably necessary to avoid or eliminate each and every impediment under PRC anti-monopoly law, including, without limitation, committing to and effecting a restructuring of its corporate structure and use of variable interest entity affiliates. If, however, such PRC legal counsel is unable to deliver such legal opinion because of certain material changes (from a PRC antitrust perspective) in the proposed post-closing equity ownership structure of Holdco, or the proposed corporate governance or voting arrangements in respect of Holdco, then PRC antitrust clearance would not be deemed to be a required regulatory approval under the merger agreement, and in such event, the Company would agree to waive its specific performance right.

The obligations of Parent and Merger Sub to consummate the merger are also subject to the satisfaction, or waiver by Parent, of the following conditions:

 

   

(1) representations and warranties of the Company in the merger agreement regarding the Company’s capitalization being true and correct in all but de minimis respects as of the date of the merger agreement and as of the closing date of the merger as if made on such date and time, (2) representations and warranties of the Company in the merger agreement regarding the company’s options and restricted share units being true and correct in all but immaterial respects as of the date of the merger agreement and as of the closing date as if made on such date and time, (3) representations and warranties of the Company in the merger agreement regarding there being no credible evidence of bad faith conduct of certain senior officers of the Company (including the Chairman and the CFO) that would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under the applicable rules and regulations thereof, being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger as if made on such date and time, (4) representations and warranties of the Company in the merger agreement regarding there being no default under the SBLC Agreement being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger as if made on and as of such date and time and (5) certain representations and warranties of the Company set forth in the merger agreement being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger, as if made on such date and time, in each case interpreted without giving effect to the words “materially” or “material” or to any qualifications based on such terms or based on the defined term “Company Material Adverse Effect,” except where the failure of such representations and warranties to be true and correct in all respects, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect;

 

   

the Company having performed or complied: (i) in all respects with the covenant not to commence any material action (other than in respect of collection of amounts owed in the ordinary course of business) or settle any action naming the Company and/or its directors or officers, and the agreement to cooperate with all governmental authorities in all material respects in connection with any actions naming the Company or its directors or executive officers; and (ii) in all material respects with substantially all covenants and agreements required to be performed or complied with by it under the merger agreement prior to or at the time of closing;

 

   

the Company having delivered to Parent a certificate, dated the closing date, signed by a senior executive officer of the Company, certifying as to the fulfillment of the above conditions;

 

   

since the date of the merger agreement, there not having occurred and be continuing a Company Material Adverse Effect;

 

   

no action or formal recommendation of any action by any governmental authority be pending against the Company or any of certain senior officers of the Company (including the Chairman and the CFO), alleging bad faith conduct of any senior officer with respect to the Company or its shareholders, which conduct

 

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would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under applicable rules and regulations thereof; and

 

   

the Company having delivered to Parent and Merger Sub satisfactory written evidence that the aggregate amount standing to the credit of certain onshore bank designated accounts and certain offshore bank designated accounts is not less than $450,000,000, and the aggregate amount standing to the credit of certain company designated accounts is not less than the equivalent of $150,000,000, with such written evidence having been certified as true and correct by the chief financial officer of the Company.

The obligations of the Company to consummate the merger are also subject to the satisfaction, or waiver by the Company, of the following conditions:

 

   

the representations and warranties of Parent and Merger Sub in the merger agreement being true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger, as if made on and at date and time, in each case interpreted without giving effect to the limitation or qualification by “materiality”, except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to prevent the consummation of any of the transactions contemplated by the merger agreement, including the merger;

 

   

each of Parent and Merger Sub having performed or complied in all material respects with all covenants and agreements required to be performed or complied with by it under the merger agreement prior to or at the time of closing; and

 

   

Parent having delivered to the Company a certificate, dated the closing date, signed by an executive officer of Parent, certifying as to the fulfillment of the above conditions.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time, whether before or after shareholder approval has been obtained:

 

   

by mutual written consent of the Company and Parent;

 

   

by either Parent or the Company, if:

 

   

the merger is not completed by June 19, 2013 (which may be extended at the written request of the Company or Parent to October 19, 2013, to satisfy any condition for which the consent or approval of any governmental authority is being sought), provided that this termination right is not available to a party if the failure of the merger to have been completed on or before the termination date is primarily caused by such party’s failure to comply with its obligations under the merger agreement;

 

   

any governmental authority has enacted, issued, promulgated, enforced or entered any law that has or would have the effect of making the merger illegal or otherwise prohibiting consummation of the transactions contemplated by the merger agreement, including the merger, which shall have become final and non-appealable; provided, that this termination right is not available to a party if the circumstances described in the foregoing are primarily caused by such party’s failure to comply with its obligations under the merger agreement;

 

   

any governmental authority having commenced an action against the Company or any of certain senior officers of the Company (including the Chairman and the CFO) alleging bad faith conduct of any senior officer with respect to the Company or its shareholders, which conduct would reasonably be expected to cause such senior officer to be unsuitable to serve as a director or an officer of a public company listed on any one internationally recognized stock exchange under applicable rules and regulations thereof; or

 

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our shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof.

 

   

by the Company, if:

 

   

Parent or Merger Sub has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by Parent or Merger Sub under the merger agreement shall not be true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the termination date, or if curable, is not cured within 15 days after written notice thereof from the Company; provided that this termination right is not available to the Company if it is then in material breach of any of its representations, warranties, covenants or agreements under the merger agreement;

 

   

prior to the receipt of the shareholders’ approval, (a) the board of directors of the Company determines (in its good faith judgment upon the recommendation of the independent committee), that failure to enter into a definitive agreement relating to a superior proposal would be reasonably likely to violate its fiduciary obligations under applicable law, and shall have authorized the Company to enter into such definitive agreement, (b) the Company, concurrently with or immediately after the termination of the merger agreement, enters into such definitive agreement, (c) such superior proposal did not result from any breach by the Company’s non-solicitation obligations under the merger agreement, (d) the Company has delivered notice of such superior proposal to Parent, and if requested by Parent, has made its representatives available to Parent to discuss proposed changes to the merger agreement, and (e) the Company pays in full a termination fee to Parent prior to or concurrently with such termination;

 

   

all of the closing conditions that are the obligation of the Company are otherwise satisfied and Parent and Merger Sub shall not have received the proceeds of the debt financing, the equity financing or any alternative financing on or prior to the date the closing should have occurred; provided that the Company has delivered to Parent an irrevocable commitment in writing that it is ready, willing and able to consummate the merger and provided further that the Company cannot so terminate the merger agreement prior to June 19, 2013 (or October 19, 2013, as the case may be) if the failure to receive the proceeds of the debt financing or any alternative financing is because the transactions pursuant to the SBLC Agreement and its related documents, in the written opinion of the outside counsel to the debt financing sources, result in a conflict or violation of PRC law due to a change in applicable PRC law after the date of the merger agreement.

 

   

by Parent, if:

 

   

the Company has breached any of its representations, warranties, covenants or agreements under the merger agreement, or any representation or warranty made by it under the merger agreement shall not be true and correct, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by the Company by the termination date, or if curable, is not cured, within 15 days after written notice thereof from Parent; provided that Parent cannot so terminate the merger agreement prior to June 19, 2013 (or October 19, 2013, as the case may be) due to the Company having received a notice of default or there being an event or potential event of default under the SBLC Agreement and its related documents so long as such default is reasonably capable of being cured before June 19, 2013 (or October 19, 2013, as the case may be), and provided further that this termination right is not available to Parent if it is then in material breach of any of its representations, warranties, covenants or other agreements under the merger agreement;

 

   

the board of directors of the Company has changed its recommendation to the shareholders of the Company;

 

105


   

the board of directors of the Company has recommended publicly to the shareholders of the Company a competing transaction or has entered into any letter of intent, contract, commitment or similar document with respect to any competing transaction;

 

   

the Company has failed to include the recommendation of its board of directors to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement, including the merger, in this proxy statement; or

 

   

a tender offer or exchange offer by a third party for 20% or more of the outstanding Shares is commenced, and the board of directors of the Company does not recommend against accepting such tender offer or exchange offer by its shareholders (including by taking no position with respect to the acceptance of such tender offer or exchange offer by its shareholders).

Termination Fee

The Company is required to pay Parent a termination fee of $40 million, if:

 

   

the merger agreement is terminated by the Company in order to enter into a definitive agreement relating to a superior proposal;

 

   

the merger agreement is terminated by Parent due to a breach by the Company of its representations, warranties, covenants or agreements in the merger agreement, or a failure of any of the Company’s representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied, other than as a result of a failure of representations and warranties of the Company regarding there being (a) no credible evidence of bad faith conduct of certain senior officers of the Company and (b) no default under the SBLC Agreement being true and correct in all respects on the closing date of the merger;

 

   

(a) either the merger is not completed by June 19, 2013 (which may be extended at the written request of the Company or Parent to October 19, 2013, to satisfy any condition for which the consent or approval of any governmental authority is being sought), or the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof, (b) neither Parent nor Merger Sub has materially breached any of its representations, warranties or covenants under the merger agreement, (c) at or prior to the time of termination of the merger agreement, a third party publicly disclosed a proposal or offer for a competing transaction meeting certain thresholds, and (d) at any time within 12 months after the date of termination of the merger agreement, the Company enters into a definitive agreement with respect to a competing transaction; or

 

   

(a) the board of directors of the Company has changed its recommendation to the shareholders of the Company, (b) the board of directors of the Company has recommended publicly to the shareholders of the Company a competing transaction or has entered into any letter of intent, contract, commitment or similar document with respect to any competing transaction, (c) the Company failed to include the recommendation of its board of directors to the shareholders of the Company to approve the merger agreement, the plan of merger and the transaction contemplated under the merger agreement, including the merger, in this proxy statement, or (d) a tender offer or exchange offer by a third party for 20% or more of the outstanding Shares is commenced, and the board of directors of the Company does not recommend against accepting such tender offer or exchange offer by its shareholders (including by taking no position with respect to the acceptance of such tender offer or exchange offer by its shareholders).

Parent is required to pay the Company a termination fee of $60 million, if:

 

   

the merger agreement is terminated by the Company due to a breach by Parent or Merger Sub of their representations, warranties, covenants or agreements in the merger agreement, or a failure of any of their representations or warranties in the merger agreement being true and correct, such that the corresponding condition to closing cannot be satisfied; or

 

106


   

the merger agreement is terminated by the Company because Parent and Merger Sub have not received the proceeds of the debt financing, the equity financing or any alternative financing on or prior to the date the closing should have occurred (but not if Parent’s failure to receive the proceeds of the debt financing is because the transactions pursuant to the SBLC Agreement and its related documents, in the written opinion of the outside counsel to the debt financing sources, result in a conflict or violation of PRC law due to a change in applicable PRC law after the date of the merger agreement), although all of the closing conditions that are the obligation of the Company are otherwise satisfied and the Company has delivered to Parent an irrevocable commitment in writing that it is ready, willing and able to consummate the merger.

Fees and Expenses

All reasonable out-of-pocket expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement, including the merger, shall be paid by the party incurring such expenses, whether or not the transactions are consummated.

However, if the merger agreement is terminated because (a) the Company’s shareholders do not approve the merger agreement at the extraordinary general meeting or any adjournment or postponement thereof, or (b) the Company’s representation and warranty regarding there being no credible evidence of bad faith conduct of certain senior officers of the Company on the date of the merger agreement is breached, then the Company will reimburse Parent and Merger Sub for up to $6 million their reasonably documented reasonable out-of-pocket expenses incurred prior to such termination; provided that if the Company becomes obligated to pay Parent a termination fee after such termination pursuant to clause (a) because the Company enters into a definitive agreement for a competing transaction within 12 months after the date of termination, the Company will be entitled to credit the amount of any expenses reimbursed by the Company to Parent against the amount of such termination fee.

Remedies and Limitations on Liability

The Company is entitled to an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub and to specifically enforce the terms and provisions thereof against Parent and Merger Sub, which remedies are in addition to any other remedy to which the Company is entitled at law or in equity; provided, that the Company expressly disclaims its right to specifically enforce Parent’s and Merger Sub’s rights to cause the equity financing to be funded in certain circumstances; provided, further, in all other circumstances, the Company is entitled to specifically enforce Parent’s and Merger Sub’s rights to cause the equity financing to be funded and to consummate the merger only in the event that (i) all of the closing conditions that are the obligations of the Company have been satisfied and Parent and Merger Sub fail to complete the closing by the date the closing is required to have occurred in accordance with the merger agreement, (ii) the debt financing or, if applicable, alternative financing has been funded or will be funded at the closing if the equity financing is funded at the closing, and (iii) the Company has irrevocably confirmed in a written notice delivered to Parent and Parent’s debt financing source that if the financing is funded, it would be ready, willing and able to consummate the merger. Other than the equitable remedies described in the foregoing sentence, the Company’s right to receive payment of a termination fee from Parent (or the Sponsor Guarantors pursuant to the limited guarantees) is our sole and exclusive remedy against Parent, Merger Sub, the Sponsors, the Sponsor Guarantors and their respective affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform by Parent or Merger Sub under the merger agreement or otherwise.

Parent and Merger Sub are entitled to an injunction or injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions thereof against the Company, which remedies are in addition to any other remedy to which they are entitled at law or in equity. Other than the equitable remedies described in the foregoing sentence, Parent’s right to receive payment of a termination fee from the Company is

 

107


the sole and exclusive remedy of Parent and Merger Sub against the Company and its affiliates for any loss or damage suffered as a result of the failure of the merger to be completed under certain circumstances or for a breach or failure to perform under the merger agreement by the Company or otherwise.

While the Company, Parent and Merger Sub may pursue both a grant of specific performance and monetary damages, none of them will be permitted or entitled to receive both a grant of specific performance that results in the completion of the merger and monetary damages.

The maximum aggregate liability of Parent and Merger Sub for monetary damages in connection with the merger agreement is limited to a termination fee of $60 million, and the maximum aggregate liability of the Company for monetary damages in connection with the merger agreement is limited to a termination fee of $40 million, in each case absent fraud.

Modification or Amendment

The merger agreement may be amended by action taken by the Company, Parent and Merger Sub at any time before the effective time of the merger, whether before or after approval of the merger by the shareholders of the Company, but, after any such approval, no amendment shall be made that reduces the amount or changes the type of consideration into which each Share will be converted upon consummation of the merger.

 

108


PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

No provision has been made to (a) grant the Company’s shareholders or ADS holders access to corporate files of the Company and other parties to the merger or any of their respective affiliates or (b) to obtain counsel or appraisal services at the expense of the Company or any other such party or affiliate.

 

109


DISSENTER RIGHTS

The following is a brief summary of the rights of holders of the Shares to object to the merger and receive payment of the fair value of their Shares (“Dissenter Rights”). This summary is not a complete statement of the law, and is qualified in its entirety by the complete text of Section 238 of the Cayman Companies Law, a copy of which is attached as Annex C to this proxy statement. If you are contemplating the possibility of objecting to the merger, you should carefully review the text of Annex C, particularly the procedural steps required to exercise Dissenter Rights. These procedures are complex and you should consult your Cayman Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the Cayman Companies Law, you will lose your Dissenter Rights.

Requirements for Exercising Dissenter Rights

A dissenting registered shareholder of the Company is entitled to payment of the fair value of his or her Shares upon dissenting to the merger.

The exercise of your Dissenter Rights will preclude the exercise of any other rights by virtue of holding Shares in connection with the merger, other than the right to seek relief on the grounds that the merger is void or unlawful. To exercise your Dissenter Rights, the following procedures must be followed:

 

   

you must give written notice of objection (“Notice of Objection”) to the Company prior to the vote to approve the merger. The Notice of Objection must include a statement that you propose to demand payment for your Shares if the merger is authorized by the resolution at the extraordinary general meeting;

 

   

within 20 days immediately following the date on which the vote approving the merger is made, the Company must give written notice of the authorization (“Approval Notice”) to all Dissenting Shareholders who have served a Notice of Objection;

 

   

within 20 days immediately following the date on which the Approval Notice is given (the “Dissent Period”), the Dissenting Shareholder must give a written notice of his decision to dissent (a “Notice of Dissent”) to the Company stating his name and address, the number and class of the Shares with respect to which he dissents and demanding payment of the fair value of his Share. A Dissenting Shareholder must dissent in respect of all the Shares which he holds;

 

   

within seven days immediately following (a) the date of expiry of the Dissent Period or (b) the date on which the plan of merger is filed with the Registrar of Companies of the Cayman Islands, whichever is later, the Company, as the surviving company, must make a written offer (a “Fair Value Offer”) to each Dissenting Shareholder to purchase their Shares at a price determined by the Company to be the fair value of such Shares;

 

   

if, within 30 days immediately following the date of the Fair Value Offer, the Company and the Dissenting Shareholder fail to agree on a price at which the Company will acquire the Dissenting Shareholder’s Shares, then, within 20 days immediately following the date of the expiry of such 30-day period, the Company must, and the Dissenting Shareholder may, file a petition with the Grand Court of the Cayman Islands (the “Grand Court”) for a determination of the fair value of the Shares held by all Dissenting Shareholders who have served a Notice of Dissent and who have not agreed the fair value of their Shares with the Company, the petition by the Company must be accompanied by a verified list containing the names and addresses of all members who have filled a Notice of Dissent and who have not agreed the fair value of their Shares with the Company; and

 

   

if a petition is timely filed and served, the Grand Court will determine at a hearing at which Dissenting Shareholders are entitled to participate (a) the fair value of the Shares held by those shareholders and (b) the costs of the proceeding and the allocation of such costs upon the parties.

 

110


All notices and petitions must be executed by or for the registered shareholder, fully and correctly, as such shareholder’s name appears on the register of members of the Company. If the Shares are held by a fiduciary, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If the Shares are held by or for more than one person such notices and petitions must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the notices or petitions for a registered shareholder; however, the agent must identify the registered owner and expressly disclose the fact that, in exercising the notice, he is acting as agent for the registered holder. A person having a beneficial interest in Shares registered in the name of another person, such as a broker or nominee, must act promptly to cause the registered holder to follow the steps summarized above and in a timely manner to exercise whatever Dissenter Rights attached to the Shares.

You must be a registered holder of Shares in order to exercise your Dissenter Rights. A holder of ADSs who wishes to dissent must surrender his or her ADSs to the ADS depositary and pay the fee of ADS depositary to withdraw his or her Shares and then become a registered holder of such Shares and comply with the procedures described above in order to exercise the Dissenter Rights with respect to the Shares prior to the extraordinary general meeting. The ADS depositary will not exercise Dissenter Rights on behalf of a holder of ADSs, and any Notice of Dissent delivered to the ADS depositary will not be effective under the Cayman Islands Companies Law. If you wish to cancel your ADSs, please contact the ADS depositary’s office at Citibank, N.A., 388 Greenwich Street, New York, New York 10013, U.S.A., Attention: Depositary Receipts Department. If the merger is not completed, the Company would continue to be a public company in the U.S. and the Company’s ADSs would continue to be listed on NASDAQ. The Company’s Shares are not listed and cannot be traded on any stock exchange other than 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 completed and you wish to be able sell your Shares on a stock exchange, you would need to deposit your Shares into the Company’s American depositary shares program for the issuance of the corresponding number of ADSs, subject to the terms and conditions of applicable law and the ADS 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 ADS deposit agreement.

If you do not satisfy each of these requirements, you cannot exercise your Dissenter Rights and will be bound by the terms of the merger agreement and the plan of merger. Submitting a signed proxy card that does not direct how the Shares represented by that proxy are to be voted will give the proxy discretion to vote as it determines appropriate. In addition, failure to vote your Shares, or a vote against the proposal to authorize and approve the merger agreement, the plan of merger and the transactions contemplated by the merger agreement, including the merger, will not alone entitle you to exercise your Dissenter Rights. You must send all notices to the Company to Attention: Lu Jing, Focus Media Holding Limited, Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.

If you are considering dissenting, you should be aware that the fair value of your Shares determined under Section 238 of the Cayman Companies Law could be more than, the same as, or less than the $5.50 in cash without interest for each Share of the Company that you would otherwise receive as consideration in the merger. In addition, in any proceedings for determination of the fair value of the Shares covered by a Notice of Dissent, the Company and the Buyer Group intend to assert that the per Share merger consideration of $5.50 is equal to the fair value of each of your Shares. You may also be responsible for the cost of any appraisal proceedings.

The provisions of Section 238 of the Cayman Companies Law are technical and complex. If you fail to comply strictly with the procedures set forth in Section 238, you will lose your Dissenter Rights. You should consult your Cayman Islands legal counsel if you wish to exercise Dissenter Rights.

 

111


FINANCIAL INFORMATION

The following sets forth certain selected historical consolidated financial information of the Company. The financial data has been derived from the audited financial statements filed as part of the Company’s Annual Report on Form 20-F for the year ended December 31, 2011 and the unaudited financial statements for the year ended December 31, 2012 included in the Company’s 2012 fourth quarter and full year earnings release filed under cover of Form 6-K on March 25, 2013. The information set forth below is not necessarily indicative of future results and should be read in conjunction with the financial statements and the related notes and other financial information contained in such Form 20-F and Form 6-K. Please see “Where You Can Find More Information” for a description of how to obtain a copy of such Form 20-F and Form 6-K.

 

     For the years ended December 31,  
     2010     2011(1)     2012  
     $     $     $  
                 (unaudited)  

Consolidated Statements of Operations and Comprehensive Income Data:

      

Net revenues

     516,314,697        786,531,871        927,501,037   

Cost of revenue

     (221,690,034     (284,451,279     (319,595,565

Gross profit

     294,624,663        502,080,592        607,905,472   

Operating expenses

     (175,074,183     (256,762,181     (292,211,581

Income from operations

     119,550,480        245,318,411        315,693,891   

Interest income

     7,259,508        15,537,567        22,358,362   

Interest expenses

     —          (716,956     (5,067,310

Investment loss

     (1,287,881     —          (1,525,602

Income from continuing operations before income taxes

     125,522,107        260,139,022        331,459,342   

Income taxes

     (22,335,579     (54,716,563     (75,896,110

Loss from equity method investment

     —          (43,632,613     (18,561,776

Net income from continuing operations

     103,186,528        161,789,846        237,001,456   

Net income from discontinued operations, net of tax

     83,077,575        (977,591     (1,064,664

Net income

     186,264,103        160,812,255        235,936,792   

Less: Net income/(loss) attributable to non-controlling interests

     1,990,626        (1,864,783     (2,141,064

Net income attributable to Focus Media Holding Limited shareholders

     184,273,477        162,677,038        238,077,856   

Income per share from continuing operations – basic

     0.15        0.24        0.37   

Income per share from continuing operations – diluted

     0.14        0.23        0.36   

Income per share – basic

     0.26        0.24        0.37   

Income per share – diluted

     0.25        0.23        0.36   

Shares used in calculating basic income per share

     707,846,570        671,401,000        644,047,769   

Shares used in calculating diluted income per share

     731,658,265        693,971,258        666,251,695   

 

(1) 

For the year ended December 31, 2011, certain numbers contained in the audited profit and loss account have been restated to reflect the reclassification arising from the discontinued operations of four entities engaged in the traditional outdoor billboard business. See the Company’s press release “Focus Media Reports Fourth Quarter and Full Year 2012 Results” filed under Form 6-K on March 25, 2013.

 

112


    

As of December 31,

 
     2010      2011      2012  
     $      $      $  
                   (unaudited)  

Consolidated Balance Sheets Data:

        

Cash and cash equivalents

     454,475,593         331,218,497         674,132,800   

Total current assets

     852,361,174         1,032,882,973         1,214,853,575   

Total long-term assets

     531,798,365         708,554,178         761,032,916   

Total assets

     1,384,159,539         1,741,437,151         1,975,886,491   

Total current liabilities

     172,719,088         364,410,322         295,728,722   

Total long-term liabilities

     9,997,511         104,205,060         212,201,231   

Total liabilities

     182,716,599         468,615,382         507,929,953   

Total Focus Media Holding Limited shareholders’ equity

     1,200,478,602         1,253,169,346         1,469,928,999   

Non-controlling interests

     964,338         19,652,423         (1,972,461

Total equity

     1,201,442,940         1,272,821,769         1,467,956,538   

Total liabilities and equity

     1,384,159,539         1,741,437,151         1,975,886,491   

 

    

For the year ended December 31,

      2010     2011      2012
     $     $     

$

     (unaudited)     (unaudited)     

(unaudited)

Ratio of Earnings to Fixed Charges:

       

Ratio of Earnings to Fixed Charges(1)

     N/A (2)      351.1       51.7

 

(1) 

For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income tax expenses from continuing operations before adjustment for equity losses of affiliated companies adding fixed charges. Fixed charges consist of interest expenses. The ratio of earnings to fixed charges should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and the consolidated financial statements, related notes and other financial information included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2011 and the report on Form 6-K for the relevant periods. Please see “Where You Can Find More Information” for a description of how to obtain a copy of such Form 20-F and Form 6-K.

(2) 

For the year ended December 31, 2010, the Group did not incur fixed charges. Therefore, the ratio of earnings to fixed charges was not applicable.

Net Book Value per Share of Our Shares

The net book value per Share as of December 31, 2012 was $2.28 (or $2.29 based on the weighted average number of outstanding Shares for the year ended December 31, 2012).

 

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TRANSACTIONS IN THE SHARES AND ADSs

Purchases by the Company

On July 16, 2008, the Company announced a share repurchase program, or the 2008 repurchase plan, under which the Company was authorized to repurchase up to $100 million worth of its outstanding ADSs from time to time on the open market at prevailing prices and subject to restrictions relating to volume, price and timing. The Company implemented this share repurchase program over the course of 12 months starting from July 2008. At the end of this program, the Company has cumulatively purchased 2,588,342 ADSs for $47.5 million.

On February 2, 2010, the Company announced a share repurchase program, or the 2010 repurchase plan, under which the Company was authorized to repurchase up to $200 million worth of its outstanding ADSs from time to time over a period of 12 months, on the open market, at prevailing market prices, in block trades, other privately negotiated transactions or otherwise in accordance with applicable laws and regulations, subject to restrictions relating to volume, price and timing. In August 2010, the Company announced an increase in the authorized repurchase amount under this program to $300 million and an extension of the termination date of the repurchase plan to December 31, 2013. The Company announced subsequent increases in the authorized repurchase amount under this plan in June 2011 and October 2011 to $450 million and $650 million, respectively, while the termination date remained unchanged at December 31, 2013.

In September 2012, in order to reduce its total number of outstanding Shares, the Company repurchased 1,294,983 ADSs from The Core Group for nominal consideration and then cancelled the ADSs. These ADSs represented 6,575,915 Shares that had been previously issued to The Core Group as nominee shareholder and deposited in the Company’s existing ADS facility against the issuance of ADSs, with both such ADSs and such Shares reserved for use in connection with the Company Share Incentive Plans.

On January 10, 2012, we announced a policy starting from 2012 to issue a recurring dividend and to reserve up to an additional 30% of our annual non-GAAP net income of the preceding fiscal year (starting from 2012 earnings) that can be used, at the discretion of our board of directors, to increase the dividend payment or the size of our share repurchase program in effect at that time. Under the terms of the merger agreement, the Company is not permitted to pay any dividends or repurchase any of its Shares pending consummation of the merger. As a result, on December 19, 2012 the Company’s board of directors resolved to suspend the Company’s previously announced share repurchase program and dividend policy. For more information, see “Market Price of the Company’s ADSs, Dividends and Other Matters – Dividend Policy” starting on page 84.

All of the Shares underlying the ADSs repurchased by the Company were considered cancelled under Cayman Islands law and the excess of the repurchase price over the par value of the Shares repurchased was charged to additional paid-in capital.

 

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The following table summarizes the repurchases of ADSs by us under the 2008 repurchase plan and the 2010 repurchase plan for each quarter during the past two years.

 

     Total
Number of
the ADSs
Repurchased
    Range of Prices
Paid per ADS
   Average
Purchase
Price
Paid per
ADS
 

2011

       

First quarter

     —        N/A      N/A   

Second quarter

     —        N/A      N/A   

Third quarter

     2,650,318 (1)    $27.43 - $30.67    $ 28.40   

Fourth quarter

     7,466,071      $16.90 - $22.88    $ 18.86