SC 13E3/A 1 v323148_sc13e-3a.htm SC 13E3/A

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 13E-3

 (Amendment No. 1)

 

RULE 13e-3 TRANSACTION STATEMENT

 

(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)

 

China Mass Media Corp.

 

(Name of Issuer)

 

China Mass Media Corp.

Shengcheng Wang

China Mass Media Holdings Limited

CMM Holdings Limited

Arctic Spring Limited

Happy Indian Ocean Limited

(Names of Persons Filing Statement)

 

Ordinary Shares, par value $0.001 per share

American Depositary Shares, each representing 300 Ordinary Shares

(Title of Class of Securities)

 

169418209*

(CUSIP Number)

 

China Mass Media Corp. Arctic Spring Limited China Mass Media Holdings Limited Shengcheng Wang,
Haiyan Xing Happy Indian Ocean Limited c/o Maples Corporate Services Limited CMM Holdings Limited
6th Floor, Tower B, P.O. Box 908 PO Box 309 6th Floor, Tower B,
Corporate Square, Walker House, 87 Mary Street Ugland House, Grand Cayman, Corporate Square,
35 Finance Street, Xicheng District, George Town, Grand Cayman, KY1-1104, Cayman Islands 35 Finance Street, Xicheng District,
Beijing 100033 KY1-9005, Cayman Islands   Beijing 100033
People’s Republic of China   People’s Republic of China
+86 (10) 8809 1080     +86 (10) 8809 1082

 

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transaction; passed upon the merits or fairness of the transaction; or passed upon the adequacy or accuracy of the disclosure in the document. Any representation to the contrary is a criminal offense.

 

* This CUSIP applies to American Depositary Shares, each representing 300 Ordinary Shares. No CUSIP has been assigned to the Ordinary Shares.

 

 
 

 

With copies to:

 

Alan Seem, Esq. Stephen Peepels, Esq.
Shearman & Sterling LLP DLA Piper LLP
11th Floor, Platinum, 17th Floor, Edinburgh Tower,
233 Taicang Road, The Landmark, 15 Queen's Road Central
Shanghai 200020, Hong Kong
People’s Republic of China +852 2103 0594
+86 (21) 6136 5018  
   
Lee Edwards, Esq.  
Shearman & Sterling LLP  
12th Floor, East Tower,  
Twin Towers,  
B-12 Jianguomenwai Dajie,  
Beijing 100022,  
People’s Republic of China  
+86 (10) 5922 8001  

 

This statement is filed in connection with (check the appropriate box):

 

a      ¨      The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14-C or Rule 13e-3(c) under the Securities Exchange Act of 1934.

 

b      ¨      The filing of a registration statement under the Securities Act of 1933.

 

c      ¨      A tender offer

 

d      þ      None of the above

 

Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: ¨

 

Check the following box if the filing is a final amendment reporting the results of the transaction: ¨

 

Calculation of Filing Fee
Transactional Valuation*   Amount of Filing Fee**
$3,580,284 $410

 

 
 

 

* Calculated solely for the purpose of determining the filing fee in accordance with Rule 0-11(b)(1) under the Securities Exchange Act of 1934, as amended. The filing fee is calculated based on the sum of (a) the aggregate cash payment for the proposed per share cash payment of $0.0167 for 201,697,920 outstanding ordinary shares of the issuer subject to the transaction plus (b) the product of 13,498,639 shares issuable under the 2008 Share Incentive Plan as of September 7, 2012 (assuming no cancellations, retirements or new issuances) multiplied by $0.0157 per share (which is the difference between $0.0167 per share merger consideration and the exercise price per share under the 2008 Share Incentive Plan ((a) and (b) together, the “Transaction Valuation”).

 

** The amount of the filing fee, calculated in accordance with Exchange Act Rule 0-11(b)(1) and the Securities and Exchange Commission Fee Rate Advisory #3 for Fiscal Year 2012, was calculated by multiplying the Transaction Valuation by 0.00011460.

 

£ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting of the fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

Amount Previously Paid:

 

Form or Registration No.:

 

Filing Party:

 

Date Filed:

 

 
 

  

TABLE OF CONTENTS

 

    Page
     
Item 1 Summary of Term Sheet 3
     
Item 2 Subject Company Information 3
     
Item 3 Identity and Background of Filing Person 3
     
Item 4 Terms of the Transaction 4
     
Item 5 Past Contracts, Transactions, Negotiations and Agreements 5
     
Item 6 Purposes of the Transaction and Plans or Proposals 6
     
Item 7 Purposes, Alternatives, Reasons and Effects 7
     
Item 8 Fairness of the Transaction 8
     
Item 9 Reports, Opinions, Appraisals and Negotiations 10
     
Item 10 Source and Amount of Funds or Other Consideration 10
     
Item 11 Interest in Securities of the Subject Company 11
     
Item 12 The Solicitation or Recommendation 11
     
Item 13 Financial Statements 12
     
Item 14 Persons/Assets, Retained, Employed, Compensated or Used 12
     
Item 15 Additional Information 12
     
Item 16 Exhibits 12

 

i
 

  

INTRODUCTION

 

This Amendment No. 1 (this “Amendment”) to the Rule 13E-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (as amended, the “Transaction Statement”) is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): (a) China Mass Media Corp., a Cayman Islands company (the “Company”), the issuer of the ordinary shares, par value $0.001 per share (each, a “Share” and collectively, the “Shares”), including the Shares represented by the American Depositary Shares (“ADSs”), each ADS representing 300 Shares, that is subject to the transaction pursuant to Rule 13e-3 under the Exchange Act, (b) Mr. Shengcheng Wang, chairman of the board of directors and chief executive officer of the Company, (c) China Mass Media Holdings Limited, a Cayman Islands company (“Parent”), the shares of which are beneficially owned by Mr. Shengcheng Wang, (d) CMM Holdings Limited, a Cayman Islands company and wholly owned subsidiary of Parent (“Merger Sub”), (e) Arctic Spring Limited, a Cayman Islands company, and (f) Happy Indian Ocean Limited, a Cayman Islands company.

 

“beneficial ownership”, “beneficially own” or “beneficially owned” in this 13E-3 Transaction Statement should be understood in accordance with Rule 13d-3 of the Exchange Act, as set out in Note 3 to the table of “Security Ownership of Certain Beneficial Owners and Management of the Company” section on page 88.

 

This Amendment relates to the agreement and plan of merger dated as of August 6, 2012 (the “merger agreement”), by and among the Company, Parent, Merger Sub and Mr. Shengcheng Wang. If the merger agreement is adopted and the merger is approved and authorized by the Company’s shareholders and the other conditions to the closing of the merger are satisfied or waived, Parent will, upon the completion of the merger, acquire the Company through the merger of Merger Sub with and into the Company (the “merger”) with the Company surviving the merger as a wholly owned subsidiary of Parent.

 

If the merger is completed, each Share, issued and outstanding immediately prior to the effectiveness of the merger will be cancelled in exchange for the right to receive $0.0167 per Share and each ADS will represent the right to receive $5.00 per ADS then issued and outstanding (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, dated as of August 4, 2008 and amended as of November 28, 2011, by and among the Company, the ADS depositary, and all holders and beneficial owners of ADSs issued thereunder, referred to herein as the “Deposit Agreement”, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), in each case in cash without interest, excluding (i) Shares beneficially owned by Mr. Shengcheng Wang or any person controlled by Mr. Shengcheng Wang (the “Founder Shares”) prior to the effective time of the merger (the “Effective Time”) which will be cancelled for no consideration; and (ii) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their rights under the Companies Law (2011 Revision) of the Cayman Islands (the "Cayman Companies Law") to dissent from the merger (the “Dissenting Shares”, and together with the Founder Shares, the “Excluded Shares”) which will be cancelled in exchange for the right to receive the fair value of such Shares as determined pursuant to the Cayman Companies Law. 

 

At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per Share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

The merger remains subject to the satisfaction or waiver of the conditions set forth in the merger agreement, including obtaining the requisite approval and authorization of the shareholders of the Company. Pursuant to the Cayman Companies Law, the merger agreement must be approved and authorized by a special resolution of the shareholders of the Company, which requires an affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person or by proxy as a single class at an extraordinary general meeting of the shareholders of the Company.

 

The Company will make available to its shareholders a proxy statement (the “Proxy Statement,” a copy of which is attached as Exhibit (a)(1) to this Amendment), relating to the extraordinary general meeting of shareholders of the Company, at which the shareholders will consider and vote upon, among other proposals, a proposal to approve the merger and authorize the merger agreement and the other transactions contemplated thereby. As of the date hereof, the proxy statement is in preliminary form and is subject to completion. 

 

1
 

 

The cross references below show the location in the Proxy Statement (or such other document incorporated herein by reference) of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Amendment are qualified in their entirety by the information contained in the Proxy Statement and the annexes thereto. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Proxy Statement.

 

All information contained in this Amendment concerning any of the Filing Persons has been provided by such Filing Person and no Filing Person has produced any disclosure with respect to any other Filing Person.

 

2
 

 

Item 1Summary of Term Sheet

 

The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet”

 

“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

Item 2Subject Company Information

 

(a)         Name and Address. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Summary Term Sheet—The Parties Involved in the Merger”

 

(b)         Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“The Extraordinary General Meeting—Record Date; Shares and ADSs Entitled to Vote”

 

“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(c)         Trading Market and Price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Market Price of the Company’s ADSs, Dividends and Other Matters”

 

(d)         Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Market Price of the Company’s ADSs, Dividends and Other Matters”

 

(e)         Prior Public Offering. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference.

 

“Transactions in the Shares and ADSs”

 

(f)         Prior Stock Purchases. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Transactions in the Shares and ADSs”

 

Item 3Identity and Background of Filing Person

 

(a)         Name and Address. China Mass Media Corp. is the subject company. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—The Parties Involved in the Merger”

 

“Annex D—Directors and Executive Officers of Each Filing Person”

 

3
 

 

(b)         Business and Background of Entities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—The Parties Involved in the Merger”

 

“Annex D—Directors and Executive Officers of Each Filing Person”

 

(c)         Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—The Parties Involved in the Merger”

 

“Annex D—Directors and Executive Officers of Each Filing Person”

 

Item 4Terms of the Transaction

 

(a)-(1)         Material Terms-Tender Offers. Not applicable.

 

(a)-(2)         Material Terms-Merger or Similar Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors”

 

“The Extraordinary General Meeting”

 

“The Merger Agreement”

 

“Material U.S. Federal Income Tax Consequences”

 

“Material PRC Income Tax Consequences”

 

“Annex A—Agreement and Plan of Merger”

 

(c)         Different Terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors — Interests of Certain Persons in the Merger”

 

“The Extraordinary General Meeting—Proposals to be Considered at the Extraordinary General Meeting”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

(d)         Appraisal Rights. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Summary Term Sheet—Appraisal Rights of Shareholders and ADS Holders”

 

“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

4
 

 

“Dissenters’ Rights”

 

“Annex C—Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) – Section 238”

 

(e)         Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Provisions for Unaffiliated Security Holders”

 

(f)         Eligibility of Listing or Trading. Not applicable.

 

Item 5Past Contracts, Transactions, Negotiations and Agreements

 

(a)         Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“Special Factors—Negotiations, Transactions, or Material Contracts”

 

“Transactions in the Shares and ADSs”

 

(b)         Significant Corporate Events. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Purpose of and Reasons for the Proposed Merger”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

(c)         Negotiations or Contacts. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

5
 

 

(e)         Agreements Involving the Subject Company’s Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Financing of the Merger”

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Plans for the Company after the Proposed Merger”

 

“Special Factors—Financing”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“Special Factors—Voting by Continuing Shareholder at the Extraordinary General Meeting”

 

“The Merger Agreement”

 

“Transactions in the Shares and ADSs”

 

“Annex A—Agreement and Plan of Merger”

 

Item 6Purposes of the Transaction and Plans or Proposals

 

(b)         Use of Securities Acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet”

 

“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

“Special Factors—Purpose of and Reasons for the Proposed Merger”

 

“Special Factors—Effect of the Proposed Merger on the Company”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

(c)(1)-(8) Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—The Merger”

 

“Summary Term Sheet—Purposes and Effects of the Proposed Merger”

 

“Summary Term Sheet— Plans for the Company after the Proposed Merger”

 

“Summary Term Sheet—Financing of the Merger”

 

“Summary Term Sheet—Share Ownership of the Company Directors and Officers”

 

6
 

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors— Purpose of and Reasons for the Proposed Merger”

 

“Special Factors—Effect of the Proposed Merger on the Company”

 

“Special Factors— Plans for the Company after the Proposed Merger”

 

“Special Factors—Financing”

 

“Special Factors— Interests of Certain Persons in the Merger”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

Item 7Purposes, Alternatives, Reasons and Effects

 

(a)         Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Purposes and Effects of the Proposed Merger”

 

“Summary Term Sheet—Plans for the Company after the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Purpose of and Reasons for the Proposed Merger”

 

(b)         Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger”

 

“Special Factors—Purpose of and Reasons for the Proposed Merger”

 

“Special Factors—Effects on the Company if the Merger is not Completed”

 

(c)         Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Purposes and Effects of the Proposed Merger”

 

7
 

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger”

 

“Special Factors—Alternatives to the Proposed Merger”

 

“Special Factors—Purpose of and Reasons for the Proposed Merger”

 

“Special Factors—Effect of the Proposed Merger on the Company”

 

(d)         Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Purposes and Effects of the Proposed Merger”

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Effect of the Proposed Merger on the Company”

 

“Special Factors— Plans for the Company after the Proposed Merger”

 

“Special Factors—Effects on the Company if the Merger is not Completed”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“The Merger Agreement”

 

“Material U.S. Federal Income Tax Consequences”

 

“Material PRC Income Tax Consequences”

 

“Material Cayman Islands Tax Consequences”

 

“Annex A—Agreement and Plan of Merger”

 

Item 8Fairness of the Transaction

 

(a)-(b)         Fairness; Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Recommendation of the Independent Committee and the Board of Directors”

 

“Summary Term Sheet—Position of Buyer Filing Persons as to Fairness”

 

“Summary Term Sheet—Share Ownership of the Company Directors and Officers”

 

8
 

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger”

 

“Special Factors—Opinion of the Independent Committee’s Financial Advisor”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“Annex B—Opinion of Piper Jaffray & Co. as Financial Advisor”

 

(c)         Approval of Security Holders. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Summary Term Sheet—Shareholder Vote Required to Adopt the Merger Agreement”

 

“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

“The Extraordinary General Meeting—Vote Required”

 

(d)         Unaffiliated Representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Opinion of the Independent Committee’s Financial Advisor”

 

“Annex B—Opinion of Piper Jaffray & Co. as Financial Advisor”

 

(e)         Approval of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

(f)         Other Offers. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

9
 

 

Item 9Reports, Opinions, Appraisals and Negotiations

 

(a)         Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Opinion of Financial Advisor to the Independent Committee”

 

“Special Factors—Background of the Proposed Merger”

 

“Special Factors—Opinion of the Independent Committee’s Financial Advisor”

 

“Annex B—Opinion of Piper Jaffray & Co. as Financial Advisor”

 

(b)         Preparer and Summary of the Report, Opinion or Appraisal. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Special Factors—Opinion of the Independent Committee’s Financial Advisor”

 

“Annex B—Opinion of Piper Jaffray & Co. as Financial Advisor”

 

(c)         Availability of Documents. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Where You Can Find More Information”

 

The reports, opinions or appraisals referenced in this Item 9 will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of the Shares or his, her or its representative who has been so designated in writing.

 

Item 10Source and Amount of Funds or Other Consideration

 

(a)         Source of Funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Financing of the Merger”

 

“Special Factors—Financing”

 

“The Merger Agreement”

 

“Annex A—Agreement and Plan of Merger”

 

(b)         Conditions. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Summary Term Sheet—Financing of the Merger”

 

“Special Factors—Financing”

 

(c)         Expenses. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

10
 

 

“Special Factors—Fees and Expenses”

 

(d)         Borrowed Funds. Not Applicable.

 

Item 11Interest in Securities of the Subject Company

 

(a)         Securities Ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Share Ownership of the Company Directors and Officers”

 

“Special Factors—Interests of Certain Persons in the Merger”

 

“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(b)         Securities Transaction. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“Transactions in the Shares and ADSs”

 

Item 12The Solicitation or Recommendation

 

(d)         Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Share Ownership of the Company Directors and Officers”

 

“Questions and Answers about the Extraordinary General Meeting and the Merger”

 

“Special Factors—Voting by the Continuing Shareholder at the Extraordinary General Meeting”

 

“The Extraordinary General Meeting—Vote Required”

 

“Security Ownership of Certain Beneficial Owners and Management of the Company”

 

(e)         Recommendations of Others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—Recommendations of the Independent Committee and the Board of Directors”

 

“Summary Term Sheet—Position of Buyer Filing Persons as to Fairness”

 

“Summary Term Sheet—Share Ownership of the Company Directors and Officers”

 

“Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors”

 

“Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger”

 

“The Extraordinary General Meeting—Our Board’s Recommendation”

 

11
 

 

Item 13Financial Statements

 

(a)         Financial Information. The audited financial statements of the Company for the year ended December 31, 2010 and 2011 are incorporated herein by reference to the Company’s Form 20-F for the year ended December 31, 2011, as amended, originally filed on April 30, 2012 (see page F-1 and following pages therein).

 

The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Financial Information”

 

“Where You Can Find More Information”

 

(b)         Pro Forma Information. Not applicable.

 

Item 14Persons/Assets, Retained, Employed, Compensated or Used

 

(a)         Solicitation or Recommendations. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:

 

“The Extraordinary General Meeting—Solicitation of Proxies”

 

(b)         Employees and Corporate Assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:

 

“Summary Term Sheet—The Parties Involved in the Merger”

 

“Annex D—Directors and Executive Officers of Each Filing Person”

 

“Special Factor—Interests of Certain Persons in the Merger”

 

Item 15Additional Information

 

(b)         Other Material Information. The information contained in the Proxy Statement, including all annexes thereto, is incorporated herein by reference.

 

Item 16Exhibits

 

(a)-(1) Preliminary Proxy Statement of the Company dated September 7, 2012 (the “Proxy Statement”).

 

(a)-(2) Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement.

 

(a)-(3) Form of Proxy Card, incorporated herein by reference to Annex E of the Proxy Statement.

 

(a)-(4) Form of ADS Voting Instruction Card, incorporated herein by reference to Annex F-1 of the Proxy Statement.

 

(a)-(5) Form of Depositary’s Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to Annex F-2 of the Proxy Statement.

 

(a)-(6) Press Release dated August 7, 2012, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on August 7, 2012.

 

12
 

 

(b)-(1) Promissory Note dated as of August 6, 2012, by and between Arctic Spring Limited and Parent, incorporated herein by reference to Annex G-1 to the Proxy Statement.

 

(b)-(2) Promissory Note dated as of August 6, 2012, by and between Happy Indian Ocean Limited and Parent, incorporated herein by reference to Annex G-2 to the Proxy Statement.

 

(c)-(1) Opinion of Piper Jaffray & Co., dated August 6, 2012, incorporated herein by reference to Annex B of the Proxy Statement.

 

(c)-(2) Discussion Materials prepared by Piper Jaffray & Co. for discussion with the independent committee of the board of directors of the Company, dated August 6, 2012.

 

(d)-(1) Agreement and Plan of Merger dated as of August 6, 2012, by and among the Company, Mr. Shengcheng Wang, Parent and Merger Sub, incorporated herein by reference to Annex A to the Proxy Statement.

 

(d)-(2) Limited Guaranty dated as of August 6, 2012, by Arctic Spring Limited in favor of the Company, incorporated herein by reference to Annex H-1 to the Proxy Statement.

 

(d)-(3) Limited Guaranty dated as of August 6, 2012, by Happy Indian Ocean Limited in favor of the Company, incorporated herein by reference to Annex H-2 to the Proxy Statement.

 

(f)-(1) Dissenters’ Rights, incorporated herein by reference to the Section entitled “ Dissenters’ Rights” in the Proxy Statement.

 

(f)-(2) Section 238 of the Companies Law (2011 Revision) of the Cayman Islands (the “Cayman Companies Law”), incorporated herein by reference to Annex C to the Proxy Statement.

 

(g) Not applicable.

 

13
 

 

SIGNATURES

 

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

Date: September 7, 2012

 

China Mass Media Corp.
 
By: /s/  Liping He
  Name: Liping He
  Title: Director
   
China Mass Media Holdings Limited
 
By:  /s/ RTC Administrators Limited
  Name: RTC Administrators Limited
  Title: Corporate Director
   
CMM Holdings Limited
 
By:  /s/ Shengcheng Wang
  Name: Shengcheng Wang
  Title: Director
   
Shengcheng Wang
 
By:  /s/ Shengcheng Wang
  Name: Shengcheng Wang

 

14
 

 

Arctic Spring Limited
 
By:  /s/ RTC Administrators Limited
  Name: RTC Administrators Limited
  Title: Corporate Director
   
Happy Indian Ocean Limited
 
By:  /s/ RTC Administrators Limited
  Name: RTC Administrators Limited
  Title: Corporate Director

 

15
 

 

Exhibit Index

 

(a)-(1) Preliminary Proxy Statement of the Company dated September 7, 2012 (the “Proxy Statement”).

 

(a)-(2) Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to the Proxy Statement.

 

(a)-(3) Form of Proxy Card, incorporated herein by reference to Annex E of the Proxy Statement.

 

(a)-(4) Form of ADS Voting Instruction Card, incorporated herein by reference to Annex F-1 of the Proxy Statement.

 

(a)-(5) Form of Depositary’s Notice of Extraordinary General Meeting of Shareholders of the Company, incorporated herein by reference to Annex F-2 of the Proxy Statement.

 

(a)-(6) Press Release dated August 7, 2012, incorporated herein by reference to Exhibit 99.1 to the Report on Form 6-K furnished by the Company to the Securities and Exchange Commission on August 7, 2012.

 

(b)-(1) Promissory Note dated as of August 6, 2012, by and between Arctic Spring Limited and Parent, incorporated herein by reference to Annex G-1 to the Proxy Statement.

 

(b)-(2) Promissory Note dated as of August 6, 2012, by and between Happy Indian Ocean Limited and Parent, incorporated herein by reference to Annex G-2 to the Proxy Statement.

 

(c)-(1) Opinion of Piper Jaffray & Co., dated August 6, 2012, incorporated herein by reference to Annex B of the Proxy Statement.

 

(c)-(2) Discussion Materials prepared by Piper Jaffray & Co. for discussion with the independent committee of the board of directors of the Company, dated August 6, 2012.

 

(d)-(1) Agreement and Plan of Merger dated as of August 6, 2012, by and among the Company, Mr. Shengcheng Wang, Parent and Merger Sub, incorporated herein by reference to Annex A to the Proxy Statement.

 

(d)-(2) Limited Guaranty dated as of August 6, 2012, by Arctic Spring Limited in favor of the Company, incorporated herein by reference to Annex H-1 to the Proxy Statement.

 

(d)-(3) Limited Guaranty dated as of August 6, 2012, by Happy Indian Ocean Limited in favor of the Company, incorporated herein by reference to Annex H-2 to the Proxy Statement.

 

(f)-(1) Dissenters’ Rights, incorporated herein by reference to the Section entitled “ Dissenters’ Rights” in the Proxy Statement.

 

(f)-(2) Section 238 of the Companies Law (2011 Revision) of the Cayman Islands (the “Cayman Companies Law”), incorporated herein by reference to Annex C to the Proxy Statement.

 

(g) Not applicable.

 

16
 

 

 

[●], 2012

 

China Mass Media Corp.

 

Re: Notice of Extraordinary General Meeting of Shareholders

 

Dear Shareholder:

 

You are cordially invited to attend an extraordinary general meeting of shareholders of China Mass Media Corp., referred to as the “Company”, to be held on [●], 2012, at 10:00 a.m.(Beijing time). The meeting will be held at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China. 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.

 

“beneficial ownership”, “beneficially own” or “beneficially owned” in this Notice of the Extraordinary General Meeting of Shareholders and Proxy Statement should be understood in accordance with Rule 13d-3 of the Exchange Act, as set out in Note 3 to the table of “Security Ownership of Certain Beneficial Owners and Management of the Company” section on page 88.

 

At the extraordinary general meeting you will be asked to consider and vote upon a proposal to approve the merger and approve and authorize the agreement and plan of merger dated as of August 6, 2012, referred to herein as “merger agreement”, among the Company, China Mass Media Holdings Limited, referred to herein as “Parent,” CMM Holdings Limited, referred to herein as “Merger Sub,” and Mr. Shengcheng Wang, the Cayman Plan of Merger which is required to be filed with the Registrar of Companies of the Cayman Islands and the other transactions contemplated thereby. A copy of the merger agreement is 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 being the surviving company. Merger Sub is a Cayman Islands company formed solely for purposes of the merger. Parent is a Cayman Islands company beneficially owned by Mr. Shengcheng Wang, chairman of the board of directors and chief executive officer of the Company. As of the date of this proxy statement, Mr. Shengcheng Wang beneficially owns approximately 75.4% of the Company’s 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 wholly owned subsidiary of Parent and will be beneficially owned solely by Mr. Shengcheng Wang. In addition, if the merger is completed, the Company’s American Depositary Shares, or ADSs, each representing 300 Shares, will no longer be traded on the over-the-counter market commonly referred to as “pink sheets”, and the American Depositary Shares program for the ADSs will be terminated.

 

If the merger agreement is approved and authorized by the requisite vote of the Company’s shareholders and the merger is completed, each Share, issued and outstanding immediately prior to the effective time of the merger, other than (i) Shares beneficially owned by Mr. Shengcheng Wang or any person controlled by Mr. Shengcheng Wang prior to the effective time of the merger, referred to herein as the “Founder Shares” and (ii) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their rights to dissent from the merger under the Cayman Companies Law, referred to herein as the “Dissenting Shares”, will be cancelled in exchange for the right to receive $0.0167 per Share and each ADS will represent the right to receive $5.00 per ADS then issued and outstanding (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, dated as of August 4, 2008 and amended as of November 28, 2011, by and among the Company, the ADS depositary, and all holders and beneficial owners of ADSs issued thereunder, referred to herein as the “Deposit Agreement”, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), in each case in cash without interest. The Founder Shares will be cancelled for no consideration. The Dissenting Shares will be cancelled for their fair value as determined pursuant to the Cayman Companies Law as described in more detail below. At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per Share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

An independent committee of the board of directors of the Company, composed solely of directors unrelated to any of the management members of the Company, Parent and Merger Sub, has (1) unanimously determined that the merger, on the terms and subject to the consideration set forth in the merger agreement, is substantively and procedurally fair to, and in the best interests of, the Company and its unaffiliated shareholders and ADS holders, (2) declared it advisable to enter into the merger agreement, (3) approved the merger, the merger agreement and the other transactions contemplated thereby, and (4) recommended that the board of directors of the Company approve the merger, the merger agreement and the other transactions contemplated thereby.

 

1
 

 

The board of directors of the Company, after carefully considering all relevant factors, including the unanimous determination and recommendation of the independent committee, has (1) determined that the merger, on the terms and subject to the consideration set forth in the merger agreement, is substantively and procedurally fair to, and in the best interests of, the Company and its unaffiliated shareholders and ADS holders, (2) declared it advisable to enter into the merger agreement, (3) approved the merger, the merger agreement and the other transactions contemplated thereby and (4) recommended that the Company’s shareholders vote FOR the approval and authorization of the merger agreement.

 

The Company’s board of directors unanimously recommends that you vote FOR the approval of the merger and the approval and authorization of the merger agreement and the other transactions contemplated thereby and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the approval of the merger and the approval and authorization of the merger agreement in the event that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting.

 

The accompanying proxy statement provides you with 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 the Shares you own, your vote is very important. The merger cannot be completed unless the merger agreement is approved and authorized by a special resolution of the shareholders of the Company, which requires an affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting. Mr. Shengcheng Wang beneficially owns 566,591,584 Shares, which represent approximately 75.4% of the total Shares. Accordingly, Mr. Shengcheng Wang has sufficient votes to constitute a quorum for the extraordinary general meeting and unilaterally approve and authorize the merger agreement and the transactions contemplated by the merger agreement, including the merger, 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 [●], 2012 at 9:30 a.m. (Beijing time). Voting at the extraordinary general meeting will take place by poll voting, each shareholder having one vote for each Share held as of the close of business in the Cayman Islands on [●], 2012 as the chairman of the Company’s board of directors has undertaken to demand poll voting at the meeting.

 

Citibank, N.A., in its capacity as ADS depositary, referred to herein as the “ADS depositary”, holds on deposit the Shares that are 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 as of the close of business in New York City on [●], 2012, the ADS record date. Pursuant to Section 4.10 of the Deposit Agreement, holders of Shares shall be deemed, and the ADS depositary shall deem such holders, to have instructed the ADS depositary to issue a discretionary proxy in favor of a person to be designated by the Company to vote any Shares represented by ADSs for which the ADS depositary does not timely receive valid voting instructions from the ADS holders as of the ADS record date. The deadline for the ADS depositary to receive your voting instructions is no later than 10:00 a.m. (New York City time) on [●], 2012.

 

2
 

 

Under the terms of the Deposit Agreement, no discretionary proxy is to be issued in respect of the Shares represented by unvoted ADSs with respect to any matter as to which the Company informs the ADS depositary that it does not wish such proxy to be given, that there exists substantial opposition or that would adversely affect the rights of the holders of Shares. The ADS depositary will, in accordance with the terms of the Deposit Agreement, rely on the determination and notice thereof by the Company. As of the date hereof, the Company is not aware of any substantial opposition to any matter to be voted on at the extraordinary general meeting and does not believe any such matter will adversely affect the rights of holders of Shares. 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 [●], 2012, 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 [●], 2012 together with (i) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of the Shares), (ii) payment of (a) the ADS cancellation fees ($5.00 per 100 ADSs (or fraction thereof) to be cancelled) and (b) applicable expenses and taxes (such as stamp taxes and stock transfer taxes), and (iii) a certification that the ADS holder either (x) 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 (y) 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.

 

Shareholders who continue to hold their Shares until the consummation of the merger will have the right to dissent from the merger and to receive payment of the fair value of their Shares (as determined pursuant to the Cayman Companies Law) if the merger is completed, but only if they deliver to the Company, before the shareholder vote to approve and authorize the merger agreement 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 dissenters’ rights, which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under the Cayman Companies Law could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you did not exercise dissenters’ rights with respect to your Shares.

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND TO RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO PERFECT ANY DISSENTERS' 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 DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY FOR CANCELLATION, PAY THE ADS DEPOSITARY'S FEES REQUIRED FOR SUCH CANCELLATION, 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 [●], 2012, AND BECOME HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON [●], 2012. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN COMPANIES LAW.

 

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 voting your ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

3
 

 

If you have any questions or need assistance voting your Shares, please call Julie Zhili Sun, the Chief Financial Officer of the Company at 86-10-8809 1099

 

Thank you for your cooperation and continued support.

 

Sincerely,   Sincerely,
     
     
/s/ Liping He   /s/ Shengcheng Wang
     
Liping He   Shengcheng Wang
On behalf of the Independent Committee   Chairman of the Board

 

The proxy statement is dated [●], 2012, and is first being mailed to the shareholders and to ADS holders on or about [●], 2012.

 

4
 

 

China Mass Media Corp.

 

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON [●], 2012

 

Dear Shareholder:

 

Notice is hereby given that an extraordinary general meeting of the members of China Mass Media Corp. (the “Company”) will be held on [●], 2012 at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China, Beijing time at 10:00 a.m.

 

“beneficial ownership”, “beneficially own” or “beneficially owned” in this Notice of the Extraordinary General Meeting of Shareholders and Proxy Statement should be understood in accordance with Rule 13d-3 of the Exchange Act, as set out in Note 3 to the table of “Security Ownership of Certain Beneficial Owners and Management of the Company” section on page 88.

 

Only holders of ordinary shares of the Company, referred to as “Shares”, of record at the close of business in the Cayman Islands on [●], 2012 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 August 6, 2011 among China Mass Media Holdings Limited, CMM Holdings Limited, the Company and Mr. Shengcheng Wang and the plan of merger between CMM Holdings Limited and the Company to be held with the Registrar of Companies of the Cayman Islands (the “Cayman Plan of Merger”) (such merger agreement and the Cayman Plan of Merger 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) and any and all transactions contemplated thereby be and are hereby approved and authorized by the Company;

 

·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 shareholders of the Company will be available at its principal executive offices at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China, during ordinary business hours for the two business days days immediately prior to the extraordinary general meeting.

 

If you own American Depositary Shares, or ADSs, representing Shares, 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) 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 [●], 2012 in order to vote the underlying Shares at the extraordinary general meeting. Alternatively, you may vote at the extraordinary general meeting if you surrender your ADSs to the ADS depositary for cancellation, pay the ADS depositary’s fees required for such cancellation, 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 before the close of business in New York City on [●], 2012, and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012. 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.

 

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, Parent and Merger Sub, the Company’s board of directors approved the merger agreement and recommends that you vote FOR the approval of the merger and the approval and authorization of the merger agreement and the transactions contemplated thereby and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the approval of the merger and the approval and authorization of the merger agreement in the event that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting.

 

5
 

 

Mr. Shengcheng Wang, chairman of the board of directors and chief executive officer of the Company, indicated that he will vote all Shares beneficially owned by him (representing approximately 75.4% of the Company’s Shares) in favor of approval of the merger and adoption of the merger agreement.

 

The merger cannot be completed unless the merger agreement is approved and authorized by the affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting. Mr. Shengcheng Wang beneficially owns 566,591,584 Shares, which represent approximately 75.4% of the total Shares. Accordingly, Mr. Shengcheng Wang has sufficient votes to constitute a quorum for the extraordinary general meeting and unilaterally approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting.

 

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. The deadline to lodge your proxy card is [●], 2012 at 9:30 a.m. (Beijing time). The proxy card is the “instrument appointing a proxy” as referred to in the Company’s articles of association. Voting at the extraordinary general meeting will take place by poll voting, each shareholder having one vote for each Share held as of the close of business in the Cayman Islands on [●], 2012 as the chairman of the Company’s board of directors has undertaken to demand poll voting at the meeting.

 

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 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; provided, that, in the case of Shares held in the form of ADSs and pursuant to Section 4.10 of the Deposit Agreement dated as of August 4, 2008 and amended as of November 28, 2011, by and among the Company, the ADS depositary, and all holders and beneficial owners of ADSs issued thereunder, referred to herein as the “Deposit Agreement”, holders of ADSs shall be deemed, and the ADS depositary shall deem such holders, to have instructed the ADS depositary to issue a discretionary proxy in favor of a person to be designated by the Company to vote any Shares represented by ADSs for which the ADS depositary does not timely receive valid voting instructions from the ADS holders as of the ADS record date, the close of business in New York City on [●], 2012. Under the terms of the Deposit Agreement, no discretionary proxy is to be issued in respect of Shares represented by unvoted ADSs with respect to any matter as to which the Company informs the ADS depositary that it does not wish such proxy to be given, there exists substantial opposition or the matter to be voted on would adversely affect the rights of holders of Shares. The ADS depositary will, in accordance with the terms of the Deposit Agreement, rely on the determination and notice thereof by the Company. As of the date hereof, the Company is not aware of any substantial opposition to any matter to be voted on at the extraordinary general meeting and does not believe any such matter will adversely affect the rights of holders of Shares.

 

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 all of your proxy cards in accordance with the instructions set forth on the proxy card.

 

If you submit your proxy card without indicating how you wish to vote, the Shares represented by your proxy card will be voted FOR the approval of the merger and the approval and authorization of the merger agreement and the transactions contemplated thereby 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.

 

6
 

 

Shareholders who continue to hold their Shares in their own name until the consummation of the merger will have the right to dissent from the merger and to receive payment of the fair value of their Shares (as determined pursuant to the Cayman Companies Law) if the merger is completed, but only if they deliver to the Company, before the shareholder vote to approve and authorize the merger agreement 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 dissenters’ rights, which is attached as Annex C to the accompanying proxy statement. The fair value of your Shares as determined under the Cayman Companies Law could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you did not exercise dissenters’ rights with respect to your Shares.

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND TO RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO PERFECT ANY DISSENTERS' 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 DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY FOR CANCELLATION, PAY THE ADS DEPOSITARY'S FEES REQUIRED FOR SUCH CANCELLATION, 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 [●], 2012, AND BECOME HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON [●], 2012. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN 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 ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

If you have any questions or need assistance voting your Shares, please call Julie Zhili Sun, the Chief Financial Officer of the Company at 86-10-8809 1099.

 

The merger agreement and the merger are described in the accompanying proxy statement. Copies of the merger agreement 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 shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company.

 

2.The instrument appointing a proxy shall be in writing under the hand of the appointer 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.

 

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.

 

7
 

 

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 before the commencement of the extraordinary meeting, or adjourned meeting at which it is sought to use the proxy.

 

  BY ORDER OF THE BOARD OF DIRECTORS,
   
  /s/ Shengcheng Wang
   
  Shengcheng Wang
   
Chairman of the Board of Directors and Chief Executive Officer
   
  [●], 2012

 

8
 

 

Table of Contents

 

  Page
   
SUMMARY TERM SHEET 4
   
QUESTIONS AND ANSWERS ABOUT THE EXTRAORDINARY GENERAL MEETING AND THE MERGER 16
   
SPECIAL FACTORS 25
   
Background of the Proposed Merger 25
   
Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger 34
   
Certain Financial Projections 38
   
Opinion of the Independent Committee’s Financial Advisor 40
   
Purpose of and Reasons for the Proposed Merger 49
   
Effect of the Proposed Merger on the Company 50
   
Plans for the Company after the Proposed Merger 53
   
Alternatives to the Proposed Merger 53
   
Effects on the Company if the Merger is not Completed 54
   
Financing 54
   
Limited Guaranty 55
   
Liability Cap and Limitation on Remedies 55
   
Interests of Certain Persons in the Merger 55
   
Fees and Expenses 58
   
Voting by Continuing Shareholder at the Extraordinary General Meeting 58
   
Litigation Related to the Merger 58
   
Accounting Treatment of the Merger 58
   
Regulatory Matters 58
   
Appraisal Right 58
   
Certain Material U.S. Federal Income Tax Consequences 58
   
Material PRC Income Tax Consequences 59
   
Material Cayman Islands Tax Consequences 59
   
MARKET PRICE OF THE COMPANY’S ADSs, DIVIDENDS AND OTHER MATTERS 60

 

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THE EXTRAORDINARY GENERAL MEETING 62
   
Date, Time and Place of the Extraordinary General Meeting 62
   
Proposals to be Considered at the Extraordinary General Meeting 62
   
Our Board’s Recommendation 63
   
Record Date; Shares and ADSs Entitled to Vote 63
   
Quorum 63
   
Vote Required 63
   
Procedures for Voting 64
   
Voting of Proxies and Failure to Vote 65
   
Revocability of Proxies 65
   
Whom to Call for Assistance 66
   
Solicitation of Proxies 66
   
Other Business 66
   
THE MERGER AGREEMENT 67
   
Structure and Completion of the Proposed Merger 67
   
Memorandum and Articles of Association; Directors and Officers of the Surviving Company 67
   
Merger Consideration 67
   
Treatment of Options 68
   
Exchange Procedures 68
   
Representations and Warranties 68
   
Conduct of Business Prior to Closing 72
   
Acquisition Proposals 74
   
No Change of Recommendation 74
   
Shareholders’ Meeting 75
   
Indemnification; Directors’ and Officers’ Insurance 75
   
No Knowledge of Inaccuracies 75
   
Financing 76
   
Conditions to the Merger 77
   
Termination of the Merger Agreement 77
   
Termination Fee and Reimbursement of Expenses 79
   
Fees and Expenses 79
   
Modification or Amendment; Waiver of Conditions 79
   
Remedies 79

 

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PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS 81
   
DISSENTERS’ RIGHTS 82
   
FINANCIAL INFORMATION 84
   
TRANSACTIONS IN THE SHARES AND ADSs 87
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY 88
   
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES 89
   
MATERIAL PRC INCOME TAX CONSEQUENCES  92
   
MATERIAL CAYMAN ISLANDS TAX CONSEQUENCES 93
   
FUTURE SHAREHOLDER PROPOSALS 94
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 95
   
WHERE YOU CAN FIND MORE INFORMATION 97
   
ANNEX A: Agreement and Plan of Merger A-1
   
ANNEX B: Opinion of Piper Jaffray & Co. 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 Proxy Card E-1
   
ANNEX F-1: Form of ADS Voting Instruction Card F-1
   
ANNEX F-2: Form of Depositary’s Notice of Extraordinary General Meeting of Shareholders of the Company F-2
   
ANNEX G-1: Promissory Note G-1
   
ANNEX G-2: Promissory Note G-2
   
ANNEX H-1: Limited Guaranty H-1
   
ANNEX H-2: Limited Guaranty H-2

 

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SUMMARY TERM SHEET

 

This “Summary Term Sheet,” together with the “Questions and Answers About the Extraordinary General Meeting and the Merger,” summarizes the material information contained in the proxy statement. However, it may not contain all of the information that may be important to your consideration of the proposed 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 97. In this proxy statement, the terms “we,” “us,” “our,” and the “Company” refer to China Mass Media Corp. All references to “dollars” and “$” in this proxy statement are to United States dollars.

 

The Parties Involved in the Merger

 

China Mass Media Corp.

 

The Company is an independent television advertising company in China. We provide a full range of integrated television advertising services, primarily consisting of advertising agency services and production and sponsorship services. We have extensive experience in media planning, packaging and sales and provide advertising services on an integrated basis that are tailored to advertisers’ needs. For our advertising agency services, we obtain advertising time slots on selected nationally broadcast television channels of CCTV, and procure advertisers to place advertisements during such time slots. For our production and sponsorship services, we design, produce and package content for public service announcements or commercial advertisements. In addition, we solicit sponsors for the public service announcements we produce and arrange for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV.

 

Our principal executive office is located at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China. Our telephone number at this address is +86 (10) 8809 1099. Our registered office in the Cayman Islands is at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.

 

For a description of our history and development, business and organizational structure, see our Annual Report on Form 20-F for the year ended December 31, 2011, which is incorporated herein by reference. See “Where You Can Find More Information” for a description of how to obtain a copy of our Annual Report.

 

Mr. Shengcheng Wang

 

Mr. Shengcheng Wang is our chairman of the board of directors and chief executive officer of the Company. He beneficially owns 75.4% of our shares. The business address for Mr. Shengcheng Wang is 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China. Mr. Shengcheng Wang is a Canadian citizen.

 

Parent

Parent is a company organized under the laws of the Cayman Islands. Its shareholders are Arctic Spring Limited and Happy Indian Ocean Limited. Arctic Spring Limited and Happy Indian Ocean Limited hold 20% and 80% of the total outstanding shares of Parent, respectively. Parent is a holding company formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement.

 

Merger Sub

 

Merger Sub is a company organized under the laws of the Cayman Islands. Its sole shareholder is Parent. Merger Sub was formed by Parent solely for the purpose of effecting the merger.

 

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Arctic Spring Limited

 

Arctic Spring Limited is a company organized under the laws of the Cayman Islands. Arctic Spring Limited is part of an estate and asset preservation structure that was established for the ultimate benefit, and to advance the interests, of Mr. Shengcheng Wang and his family. Mr. Shengcheng Wang may be deemed to be the beneficial owner of the ordinary shares owned by Arctic Spring Limited in the Company under the U.S. securities law, although Mr. Shengcheng Wang has no direct or indirect equity interests in Arctic Spring Limited.

 

Happy Indian Ocean Limited

 

Happy Indian Ocean Limited is a company organized under the laws of the Cayman Islands. Happy Indian Ocean Limited is part of an estate and asset preservation structure that was established for the ultimate benefit, and to advance the interests, of Mr. Shengcheng Wang and his family. Mr. Shengcheng Wang may be deemed to be the beneficial owner of the ordinary shares owned by Happy Indian Ocean Limited in the Company under the U.S. securities law, although Mr. Shengcheng Wang has no direct or indirect equity interests in Happy Indian Ocean Limited.

 

The Merger (Page 67)

 

You are being asked to vote to approve the merger and to adopt the merger agreement dated as of August 6, 2012 among the Company, Parent, Merger Sub and Mr. Shengcheng Wang pursuant to which, once the merger agreement is adopted by the requisite vote of the shareholders of the Company and the other conditions to completion of the merger 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 in the merger. The Company, as the surviving company, will continue to do business under the name “China Mass Media Corp.” following the merger and will be wholly owned by Parent. If the proposed merger is completed, the Company will cease to be a publicly traded company. Copies of the merger agreement is attached as Annex A to this proxy statement. You should read the merger agreement in its entirety because the merger agreement, and not this proxy statement, is the legal document that governs the merger.

 

Merger Consideration (Page 67)

 

If the merger is completed, each Share, issued and outstanding immediately prior to the effectiveness of the merger will be cancelled in exchange for the right to receive $0.0167 per Share and each ADS (each ADS representing 300 Shares) will represent the right to receive $5.00 per ADS then issued and outstanding (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, dated as of August 4, 2008 and amended as of November 28, 2011, by and among the Company, the ADS depositary, and all holders and beneficial owners of ADSs issued thereunder, referred to herein as the “Deposit Agreement”, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), in each case in cash without interest, excluding (i) Shares beneficially owned by Mr. Shengcheng Wang or any person controlled by Mr. Shengcheng Wang (the “Founder Shares”) prior to the effective time of the merger (the “Effective Time”) which will be cancelled for no consideration; and (ii) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenters’ rights under the Cayman Companies Law (the “Dissenting Shares”, and together with the Founder Shares, the “Excluded Shares”), which will be cancelled in exchange for the right to receive the fair value of such Shares as determined pursuant to the Cayman Companies Law.

 

Each of the Shares beneficially owned by Mr. Shengcheng Wang or any person controlled by him will be cancelled and cease to exist without payment of any consideration. Shares reserved under the Company’s share incentive plan adopted in July 2008 (“2008 Share Incentive Plan”) that have been provisionally deposited with the depositary for the ADSs and are not subject to any outstanding option under the Company’s share incentive plan will be cancelled for no consideration.

 

At the effective time of the merger, each ordinary share of Merger Sub issued immediately prior to the effective time will be converted into one fully paid ordinary share of the surviving company. Such ordinary shares will be the only issued share capital of the surviving company at the effective time of the merger.

 

Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenters’ rights under the Cayman Companies Law will be cancelled for the right to receive the fair value of such Shares as determined pursuant to the Cayman Companies Law.

 

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Treatment of Options (Page 68)

 

At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per Share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

Record Date and Voting (Page 63)

 

You are entitled to vote at the extraordinary general meeting if you have Shares registered in your name at the close of business in the Cayman Islands on [●], 2012 or if you are a holder of ADSs at the close of business in New York City on [●], 2012, 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, 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 [●], 2012 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 own ADSs on the ADS record date, you cancel your ADSs (and certify 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 [●], 2012, you pay to the ADS depositary the (a) ADS cancellation fees ($5.00 per 100 ADSs cancelled) and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes) and you become a holder of Shares prior to the close of business in the Cayman Islands on [●], 2012, 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 approval at the extraordinary general meeting and any adjournment thereof. We expect that, as of the Share record date, there would be 751,697,920 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 [●], 2012 at 9:30 a.m. (Beijing time). See “Voting Information” below.

 

Shareholder Vote Required to Approve and Authorize the Merger Agreement (Page 63)

 

Approval and authorization of the merger agreement requires the approval by a special resolution of the shareholders of the Company, which requires an affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person, by proxy or by corporate representative as a single class at the extraordinary general meeting.

 

Based on the number of Shares expected to be outstanding on the record date, approximately 501,131,947 Shares must be voted in favor of the proposal to approve and authorize the merger agreement and approve the transactions contemplated by the merger agreement, including the merger, in order for the proposal to be approved, assuming all shareholders will be present and voting in person or by proxy at the extraordinary general meeting.

 

Mr. Shengcheng Wang, beneficially owns 564,676,767 Shares, which represent approximately 75.4% of the total Shares. Accordingly, Mr. Shengcheng Wang, has sufficient votes to constitute a quorum for the extraordinary general meeting and unilaterally approve and authorize the merger agreement and the transactions contemplated by the merger agreement, including the merger, 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.”

 

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Voting Information (Page 64)

 

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 [●], 2012 at 9:30 a.m. (Beijing time). If you hold ADSs, please complete, sign, date and return the ADS voting instructions card that accompanied this proxy statement to the ADS depositary. If a broker holds your Shares or ADSs in “street name,” your broker should provide you with instructions on how to vote your Shares or ADSs.

 

If you own ADSs as of the close of business in New York City on [●], 2012, 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) 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 [●], 2012 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 business in the Cayman Islands on [●], 2012. 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 [●], 2012 together with (i) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares), (ii) payment of (a) the ADS cancellation fees ($5.00 per 100 ADS to be cancelled) and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes), and (iii) 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. 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.

 

Dissenter Rights of Shareholders and ADS Holders (Page 82)

 

Shareholders who continue to hold their Shares in their own name until the consummation of the merger will have the right to dissent from the merger and to receive payment of the fair value of their Shares (as determined pursuant to the Cayman Companies Law) if the merger is completed, but only if they deliver to the Company, before the shareholder vote to approve and authorize the merger agreement 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 dissenters’ rights. The fair value of your Shares as determined under the Cayman Companies Law could be more than, the same as, or less than the merger consideration you would receive pursuant to the merger agreement if you did not exercise dissenters’ rights with respect to your Shares.

 

ADS HOLDERS WILL NOT HAVE THE RIGHT TO DISSENT FROM THE MERGER AND TO RECEIVE PAYMENT OF THE FAIR VALUE OF THE SHARES UNDERLYING THEIR ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO PERFECT ANY DISSENTERS' 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 DISSENTERS’ RIGHTS MUST SURRENDER THEIR ADSs TO THE ADS DEPOSITARY FOR CANCELLATION, PAY THE ADS DEPOSITARY'S FEES REQUIRED FOR SUCH CANCELLATION, 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 [●], 2012, AND BECOME HOLDERS OF SHARES BY THE CLOSE OF BUSINESS IN THE CAYMAN ISLANDS ON [●], 2012. THEREAFTER, SUCH FORMER ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE SHARES UNDER SECTION 238 OF THE CAYMAN COMPANIES LAW.

 

We encourage you to read the section of this proxy statement entitled “Dissenters’ 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 rights to dissent from the merger.

 

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Purposes and Effects of the Proposed Merger (Page 49)

 

The purpose of the merger is to enable Parent to acquire 100% control of the Company in a transaction in which the Company’s unaffiliated shareholders and ADS holders will be cashed out in exchange for $0.0167 per Share (or $5.00 per ADS less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)) in each case in cash and without interest.

 

Our ADSs are currently traded on the over-the-counter market commonly referred to as “pink sheets”. It is expected that, following the consummation of the merger, the Company will cease to be a publicly traded company and will instead become a private company, the shares of which will be beneficially owned by Mr. Shengcheng Wang. Following the completion of the proposed merger, our ADSs will no longer be traded on the over-the-counter market, and the American Depositary Shares program for the ADSs will be terminated.

 

Plans for the Company after the Proposed Merger (Page 53)

 

After the effective time of the merger, Parent anticipates that the Company will continue its current operations, except that it will cease to be a public company and will instead be a wholly owned subsidiary of Parent. The Company will no longer be subject to the reporting obligations under the Exchange Act and the related direct and indirect costs and expenses.

 

Parent has advised the Company that, except for the transactions contemplated by the merger agreement, it does not have any current plans, proposals or negotiations that relate to or would result in any of the following:

 

·an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries;

 

·the sale or transfer of a material amount of the assets of the Company or any of its subsidiaries; or

 

·any other material changes in the Company’s business.

 

Recommendations of the Independent Committee and the Board of Directors (Page 29)

 

The independent committee has unanimously (i) determined that the merger, on the terms and subject to the consideration set forth in the merger agreement, is substantively and procedurally fair to, and in the best interests of, the Company and its unaffiliated shareholders and ADS holders, and deemed it advisable to enter into the merger agreement, (ii) approved the merger, the merger agreement and the other transactions contemplated thereby, and (iii) recommended that our board of directors approve and adopt the merger agreement and the transactions contemplated by the merger agreement. Based in part on the unanimous recommendation of the independent committee, our board of directors has determined that the merger, on the terms and subject to the consideration set forth in the merger agreement, is substantively and procedurally fair to, and in the best interests of, the Company and its unaffiliated shareholders and ADS holders, and approved and adopted the merger agreement and the transactions contemplated by the merger agreement. ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND AUTHORIZATION OF THE MERGER AGREEMENT.

 

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

 

·the merger consideration of $0.0167 per Share and $5.00 per ADS in cash representing a premium of 100.0% over the closing price in the over-the-counter market as quoted by Bloomberg L.P. on May 3, 2012, the last trading day prior to the Company’s announcement on May 4, 2012 that it had received a “going private” proposal.

 

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·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 reduction of the costs and administrative burden associated with operating the Company as a publicly traded company, including the costs associated with regulatory filings and compliance requirements.

 

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

 

·such shareholders 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 Company’s ordinary shares, if any.

 

·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 “Material U.S. Federal Income Tax Consequences”) of 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 or ADSs. Because it is likely that the Company is or has been a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares or ADSs, a U.S. Holder’s gain generally will be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.”

 

·after the completion of the merger, the Company will no longer be subject to protections that the United States federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company.

 

The foregoing summary of information and factors considered by the independent committee and our board of directors is not intended to be exhaustive and for a more detailed discussion of the material factors considered by our board of directors and the independent committee in determining to recommend the adoption of the merger agreement and in determining that the merger is substantively and procedurally fair to our unaffiliated shareholders and ADS holders, see “Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 29 and “Special Factors—Effect of the Proposed Merger on the Company—Primary Benefits and Detriments of the Merger” beginning on page 51 for additional information. The foregoing summary is qualified in its entirety by reference to these sections.

 

Position of Buyer Filing Persons as to Fairness (Page 34)

 

We refer to Mr. Shengcheng Wang, Parent, Merger Sub, Arctic Spring Limited and Happy Indian Ocean Limited, collectively, as the “Buyer Filing Persons.” Each of the Buyer Filing Persons believes that the merger is both procedurally and substantively fair to the Company’s unaffiliated shareholders and ADS holders. The Buyer Filing Persons’ belief is based upon the factors discussed in “Special Factors—Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger” beginning on page 34 of this proxy statement.

 

Financing of the Merger (Page 54)

 

Parent estimates that the total amount of funds required to complete the merger and related transactions, including payment of fees and expenses in connection with the merger is anticipated to be approximately $3.6 million, assuming no exercise of dissenters’ rights by shareholders of the Company. This amount is expected to be provided through an unconditional shareholder loan made to Parent by Happy Indian Ocean Limited and Arctic Spring Limited, shareholders of the Company, pursuant to a deed of promissory note executed, sealed and delivered by each of Happy Indian Ocean Limited and Arctic Spring Limited on August 6, 2012 in favor of Parent (each a “Promissory Note”, collectively the “Promissory Notes”). The obligation of Parent and Merger Sub to complete the merger is not conditioned on the receipt of any financing. Happy Indian Ocean Limited and Arctic Spring Limited’s disbursement obligations under the Promissory Notes are due upon the effective time of the merger, not subject to any conditions. See “Special Factors—Financing” beginning on page 54 for additional information.

 

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Limited Guaranty (Page 55)

 

Each of Happy Indian Ocean Limited and Arctic Spring Limited have agreed to guarantee 80% and 20% respectively, of the obligations of Parent under the merger agreement to pay, under certain circumstances, a reverse termination fee to the Company and reimburse certain expenses.

 

Share Ownership of the Company Directors and Officers (Page 88)

 

As of the date of this proxy statement, Mr. Shengcheng Wang, beneficially owns approximately 75.4% of our Shares. See “Security Ownership of Certain Beneficial Owners and Management of the Company.”

 

Mr. Shengcheng Wang indicated that he will vote all Shares beneficially owned by him in favor of the adoption of the merger agreement and the transactions contemplated by the merger agreement, and against any competing proposal at any shareholders’ meeting of the Company.

 

Opinion of Financial Advisor to the Independent Committee (Page 40)

 

On August 6, 2012, Piper Jaffray & Co. (“Piper Jaffray”), the financial advisor to the independent committee, rendered an oral opinion to the independent committee (which was confirmed in writing by delivery of Piper Jaffray’s written opinion dated the same date), as to the fairness, from a financial point of view, of the $0.0167 per Share merger consideration and the $5.00 per ADS merger consideration to be received by holders of the Shares and the ADSs (other than any affiliates of the Company or Parent and holders of (i) the Founder Shares; or (ii) Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenters’ rights under the Cayman Companies Law (the “Dissenting Shares”, and together with the Founder Shares, the “Excluded Shares”)) in the merger, as of August 6, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Piper Jaffray in preparing its opinion.

 

Piper Jaffray’s opinion was directed 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 any affiliates of the Company or Parent and holders of the Excluded Shares) in the merger, and does not address any other aspect or implication of the merger. The summary of Piper Jaffray’s opinion 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, qualifications and limitations on the review undertaken and other matters considered by Piper Jaffray in preparing its opinion. We encourage holders of the Shares and the ADSs to read carefully the full text of Piper Jaffray’s written opinion. However, neither Piper Jaffray’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute advice or a recommendation to the independent committee or any holder of the Shares or the ADSs as to how to act or vote with respect to the merger or related matters. See “Special Factors – Opinion of the Independent Committee’s Financial Advisor.”

 

Interests of the Company’s Executive Officers and Directors in the Merger (Page 55)

 

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 interest of the Company’s shareholders generally. These interests include, among others,

 

·the ownership of equity interests in Parent by Arctic Spring Limited and Happy Indian Ocean Limited, whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang;

 

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·the potential enhancement or decline of share value for Parent, the Shares of which are beneficially Owned by Mr. Shengcheng Wang, as a result of the merger and future performance of the surviving company;

 

·continued indemnification and advancement rights and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company; 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 option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per Share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

As of the date of this proxy statement, Mr. Shengcheng Wang, the Chairman and Chief Executive Officer of the Company, beneficially owns 566,591,584 Shares, which represent approximately 75.4% of the total Shares.

 

See “Special Factors — Interests of Certain Persons in the Merger.” 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.  

 

Limitation on Solicitation and Acquisition Proposals (Page 74)

 

None of the Company, any of its subsidiaries, officers or directors may (i) initiate, solicit or knowingly encourage any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal; or (ii) otherwise knowingly facilitate any effort or attempt to make an acquisition proposal. However, prior to obtaining shareholder approval of the merger agreement, the Company may, (i) after its receipt of an acquisition proposal from any person, contact such person who made an unsolicited acquisition proposal to clarify and understand the terms and conditions of such acquisition proposal so as to determine whether such acquisition proposal constitutes or could reasonably be expected to result in a superior proposal, (ii) provide information in response to an unsolicited request by any person who has made such acquisition proposal; (iii) engage or participate in any discussions or negotiations with such person; or (iv) approve, recommend, or declare advisable or propose to approve, recommend or declare advisable (publicly or otherwise) such an acquisition proposal. In each such case referred to in (ii) or (iii) above, the board of directors of the Company must have determined in good faith based on the information then available (and after consultation with its financial advisor and outside legal counsel) that such acquisition proposal either constitutes a superior proposal or is reasonably likely to result in a superior proposal. In the case referred to in (iv) above, the board of directors of the Company must have determined in good faith (after consultation with its financial advisor and outside legal counsel) that such acquisition proposal is a superior proposal.

 

Termination of the Merger Agreement (Page 77)

 

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

 

by mutual written consent of the Company and Parent;

 

by either of the Company or Parent, if:

 

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·the merger is not completed by the “termination date” (which is February 6, 2012), provided that this termination right is not available to a party if the failure to consummate the merger on or before the termination date was primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the merger agreement;

 

·any law, rule or regulation restraining, enjoining or otherwise prohibiting consummation of the merger shall become final and non-appealable; provided, that this termination right is not available to a party if the issuance of such final, non-appealable law, rule or regulation is primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the merger agreement; or

 

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

 

by Parent, if:

 

·the Company has breached any of its covenants or agreements under the merger agreement, or any representation or warranty made by it under the merger agreement shall have become untrue, 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 30 business days after written notice of such breach;

 

·the board of directors of the Company has made a change of recommendation; the board of directors of the Company approves or recommends any acquisition proposal other than the merger; or the Company or the board of directors of the Company has publicly announced its intention to do any of the foregoing;

 

·the Company fails to hold the extraordinary general meeting within 10 business days prior to the termination date due to a willful or intentional breach by the Company and not due to any material breach by Parent or Merger Sub that causes the failure of the Company to hold the extraordinary general meeting; or

 

·all of the closing conditions are otherwise satisfied but the Parent notifies the Company that it does not intend to fund the merger transaction.

 

by the Company:

 

·if Parent or Merger Sub has breached any of its covenants or agreements under the merger agreement, or any representation or warranty made by Parent or Merger Sub under the merger agreement shall have become untrue, 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 30 business days after written notice of such breach;

 

·prior to the receipt of the shareholders’ approval, in order to enter into an alternative acquisition agreement relating to a superior proposal; or

 

·if all of the closing conditions are otherwise satisfied and the Company stands ready to consummate the transaction, but the Parent fails to fund the exchange fund within five business days following the date on which such closing conditions were satisfied.

 

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Termination Fee and Reimbursement of Expenses (Page 79)

 

The Company is required to pay Parent a termination fee of $50,000 and fees and expenses incurred by Parent of up to $200,000 in the event the merger agreement is terminated (i) by Parent due to a material breach by the Company; (ii) by Parent if (x) the board of directors of the Company makes a change of recommendation; (y) the board of directors of the Company approves or recommends any acquisition proposal other than the merger; or (z) the Company or the board of directors of the Company publicly announces its intention to do any of the foregoing; (iii) by Parent due to failure of the Company to hold the extraordinary general meeting within 10 business days prior to the termination date due to a willful or intentional breach by the Company and not due to any material breach by Parent or Merger Sub that causes the failure of the Company to hold the extraordinary general meeting; or (iv) by the Company prior to the receipt of the shareholders’ approval, in order to enter into an alternative acquisition agreement relating to a superior proposal.

 

The Company is required to pay fees and expenses incurred by Parent of up to $200,000 if the merger agreement is terminated by Parent or the Company because the shareholders’ approval is not obtained and prior to the extraordinary general meeting, the Company’s board of directors has made a change of recommendation.

 

Parent is required to pay the Company a termination fee of $50,000 and fees and expenses incurred by the Company of up to $500,000 in the event the merger agreement is terminated (i) by the Company due to a material (but not willful or intentional) breach by Parent or Merger Sub; or (ii) by the Company if all of the closing conditions are otherwise satisfied but Parent fails to fund the merger and the Company stands ready to close.

 

Parent is required to pay the Company a termination fee of $100,000 and fees and expenses incurred by the Company of up to $500,000 in the event the merger agreement is terminated (i) by the Company due to material willful or intentional breaches by Parent or Merger Sub; or (ii) by the Company if all of the closing conditions are otherwise satisfied, but Parent notifies the Company that it does not intend to fund the merger consideration.

 

Material U.S. Federal Income Tax Consequences (Page 89)

 

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. See “Material U.S. Federal Income Tax Consequences” beginning on page 89. The tax consequences of the merger to you will depend upon your own personal circumstances. Because it is likely that the Company is or has been a PFIC for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares or ADSs, any gain recognized by a U.S. Holder on the receipt of cash in exchange for such U.S. Holder’s ADSs or Shares generally will be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.” 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 92)

 

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 and ADSs that are not PRC residents. 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 our Shares or ADSs should otherwise be subject to PRC tax, then gain recognized on the receipt of cash for our Shares or ADSs pursuant to the merger by our shareholders or ADS 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 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. See “Material PRC Income Tax Consequences” beginning on page 92.

 

Material Cayman Islands Tax Consequences (Page 93)

 

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 and ADSs under the terms of the merger. This is subject to the qualification that (i) Cayman Islands stamp duty may be payable if any original transaction documents are brought to or executed in the Cayman Islands; and (ii) registration fees will be payable to the Registrar of Companies to register the plan of merger. See “Material Cayman Islands Tax Consequences” beginning on page 93.

 

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Regulatory Matters (Page 58)

 

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 and notice of merger published in the Cayman Islands Gazette.

 

Accounting Treatment of the Merger (Page 58)

 

The merger is expected to be accounted for, at historical cost, as a merger of entities under common control in a manner similar to a pooling-of-interests, in accordance with Accounting Standards Codification 805-50, “Business Combinations – Related Issues.”

 

Conditions to the Merger (Page 77)

 

The respective obligations of the Company, Parent and Merger Sub to consummate the Merger and the other transactions contemplated by the merger agreement are subject to the satisfaction of the following conditions:

 

·the merger agreement and merger being approved and authorized by a special resolution of the shareholders at the extraordinary general meeting; and

 

·no court or governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law, rule or regulation that is in effect which restrains, enjoins or otherwise prohibits consummation of the merger.

 

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

 

·the representations and warranties of the Company in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date, subject to a material adverse effect exception;

 

·the Company having performed in all material respects all obligations required to be performed by it under the merger agreement at or before the closing date;

 

·since the date of the merger agreement, no change, event, circumstance or development having occurred that has had, or would reasonably be expected to have, a material adverse effect; and

 

·our shareholders holding not more than 10% of the outstanding Shares having validly served a notice of dissent under Section 238(5) of the Cayman Companies Law.

 

The obligations of the Company to effect the merger are 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 as of the date of the merger agreement and as of the closing date, subject to a materiality exception; and

 

·each of Parent and Merger Sub having performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing date.

 

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Market Price of the Company’s ADS (Page 60)

 

The closing price of the Company’s ADSs in the over-the-counter market on May 3, 2012, the last trading date prior to the announcement of the proposed merger transaction, was $2.50 per ADS. The merger consideration of $5.00 per ADS to be paid in the merger represents a premium of approximately 100.0% to that closing price.

 

Fees and Expenses (Page 79)

 

If the merger is consummated, all costs and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated thereby will be paid by the party incurring such costs and expenses except as otherwise provided in the merger agreement.

 

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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 proposed 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 proposed transaction?

 

A:The proposed transaction is a going private transaction pursuant to which Merger Sub will merge with and into the Company. Once the merger agreement is approved and authorized 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 continue its operations as a privately held company owned solely by Parent, and as a result of the merger, the ADSs will no longer be traded on the over-the-counter market commonly referred to as “pink sheets”, and the Company will cease to be a public company and the American Depositary Shares program for the ADSs will be terminated.

 

Q:What will I receive in the merger?

 

A:If you own Shares and the merger is completed, you will be entitled to receive $0.0167 in cash, without interest, 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 dissenters’ rights under Section 238 of the Cayman Companies Law with respect to the merger, in which event you may be entitled to the value of each share as determined pursuant to the Cayman Companies Law).

 

If you own ADSs and the merger is completed, you will be entitled to receive $5.00 per ADS in cash without interest (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), for each ADS you own as of the effective time of the merger unless you (i) surrender your ADS to the ADS depositary for cancellation, pay the ADS depositary’s fees required for such cancellation, 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 [●], 2012 and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012 and (ii) comply with the procedures and requirements for exercising dissenters’ rights for the Shares under Section 238 of the Cayman Companies Law.

 

See “Material U.S. Federal Income Tax Consequences,” “Material PRC Income Tax Consequences” and “Material Cayman Islands Tax Consequences” beginning on page 89 for a more detailed description of the tax consequences of the proposed merger. You should consult with your own tax advisor for a full understanding of how the proposed merger will affect your U.S. federal, state, local and/or foreign taxes.

 

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

 

A:Approval and authorization of the merger agreement requires the approval by a special resolution of the shareholders of the Company, which requires the affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting.

 

We expect that, as of [●], 2012, the Share record date for the extraordinary general meeting, 751,697,920 Shares would be outstanding and entitled to vote at the extraordinary general meeting.

 

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

 

A:At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per Share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

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

 

A.As soon as practicable after the merger is completed, a paying agent appointed by Parent will mail you written instructions on how to receive the per Share merger consideration of $0.0167 in cash without interest. You will receive cash for your Shares from the paying agent after you comply with these instructions.  

 

If your Shares are represented by share certificates, unless you validly exercise and have not effectively withdrawn or lost your dissenters’ rights in accordance with Section 238 of the Cayman Companies Law, upon a surrender of the share certificates (or affidavit and indemnity of loss in lieu of the share certificates), the paying agent will send to you the per Share merger consideration of $0.0167 in cash, without interest, in exchange for the cancellation of your share certificates after completion of the merger. If you hold your Shares in book-entry form, that is, without a share certificate, unless you validly exercise and have not effectively withdrawn or lost your dissenters’ rights in accordance with Section 238 of the Cayman Companies Law, the paying agent will automatically send to you the per Share merger consideration of $0.0167 in cash, without interest, in exchange for the cancellation of your Shares after completion of the merger. In the event of a transfer of ownership of Shares that is not registered in the register of members of the Company, a cheque for any cash to be exchanged upon due surrender of the share certificate will be issued to such transferee if the share certificates (if any) which immediately prior to the effective time represented such Shares are presented to the paying agent, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable share transfer taxes have been paid or are not applicable.

 

If your Shares of the Company 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 cash for my ADSs?

 

If you own ADSs, as soon as practicable after the merger is completed, the ADS depositary will call for the surrender of all ADSs for delivery of the merger consideration. Upon the surrender of ADSs, the ADS depositary will pay to the surrendering person $5.00 per ADS in cash without interest (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)). The ADS depositary has no obligation to make payment of the ADS merger consideration unless it is in receipt of payment of the ADS cancellation fees ($5.00 per 100 ADSs (or fraction thereof)).

 

If your ADSs are represented by certificates, also referred to as American depositary receipts or 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 to you a cheque for the per ADS merger consideration of $5.00 in cash without interest (less $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), in exchange for the cancellation of your ADRs after the completion of the merger. If you hold your ADSs in un-certificated 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 to you a cheque for the per ADS merger consideration of $5.00 in cash without interest (less (i) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (ii) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), in exchange for the cancellation of your ADSs after the completion of the merger. The per ADS merger consideration may be subject to backup withholding if the ADS depositary has not received from you a duly completed and signed U.S. Internal Revenue Service, or “IRS”, Form W-9 or the appropriate IRS Form W-8. In the event of a transfer of ownership of ADRs that is not registered in the register of ADR holders maintained by the ADS depositary, the cheque for any cash to be issued upon cancellation of the ADRs will be issued to such transferee if the ADRs are presented to the ADS depositary, accompanied by all documents reasonably required to evidence and effect such transfer and to evidence that any applicable ADR 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 duly completed and signed IRS Form W-9 or the appropriate IRS Form W-8.

 

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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 merger consideration 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 hold your ADSs in street name and you have any questions concerning the receipt of the per ADS merger consideration, please contact your broker, bank or nominee.

 

Q:Where and when will the extraordinary general meeting be held?

 

A:The extraordinary general meeting will take place at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China, on [●], 2012, starting at 10:00 a.m. Beijing time.

 

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 approve the merger and approve and authorize the merger agreement and the other transactions contemplated thereby; and

 

·to approve any motion to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the approval of the merger and the approval and authorization of the merger agreement in the event that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting;

 

Q:How does the Company’s 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, recommends that you vote:

 

·FOR the proposal to approve the merger and approve and authorize the merger agreement and the other transactions contemplated thereby; 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 favor of the approval of the merger and the approval and authorization of the merger agreement in the event that there are insufficient proxies received to pass the special resolution during the extraordinary general meeting.

 

You should read “Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 29 for a discussion of the factors that our independent committee and board of directors considered in deciding to recommend the approval and authorization of the merger agreement. In addition, in considering the recommendation of our independent committee and board of directors with respect to the merger agreement, you should be aware that some of the Company’s directors’ and officers’ interests in the merger that are different from, or in addition to, the interests of our shareholders generally. See “Special Factors—Interests of Certain Persons in the Merger” beginning on page 55.

 

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

 

A:The Share record date for voting at the extraordinary general meeting is [●], 2012. 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 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 [●], 2012. 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 [●], 2012, pay the applicable fees, costs and expenses, complete and deliver the requisite certifications, and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012, the Share record date. To cancel your ADSs after any time of the ADS record date and the Share record date, you will be required to certify that either (x) 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 (y) 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.

 

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

 

A:The presence, in person or by proxy, of shareholders representing not less than an aggregate of one-third of all voting share capital of the Company in issue and entitled to vote will constitute a quorum for the extraordinary general meeting.

 

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 fourth quarter of 2012. 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, as permitted by law.

 

Q:What happens if the merger is not completed?

 

A:If the merger and merger agreement are not approved and authorized by our shareholders, 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 share options receive payment in respect of such share options. In addition, the Company will remain a public company. The Company’s ADSs will continue to be traded on the over-the-counter market commonly referred to as “pink sheets”. In addition, the Company will remain subject to SEC reporting obligations. Mr. Shengcheng Wang indicated that he would vote all of the Shares beneficially owned by him in favor of the adoption of the merger agreement. Mr. Shengcheng Wang beneficially owns approximately 75.4% of the Shares of the Company.

 

Under specified circumstances, the Company may be required to pay Parent a termination fee and/or reimburse Parent for its expenses, or Parent may be required to pay the Company a termination fee and/or reimburse the Company for its expenses, in each case, as described in “The Merger Agreement—Termination Fee and Reimbursement of Expenses” beginning on page 79.

 

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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 Shares are registered in my name?

 

A:If Shares are registered in your name (that is, you do not hold ADSs) as of the Share record date for shareholder voting, 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 approval of the merger and the approval and authorization of the merger agreement and the other transactions contemplated thereby and FOR the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the approval of the merger and the approval and authorization of the merger agreement in the event 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, see below.

 

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 [●], 2012, you cannot attend or 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 enclosed 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 [●], 2012. The ADS depositary shall 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. Pursuant to Section 4.10 of the Deposit Agreement, holders of ADSs shall be deemed, and the ADS depositary shall deem such holders, to have instructed the ADS depositary to issue a discretionary proxy in favor of a person to be designated by the Company to vote any Shares represented by ADSs for which the ADS depositary does not timely receive valid voting instructions from the ADS holders as of the ADS record date, the close of business in New York City on [●], 2012. Under the terms of the Deposit Agreement, no discretionary proxy is to be issued in respect of Shares represented by unvoted ADSs with respect to any matter as to which the Company informs the ADS depositary that it does not wish such proxy to be given, there exists substantial opposition or the matter to be voted would adversely affect the rights of holders of Shares. The ADS depositary will, in accordance with the terms of the Deposit Agreement, rely on the determination and notice thereof by the Company. As of the date hereof, the Company is not aware of any substantial opposition to any matter to be voted on at the extraordinary general meeting and does not believe any such matter will adversely affect the rights of the holders of Shares. 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 [●], 2012 and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012, 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 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 [●], 2012 together with (i) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares), (ii) payment of the ADS cancellation fees ($5.00 per 100 ADS to be cancelled) and all applicable expenses and taxes (such as stamp taxes and stock transfer taxes), and (iii) a certification that the ADS holder either (x) 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 (y) 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. 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.

 

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Q:If my Shares or my 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 or the Shares represented by your ADSs. If you do not instruct your broker, bank or other nominee to vote your Shares that it holds, those Shares will not be voted, however, if you do not instruct your broker, bank or other nominee to vote your ADSs that it holds, those ADSs may nevertheless be voted in accordance with the terms of the Deposit Agreement.

 

Q:What will happen if I abstain from voting or fail to vote on the proposal to approve and authorize the merger agreement?

 

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; provided, that, in the case of ADSs and pursuant to Section 4.10 of the Deposit Agreement, holders of ADSs shall be deemed, and the ADS depositary shall deem such holders, to have instructed ADS depositary to issue a discretionary proxy in favor of a person to be designated by the Company to vote any Shares represented by ADSs for which the ADS depositary does not timely receive valid voting instructions from the ADS holders as of the ADS record date, the close of business in New York City on [●], 2012. Under the terms of the Deposit Agreement, no discretionary proxy is to be issued in respect of Shares represented by unvoted ADSs with respect to any matter as to which the Company informs the ADS depositary that it does not wish such proxy to be given, there exists substantial opposition or that would adversely affect the rights of holders of Shares. The ADS depositary will, in accordance with the terms of the Deposit Agreement, rely on the determination and notice thereof by the Company. As of the date hereof, the Company is not aware of any substantial opposition to any matter to be voted on at the extraordinary general meeting and does not believe any such matter will adversely affect the rights of holders of Shares.

 

Q:May I change my vote?

 

A:Holders of our Shares may revoke their proxies in one of three ways:

 

·First, a registered shareholder can 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 also be sent to China Mass Media Corp., 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China.

 

·Second, a registered shareholder can 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.

 

·Third, a registered shareholder can attend the meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the registered shareholder actually votes at the extraordinary general meeting.

 

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If a shareholder holds Shares through a broker and has instructed the broker to vote the shareholder’s Shares, the shareholder must follow directions received from the broker 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 [●], 2012. 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.

 

·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:Should I send in my share certificates or my ADSs now?

 

A:No. Promptly after the merger is completed, each holder of record as of the time of the merger will be sent written instructions for exchanging their share certificates for the per Share or per ADS merger consideration. These instructions will tell you how and where to send in your share certificates for your cash consideration. You will receive your cash payment after the paying agent receives your share certificates and any other documents requested in the instructions. Please do not send share certificates with your proxy. 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.

 

Holders of uncertificated Shares and uncertificated ADSs (i.e., holders whose Shares or ADSs are held in book-entry form) will automatically receive their cash consideration as soon as practicable after the effective time of the merger 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 not be required to take any action to receive the merger consideration 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 hold your ADSs in street name and you have any questions concerning the receipt of the per ADS merger consideration, please contact your broker, bank or nominee.

 

Q:What happens if I sell my Shares or ADSs before the extraordinary general meeting?

 

A:The record date for voting at the extraordinary general meeting is earlier than the date of the extraordinary general meeting and the date that the merger is expected to be completed. If you transfer your Shares of the Company after the record date for voting but before the extraordinary general meeting, you will retain your right to vote at the extraordinary general meeting unless you have given, and not revoked, a proxy to your purchaser, but will transfer the right to receive the per Share merger consideration of $0.0167 in cash without interest to the person to whom you transfer your Shares, so long as such person is registered as the owner of such Shares when the merger is completed. In such case, your vote is still very important and you are encouraged to vote.

 

The record date of ADSs for the extraordinary general meeting is [●], 2012. If you transfer your ADSs after the ADS record date but before the extraordinary general meeting, you will retain your right to instruct the ADS depositary to vote at the extraordinary general meeting, but will transfer the right to receive the merger consideration of $5.00 per ADS in cash without interest (less (i) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (ii) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)) to the person to whom you transfer your ADSs, so long as such person owns such ADSs when the merger is completed.  

 

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Q:Do shareholders have appraisal rights?

 

A:Yes. Shareholders who continue to hold their Shares until the consummation of the merger will have the right to dissent from the merger and to receive payment of the fair value of their Shares (as determined pursuant to the Cayman Companies Law) if the merger is completed, but only if they deliver to the Company, before the shareholder vote to approve and authorize the merger agreement 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 dissenters’ 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 did not exercise dissenters’ rights with respect to your Shares.

 

ADS holders will not have the right to dissent from the merger and to receive payment of the fair value of the Shares underlying their ADSs. The ADS depositary will not attempt to perfect any dissenters' 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 dissenters’ rights must surrender their ADSs to the ADS depositary for cancellation, pay the ADS depositary’s fees required for such cancellation, 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 [●], 2012, and become registered holders of Shares by the close of business in the Cayman Islands on [●], 2012. Thereafter, such former ADS holders must comply with the procedures and requirements for exercising dissenters’ rights with respect to the Shares under Section 238 of the Cayman Companies Law.

 

We encourage you to read the section of this proxy statement entitled “Dissenters’ Rights” beginning on page 82 as well as “Annex C—Cayman Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised)—Section 238” to this proxy statement carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.

 

Q:If I own ADSs and seek to exercise dissenters’ 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 dissenters’ rights, you must surrender your ADSs for cancellation at the ADS depositary’s office at 111 Wall Street, New York, New York 10013. Upon your payment of its fees, including the applicable ADS cancellation fee ($5.00 per 100 ADS to be cancelled) and all applicable expenses and taxes (such as stamp taxes and stock transfer 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 [●], 2012.

 

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.

 

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

 

A:No. The Company will not engaged any proxy solicitor.

 

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Q:Who can help answer my questions?

 

A:If you have any questions or need assistance voting your ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

If you have any questions or need assistance voting your Shares, please call Julie Zhili Sun, the Chief Financial Officer of the Company at 86-10-8809 1099.

 

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 directors or executive officers have interests in the merger that may differ from those of other shareholders, including: (a) the beneficial ownership of equity interests in Parent by Mr. Shengcheng Wang; (b) the potential enhancement or decline in value of Parent’s shares, of which Mr. Shengcheng Wang is the beneficial owner, as a result of the merger and future performance of the surviving company; (c) continued indemnification and advancement rights and directors and officers liability insurance to be provided by the surviving company to former directors and officers of the Company; and (d) 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. See “Special Factors—Interests of Certain Persons in the Merger” beginning on page 55 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 and executive officers vote on the proposal to approve and authorize the merger agreement?

 

A:Mr. Shengcheng Wang indicated that he will vote all of the Shares beneficially owed by him in favor of approval and authorization of the merger agreement. We expect that, as of [●], 2012, the Share record date for the extraordinary meeting, Mr. Shengcheng Wang will beneficially own, in the aggregate, 566,591,584 Shares of the Company, approximately 75.4% of the Shares of the Company.

 

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SPECIAL FACTORS

 

Background of the Proposed Merger

 

Our board of directors and senior management periodically review the Company’s long-term strategic plans with the goal of enhancing shareholder value. As part of this ongoing process, our board of directors and senior management, from time to time, have considered strategic alternatives that may be available to the Company.

 

In March 2012, NYSE Regulation determined to commence proceedings to delist our ADSs from the NYSE on the grounds that we had fallen below the NYSE’s continued listing standard, which requires us to maintain an average global market capitalization of not less than $15 million over a consecutive 30-trading day period. On March 19, 2012, NYSE suspended the trading of our ADSs. Our ADSs are currently quoted on the over-the-counter market. Our Chairman, Mr. Shengcheng Wang, started to contemplate the feasibility of a going-private transaction involving the Company after the Company’s ADSs were delisted from NYSE, primarily due to the concern that our ADSs are currently traded on the highly illiquid over-the-counter market.

 

On April 15, Mr. Shengcheng Wang called Ms. Julie Zhili Sun, the Company’s chief financial officer, about the possibility of a going private transaction. He authorized Ms. Julie Zhili Sun to act as his representative to pursue such possibility.

 

On April 19, 2012, at the direction of Mr. Shengcheng Wang, Ms. Julie Zhili Sun contacted DLA Piper LLP (“DLA”) about possibly retaining DLA to provide legal services to Mr. Shengcheng Wang in connection with a potential going private transaction.

 

On April 24, 2012, Ms. Julie Zhili Sun, acting on behalf of Mr. Shengcheng Wang, executed an engagement letter with DLA, appointing DLA as U.S. legal counsel to Mr. Shengcheng Wang in connection with a possible going private transaction involving the Company.

 

From April 24, 2012 to May 2, 2012, Mr. Shengcheng Wang, Ms. Julie Zhili Sun and DLA prepared and finalized the going private transaction proposal to be made to the Company’s board of directors.

 

On May 2, 2012, Mr. Shengcheng Wang delivered to the board a formal proposal letter, describing the proposed terms of the potential transaction. The proposal letter contained an offer to acquire all of the ADSs of the Company held by the public investors for cash of not more than $5.00 per ADS (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)), and all of the options for cash of not more than $0.0167 per option.

 

On May 3, 2012, following a telephonic meeting attended by all members of the board of directors of the Company except for Mr. Shengcheng Wang, the board of directors resolved that it was in the best interests of the Company to form an independent committee (the “Independent Committee”), consisting of four independent directors, Dr. Liping He, Mr. Jianmin Qu, Mr. Xingzhao Liu and Mr. Yong Chen, to consider and attend to all matters in connection with the proposal letter from Mr. Shengcheng Wang and the transactions contemplated thereby. The board authorized the Independent Committee to (i) explore, review and determine the best course or courses of action for the Company in order to maximize the Company's value in the best interest of the Company and its shareholders; (ii) review and evaluate the terms and conditions and determine the advisability of the transaction proposed by Mr. Shengcheng Wang or any alternative proposals from other interested parties; (iii) negotiate the price, structure, form, terms and conditions of the proposed transaction with Mr. Shengcheng Wang or any alternative proposals; (iv) determine whether the proposed transaction with Mr. Shengcheng Wang or any alternative proposal is fair to, and in the best interest of, the Company and its public shareholders that are unaffiliated with Mr. Shengcheng Wang; (v) disapprove the proposed transaction or any alternative proposals on behalf of the Company if the Independent Committee deemed it appropriate in its sole discretion; and (vi) recommend to the board of directors what action, if any, should be taken by the Company with respect to the proposed transaction with Mr. Shengcheng Wang or any alternative proposal.

 

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On May 3, 2012, following the board meeting, the Independent Committee held its initial organizational meeting, during which it elected Dr. Liping He to serve as chairman. The Independent Committee decided to appoint Shearman & Sterling LLP (“S&S”) as its independent U.S. legal counsel and Maples and Calder (“Maples”) as its independent Cayman Islands counsel based on their well-established track record in going private transactions for China-based companies. The Independent Committee emphasized that such appointments would be subject to further negotiation of engagement letters with the foregoing. S&S then briefly described the functions of an Independent Committee in a going private transaction and answered questions regarding logistical matters from members of the Independent Committee. In addition, S&S cautioned that the Independent Committee should not communicate directly with the buyer without first consulting its advisors. The Independent Committee acknowledged that it will evaluate the transaction in a deliberate and thoughtful matter, free of extraneous influence from any interested party in the transaction. The engagement letters with each of S&S and Maples were later executed on June 1, 2012 and May 29, 2012, respectively.

 

On May 4, 2012, the Independent Committee held a telephonic meeting with S&S. At this meeting, the Independent Committee reviewed with S&S the terms of the proposal letter and the key steps in typical going private transactions for Cayman Islands companies. The Independent Committee also discussed with S&S the fiduciary duties of the Independent Committee in evaluating going private transaction proposals and members of the Independent Committee asked, and S&S answered, several questions about the transaction process and the Independent Committee’s role and responsibilities in such a process. Later in the day, the Company issued a press release regarding its receipt of the proposal letter from Mr. Shengcheng Wang, and the transaction proposed therein, and furnished the press release as an exhibit to its Current Report on Form 6-K.

 

On May 14, 2012, the Independent Committee held telephonic interviews with three global investment banks which had submitted their qualifications and proposals to act as the Independent Committee’s financial advisor. After final deliberations on the experience, qualifications and reputation of each of the three investment banks, the Independent Committee decided to engage Piper Jaffray & Co (“Piper Jaffray”) as its financial advisor. The engagement letter with Piper Jaffray was later executed on June 21, 2012.

 

On May 18, 2012, at the direction of the Independent Committee, Piper Jaffray provided its financial due diligence request list to the Company and subsequently commenced due diligence.

 

On May 21, 2012, DLA provided a draft of the merger agreement with respect to the proposed going private transaction to the Independent Committee and S&S.

 

On May 22, 2012, Dr. Liping He discussed with representatives of S&S the status of the proposed transaction, including the review of the draft merger agreement.

 

On May 28, 2012, S&S provided a material issues list based on its review of the draft merger agreement to the Independent Committee and Piper Jaffray.

 

On May 31, 2012, all members of the Independent Committee held a telephonic meeting with representatives of Piper Jaffray and S&S. Representatives of S&S provided an overview of the draft merger agreement and discussed various material issues presented by the draft merger agreement, including: (i) the necessity for Mr. Shengcheng Wang to be a party to the merger agreement; (ii) the implications of a “majority of the minority” voting provision and “force the vote” provision; (iii) the benefits of having Mr. Shengcheng Wang provide an equity commitment letter with the Company being a third party beneficiary; (iv) the necessity of having a “go shop” provision; and (v) the reasonableness of the breakup fees/expense reimbursement provisions in the current draft. In addition, representatives of Piper Jaffray briefly updated the Independent Committee about the progress of the financial due diligence and valuation analysis. They also discussed with the Independent Committee about the valuation methodologies they planned to use in connection with the evaluation of the Buyer Filing Persons’ proposal. After a lengthy discussion in which S&S and Piper Jaffray answered questions posed by members of the Independent Committee, the Independent Committee instructed S&S to provide revisions to the draft merger agreement reflecting the Independent Committee’s positions. It was noted that Mr. Shengcheng Wang (beneficially owns 75.4% of the shares of the Company) had indicated that he would not sell his stake in the Company to any third party. It was further noted that Mr. Shengcheng Wang has sufficient voting control to veto any alternative third party proposal to the going private transaction proposed by himself. In view of the fact that a merger would require the affirmative vote of the Company’s shareholders representing two-thirds or more of the shares present and voting in person or by proxy as a single class at an extraordinary general meeting, the Independent Committee concluded that there was no true “market” for an alternative sale of the Company. Therefore, the Independent Committee decided not to pursue a market-sounding exercise which they determined would be futile. In addition, based on S&S’s explanation of the implications of having a “majority of the minority” voting provision, the Independent Committee concluded that it would be unnecessary to require such provision, because (x) a “majority of the minority” voting provision is not compulsory under Cayman Islands Law; and (y) the appraisal rights under Cayman Islands Law provides sufficient protection to minority shareholders. However, the Independent committee also emphasized the necessity for "majority of the minority” provision to ensure a meaningful shareholder vote if the buyer insisted on a "force the vote" provision. Following the termination of the meeting, S&S sought confirmatory information from the Company regarding the representations, warranties and covenants to be given by the Company in the draft merger agreement.

 

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On June 8, 2012, after incorporating Maples’ comments, S&S delivered a revised draft of the merger agreement reflecting the independent committee’s position to DLA. The key revisions included (i) a requirement for Mr. Shengcheng Wang or his affiliates to provide a limited guaranty in favor of the Company; (ii) the deletion of the “force the vote” provision; (iii) the requirement for Parent and Merger Sub to represent that they will have sufficient funds to consummate the proposed transaction; (iv) the requirement for Mr. Shengcheng Wang to provide an equity commitment letter, rather than a promissory note, to fund the merger consideration; (v) adding a carve-out of liability for the Company’s breach of its representations and warranties if such breach was made at the direction of Mr. Shengcheng Wang or any officer or director of the Parent; (vi) reducing the cap for reimbursement of expenses incurred by Mr. Shengcheng Wang in connection with the proposed going private transaction; and (vii) the requirement that the closing condition regarding the exercise of dissenters’ rights should be fixed at no more than 10% of the Shares, rather than 5% of the Shares.

 

On June 11, 2012, DLA conveyed to S&S that Mr. Shengcheng Wang, after consultation with DLA, (i) preferred to use a promissory note, rather than an equity commitment letter as proposed by Independent Committee, to fund the merger consideration, because Mr. Wang did not think any additional capital contribution is necessary for funding the merger; (ii) objected to being made a party to the merger agreement for the purposes of the acknowledgement that the Company will not be liable for any breach at Mr. Shengcheng Wang’s direction; and (iii) did not think that a voting agreement is necessary. S&S then sought clarification from DLA on certain provisions and DLA informed S&S they will further discuss with Mr. Shengcheng Wang about the major outstanding issues.

 

On June 13, 2012, DLA circulated a revised draft of the merger agreement, which, among other things, reflected that Mr. Shengcheng Wang would not accept (i) the inclusion of a voting agreement; (ii) the inclusion of a representation as to having sufficient funds to consummate the proposed transaction; (iii) the proposal to use an equity commitment letter, instead of a promissory note, to fund the merger consideration; (iv) the inclusion of an “alternative financing” provision; (v) the deletion of the “force the vote” right; and (vi) the proposal to keep the maximum percentage of dissenting shareholders for the purposes of the relevant closing condition at below 10%, rather than 5%. In addition, DLA indicated that Mr. Shengcheng Wang was still considering whether to provide a limited guaranty in favor of the Company.

 

On June 14, 2012, DLA and S&S held a conference call to discuss the outstanding issues in the merger agreement. Following the discussion during the call, the remaining outstanding issues included (i) the maximum percentage of dissenting shareholders for the purposes of the relevant closing condition; (ii) Mr. Shengcheng Wang’s insistence on using a promissory note to fund the merger consideration; (iii) the inclusion of an “alternative financing” provision; and (iv) the inclusion of a “force the vote” provision.

 

On June 16, 2012, the Independent Committee held a telephonic meeting with S&S to discuss the major outstanding issues of the draft merger agreement. After the discussion, during which S&S answered various questions posed by the Independent Committee, the Independent Committee instructed S&S to: (i) insist on receiving a limited guaranty from Mr. Shengcheng Wang or his affiliates and adding a representation that Mr. Shengcheng Wang or his affiliates would have sufficient funds to consummate the proposed transaction, if Mr. Shengcheng Wang or his affiliates insisted on using a promissory note to fund the merger consideration; (ii) delete the “force the vote” provision, unless Mr. Shengcheng Wang or his affiliates agreed to add a “majority of minority” provision; (iii) give up the request for an “alternative financing” provision given the small deal size; and (iv) revise the closing condition regarding the exercise of dissenters’ rights to no more than 10%, rather than 5%.

 

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On June 18, 2012, S&S provided a markup of the draft merger agreement to DLA, which reflected the Independent Committee’s instructions during the June 16, 2012 meeting.  Later in the day, DLA conveyed to S&S that Mr. Shengcheng Wang had agreed to provide a limited guaranty and a representation regarding sufficiency of funds to consummate the transaction. In addition, Mr. Shengcheng Wang accepted the Independent Committee’s request to drop the “force the vote” requirement. However, he still insisted to use promissory note to fund the merger consideration. DLA also told S&S that Mr. Shengcheng Wang was still evaluating whether to offer the holders of unvested options the right to accelerate vesting and cash out upon the closing.

 

On June 19, 2012, DLA delivered a revised draft of the merger agreement incorporating all changes proposed by S&S. S&S and DLA agreed that the merger agreement was in substantially final form, subject to Piper Jaffray’s analysis of the fairness of the merger consideration and Mr. Shengcheng Wang’s confirmation regarding how to treat the unvested stock options upon the closing of the transaction.

 

On June 20, 2012, DLA delivered to S&S the initial draft of the promissory note, pursuant to which Arctic Spring Limited and Happy Indian Ocean Limited, whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang will provide funding to consummate the merger.

 

On June 20, 2011, the Company provided to Piper Jaffray certain financial projections for the fiscal year ending December 31, 2012 through the fiscal year ending December 31, 2016 (which financial projections are set forth under “Special Factors—Certain Financial Projections”).

  

On June 21, 2012, DLA delivered to S&S the initial draft of the limited guaranty, pursuant to which Arctic Spring Limited and Happy Indian Ocean Limited will guarantee the obligations of Parent under the merger agreement to pay, under certain circumstances, a reverse termination fee to the Company and reimburse certain expenses.

 

On July 5, 2012, DLA delivered a revised draft of merger agreement to S&S which reflected that Mr. Shengcheng Wang agreed to cash out all the outstanding options of the Company, no matter whether they are vested or not. At the direction of the Independent Committee, S&S confirmed with DLA they are fine with such approach but required Mr. Shengcheng Wang to make the payment to the unaffiliated option holders no later than 15 days after the effective time of the merger. DLA agreed to revise the merger agreement based on S&S’s comments.

 

On July 18, 2012, the Independent Committee, S&S and Piper Jaffray held a telephonic meeting to discuss the principal terms of the promissory note and limited guaranty, as well as the progress of Piper Jaffray’s financial analysis. At the meeting, S&S reviewed with the Independent Committee the key terms of the promissory note and limited guaranty but no material issue was identified. The Independent Committee instructed S&S to make sure Happy Indian Ocean Limited and Arctic Spring Limited have sufficient cash to consummate the merger. In addition, Piper Jaffray informed the Independent Committee that they have substantially finalized the financial analysis. No further detail regarding the financial analysis was discussed between the Independent Committee and Piper Jaffray.

 

On July 19, 2012, S&S and DLA discussed the cash position of Arctic Spring Limited and Happy Indian Ocean Limited, which will provide funding to consummate the merger in proportion to their respective ownership percentage in the Parent. S&S requested Arctic Spring Limited and Happy Indian Ocean Limited to provide their bank statements upon the execution of the merger agreement, in order to confirm the two companies’ ability to consummate the merger.

 

On July 20, 2012, DLA informed S&S that Arctic Spring Limited and Happy Indian Ocean Limited agreed to provide bank statements to the Independent Committee upon the execution of the merger agreement.

 

On July 26, 2012, DLA circulated revised drafts of the merger agreement, promissory note and limited guaranty to S&S and S&S confirmed they do not have any further comments.

 

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On August 6, 2012, a telephonic meeting of the entire Independent Committee was held with representatives of Piper Jaffray and S&S. Representatives of Piper Jaffray reviewed and discussed with the Independent Committee its financial analyses with respect to the Company and the transaction proposed by Mr. Shengcheng Wang to acquire the Shares (other than the Excluded Shares) at a purchase price of $0.0167 per Share and $5.00 per ADS, including selected public trading comparables analysis, discounted cash flow analysis, precedent going private transaction premiums analysis and indicative liquidation analysis. At the request of the Independent Committee, Piper Jaffray then rendered its oral opinion to the Independent Committee (which was subsequently confirmed in writing by delivery of its written opinion to the Independent Committee dated the same date) to the effect that, as of August 6, 2012, and based upon and subject to the factors, limitations and assumptions set forth in its written opinion, the $0.0167 per Share and $5.00 per ADS merger consideration in each case in cash and without interest, to be received by holders of the Shares and ADSs (other than the Parent and any affiliates of the Company and the Parent and holders of Excluded Shares) was fair, from a financial point of view, to such holders. Please see “—Opinion of the Independent Committee’s Financial Advisor” beginning on page 40 for additional information regarding the financial analyses performed by Piper Jaffray and the opinion rendered by Piper Jaffray to the Independent Committee. The full text of the written opinion of Piper Jaffray to the Independent Committee, dated August 6, 2012, is attached as Annex B to this proxy statement.

 

Representatives of S&S then reviewed the terms of the draft merger agreement with the Independent Committee and reported on the resolutions of the open issues previously discussed with the Independent Committee. Specifically, representatives of S&S noted that the Company would have the right to terminate the merger agreement prior to the receipt of shareholder approval if the Company’s board of directors determined (upon recommendation of the Independent Committee) in its good faith judgment that failure to do so would be inconsistent with its fiduciary duties. Following a comprehensive discussion of the draft merger agreement, as well as Piper Jaffray’s financial presentation and fairness opinion, the Independent Committee unanimously resolved to recommend that the board of directors of the Company approve the proposed merger agreement and the transactions contemplated by the merger agreement, including the merger.

 

Following the meeting of the Independent Committee, based upon the unanimous recommendation of the Independent Committee, all members of the board of directors except for Mr. Shengcheng Wang on August 6, 2012 adopted resolutions approving the terms of the proposed merger agreement and the transactions contemplated by the merger agreement, including the merger, and adopted resolutions recommending that the Company’s shareholders vote for the approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger. Please see “—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors” beginning on page 29 for a description of the resolutions of our board of directors at this meeting.

 

On August 6, 2012, Parent, Merger Sub, Mr. Shengcheng Wang and the Company executed the merger agreement (with Dr. Liping He, as chairman of the Independent Committee, executing the merger agreement on behalf of the Company). Simultaneously, each of Happy Indian Ocean Limited and Arctic Spring Limited executed a limited guaranty with the Company. Also simultaneously, each of Happy Indian Ocean Limited and Arctic Spring Limited executed a promissory note to Parent, pursuant to which Happy Indian Ocean Limited and Arctic Spring Limited agreed to provide an unconditional shareholder loan to Parent in an amount of $2,844,860 and $711,215, respectively, to fund the merger. DLA also provided to S&S some bank statements evidencing that Arctic Spring Limited and Happy Indian Ocean Limited had over $3.6 million available to fund the merger. On August 7, 2012, 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

 

As described above, the board of directors established the Independent Committee and empowered it with authority to review, evaluate, reject, negotiate and, if appropriate, make a recommendation to the board of directors regarding the proposal from Mr. Shengcheng Wang. The Independent Committee evaluated, with the assistance of its legal and financial advisors, the merger agreement and the merger.

 

At a meeting on August 6, 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 consideration set forth in the merger agreement, is in the best interests of the Company and its shareholders, and declare it advisable to enter into the merger agreement;

 

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

 

·recommend the approval and authorization of the merger agreement by the holders of the Shares.

 

On August 6, 2012, our board of directors unanimously approved the resolutions recommended by the Independent Committee.

 

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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:

 

·our board of directors’ knowledge of our business, financial condition, results of operations, prospects and competitive position and its belief that the merger is more favorable to our shareholders than any other alternative reasonably available to the Company and our shareholders;

 

·our board of directors’ recognition of the challenges to our efforts to increase shareholder value as an independent publicly traded company, including competition from companies with substantially greater resources than we currently have;

 

·global economic conditions and the potential effects on our financial condition;

 

·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, prospects and competitive position;

 

·the limited trading volume of our ADSs on the over-the-counter market commonly referred to as “pink sheets”;

 

·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 all-cash merger consideration, which will allow our unaffiliated shareholders and ADS holders to immediately realize liquidity for their investment, provide them with certainty of the value of their Shares and ADSs and prevent them from being exposed to the risks and uncertainty related to the Company’s presence;

 

·the current and historical market prices of our ADSs, including the fact that the merger consideration offered to our unaffiliated shareholders and ADS holders represents a 100.0% premium to the closing price of our ADSs on May 3, 2012, the trading day immediately prior to the publicly announced going private transaction proposal. The fact that the $5.00 per ADS merger consideration to be paid to unaffiliated shareholders and ADS holders in the merger also represents a (i) 100.0% premium over the closing price of $2.50 per ADS on May 3, 2012, the last trading day before the merger agreement was signed, (ii) 78.6% premium over the closing price in the over-the-counter market as quoted by Bloomberg L.P. on April 27, 2012, the 7th day immediately prior to the publicly announced going private transaction proposal; (iii) 160.4% premium over the closing price in the over-the-counter market as quoted by Bloomberg L.P. on April 4, 2012, the 30th day immediately prior to the publicly announced going private transaction proposal; and (iv) 24.1% premium over the closing price on the NYSE as quoted by Bloomberg L.P. on February 3, 2012, the 90th day immediately prior to the publicly announced going private transaction proposal.

 

·the possibility that it could take a considerable period of time before the trading price of the ADS would reach and sustain at least the per ADS merger consideration of $5.00, as adjusted for present value;

 

·the negotiations with respect to the merger consideration that, $5.00 per ADS merger consideration was the highest price that Mr. Shengcheng Wang 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 likelihood that the merger would be completed based on, among other things (not in any relative order of importance):

 

·the fact that Parent and Merger Sub had obtained the Promissory Notes which contain no condition to the financing, increases the likelihood of such financing being completed;

 

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·the absence of a financing condition in the merger agreement;

 

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

 

·the fact the merger agreement provides that, in the event of a failure of the merger to be consummated under certain circumstances, Parent will pay the Company a $50,000 or $100,000 reverse termination fee, as the case may be; and

 

·following its formation, the Independent Committee’s independent control of the merger process with the advice and assistance of Piper Jaffray and S&S as its financial and legal advisors, respectively;

 

·the financial analysis reviewed by Piper Jaffray with the Independent Committee, and the oral opinion to the Independent Committee (which was confirmed in writing by delivery of Piper Jaffray’s written opinion dated August 6, 2012), as to the fairness, from a financial point of view, of the $0.0167 per Share merger consideration and the $5.00 per ADS merger consideration to be received by holders of the Shares and the ADSs (other than the holders of Excluded Shares) in the merger, as of August 6, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Piper Jaffray in preparing its opinion. See “Special Factors – Opinion of Independent Committee’s Financial Advisor”; and

 

·the Independent Committee’s belief that it was unlikely that any transaction with a third party could be consummated at this time in light of Mr. Shengcheng Wang’s express intention not to sell shares beneficially owned by him to any third party.

 

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

 

·the consideration and negotiation of the merger agreement was conducted entirely under the oversight of the members of the Independent Committee, which consists of four independent directors, each of whom is an outside, non-employee director, and that no limitations were placed on the Independent Committee’s authority;

 

·in considering the transaction with the Buyer Filing Persons, the Independent Committee acted to represent solely the interests of the unaffiliated shareholders and ADS holders, and the Independent Committee had independent control of the negotiations with the Buyer Filing Persons and their legal advisors on behalf of such unaffiliated shareholders and ADS holders;

 

·all of the directors serving on the Independent Committee during the entire process were independent directors and free from any affiliation with any of the Buyer Filing Persons. In addition, none of such directors is or ever was an employee of the Company or any of its subsidiaries or affiliates;

 

·the fact that, other than their receipt of board compensation (which is not contingent upon the consummation of the proposed merger or the Independent Committee’s or board’s recommendation of the proposed merger) and indemnification and liability insurance rights under the merger agreement, members of the Independent Committee do not have interests in the merger different from, or in addition to, those of the Company’s unaffiliated shareholders and ADS holders;

 

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·the Independent Committee was assisted in its evaluation of the proposed merger by Piper Jaffray and S&S, its financial and legal advisors respectively, both of which are internationally recognized firms;

 

·the Independent Committee was empowered to consider, attend to and take any and all actions in connection with the written proposal from Mr. Shengcheng Wang 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 approval unless the Independent Committee had recommended such action to our board of directors;

 

·the terms and conditions of the merger agreement were the product of extensive negotiations between the Independent Committee and its advisors, on the one hand, and the Buyer Filing Persons and their advisors, on the other hand;

 

·the Independent Committee had the authority to reject the terms of any strategic transaction, including the merger;

 

·the Independent Committee held regular meetings to consider and review the terms of the proposed merger;

 

·the recognition by each of the Independent Committee and our board of directors that it had no obligation to recommend the approval of the merger proposal from the Buyer Filing Persons or any other transaction;

 

·the recognition by each of the Independent Committee and our board of directors that, under the terms of the merger agreement, it has the ability to consider any acquisition proposal reasonably likely to lead to a superior proposal until the date our shareholders vote upon and adopt the merger agreement;

 

·the ability of the Company to terminate the merger agreement prior to the receipt of shareholder approval if our board of directors determines (upon recommendation of the Independent Committee) in its good faith judgment that failure to do so would be inconsistent with its fiduciary duties, subject to compliance with the terms and conditions of the merger agreement;

 

·the ability of the Company to terminate the merger agreement upon acceptance of a superior proposal; and

 

·the availability of appraisal rights to the unaffiliated shareholders (and any ADS holder who elects to first exchange his or her ADSs for the underlying Shares) who comply with all of the required procedures under the Cayman Companies Law for exercising dissenters’ and appraisal rights, which allow such holders to seek appraisal of 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 risks and 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 approval of the merger agreement is not subject to the approval of holders of a majority of the Company’s unaffiliated Shares and Mr. Shengcheng Wang has sufficient votes to constitute a quorum for the extraordinary general meeting and unilaterally approve the merger agreement at the extraordinary general meeting.

 

·the fact that the Company’s unaffiliated shareholders and ADS holders will have no ongoing equity participation in the Company following the merger, and that the Company’s shareholders will cease to participate in our future earnings or growth, if any, or to benefit from increases, if any, in the value of the Company’s 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;

 

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·that due to Mr. Shengcheng Wang’s position that he would not consider any other transaction involving a sale of the Company, there was no reason to contact, and in light thereof no attempt was made to contact, third parties who might otherwise consider an acquisition of the Company. The Independent Committee recognized that it was possible that a sale process open to all possible bidders might result in a higher sale price than the cash consideration payable in the merger;

 

·the fact that since the Company became publicly listed on August 4, 2008, the highest historical closing price of our ADSs ($23.9 per ADS) exceeds the merger consideration offered to our unaffiliated shareholders and ADS holders;

 

·the possibility that Mr. Shengcheng Wang could sell some or all of the Company following the merger to one or more purchasers at a valuation higher than that being paid in the merger;

 

·the restrictions on the conduct of the Company’s business prior to the completion of the proposed merger, which may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending completion of the proposed merger;

 

·the risks and costs to the Company if the proposed 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;

 

·that the Company will be required to, under certain circumstances, pay Parent a termination fee of $50,000 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 Promissory Notes and that the Company’s remedy in the event of breach of the merger agreement by Parent or Merger Sub may be limited to receipt of a reverse termination fee of $50,000 or $100,000, as the case may be, and reimbursement of the Company’s expenses (up to $500,000), and under certain circumstances the Company may not be entitled to a reverse termination fee at all;

 

·the terms of Mr. Shengcheng Wang’s participation in the merger and the fact that Mr. Shengcheng Wang may have interests in the transaction that are different from, or in addition to, those of our unaffiliated shareholders and ADS holders; see the section captioned “Special Factors—Interests of Certain Persons in the Merger”;

 

·the possibility that the merger might not be consummated 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;

 

·the taxability of an all cash transaction to our unaffiliated shareholders and ADS holders who are U.S. Holders for U.S. federal income tax purposes (as defined under “Material U.S. Federal Income Tax Consequences”); and

 

·the possibility that Parent and Merger Sub may be unable or unwilling to complete the merger, including if Parent and Merger Sub are unable to obtain sufficient financing to complete the merger despite their compliance with their financing obligations set forth in the merger agreement or if Parent and Merger Sub choose not to close despite the availability of financing.

 

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 a number of 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, and neither did quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusion. 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 others. The Independent Committee recommended that our board of directors approve, and our board of directors approved, the merger agreement based upon the totality of the information presented to and considered by it.

 

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The Independent Committee and our board of directors considered the liquidation value of Company’s assets as a reference of comparison to the valuation of Company implied by the per ADS merger consideration. Using a liquidation analysis, Piper Jaffray calculated the estimated net distributable assets, net of estimated liquidation related costs and the Company’s liabilities based on the management balance sheet projections as of December 31, 2012 provided by the Company. The net distributable asset value per ADS as of December 31, 2012 was estimated to be $4.16. See “Special Factors―Opinion of the Independent Committee’s Financial Advisor.” The $5.00 per ADS merger consideration represented a 20.2% premium over the estimated net distributable assets based on such analysis. 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. The Independent Committee and the board of directors also considered the prices we paid for past purchases of our Shares – the $5.00 per ADS merger consideration represents a premium of 17.0%, over the average prices per ADS we paid for market purchases made pursuant to our share repurchase program in 2010 and 2011, after giving effect to the (i) the distribution of stock dividend in January 2011, under which our shareholders received one additional ordinary share for every ten ordinary shares they held at the time of distribution, and (ii) the adjustment of the ratio of our ordinary shares to ADSs from 30:1 to 300:1 on November 28, 2011. Each of the Independent Committee and board of directors also considered the historical market prices of our ADSs as described on page 60. 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 China Mass Media Corp., 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 December 31, 2011 was $0.03. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry related to the integrated television advertising services, advertising agency services and production and sponsorship services or the business risks inherent in competing with larger companies in the those industries.

 

In reaching its determination that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of the Company and our unaffiliated shareholders and ADS holders and its decision to approve the merger agreement and recommend the adoption of the merger agreement by our shareholders and ADS holders, our board of directors considered the analysis and recommendation of the Independent Committee and the factors examined by the Independent Committee as described above under the caption “Special Factors—Reasons for the Merger and Recommendation of the Independent Committee and Our Board of Directors,” and adopted such recommendations, analysis and conclusions. Except as disclosed in “Special Factors—Interests of Certain Persons in the Merger” beginning on page 55, none of our directors and officers has any financial interest in the merger that is different from that of the unaffiliated shareholders and ADS holders of the Company. For the foregoing reasons, our board of directors believes that the merger agreement and the transactions contemplated thereby are substantively and procedurally fair to the unaffiliated shareholders and ADS holders of the Company.

 

Position of the Buyer Filing Persons as to the Fairness of the Proposed Merger

 

Under SEC rules governing “going private” transactions, the Buyer Filing Persons, which include Mr. Shengcheng Wang, Parent, Merger Sub, Arctic Spring Limited and Happy Indian Ocean Limited are required to express their beliefs as to the fairness of the proposed merger to the Company’s unaffiliated security holders. The Buyer Filing Persons are 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 Filing Persons as to the fairness of the proposed merger are not intended and should not be construed as a recommendation to any holder of Shares or ADSs as to how to vote on the proposal to adopt the merger agreement. Mr. Shengcheng Wang has interests in the proposed merger that are different from those of the other shareholders of the Company by virtue of Mr. Shengcheng Wang’s continuing interests in the surviving company after the consummation of the proposed merger. These interests are described under “Special Factors—Interests of Certain Persons in the Merger” beginning on page 55 of this proxy statement.

 

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The Buyer Filing Persons understand the interests of the Company’s unaffiliated shareholders and ADS holders were represented by the Independent Committee, which negotiated the terms and conditions of the merger agreement with the assistance of its independent legal and financial advisors. The Buyer Filing Persons attempted to negotiate a transaction that would be most favorable to them, and not to the Company’s unaffiliated shareholders and ADS holders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were fair to such holders. The Buyer Filing Persons did not participate in the deliberations of the Independent Committee regarding, and did not receive any advice from the Independent Committee’s independent legal or financial advisors as to, the fairness of the proposed merger to the Company’s unaffiliated shareholders and ADS holders. The Buyer Filing Persons did not perform, or engage a financial advisor to perform, any independent valuation or other analysis in assessing the substantive and procedural fairness of the proposed merger to the Company’s unaffiliated shareholders and ADS holders. No financial advisor provided the Buyer Filing Persons with any analysis or opinion with respect to the fairness of the merger consideration to the Company’s unaffiliated shareholders and ADS holders.

 

Based on their knowledge and analysis of available information regarding the Company, as well as discussions with the Company’s senior management regarding the Company and its business and the factors considered by, and findings 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 29 of this proxy statement, the Buyer Filing Persons believe the proposed merger is substantively fair to the Company’s unaffiliated shareholders and ADS holders based upon the following factors, which are not listed in any relative order of importance:

 

·the current and near-term historical market prices of the Company’s ADSs and the fact that the merger consideration of $0.0167 per Share and $5.00 per ADS represents (i) a 100.0% premium over the closing price as quoted by Bloomberg L.P. on May 3, 2012, the last trading day prior to the Company’s announcement on May 4, 2012 that it had received a “going private” proposal; (ii) 78.6% premium over the closing price as quoted by Bloomberg L.P. on April 27, 2012, the 7th day immediately prior to the publicly announced going private transaction proposal; (iii) 160.4% premium over the closing price as quoted by Bloomberg L.P. on April 4, 2012, the 30th day immediately prior to the publicly announced going private transaction proposal; and (iv) 24.1% premium over the closing price as quoted by Bloomberg L.P. on February 3, 2012, the 90th day immediately prior to the publicly announced going private transaction proposal;

 

·the historical closing price of the Company’s ADSs was as low as $1.65 during the 52-week period prior to the public announcement of the going-private transaction proposal;

 

·the Company’s share repurchase program during 2010 and 2011 purchased ADSs at an weighted average price of $2.39 per ADS;

 

·the merger consideration of $0.0167 per Share and $5.00 per ADS is payable entirely in cash, thus allowing the Company’s shareholders and ADS holders (other than holders of the Excluded Shares) to immediately realize a certain and fair value for their Shares or ADSs;

 

·the members of the Independent Committee are not officers or employees of the Company and do not have any interests in the proposed merger different from, or in addition to, those of the Company’s unaffiliated shareholders and ADS holders, other than the members’ receipt of board compensation (which are not contingent upon the consummation of the proposed merger or Independent Committee or board’s recommendation of the proposed merger indemnification) and liability insurance rights under the merger agreement;

 

·the Independent Committee and, based in part upon the unanimous recommendation of the Independent Committee, the Company’s board of directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the proposed merger, are in the best interests, of the Company’s unaffiliated shareholders and ADS holders;

 

·the Company has the ability, under certain circumstances, to specifically enforce the terms of the merger agreement;

 

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·the proposed merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the proposed merger will be consummated and the merger consideration will be paid to the Company’s unaffiliated shareholders and ADS holders;

 

·each of Happy Indian Ocean Limited and Arctic Spring Limited has provided a Promissory Note to Parent, pursuant to which Happy Indian Ocean Limited and Arctic Spring Limited have agreed to provide an unconditional shareholder loan to Parent in an amount of $2,844,860 and $711,215, respectively, to fund the merger;

 

·each of Happy Indian Ocean Limited and Arctic Spring Limited, has provided a Limited Guaranty in favor of the Company, pursuant to which Happy Indian Ocean Limited and Arctic Spring Limited have agreed to guarantee 80% and 20% respectively, of the obligations of Parent under the merger agreement to pay, under certain circumstances, a reverse termination fee to the Company and reimburse certain expenses of the Company;

 

·notwithstanding that the Buyer Filing Persons may not rely upon the opinion provided by Piper Jaffray to the Independent Committee, the Independent Committee received an opinion from Piper Jaffray described under “Special Factors―Opinion of the Independent Committee’s Financial Advisor”;

 

·historically, the Company’s ADSs have suffered from limited trading volume and low public float of the ADS, and therefore other than in connection with a sale or business combination transaction involving the Company, the Company’s unaffiliated ADS holders may not be able to realize their investments for cash in the public markets without depressing the ADS price and the corresponding amount paid for their ADSs and

 

·the proposed merger will provide liquidity for the Company’s unaffiliated shareholders and ADS holders without incurring brokerage and other costs typically associated with market sales.

 

The Buyer Filing Persons did not consider net book value because they believe that net book value, which is an accounting concept indicative of historical costs, does not reflect, or have any meaningful impact on, the market price of the Company’s ADSs or the fair market value of its assets. The Buyer Filing Persons note, however, that the proposed merger consideration of $5.00 per ADS ($0.0167 per Share) is substantially higher than the net book value of the Shares disclosed in the Company’s most recent public filings with the SEC.

 

The Buyer Filing Persons did not consider the Company’s liquidation value because they consider the Company to be a viable, going concern and view the trading history of the ADSs as an indication of the Company’s going concern value, because the Company will continue to operate its business following the merger, and therefore did not consider liquidation value to be a relevant valuation method.

 

The Buyer Filing Persons did not establish, and did not consider, a going concern value for the Shares and the ADSs as a public company to determine the fairness of the proposed merger consideration to the Company’s unaffiliated shareholders and ADS holders because, following the merger, the Company will have a significantly 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 of $0.0167 per Share or $5.00 per ADS represented a premium to the going concern value of the Company.

 

The Buyer Filing Persons 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 merger or consolidation of the Company with or into another company, a sale of all or a substantial part of the Company’s assets, or the purchase of the Company voting securities that would enable the holder to exercise control over the Company.

 

The Buyer Filing Persons did not receive any independent reports, opinions or appraisals from any outside party related to the proposed merger, and thus did not consider any such reports, opinions or appraisals in determining the substantive fairness of the proposed merger to the unaffiliated shareholders and ADS holders.

 

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The Buyer Filing Persons believe the proposed merger is procedurally fair to the Company’s unaffiliated shareholders and ADS holders based upon the following factors:

 

·the Independent Committee, consisting entirely of directors who are not officers or employees of the Company and who are not affiliated with the Buyer Filing Persons, was established and given absolute authority to, among other things, review, evaluate and negotiate the terms of the proposed merger and to decide whether or not to proceed with the merger;

 

·the members of the Independent Committee do not have any interests in the proposed merger different from, or in addition to, those of the Company’s unaffiliated shareholders and ADS holders, other than the members’ receipt of board compensation (which is not contingent upon the consummation of the proposed merger or the Independent Committee’s or the board’s recommendation of the proposed merger) and certain indemnification and liability insurance rights under the merger agreement;

 

·while Mr. Shengcheng Wang is a director and officer of the Company, because of his participation in the transaction as described under the section captioned “Special Factors—Interests of Certain Persons in the Merger,” he did not serve on the Independent Committee, nor did he participate in or have any influence over the deliberative process of, or the conclusions reached by, the Independent Committee or the negotiating positions of the Independent Committee;

 

·the Independent Committee retained and was advised by its independent legal and financial advisors who are experienced in advising Independent Committees in similar going private transactions;

 

·the Independent Committee and the Company’s board of directors had no obligation to recommend the adoption of the merger agreement and the transactions contemplated thereby, including the merger, or any other transaction;

 

·the merger was unanimously approved by the Independent Committee;

 

·the merger consideration and other terms and conditions of the merger agreement were the result of extensive negotiations between representatives of the Buyer Filing Persons and their advisors, on the one hand, and the Independent Committee and its legal and financial advisors, on the other hand;

 

·the Independent Committee received from its financial advisor an opinion, described under “Special Factors―Opinion of the Independent Committee’s Financial Advisor”;

 

·the merger is not conditioned on any financing being obtained by Parent or Merger Sub, thus increasing the likelihood that the merger will be consummated and the merger consideration will be paid to the Company’s unaffiliated shareholders and ADS holders.

 

·under the terms of the merger agreement, in certain circumstance prior to obtaining shareholder approval of the proposed merger, the Company is permitted to provide information to and participate in discussions or negotiations with persons making acquisition proposals and the board of directors of the Company is permitted to withdraw or modify its recommendation of the merger agreement;

 

·the ability of the Company to terminate the merger agreement prior to the receipt of shareholder approval if the board of directors of the Company determines (upon recommendation of the Independent Committee) in its good faith judgment that failure to do so would be inconsistent with its fiduciary duties, subject to compliance with the terms and conditions of the merger agreement;

 

·the ability of the Company to terminate the merger agreement upon acceptance of a superior proposal; and

 

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·the availability of dissenters’ rights to the unaffiliated shareholders (and any ADS holder who elects to first exchange his or her ADSs for the underlying Shares) who comply with all of the required procedures under the Cayman Companies Law for exercising dissenters rights, which allow such holders to dissent from the merger and to receive payment of the fair value of their Shares as determined pursuant to the Cayman Companies Law.

 

Although Cayman Islands law does not require, and the merger agreement is not subject to approval by a majority of the unaffiliated shareholders and ADS holders of the Company, as a result of the procedural safeguards described above, the Buyer Filing Persons concluded that the merger is procedurally fair to the unaffiliated shareholders and ADS holders of the Company.

 

The foregoing discussion of the information and factors considered and given weight by the Buyer Filing Persons in connection with their evaluation of the substantive and procedural fairness to the Company’s unaffiliated shareholders and ADS holders of the merger agreement and the transactions contemplated by the merger agreement, including the proposed merger, is not intended to be exhaustive, but is believed by the Buyer Filing Persons to include all material factors considered by them. The Buyer Filing Persons did not find it practicable to and did not quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the substantive and procedural fairness of the merger agreement and the proposed merger to the Company’s unaffiliated shareholders and ADS holders. Instead, the Buyer Filing Persons made the fairness determinations after considering all of the foregoing as a whole.

 

The Buyer Filing Persons believe that these factors provide a reasonable basis for their belief that the proposed merger is both substantively and procedurally fair to the Company’s unaffiliated shareholders and ADS holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Filing Persons to any shareholder or ADS holder of the Company as to how such shareholders or ADS holders should vote with respect to the adoption of the merger agreement.

 

Certain Financial Projections

 

The financial projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. The Company’s management does not, as a matter of course, make available to the public future financial projections. However, in connection with their financial analysis of the proposed merger, our management provided certain financial projections for the fiscal years ending December 31, 2012 through December 31, 2016 to the Independent Committee, our board of directors and Piper Jaffray. See “—Background of the Proposed Merger.” Piper Jaffray’s financial analysis included under “Opinion of the Independent Committee’s Financial Advisor” contains material portions of these financial projections. These financial projections, which were based on our management’s projection of our future financial performance as of the date provided, were prepared for internal use and to assist Piper Jaffray with their financial analysis, and were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC or the American Institute of Certified Public Accountants regarding forward-looking information or U.S. generally accepted accounting principles, or U.S. GAAP.

 

In compiling the projections, the Company’s management took into account historical performance, combined with estimates regarding revenues, gross profit and operating income. Although the projections are presented with numerical specificity, they reflect numerous assumptions and estimates as to future events made by the Company’s management that they believed were reasonable at the time the projections were prepared. In addition, factors such as industry performance, the market for the Company’s existing and new services, the competitive environment, expectations regarding future acquisitions or any other transaction and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of the Company’s management, may cause the projections or the underlying assumptions not to be reflective of actual future results. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to completion of the merger or any changes to the Company’s operations or strategy that may be implemented or that were not anticipated 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 materially different than those contained in the projections. Neither the Company’s independent registered public accounting firm nor any other independent accountants have compiled, examined or performed any procedures with respect to these financial projections, nor have they expressed any opinion or given any form of assurance on the financial projections or their achievability.

 

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The financial projections included in this proxy statement are included solely to give shareholders access to certain information that was made available to the Buyer Filing Person. The inclusion of the projections should not be regarded as an indication that the Company, the Buyer Filing Persons, the Independent Committee, Piper Jaffray or anyone who received the projections then considered, or now considers, them a reliable prediction of future events.

 

The inclusion of the projections in this proxy statement should not be deemed an admission or representation by the Company, the Buyer Filing Persons, the Independent Committee and Piper Jaffray that they are viewed by the Company, the Buyer Filing Persons, the Independent Committee and Piper Jaffray as material information of the Company. The projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the projections, shareholders are cautioned not to place undue, if any, reliance on the projections included in this proxy statement.

 

The following table summarizes the financial projections provided by our management to Piper Jaffray:

 

   Management Projections (1) (2) 
   Fiscal Year Ending December 31, 
   2012E   2013E   2014E   2015E   2016E 
   (In USD, except percentages) 
Net revenue   26,160,599    12,312,979    4,830,316    5,699,773    6,782,730 
                          
Net revenue growth   (22.4)%   (52.9)%   (60.8)%   18.0%   19.0%
                          
Gross profit   1,231,006    (1,824,363)   667,914    1,329,250    2,281,092 
                          
Gross margin   4.7%   (14.8)%   13.8%   23.3%   33.6%
                          
Total operating expenses   (6,402,807)   (2,792,181)   (1,461,267)   (1,196,599)   (957,280)
                          
Operating income   (5,171,801)   (4,616,544)   (793,353)   132,651    1,323,812 
                          
Operating income margin   (19.8)%   (37.5)%   (16.4)%   2.3%   19.5%
                          
Net income   (5,100,319)   (4,616,544)   (793,353)   99,488    992,859 
                          
Net income margin   (19.5)%   (37.5)%   (16.4)%   1.7%   14.6%

 

(1)In preparing these projections, our management necessarily made certain assumptions and estimates concerning factors that may affect our performance, including that (i) Periodic China News Package will expire on December 31, 2012, (ii) All Day Classic Package will expire on December 31, 2012 and we expect to exercise our first right of refusal to extend the contract to December 31, 2013, after which we don’t expect to extend, (iii) there will not be any significant changes to the operating environment of our advertisement production and content creation businesses during the projection period, (iv) our PRC subsidiaries will be subject to the statutory tax rate of 25% under the Corporate Income Tax Law of the PRC throughout the projection period. For information on factors which may cause our future financial results to materially vary, see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 95 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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(2)These financial projections contain translations of RMB amounts to U.S. dollar amounts at the noon buying rate for U.S. dollars in effect on December 31, 2011 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board, which was RMB6.2939 = US$1.00.

 

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.

 

NONE OF THE COMPANY OR ITS 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.

 

The financial projections are forward-looking statements. For information on factors which may cause the Company’s future financial results to materially vary, see “Cautionary Note Regarding Forward-Looking Statements” on page 95 and “Item 3. Key Information—D. Risk Factors” included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2011, incorporated by reference into this proxy statement.

 

Opinion of the Independent Committee’s Financial Advisor

 

Pursuant to an engagement letter dated as of June 21, 2012, the Independent Committee retained Piper Jaffray to act as its financial advisor in connection with the merger. At a telephonic meeting of the Independent Committee on August 6, 2012, Piper Jaffray rendered its oral opinion to the Independent Committee, later confirmed in a written opinion of the same date, that based upon and subject to the assumptions, procedures, considerations and limitations set forth in the written opinion and based upon such other factors as Piper Jaffray considered relevant, the per share merger consideration of US$0.0167 in cash is fair, from a financial point of view, to the holders of Shares (other than affiliates of the Company and the Parent and holders of Excluded Shares), and the per ADS merger consideration of US$5.00 in cash is fair, from a financial point of view, to the holders of ADSs (other than affiliates of the Company and the Parent and holders of Excluded Shares) in each case as of the date of the opinion.

 

The full text of the Piper Jaffray written opinion dated August 6, 2012, confirming its oral opinion rendered to the Independent Committee on August 6, 2012, sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated in its entirety herein by reference. You are urged to read the Piper Jaffray opinion in its entirety, and this summary is qualified by reference to the written opinion. The Piper Jaffray opinion addresses only the fairness of the per share merger consideration, from a financial point of view, to the holders of Shares (other than affiliates of the Company and the Parent and holders of Excluded Shares), and the fairness of the per ADS merger consideration, from a financial point of view, to the holders of ADSs (other than affiliates of the Company and the Parent and holders of Excluded Shares), in each case as of the date of the opinion. Piper Jaffray’s opinion was directed to the Independent Committee in connection with its consideration of the merger and was not intended to be, and does not constitute, a recommendation to any shareholder as to how such shareholder should act or vote or tender its shares or make any election with respect to the merger or any other matter. The Piper Jaffray opinion was approved for issuance by the Piper Jaffray opinion committee.

 

40
 

 

In connection with rendering the opinion described above and performing its financial analyses, Piper Jaffray, among other things:

 

·reviewed and analyzed the financial terms of a draft of the merger agreement dated August 5, 2012;

 

·reviewed and analyzed certain financial and other data with respect to the Company which was publicly available;

 

·reviewed and analyzed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of the Company that were publicly available, as well as those that were furnished to Piper Jaffray by the Company;

 

·conducted discussions with members of senior management and representatives of the Company concerning the matters described in the two immediately preceding clauses above, as well as the Company’s business and prospects before and after giving effect to the merger;

 

·reviewed the current and historical reported prices and trading activity of the ADSs and similar information for certain other companies deemed by Piper Jaffray to be comparable to the Company;

 

·compared the financial performance of the Company with that of certain other publicly-traded companies that Piper Jaffray deemed relevant; and

 

·reviewed the financial terms, to the extent publicly available, of certain business combination transactions that Piper Jaffray deemed relevant.

 

In addition, Piper Jaffray conducted such other analyses, examinations and inquiries and considered such other financial, economic and market criteria as Piper Jaffray deemed necessary in arriving at its opinion. No limitations were imposed by the Company or the Independent Committee on the scope of Piper Jaffray’s investigation or the procedures followed by Piper Jaffray in arriving at its opinion.

 

The following is a summary of the material financial analyses performed by Piper Jaffray in connection with the rendering of its opinion, which was reviewed with, and formally delivered to, the Independent Committee at a telephonic meeting held on August 6, 2012. The rendering of an opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, this summary does not purport to be a complete description of the analyses performed by Piper Jaffray or of its presentation to the Independent Committee on August 6, 2012.

 

This summary includes information presented in tabular format, which tables must be read together with the text of each analysis summary and considered as a whole in order to fully understand the financial analyses presented by Piper Jaffray. The tables alone do not constitute a complete summary of the financial analyses. The order in which these analyses are presented below, and the results of those analyses, should not be taken as any indication of the relative importance or weight given to these analyses by Piper Jaffray or the Independent Committee. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 3, 2012, and is not necessarily indicative of current market conditions.

 

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For purposes of its analyses, Piper Jaffray calculated (i) the Company’s equity value implied by the merger to be approximately $12.95 million, based on approximately 2,589,111 ADSs outstanding as of August 3, 2012, calculated using the treasury stock method and the per ADS merger consideration of $5.00 per ADS, and (ii) the Company’s enterprise value (“EV”) implied by the merger (for the purposes of this analysis, implied EV equates to implied equity value, plus debt, plus minority interest, less cash), to be approximately $1.83 million. The analyses summarized below are presented on the basis of ADS calculations and per ADS values. In addition, as each ADS represents 300 underlying Shares, all calculations of price per ADS or implied price per ADS below represent the value attributable to 300 Shares.

 

Historical Trading Analysis

 

Piper Jaffray reviewed the historical closing prices and trading volumes for the ADSs from August 4, 2011 to August 3, 2012, in order to provide background information on the prices at which the Company’s ADSs have historically traded. Trading information is from the NYSE through March 16, 2012 and thereafter is based on prices in the over the counter market.

 

The following table summarizes some of these historical closing prices:

 

   Price Per ADS 
Closing Price on August 3, 2012:  $3.82 
30-day average closing price prior to August 3, 2012:  $3.81 
60-day average closing price prior to August 3, 2012:  $3.80 
90-day average closing price prior to August 3, 2012:  $3.81 
52-week high closing price prior to August 3, 2012:  $24.70 
52-week low closing price prior to August 3, 2012:  $1.65 

 

The following table summarizes some of the daily average trading volumes of the Company’s ADSs:

 

   Daily Average ADS
Trading Volume
(in thousands)
 
5-day average ending on August 3, 2012:   0.8 
30-day average ending on August 3, 2012:   2.4 
60-day average ending on August 3, 2012:   2.1 
90-day average ending on August 3, 2012:   2.8 
180-day average ending on August 3, 2012:   6.6 
52-week average ending on August 3, 2012:   14.7 

 

The following table summarizes the percentage of the Company’s ADSs that traded within certain price ranges during the periods set forth below on the NYSE from August 4, 2011 to March 16, 2012 and in the over-the-counter market from March 19, 2012 to August 3, 2012:

 

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Price Range:  Percentage of ADSs
Traded
 
<$4.49:   30.6%
$4.50- $8.99:   53.8%
$9.00- $13.49:   2.0%
$13.50- $17.99:   0.1%
$18.00-$22.49   3.0%
>$22.50   10.6%

 

Piper Jaffray also reviewed the price performance of the ADSs during various periods ending on August 3, 2012 on a standalone basis and also in relation to the NASDAQ Composite Index and the S&P 500.

 

Financial Analyses

 

Selected Public Companies Analysis

 

Piper Jaffray reviewed selected historical financial, operating and stock market information for the Company and compared them to corresponding financial, operating and stock market information, where available, for selected publicly traded companies. Piper Jaffray selected companies based on information obtained by searching SEC filings, public company disclosures, press releases, industry and popular press reports, databases and other sources. Based on these criteria, Piper Jaffray identified and analyzed the following selected companies:

 

·Focus Media

 

·Charm Communications

 

·SinoMedia

 

·AirMedia

 

·VisionChina

 

Piper Jaffray calculated valuation multiples for the selected public companies based on each selected public company’s respective enterprise value (based on the closing price per share (or ADS) of each selected public company’s common stock (or ADS) on August 3, 2012) divided by 2013 forecasted revenue (market consensus sourced from Bloomberg and Capital IQ as of August 3, 2012). Piper Jaffray also calculated premium or discount to each selected public company’s latest publicly available net asset value. Piper Jaffray then compared the enterprise value to revenue multiples for the selected public companies to the enterprise value to revenue multiple for the Company derived from the enterprise value implied by per ADS consideration to be received in the merger and the Company’s forecasted revenue for the year ending December 31, 2013 based on management projections provided by the Company. Piper Jaffray also compared the premium or discount to latest publicly available net asset value of the selected public companies to the premium or discount of the Company’s equity value implied by the per ADS consideration to be received in the merger to the net asset value of the Company as of March 31, 2012 provided by the Company.

 

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China
Mass
Media (1)

   Selected Companies 
       Max  

3rd
Quartile

   Mean   Median  

1st
Quartile

   Min 
Enterprise value / forecasted 2013 revenue   0.15x   1.85x   1.05x   0.78x   0.26x   0.24x   0.23x
                                    
Premium / (Discount) to latest NAV   (41.6)%   98.5%   32.6%   (5.9)%   (13.9)%   (58.1)%   (88.8)%

 

 

 

(1)Based on the per ADS merger consideration of $5.00 per ADS.

 

The minimum and maximum enterprise value to revenue multiples and premium or discount to net asset value of the selected companies were used to calculate the implied equity value per ADS of the Company. The results are laid out in the following table:

 

  Implied Equity Value per ADS of the Company
Based on Max Min
Enterprise value / forecasted 2013 revenue of selected companies $13.07 $5.38
Premium / (Discount) to latest NAV of selected companies $17.00 $0.96

 

The selected public companies analysis showed that, based on the estimates and assumptions used in the analysis, the implied valuation of the Company based on the per ADS merger consideration was (i) slightly below the range of enterprise value to revenue multiples and (ii) within the range of premium or discount to net asset value of the selected public companies. Piper Jaffray’s conclusion was based on all of the analyses it conducted taken as a whole and was not based on any individual analysis.

 

No company utilized in the selected public companies analysis is identical to the Company. In evaluating the selected public companies, Piper Jaffray made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters.

 

Selected Precedent Transaction Analysis

 

Piper Jaffray reviewed go-private transactions of U.S. listed Chinese companies announced between January 1, 2010 and August 3, 2012, that it deemed comparable to the merger. Piper Jaffray selected these transactions based on information obtained by searching SEC filings, public company disclosures, press releases, industry and popular press reports, databases and other sources.

 

Based on these criteria, the following transactions were considered by Piper Jaffray:

 

·Shengtai Pharmaceutical Inc.

 

·Gushan Environmental Energy Ltd

 

·China TransInfo Technology Corp

 

·Jingwei International Ltd

 

·WSP Holdings Ltd.

 

·Andatee China Marine Fuel Services Corp

 

·China GrenTech Corp. Ltd.

 

·Shanda Interactive Entertainment Ltd

 

·China Advanced Construction Materials Group, Inc.

 

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·Tiens Biotech Group USA Inc.

 

·China Fire & Security Group, Inc.

 

·Funtalk China Holdings Ltd

 

·China Security & Surveillance Technology, Inc.

 

·Chemspec International Ltd

 

·Fushi Copperweld, Inc.

 

·Harbin Electric, Inc.

 

·Tongjitang Chinese Medicines Co

 

Piper Jaffray first calculated the premium or discount to net asset value of the targets in the selected go-private transactions by comparing their respective implied market capitalization based on the latest announced offer price per share (or ADS) to their respective latest publicly available net asset value. Piper Jaffray then compared them to the discount of the Company’s equity value (implied by the per ADS consideration to be received in the merger) to the net asset value as of March 31, 2012.

 

  

China
Mass
Media(1)

   Selected Transactions 
       Max  

3rd
Quartile

   Mean   Median  

1st
Quartile

   Min 
Premium / (Discount) to NAV   (41.6)%   88.8%   38.5%   (3.6)%   (14.8)%   (35.5)%   (75.7)%

 

 

 

(1)Based on the per ADS merger consideration of US$5.00 per ADS.

 

The minimum and maximum premium or discount to NAV of the selected transactions were used to calculate the implied equity value per ADS of the Company. The results are laid out in the following table:

 

  Implied Equity Value per ADS of the Company
Based on Max Min
Premium / (Discount) to NAV of selected transactions $16.17 $2.08

  

The selected transaction analysis showed that, based on the estimates and assumptions used in the analysis, the implied valuation of the Company based on the per ADS merger consideration were within the range of premium or discount to net asset value of the selected go-private transactions.

 

A selected go-private transaction analysis generates an implied value of a company based on publicly available financial terms of selected change of control transactions involving companies that share certain characteristics with the company being valued. However, no company or transaction utilized in the selected go-private transaction analysis is identical to the Company or the merger, respectively.

 

Premiums Paid Analysis

 

Piper Jaffray reviewed publicly available information for the selected go-private transactions described above to determine the premiums paid in the transactions over recent trading prices of the target companies prior to the announcement of the transaction. The table below shows a comparison of premiums paid in these transactions to the premium that would be paid to the holders of ADSs in the merger based on the per ADS merger consideration.

 

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China
Mass
Media(1)

   Selected Transactions 
       Max  

3rd
Quartile

   Mean   Median  

1st
Quartile

   Min 
Premium to 1 day prior(2)    100.0%   67.0%   31.7%   28.3%   22.8%   17.1%   4.4%
Premium to 7 days prior(3)   78.6%   81.8%   45.7%   37.3%   33.9%   25.3%   16.9%
Premium to 30 days prior(4)   160.4%   67.9%   45.5%   34.7%   32.7%   20.2%   6.7%
Premium to 90 days prior(5)   24.1%   234.1%   45.4%   47.5%   37.5%   23.9%   7.4%

 

 

 

(1)Based on the per ADS merger consideration of US$5.00 per ADS.
(2)Company percentage based on the closing price per ADS on May 3, 2012 (the last day prior to the Company’s receipt of Mr. Shengcheng Wang’s Offer Letter to acquire all of the outstanding ordinary shares of the Company) of $2.50.
(3)Company percentage based on the closing price per ADS on April 27, 2012 (the 7th day prior to the Company’s receipt of the Offer Letter) of $2.80.
(4)Company percentage based on the closing price per ADS on April 4, 2012 (the 30th day prior to the Company’s receipt of the Offer Letter) of $1.92.
(5)Company percentage based on the closing price per ADS on February 3, 2011 (the 90th day prior to the Company’s receipt of the Offer Letter) of $4.03.

 

The minimum and maximum premium to 1 day prior, premium to 7 days prior, premium to 30 days prior and premium to 90 days prior were used to calculate the implied equity value per ADS of the Company. The results are laid out in the following table:

 

  Implied Equity Value per ADS of the Company
Based on Max Min
Premium to 1 day prior $4.17 $2.61
Premium to 7 days prior $5.09 $3.27
Premium to 30 days prior $3.22 $2.05
Premium to 90 days prior $13.47 $4.33

 

The premiums paid analysis showed that, based on the estimates and assumptions used in the analysis, the premiums over the market closing prices at the selected dates for the ADSs implied by the per ADS merger consideration were within the range of premiums paid in the selected transactions.

 

Discounted Cash Flow Analysis

 

Using discounted cash flows analysis, Piper Jaffray calculated an estimated range of theoretical values for the Company based on the net present value of (i) the Company’s projected free cash flows for the 5 years ending December 31, 2016, discounted back to June 30, 2012, based on management projections, and (ii) a terminal value at fiscal year end 2016, discounted back to June 30, 2012. The free cash flows for each year were calculated from the management projections as operating income less taxes (i.e. PRC standard corporate income tax rate of 25.0%), plus depreciation and amortization, less the change in net working capital and less capital expenditures. Piper Jaffray calculated the range of net present values based on discount rate of 19.5%, based on a weighted average cost of capital analysis, which was adjusted upward to account for risks attributable to the Company’s relatively small market capitalization and the Company’s status as a PRC-based company. This analysis resulted in implied values per ADS for the Company of $2.86. Piper Jaffray observed that the per ADS merger consideration was above the implied value derived from the discounted cash flow analysis.

 

Liquidation Analysis

 

Using a liquidation analysis, Piper Jaffray calculated the net distributable assets, net of liquidation related costs and the Company’s liabilities based on the management balance sheet projections as of December 31, 2012 provided by the Company. The net distributable asset value per ADS as of December 31, 2012 is expected to be $4.16. Piper Jaffray observed that the per ADS merger consideration was above the implied value derived from the liquidation analysis.

 

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Miscellaneous

 

The summary set forth above does not contain a complete description of the analyses performed by Piper Jaffray, but does summarize the material analyses performed by Piper Jaffray in rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Piper Jaffray believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses or of the summary, without considering the analyses as a whole or all of the factors included in its analyses, would create an incomplete view of the processes underlying the analyses set forth in the Piper Jaffray opinion. In arriving at its opinion, Piper Jaffray considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Instead, Piper Jaffray made its determination as to fairness on the basis of its experience and financial judgment after considering the results of all of its analyses. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Piper Jaffray’s view of the actual value of the Company.

 

No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the merger and the other transactions contemplated by the merger agreement. Accordingly, an analysis of the results of the comparisons is not mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which the Company and the merger were compared and other factors that could affect the public trading value or transaction value of the companies involved.

 

Piper Jaffray performed the analyses described above solely for purposes of rendering its opinion to the Independent Committee. In performing its analyses, Piper Jaffray made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Certain of the analyses performed by Piper Jaffray are based upon forecasts of future results furnished to Piper Jaffray by the Company’s management, which are not necessarily indicative of actual future results and may be significantly more or less favorable than actual future results. These forecasts are inherently subject to uncertainty because, among other things, they are based upon numerous factors or events beyond the control of the parties or their respective advisors. Piper Jaffray does not assume responsibility if future results are materially different from forecasted results.

 

As described above, Piper Jaffray’s opinion was only one of many factors considered by the board of directors in making its determination to approve the merger. Piper Jaffray was not requested to, and did not, (i) solicit any expressions of interest from any other parties with respect to any business combination with the Company or any other alternative transaction or (ii) advise the Independent Committee, the board of directors of the Company or any other party with respect to alternatives to the merger.

 

Piper Jaffray relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to Piper Jaffray or discussed with or reviewed by Piper Jaffray. Piper Jaffray further relied upon the assurances of the management of the Company that the financial information provided was prepared on a reasonable basis in accordance with industry practice, and that they are not aware of any information or facts that would make any information provided to Piper Jaffray incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of its opinion, Piper Jaffray assumed that with respect to financial forecasts, estimates and other forward-looking information reviewed by it, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of the Company as to the expected future results of operations and financial condition of the Company. Piper Jaffray expressed no opinion as to any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based. Piper Jaffray further assumed that the merger will have the tax consequences described in the proxy statement relating to the merger. Piper Jaffray relied, with the Independent Committee’s consent, on advice of the outside counsel and the independent accountants to the Company, and on the assumptions of the management of the Company, as to all accounting, legal, tax and financial reporting matters with respect to the Company and the merger agreement.

 

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In arriving at its opinion, Piper Jaffray assumed that the executed merger agreement would be in all material respects identical to the last draft reviewed by Piper Jaffray. Piper Jaffray relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties to the merger agreement and all other related documents and instruments that are referred to therein were true and correct in all respects material to our analysis, (ii) each party to such agreements will fully and timely perform, in all respects material to our analysis, all of the covenants and agreements required to be performed by such party, (iii) the merger will be consummated pursuant to the terms of the merger agreement without amendments thereto and (iv) all conditions to the consummation of the merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Additionally, Piper Jaffray assumed that all the necessary regulatory approvals and consents required for the merger will be obtained in a manner that will not adversely affect the Company or the contemplated benefits of the merger.

 

In arriving at its opinion, Piper Jaffray did not perform any appraisals or valuations of any specific assets or liabilities (fixed, contingent or other) of the Company, and was not furnished or provided with any such appraisals or valuations, nor did Piper Jaffray evaluate the solvency of the Company under any law, of any jurisdiction, relating to bankruptcy, insolvency or similar matters. The analyses performed by Piper Jaffray in connection with its opinion were going concern analyses. Piper Jaffray expressed no opinion or view regarding the liquidation value of the Company or any other entity. Without limiting the generality of the foregoing, Piper Jaffray undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company or any of its affiliates is a party or may be subject, and at the direction of the Independent Committee and with its consent, Piper Jaffray’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. Piper Jaffray also assumed that neither the Company nor any of the Buyer Filing Persons is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the merger.

 

Piper Jaffray’s opinion was necessarily based upon the information available to Piper Jaffray and facts and circumstances as they existed and were subject to evaluation on the date of its opinion. Events occurring after the date of Piper Jaffray’s opinion could materially affect the assumptions used in preparing the opinion. Piper Jaffray did not express any opinion as to the price at which the Shares or ADSs may trade following announcement of the merger or at any future time. Piper Jaffray did not undertake to reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of its opinion and does not have any obligation to update, revise or reaffirm its opinion.

 

Piper Jaffray’s opinion addressed solely the fairness, from a financial point of view, to holders of Shares of the proposed per Share merger consideration (other than affiliates of the Company and the Parent and holders of Excluded Shares) and to holders of ADSs of the proposed per ADS merger consideration (other than affiliates of the Company and the Parent and holders of Excluded Shares), in each case as set forth in the merger agreement and did not address any other terms or agreement relating to the merger or any other terms of the merger agreement. Piper Jaffray was not requested to, and did not, participate in negotiations with respect to the Merger Agreement, solicit any expressions of interest from any other parties with respect to any business combination with the Company or any other alternative transaction or opine as to, and Piper Jaffray’s opinion does not address, the basic business decision to proceed with or effect the merger, the merits of the merger relative to any alternative transaction or business strategy that may be available to the Company, the Buyer Filing Persons’ ability to fund the merger consideration, or any other terms contemplated by the merger agreement or the fairness of the merger to any other class of securities, creditor or other constituency of the Company. Furthermore, Piper Jaffray expressed no opinion with respect to the amount or nature of compensation to any officer, director or employee of any party to the merger, or any class of such persons, relative to the compensation to be received by holders of Shares or ADSs in the merger or with respect to the fairness of any such compensation, including whether such payments are reasonable in the context of the merger.

 

As a part of its investment banking business, Piper Jaffray is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. The Independent Committee selected Piper Jaffray to act as its financial advisor in connection with the transactions contemplated by the merger agreement on the basis of such experience and its familiarity with the relevant industry.

 

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Piper Jaffray was engaged by the special committee to act as its financial advisor and received a fee of $500,000 for the rendering of its opinion. The opinion fee was not contingent upon the consummation of the merger or the conclusion reached in the opinion and was paid upon delivery of the opinion. The special committee has also agreed to indemnify Piper Jaffray against certain liabilities and reimburse Piper Jaffray for certain expenses in connection with its services. In addition, in the ordinary course of its business, Piper Jaffray and its affiliates may actively trade securities of the Company for its own account or the account of its customers and, accordingly, may at any time hold a long or short position in such securities. Piper Jaffray may also, in the future, provide investment banking and financial advisory services to the Company, the Buyer Filing Persons or entities that are affiliated with the Company or the Buyer Filing Persons, for which Piper Jaffray would expect to receive compensation.

 

Consistent with applicable legal and regulatory requirements, Piper Jaffray has adopted policies and procedures to establish and maintain the independence of Piper Jaffray’s Research Department and personnel. As a result, Piper Jaffray’s research analysts may hold opinions, make statements or recommendations, and/or publish research reports with respect to the Company and the merger and other participants in the merger that differ from the views of Piper Jaffray’s investment banking personnel.

 

Purpose of and Reasons for the Proposed Merger

 

Under the SEC rules governing “going private” transactions, each of the Buyer Filing Persons is deemed to be engaged in a “going private” transaction and, therefore, required to express its or his reasons for the proposed merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each of the Buyer Filing Persons 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 Buyer Filing Persons, the purpose of the merger is to enable Parent to acquire 100% control of the Company, in a transaction in which the unaffiliated security holders will be cashed out in exchange for $5.00 per ADS (or $0.0167 per Share), so Parent will bear the rewards and risks of the ownership of the Company after the ADSs and Shares are cancelled, including any increases in value of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses. In addition, with respect to Mr. Shengcheng Wang, the merger will allow him to acquire 100% beneficial ownership of the shares of the Company through his beneficial ownership in the shares of Parent as described in this proxy statement under the “Special Factors—Interests of Certain Persons in the Merger—Interests of Continuing Shareholder”.

 

The Company suffered material adverse impact in 2011 due to the termination of some contracts which contributed a substantial part of the Company’s revenue for the past few years. The Company currently faces a number of challenges in the market place, including, among others:

 

·over-reliance on a single supplier;

 

·fierce competition in the advertising agency industry;

 

·the Company’s limited ability to adjust advertisement costs; and

 

·the Company’s businesses are particularly sensitive to changes in economic conditions.

 

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Responding to these challenges will require tolerance for possible volatility in the performance of the Company’s business and willingness to make long-term business decisions that carry substantial risks. For example, the Company has started to conduct film and TV drama production businesses last year, in order to generate synergies with our television advertising business. The Buyer Filing Persons believe that, as a privately-held entity, the Company’s management will have greater flexibility to focus on improving the Company’s long-term profitability without the constraints caused by the public equity market’s valuation of the Company and emphasis on short-term period-to-period financial performance. As a privately-held entity, the Company will have greater flexibility to make decisions that might negatively affect short-term results but that could increase the Company’s value over the long term. In contrast, as a publicly traded entity, the Company currently faces pressure from public shareholders and investment analysts to make decisions that might produce improved short-term results, but which may not necessarily be beneficial in the long term.

 

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 shareholders and ADS holders’ concerns and to engage in an ongoing dialogue with unaffiliated shareholders and ADS holders can also at times distract the management from focusing on the effective operation and improvement of the business. See “Special Factors – Reasons for the Merger and Recommendation of the Independent Committee and our Board of Directors”.

 

In addition, the Company’s ADSs are not currently eligible for trading on any national securities exchange. The Company’s ADSs are currently traded on the over-the-counter market commonly referred to as “pink sheets”, which is not a national securities exchange and does not provide an active market for our ADSs at this time. There is no assurance that an active trading market in the Company’s ADSs will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance for market volatility for securities quoted on the over-the-counter market as opposed to securities traded on a national securities exchange. Therefore, the Buyer Filing Persons believe the limited trading volume of the Company’s ADSs does not justify the costs of remaining a public company.

 

The Buyer Filing Persons decided to undertake the going private transaction at this time because they wanted to take advantage of the benefits of the Company being a privately-held company as described above and avoid the negative impact caused by the inherent risk for being traded on the over-the-counter market. In the course of considering the going private transaction, the Buyer Filing Persons did not consider alternative transaction structures.

 

The Buyer Filing Persons believe that structuring the transaction as a merger transaction is preferable to other transaction structures because (i) it will entail conversion of the outstanding Shares and ADSs of the Company held by unaffiliated shareholders and ADS holders into the right to receive the merger consideration, (ii) it represents an opportunity for all the unaffiliated shareholders and ADS holders of the Company to receive fair value in cash or, at the election of the unaffiliated shareholders and ADS holders, by pursuing appraisal rights and (iii) the merger transaction will provide a prompt and orderly transfer of ownership of the Company in a single step, without the necessity of conducting separate purchases of the Company’s Shares and ADSs in a tender offer and a second-step merger to acquire the Shares and ADSs not tendered into the tender offer, and without incurring any additional transaction costs associated with such activities.

 

Effect of the Proposed Merger on the Company

 

Private Ownership

 

ADSs representing Shares of the Company are currently traded on the over-the-counter market commonly referred to as “pink sheets”, under the symbol “PINK: CMMCY.” It is expected that, following the consummation of the merger, the Company will cease to be a publicly traded company and will instead become a private company, the shares of which will be beneficially owned by Mr. Shengcheng Wang. After the merger, the Shares will cease to be traded on “pink sheets”, and price quotations with respect to sales of Shares in the public market will no longer be available. In addition, registration of the Company’s Shares under the Exchange Act will be terminated. After the effective time of the merger, 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 the Sarbanes-Oxley Act, applicable to public companies. After the completion of the merger, the Company will no longer be subject to 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.

 

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Upon completion of the merger, all Shares and ADSs of the Company, except for Excluded Shares, will be converted into the right to receive $0.0167 and $5.00 in cash per Share and per ADS, respectively, without interest (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)). At the effective time of the merger, each ordinary share of Merger Sub issued and outstanding immediately prior to the effective time will be converted into one fully paid and non-assessable ordinary share of the surviving company. As a result, current shareholders and ADS holders of the Company, other than Mr. Shengcheng Wang or any entity whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, will no longer have any equity interest in, or be shareholders or ADS holders of, the Company upon completion of the merger. As a result, our shareholders and ADS holders, other than Mr. Shengcheng Wang or any entity whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, 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 and ADS holders, Mr. Shengcheng Wang or any entity whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, will not be exposed to the risk of loss in relation to their investment in the Company.

 

At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan will be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

Directors and Management of the Surviving Company

 

Upon completion of the merger, the current memorandum of association and articles of association of the Company will be replaced in its entirety by the memorandum of association and articles of association of Merger Sub, as in effect prior to the completion of the merger (except that, upon completion of the merger, Clause 1 of the memorandum of association of the surviving company shall be amended to be and read as follows: “The name of the corporation is China Mass Media Corp.”, and all other references to the name of the Company in the memorandum and articles of association will be amended accordingly). In addition, the directors of Merger Sub immediately prior to the completion of the proposed merger (identified below in Annex D1—“Directors and Executive Officers of the Company”) will become the directors of the surviving company and the executive officers of the Company will remain the executive officers of the surviving company.

 

Primary Benefits and Detriments of the Merger

 

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

 

·the merger consideration of $0.0167 per Share and $5.00 per ADS in cash representing a premium of 100.0% over the closing price in the over-the-counter market as quoted by Bloomberg L.P. on May 3, 2012, the last trading day prior to the Company’s announcement on May 4, 2012 that it had received a “going private” proposal.

 

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

 

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

 

·such shareholders 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 Company’s ordinary shares, if any.

 

·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 “Material U.S. Federal Income Tax Consequences”) of 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 or ADSs. Because it is likely that the Company is or has been a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes during a U.S. Holder’s holding period for Shares or ADSs, a U.S. Holder’s gain generally will be taxed under special U.S. federal income tax rules, as described under “Material U.S. Federal Income Tax Consequences.”

 

The primary benefits of the merger to the Buyer Filing Persons 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 the Buyer Filing Persons.

 

·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 impressive short term results, but which may not over the long term lead to a maximization of its equity value.

 

·The Company will have less constraints to focus on long-term strategic planning in a highly competitive business with increasing competition and regulation.

 

·The Company will have more flexibility to change its capital budgeting plan 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.

 

The primary detriments of the merger to the Buyer Filing Persons 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 Filing Persons.

 

·The business risks facing the Company, including increased competition and over-reliance on a single supplier, will be borne by the Buyer Filing Persons.

 

·An equity investment in the surviving company by the Buyer Filing Persons following the merger will involve substantial risk resulting from the limited liquidity of such an investment.

 

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

 

·Compared with a public company, the surviving company following the merger will have more limited options for raising capital.

 

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The Company’s Net Book Value and Net Earnings

 

The table below sets out beneficial ownership in the Company’s net book value and net earnings for Mr. Shengcheng Wang before and after the proposed merger, based on the historical net book value of the Company as of December 31, 2011 and the historical net earnings of the Company for the year ended on December 31, 2011.

 

   Beneficial Ownership Prior to the Merger   Beneficial Ownership After the Merger 
   Net Book Value   Earnings   Net Book Value   Earnings 
Name  $’000   %   $’000   %   $’000   %   $’000   % 
                                 
Mr. Shengcheng Wang   17,525    75.4    1,755    75.4    23,845    100    2,388    100 

 

Plans for the Company after the Proposed Merger

 

After the effective time, Parent anticipates that the Company will continue its current operations, except that it will cease to be an independent public company and will instead be a wholly owned subsidiary of Parent. The Company will no longer be subject to the Exchange Act or compliance and reporting requirements in relation to the trading of ADSs on the over-the-counter market and the related direct and indirect costs and expenses and the Company’s American Depositary Share program would be terminated.

 

Parent has advised the Company that, except for the transactions contemplated by the merger agreement, it does not have any current plans, proposals or negotiations that relate to or would result in any of the following:

 

·an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries;

 

·the sale or transfer of a material amount of the assets of the Company or any of its subsidiaries; or

 

·any other material changes in the Company’s business.

 

Alternatives to the Proposed Merger

 

The Company’s board of directors did not independently determine to initiate a process for the sale of the Company. The Independent Committee was formed on May 3, 2012, in response to the receipt of the going private proposal letter from Mr. Shengcheng Wang on May 2, 2012. In light of Mr. Shengcheng Wang’s express intention not to sell Shares beneficially owned by him to any third party, the Independent Committee determined that there was no viable alternative to the proposed sale of the Company to the Buyer Filing Persons, 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 Mr. Shengcheng Wang on May 2, 2012, the Company has not received any other offer from any third party for (i) a merger or consolidation of the Company with another company, (ii) the sale or transfer of all or substantially all of the Company’s assets or (iii) the purchase of all or a substantial portion of the Company’s 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 and reimbursement of Parent’s expenses 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 any 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 third party (and, if such proposal is a superior proposal, recommend such proposal to the Company’s shareholders).

 

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The Independent Committee did not consider any other form of transaction for the reasons stated under the “Purpose of and Reasons for the Proposed Merger” section.

 

Effects on the Company if the Merger is not Completed

 

If the merger agreement is not adopted 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. Instead, the Company will remain an public company with Mr. Shengcheng Wang as the beneficial owner of majority of Shares and the Company’s ADSs will continue to be listed and traded on the over-the-counter market. In addition, if the merger is not completed, we expect that management will operate the business in a manner similar to that in which it is currently being operated and that the Company’s shareholders will continue to be subject to the same risks and opportunities as they currently are. Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your Shares or ADSs. Under specified circumstances, the Company may be required to pay Parent a termination fee or reimburse Parent for its out-of-pocket expenses or Parent may be required to pay the Company a reverse termination fee, in each case, as described in “The Merger Agreement — Termination Fee and Reimbursement of Expenses” beginning on page 79. 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 identify strategic alternatives to enhance shareholder value. If the merger agreement is not adopted by the Company’s shareholders or if the merger is not consummated 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

 

The Buyer Filing Persons estimate that the total amount of funds necessary to consummate the merger and related transactions, including the payment of customary fees and expenses in connection with the merger will be approximately $3.6 million, assuming no exercise of appraisal rights by shareholders of the Company. Such amount will be funded through cash on hand of Happy Indian Ocean Limited and Arctic Spring Limited, whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, pursuant to the Promissory Notes.

 

Promissory Note

 

Pursuant to the Promissory Notes, Happy Indian Ocean Limited and Arctic Spring Limited promised unconditionally to pay to the order of Parent $2,844,860 and $711,215, respectively, in immediately available funds in one payment at the effective time of the merger as defined in the merger agreement.

 

Given that Happy Indian Ocean Limited and Arctic Spring Limited will fund the loan proceeds under the Promissory Notes from their foreign currency accounts maintained outside of China, the funds to be paid to the unaffiliated shareholders and ADS holders under the Promissory Notes will not be subject to any restrictions, applications, registrations, and approvals under PRC rules, regulations or circulars.

 

With respect to the repayment of the shareholder loan from Happy Indian Ocean Limited and Arctic Spring Limited, the Buyer Filing Persons presently intend to fund the repayment of principal with cash resources of Parent and Merger Sub. The Buyer Filing Persons have made no plan or arrangement with respect to refinancing.

 

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Limited Guaranty

 

Concurrently with the execution of the merger agreement, each of Happy Indian Ocean Limited and Arctic Spring Limited entered into a limited guaranty with Parent, pursuant to which Happy Indian Ocean Limited and Arctic Spring Limited have agreed to guarantee 80% and 20% respectively, of the obligations of Parent under the merger agreement to pay, under certain circumstances, a reverse termination fee to the Company and reimburse certain expenses. The limited guaranties will terminate on the earliest of (i) the effective time of the merger, (ii) the termination of the merger agreement by mutual consent of the parties thereto or in circumstances where Parent is not obligated to pay the reverse termination fee or reimburse expenses and (iii) the six-month anniversary of August 6, 2012 (unless, with respect to clause (iii) above, the Company has notified the guarantors of its intention to make a claim under the limited guaranty and has made such a claim within thirty days thereafter, or has previously made, a claim under the limited guaranty on or prior to such termination, in which case the limited guaranty will terminate when such claim is finally satisfied or otherwise resolved by agreement of the parties or by binding arbitration). However, if the Company or any of its affiliates asserts a claim other than as permitted under the limited guaranty, including a claim against certain specified non-recourse parties or a claim in excess of the guaranteed amounts, the limited guaranty will immediately terminate and become null and void, all payments previously made pursuant to the limited guaranty must be returned and neither Happy Indian Ocean Limited and Arctic Spring Limited, nor certain specified recourse or non-recourse parties will have any liability under the limited guaranties, the merger agreement or any related documents.

 

Liability Cap and Limitation on Remedies

 

Subject to any equitable remedies the Company may be entitled to, our right to receive payment of a reverse termination fee of $50,000 or $100,000, as applicable, plus our out-of-pocket costs and expenses (up to $500,000) incurred in connection with the merger from Parent, is our sole and exclusive remedy for any loss or damage suffered as a result of the failure of the merger to be consummated under certain circumstances or for a breach or failure to perform under the merger agreement or otherwise.

 

Subject to any equitable remedies Parent or Merger Sub may be entitled to, Parent’s right to receive payment of a termination fee of $50,000, and/or Parent’s and Merger Sub’s out-of-pocket costs and expenses (up to $200,000) incurred in connection with the merger from us, is the sole and exclusive remedy of Parent and Merger Sub against us for any loss or damage suffered as a result of the failure of the merger to be consummated under certain circumstances or for a breach or failure to perform under the merger agreement or otherwise.

 

The maximum aggregate liability of Parent and Merger Sub, on the one hand, and the Company, on the other hand, for monetary damages in connection with the merger agreement is limited to the termination fee, the reverse termination fee, and reimbursement of expenses, as the case may be.

 

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 Mr. Shengcheng Wang, chairman of our board of directors and our chief executive officer has 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 took them into account, among other matters, in reaching their decisions to approve the merger, and to approve and adopt the merger agreement and the transactions contemplated thereby, and recommend that our shareholders vote in favor of approving the merger and approving and adopting the merger agreement and the other transactions contemplated thereby.

 

Interests of Continuing Shareholder

 

The Company will become a privately-held company following the completion of the merger. Happy Indian Ocean Limited and Arctic Spring Limited, whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, hold 80% and 20%, respectively, of the equity interest in Parent, which will own 100% of the Company. Because of the increase in Mr. Shengcheng Wang’s beneficial ownership of shares in the surviving company, Mr. Shengcheng Wang will enjoy proportionally increased benefits from any future earnings and growth of the surviving company through the estate and asset preservation structure and bear a correspondingly increased risk of any possible decrease in the future earnings, growth or value of the surviving company. Mr. Shengcheng Wang’s investment in the surviving company will be illiquid, with no public trading market for the surviving company’s shares. Mr. Shengcheng Wang will have substantially increased uncertainty to sell shares beneficially owned by him in the surviving company at an ideal price, or that any dividends paid by the surviving company will be sufficient to recover their investment.

 

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The merger may provide additional means to enhance shareholder value for the continuing shareholder, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance, increased flexibility and responsiveness in management of the business to achieve growth and respond to competition without the pressure from short-term earnings targets.

 

Treatment of Existing Share Options, Including Those Held by Officers and Directors

 

At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

The table below sets forth, as of the date of this proxy statement (for each our executive officers and directors that holds options to purchase Shares, and such executive officers and directors together as a group): (a) the number of Shares issuable under the 2008 Share Incentive Plan, (b) the cash payment that will be made in respect of the options at the effective time of the merger (in all cases before applicable withholding taxes).

 

Name of
Directors and Executive Officers
  Number of Shares
Issuable Under the
Options
   Total Cash Payment(1) 
Shengcheng Wang(2)   16,591,584     
Julie Zhili Sun   8,314,292    130,257 
Haiyan Xing   1,385,716    21,710 
Shuo Cheng   531,072    8,320 
Xinyu Zhang   663,841    10,400 
Weitao Xu   127,457    1,997 
Guanning Liang   1,800,000    28,200 
           
Total of all directors and executive officers holding options to purchase Shares as a group   29,413,962    200,884 
           

(1) The exercise price per Share of the options is $0.001 per ordinary share.

(2) Shengcheng Wang, one of the Buyer Filing Persons, will not receive any consideration for the cancellation of the options held by him.

 

Indemnification and Insurance

 

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

 

·The indemnification provisions of certain indemnification agreements by and among the Company and its directors and certain executive officers, as in effect at the effective time, will survive the merger and will not be amended or modified for a period of six years from the effective time in any manner that would adversely affect the rights of the current or former directors, officers or employees of the Company or any subsidiaries.

 

·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 (i) the current and former directors, officers and employees 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, officer or employee 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; and (ii) such persons against all liabilities arising out of acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of its subsidiaries.

 

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·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 and amount 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. In addition, the surviving company may purchase a six-year “tail” prepaid policy prior to the effective time on terms and conditions providing substantially equivalent benefits as the existing directors’ and officers’ liability insurance maintained by the Company.

 

The Independent Committee

 

On May 3, 2012 our board of directors established an Independent Committee of directors to consider the proposal from Mr. Shengcheng Wang and to take any actions it deems appropriate to assess the financial viability of such proposal. The Independent Committee is composed of independent directors— Dr. Liping He, Mr. Jianmin Qu, Dr. Xingzhao Liu and Mr. Yong Chen. Other than their receipt of board compensation (which are not contingent upon the consummation of the merger or the Independent Committee’s or board’s recommendation of the merger) and their indemnification and liability insurance rights under the merger agreement, none of the members of the Independent Committee has a financial interest in the proposed merger or any of transactions contemplated thereby and none of them is related to any of the Buyer Filing Persons. Our board of directors did not place any limitations on the authority of the Independent Committee regarding its investigation and evaluation of the proposed transaction.

 

We consider the members of the Independent Committee’s service part of the independent directors’ responsibilities in the ordinary course of their business. Therefore, our board of directors decided not to provide any extra compensation to them in connection with their service on the Independent Committee.

 

Position with the Surviving Company

 

After consummation of the merger, Mr. Shengcheng Wang expects to continue to serve as chairman of the board of directors 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.

 

Negotiations, Transactions, or Material Contracts

 

Except as set forth above or elsewhere in this proxy statement, none of Mr. Shengcheng Wang, Parent or Merger Sub, nor any of their respective directors, executive officers or other affiliates had any negotiations, transactions or material contacts with the Company or any of the Company’s directors, executive officers or other affiliates during the past two years that would require disclosure under the rules and regulations of the SEC applicable to this proxy statement.

 

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Fees and Expenses

 

Fees and expenses incurred or to be incurred by the Company and the Buyer Filing Persons in connection with proposed merger are estimated at the date of this proxy statement to be as follows:

 

Description  Amount 
     
Financial advisory fees  $500,000 
      
Legal fees and expenses  $500,000 
      
Miscellaneous (including SEC filing fees, printer, and mailing costs, paying agent fees and depositary expenses)  $10,000 
      
Total  $1,010,000 

 

These expenses will not reduce the merger consideration to be received by the Company shareholders and ADS holders. If the merger is consummated, the party incurring any costs and expenses in connection with the proposed merger and the merger agreement shall pay such costs and expenses.

 

Voting by Continuing Shareholder at the Extraordinary General Meeting

 

Mr. Shengcheng Wang indicated that he would vote all of the Shares beneficially owned by him in favor of the adoption of the merger agreement. Mr. Shengcheng Wang beneficially owns approximately 75.4% of the Shares of the Company.

 

Litigation Related to the Merger

 

We are not aware of any lawsuit that challenges the merger, the merger agreement or any of the transactions contemplated thereby.

 

Accounting Treatment of the Merger

 

The merger is expected to be accounted for, at historical cost, as a merger of entities under common control in a manner similar to a pooling-of-interests, in accordance with Accounting Standards Codification 805-50, “Business Combinations – Related Issues”.

 

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 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 and notice of merger published in the Cayman Islands Gazette.

 

Appraisal Right

 

See “Dissenters’ Rights—Requirements for Exercising Dissenters’ Rights” starting on page 82.

 

Certain Material U.S. Federal Income Tax Consequences

 

See “Material U.S. Federal Income Tax Consequences” starting on page 89.

 

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Material PRC Income Tax Consequences

 

See “Material PRC Income Tax Consequences” starting on page 92.

 

Material Cayman Islands Tax Consequences

 

See “Material Cayman Islands Tax Consequences” starting on page 93.

 

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

 

Market Price of the Company’s ADSs

 

The following table provides the high and low closing prices for our ADSs, each representing 300 Shares, on the over-the-counter market commonly referred to as “pink sheets” under the symbol “PINK-CMMCY”, for the periods indicated:

 

   Sale Price Per ADS (in US$) 
   High   Low 
Quarterly:          
2010          
Second quarter   3.08    1.13 
Third quarter   3.02    1.64 
Fourth quarter   3.55    2.30 
2011          
First quarter   3.28    2.24 
Second quarter   2.34    1.26 
Third quarter   1.76    0.81 
Fourth quarter   6.00    0.85 
2012          
First quarter   5.85    1.00 
Second quarter   4.05    1.65 

 

On May 3, 2012, the last trading day prior to the announcement by the Company’s board of directors that it had received a “going private” proposal, the reported closing sales price of our ADSs in the over-the-counter market was $2.5 per ADS. The Merger Consideration represents a 100.0% premium over the closing price on May 3, 2012, the last trading day prior to the Company's announcement on May 4, 2012 that it had received a "going private" proposal, and a 24.1% premium over the 90-day closing price as of February 3, 2012. On August 22, 2012, the most recent practicable date before the printing of this proxy statement, the reported sales price of our ADSs was $4.71. You are urged to obtain a current market price quotation for your ADSs in connection with voting your Shares.

 

Dividend Policy

 

Our board of directors has complete discretion on whether to pay dividends on our Shares or ADSs. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

In May 2010, our board of directors declared a special stock dividend of 71,637,500 additional ordinary shares of our company for the financial year ended December 31, 2009. The special dividend was approved by an ordinary resolution of the shareholders of the company at an extraordinary general meeting on July 19, 2010. Each holder of our ordinary shares as of June 16, 2010, or the share record date, was entitled to receive one additional ordinary share for every ten ordinary shares held as of the share record date. Each holder of our ADSs as of the ADS record date was entitled to receive one ADS for every ten ADSs held as of the ADS record date and we distributed this special stock dividend in January 2011.

 

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In October 2011, our board of directors declared a special cash dividend of $0.07667 per ordinary share, or $23.00 per ADS, to all of our shareholders and ADS holders as of December 9, 2011. By the end of 2011, we had paid dividends of $31.4 million in cash to those investors. We paid off the remaining committed cash dividend of $26.1 million in March 2012.

 

We do not expect to declare or pay any further dividends prior to the merger, and under the terms of the merger agreement are prohibited from doing so without Parent’s prior written approval.

 

In addition, our ability to pay dividends depends substantially on the payment of dividends to us by our operating subsidiaries in China. Each of the operating subsidiaries may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. Each of our PRC subsidiaries, including wholly foreign-owned enterprises, or WFOEs, is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective registered capital. Our statutory reserves are not distributable as loans, advances or cash dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on the payment of dividends by our subsidiaries could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends and otherwise fund and conduct our businesses. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We rely principally on dividends and other distributions on equity paid by our wholly owned operating subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our operating subsidiary to pay dividends to us could have a material adverse effect on our ability to borrow money or pay dividends” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2011, which is incorporated herein by reference.

 

Subject to the approval of our shareholders, our board of directors has complete discretion over distribution of dividends. In the event that our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

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THE EXTRAORDINARY GENERAL MEETING

 

We are furnishing this proxy statement to you, as a holder of our Shares or ADSs, 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 at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China on [●], 2012, at 10:00 a.m., Beijing time.

 

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 August 6, 2012 among Parent, Merger Sub, the Company and Mr. Shengcheng Wang and the Cayman Plan of Merger (such agreement and Cayman Plan of Merger being in the form attached to the Proxy Statement, which will be produced and made available for inspection at the extraordinary general meeting) and any and all transactions contemplated thereby be and are hereby approved and authorized by the Company;

 

·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 favor of the approval of the merger and the approval and authorization of the merger agreement 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 proposed merger is completed, each Share, including Shares represented by ADSs, issued and outstanding immediately prior to the effective time, other than the Excluded Shares shall be cancelled in exchange for the right to receive the per Share merger consideration of $0.0167 per Share in cash without interest. Each ADS issued and outstanding immediately prior to the effective time, other than ADSs beneficially owned by Mr. Shengcheng Wang and any person controlled by Mr. Shengcheng Wang prior to the effective time, will represent the right to receive the per ADS merger consideration of $5.00 per ADS in cash without interest (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)) pursuant to the terms and conditions set forth in the merger agreement. At the effective time, all of the Shares will cease to be outstanding, shall be cancelled and shall cease to exist. Each Share (other than Excluded Shares) will thereafter represent only the right to receive the per Share merger consideration without interest, and any Shares held by dissenting shareholders will thereafter represent only the right to receive the fair value of their Shares as determined under the Cayman Companies Law. The Founder Shares will be cancelled for no consideration. At the effective time, each ordinary share, par value $0.001 per Share, of Merger Sub issued and outstanding immediately prior to the effective time will be converted into one fully paid and non-assessable ordinary share, par value $0.001 per Share, of the surviving company. Shares reserved under the Company’s share incentive plan adopted in July 2008 that have been provisionally deposited with the ADS depositary and are not subject to any outstanding option under the Company’s share incentive plan will be cancelled for no consideration.

 

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Our Board’s Recommendation

 

Our board of directors, acting upon the unanimous recommendation of the Independent Committee of our board of directors:

 

·determined that the merger, on the terms and subject to the consideration set forth in the merger agreement , is substantively and procedurally fair to, and in the best interests of, the Company and its unaffiliated shareholders and ADS holders, and declared it advisable to enter into the merger agreement;

 

·approved the merger, the merger agreement and the other transactions contemplated thereby; and

 

·recommends that the Company’s shareholders vote FOR the approval and authorization of the merger agreement.

 

Record Date; Shares and ADSs Entitled to Vote

 

You are entitled to vote at the extraordinary general meeting if you own Shares at the close of business in the Cayman Islands on [●], 2012, the Share record date for voting at the extraordinary general meeting. If you own Shares at the close of business in New York City on the Share record date, the deadline for you to lodge your proxy card and vote is [●], 2012 at 9:30 a.m. (Beijing time). If you own ADSs at the close of business in New York City on [●], 2012, the ADS record date, you cannot attend or 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 [●], 2012 in order to ensure your Shares are properly voted at the extraordinary meeting. Alternatively, you may vote at the extraordinary general meeting if you hold ADSs as of the ADS record date, you cancel your ADSs (and pay the applicable fees and expenses to the ADS Depositary in connection with such cancellation), and you certify that you have not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled by the close of business in New York City on [●], 2012, and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012, the Share record date. Each outstanding Share on the record date entitles the holder to one vote on each matter submitted to the shareholders for approval at the extraordinary general meeting and any adjournment thereof. See “Procedures for Voting” below.

 

Quorum

 

A quorum of our shareholders is necessary to have a valid shareholders’ meeting. The required quorum for the transaction of business at the extraordinary general meeting is the presence, in person or by proxy, of shareholders representing at least one third of our outstanding voting Shares. We expect, as of the Share record date, there will be 751,697,920 Shares entitled to be voted at the extraordinary general meeting. In the event that a quorum is not present at the extraordinary general meeting, we currently expect that we will adjourn the extraordinary general meeting to solicit additional proxies in favor of the adoption of the merger agreement.

 

Vote Required

 

Under the Cayman Companies Law and the merger agreement, we cannot complete the proposed merger unless the merger agreement is approved and authorized by a special resolution of the shareholders of the Company, which requires an affirmative vote of shareholders representing two-thirds or more of the Shares present and voting in person or by proxy as a single class at the extraordinary general meeting. To the extent known by the Company after making reasonable inquiry, except as set forth under the caption “Security Ownership of Certain Beneficial Owners and Management of the Company”, no executive officer, director or affiliate of the Company or any of the Buyer Filing Persons currently hold any securities of the Company.

 

Mr. Shengcheng Wang beneficially owns 566,591,584 Shares, which represent approximately 75.4% of the total Shares. Accordingly, Mr. Shengcheng Wang has sufficient votes to constitute a quorum for the extraordinary general meeting and unilaterally approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, at the extraordinary general meeting.

 

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Procedures for Voting

 

Shares

 

Holders of record of our Shares may vote their Shares by attending the extraordinary general meeting and voting their Shares in person, or by completing the enclosed proxy card in accordance with the instructions set forth on the proxy card. The deadline to lodge your proxy card is [●], 2012 at 9:30 a.m. (Beijing time).

 

Shareholders who hold their Shares in “street name,” meaning in the name of a bank, broker or other person who is the record holder, must either direct the record holder of their Shares how to vote their Shares or obtain a proxy from the record holder to vote their Shares at the extraordinary general meeting.

 

If you have any questions or need assistance voting your ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

If you have any questions or need assistance voting your Shares, please call Julie Zhili Sun, the Chief Financial Officer of the Company at 86-10-8809 1099

 

ADSs

 

If you own ADSs as of the close of business in New York City on [●], 2012, you cannot attend or 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 by completing and signing the enclosed 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 [●], 2011. Alternatively, you may vote at the extraordinary general meeting if you cancel your ADSs, pay the applicable fees and expenses to the ADS depositary in connection with such cancellation and you certify that you have not given, and will not give, voting instructions to the ADS depositary as to the ADSs being cancelled by the close of business in New York City on [●], 2012 and become a holder of Shares by the close of business in the Cayman Islands on [●], 2012, the Share record date. Subject to the terms and conditions of the Deposit Agreement, the ADS depositary shall 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 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 you wish to cancel your ADSs, you need to make arrangements to deliver your ADSs to the ADS depositary for cancellation together with (i) delivery instructions for the corresponding Shares (name and address of person who will be the registered holder of Shares), (ii) payment of the ADS cancellation fees ($5.00 per 100 ADS to be cancelled) and all applicable expenses and taxes (such as stamp taxes and stock transfer taxes), and (iii) a certification that the ADS holder either (x) 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 (y) 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). In order to be a shareholder by [●], 2012, you need to provide your ADSs and all applicable documentation and payments to the ADS depositary by the close of business in New York City on [●], 2012. 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.

 

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If the ADS depositary timely receives valid voting instructions from an ADS owner which fail to specify the manner in which the ADS depositary is to vote the Shares represented by ADSs held by such ADS owner, such ADS owner is deemed to have instructed the ADS depositary to vote in favor of the items set forth in the voting instructions. Pursuant to Section 4.10 of the Deposit Agreement, holders of ADSs shall be deemed, and the ADS depositary shall deem such holders, to have requested the ADS depositary to issue a discretionary proxy in favor of a person to be designated by the Company to vote any Shares represented by ADSs for which the ADS depositary does not timely receive valid voting instructions from the ADS holders as of the ADS record date, the close of business in New York City on [●], 2012. Under the terms of the Deposit Agreement, no discretionary proxy is to be issued in respect of Shares represented by unvoted ADSs with respect to any matter as to which the Company informs the ADS depositary that it does not wish such proxy to be given, there exists substantial opposition or that would adversely affect the rights of holders of Shares. The ADS depositary will, in accordance with the terms of the Deposit Agreement, rely on the determination and notice thereof by the Company. As of the date hereof, the Company is not aware of any substantial opposition to any matter to be voted on at the extraordinary general meeting and does not believe any such matter will adversely affect the rights of holders of Shares.

 

Voting of Proxies and Failure to Vote

 

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 approval of the merger and approval and authorization of the merger agreement and the other transactions contemplated thereby and FOR approval of the proposal to adjourn the extraordinary general meeting in order to allow the Company to solicit additional proxies in favor of the approval of the merger and the approval and authorization of the merger agreement 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.

 

If a shareholder fails to vote by proxy or in person, it will be more difficult for the Company to obtain the necessary quorum to transact business at the extraordinary general meeting and to obtain required votes described in “Vote Required.”

 

Brokers or other nominees who hold our Shares in “street name” for customers who are the beneficial owners of such Shares may not give a proxy to vote those customers’ Shares in the absence of specific instructions from those customers. Broker non−votes will be counted towards a quorum but will not be treated as voted at 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 can 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 also be sent to China Mass Media Corp., 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China.

 

·Second, a registered shareholder can 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.

 

·Third, a registered shareholder can attend the meeting and vote in person. Attendance, by itself, will not revoke a proxy. It will only be revoked if the registered shareholder actually votes at the extraordinary general meeting.

 

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

 

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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 [●], 2012. A holder of ADSs can do this in one of two ways:

 

·First, a holder of ADSs can revoke its voting instruction by written notice of revocation timely delivered to the ADS depositary.

 

·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 to the ADS depositary.

 

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.

 

Whom to Call for Assistance

 

If you have any questions or need assistance voting your ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

If you have any questions or need assistance voting your Shares, please call Julie Zhili Sun, the Chief Financial Officer of the Company at 86-10-8809 1099.

 

Solicitation of Proxies

 

This proxy solicitation is being made by the Company on behalf of the Board and will be paid for by the Company. 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. We will pay all expenses of filing, printing and mailing this proxy statement.

 

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 the notice convening the meeting.

 

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THE MERGER AGREEMENT

 

This section of the proxy statement describes the material terms of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the proposed merger. This description of the merger agreement has been included to provide you with information regarding its terms.

 

Structure and Completion of the Proposed 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. If the proposed merger is completed, the Company will cease to be a publicly traded company. The closing will occur on the first business day immediately following the day when all of the closing conditions have been satisfied or waived. At the closing, Merger Sub and the Company will execute a plan of merger and file the plan of merger and other related documents with the Registrar of Companies of the Cayman Islands. The merger will become effective upon such filing or at such time thereafter as may be specified in the plan of merger in accordance with the Cayman Islands Companies Law.

 

We expect that the proposed merger will be completed during the fourth quarter of 2012, after all conditions to the proposed merger have been satisfied or waived. We cannot specify when, or assure you that, all conditions to the proposed merger will be satisfied or waived; however, we intend to complete the proposed merger as promptly as practicable.

 

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

 

Upon completion of the proposed merger, the memorandum and articles of association of Merger Sub as in effect at the effective time will be the memorandum and articles of association of the Company as the surviving company (except that at the effective time, Clause 1 of the memorandum of association of the surviving company will be amended to be and read as follows: “The name of the Corporation is China Mass Media Corp.”, and all other references to the name of the Company in the memorandum and articles of association will be amended accordingly). The directors of Merger Sub at the effective time will become the directors of the Company and the executive officers of the Company at the effective time will remain the executive officers of the Company, unless otherwise determined by Parent prior to the effective time.

 

Merger Consideration

 

Other than (i) the Founder Shares and (ii) the Dissenting Shares, each Share issued and outstanding immediately prior to the effective time will be cancelled in exchange for the right to receive $0.0167 in cash per Share and $5.00 per ADS without interest (less (a) $5.00 per 100 ADSs (or fraction thereof) being ADS cancellation fees payable by holders of ADSs pursuant to the Deposit Agreement, and (b) all applicable expenses and taxes (such as stamp taxes and stock transfer taxes)).

 

Each of the Founder Shares will, by virtue of the merger and without any action on the part of its holder, cease to be outstanding, will be cancelled and will cease to exist without payment of any consideration or distribution therefor.

 

Each dissenting shareholder will be entitled to receive only the payment resulting from the procedures set forth in Section 238 of the Cayman Companies Law with respect to Shares owned by such dissenting shareholder.

 

At the effective time, each ordinary share, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the effective time, will be converted into one fully paid and non-assessable ordinary share, par value $0.001 per share, of the surviving company.

 

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A Company shareholder will be deemed to be untraceable if (i) he has no registered address in the register of members (or branch register) maintained by the Company; or (ii) on the last two consecutive occasions on which a dividend has been paid by the Company a cheque payable to such shareholder either (a) has been sent to such shareholder and has been returned undelivered or has not been cashed or, (b) has not been sent to such shareholder because on an earlier occasion a cheque for a dividend so payable has been returned undelivered and in any such case no valid claim in respect thereof has been communicated in writing to the Company or, (iii) notice of the Company extraordinary general meeting convened to vote on the merger has been sent to such shareholder and has been returned undelivered. In the event that monies due to dissenting shareholders and shareholders of the Company who are untraceable exceeds $500,000, such monies and any monies which are returned will be held by the surviving company in a separate non interest bearing bank account for the benefit of dissenting shareholders and shareholders of the Company who are untraceable. Monies unclaimed after a period of seven years from the date of the notice of the extraordinary general meeting will be forfeited and will revert to the surviving company.

 

Treatment of Options

 

At the effective time of the merger, each option to purchase Shares under the 2008 Share Incentive Plan shall be cancelled and converted into the right to receive an amount in cash equal to (a) the total number of Shares subject to such option immediately prior to the effective time of the merger multiplied by (b) the excess of $0.0167 over the exercise price payable per share under such option, net of applicable withholding taxes. Such payment will be made no later than 15 days following the effective time of the merger.

 

Exchange Procedures

 

At the effective time, Parent will deposit with the paying agent for the benefit of the holders of Shares and ADSs, the merger consideration for the paying agent to make payments under the merger agreement. Promptly after the effective time, the paying agent will mail to each registered holder of Shares (other than holders of the Excluded Shares) (i) a letter of transmittal specifying how the payment of amounts due from the Exchange Fund to registered holders of the Shares (other than holders of Excluded Shares) shall be effected and (ii) instructions for effecting the surrender of share certificates in exchange for the per Share merger consideration. Upon surrender of a share certificate, each registered holder of Shares will receive an amount equal to (x) the number of Shares multiplied by (y) the per Share merger consideration. Promptly following the effective time, the paying agent will transmit to the ADS depositary an amount equal to the product of (x) the number of ADSs and (y) the per ADS merger consideration. The ADS depositary will distribute the per ADS merger consideration use applicable fees, taxes and expenses to ADS holders pro rata to their holdings of ADSs upon surrender by them of the ADSs.

 

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 the disclosure schedules delivered by the Company in connection therewith but not reflected in the merger agreement). 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, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

 

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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 similar rights or any debt securities that give its holders the right to vote with the Company’s shareholders and the absence of encumbrances on the Company’s ownership of the equity interests of its subsidiaries;

 

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

 

·the approval of the merger agreement and the merger by the board of directors of the Company;

 

·the absence of (i) a breach or violation of, or a default under, the governing documents of the Company and its subsidiaries, (ii) a material breach or violation of applicable law, (iii) a default or an acceleration of obligations under certain agreements and (iv) the creation of any lien on any properties or assets of the Company, in each case, as a result of the Company entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

 

·the required vote of the Company’s shareholders to adopt the merger agreement;

 

·governmental consents and approvals;

 

·the Company’s SEC filings since August 4, 2008 and the financial statements included therein;

 

·compliance with the Sarbanes-Oxley Act of 2002 and any rules and regulations applicable to the Company’s reports;

 

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

 

·the absence of a Company “Material Adverse Effect” (as defined below) and the absence of certain other changes or events from March 31, 2012 to the effective date of the merger agreement;

 

·the conduct of business in accordance with the ordinary course consistent with past practice from March 31, 2012 to the effective date of the merger agreement;

 

·the absence of legal proceedings and governmental orders against the Company or its subsidiaries;

 

·the absence of certain undisclosed liabilities;

 

·employee benefits plans;

 

·compliance with applicable laws, licenses and permits;

 

·material contracts and the absence of any default under, or termination of, any material contract;

 

·real property and other material properties and assets;

 

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

 

·environmental matters;

 

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·tax matters;

 

·labor matters;

 

·intellectual property;

 

·insurance policies;

 

·the receipt of an opinion from Piper Jaffray & Co.;

 

·the absence of any undisclosed brokers’ or finders’ fees;

 

·the accuracy of the information provided in the Schedule 13E-3 and this proxy statement; and

 

·acknowledgment as to absence of any other representations and warranties.

 

Many of the representations and warranties in the merger agreement made by the Company are qualified as to “materiality” or “Material Adverse Effect.” For purposes of the merger agreement, a “Material Adverse Effect” means any change, effect, event, or occurrence, that individually or in the aggregate with all other effects, (i) has a material adverse effect on the business, assets, financial condition or consolidated results of operations of the Company and its subsidiaries, taken as a whole, or (ii) would or would reasonably be expected to prevent or materially impair or delay the consummation of the transactions contemplated by the merger agreement. However, none of the following and no effect, alone or in combination, related to or arising out of any of the following, will be taken into account in determining whether a Material Adverse Effect has occurred or is reasonably expected to occur:

 

·effects that affect the industry in which the Company and its subsidiaries operate (in each case, only to the extent they do not have a materially disproportionate effect on the Company and its subsidiaries);

 

·changes in general business, economic or political conditions (in each case, only to the extent they do not have a materially disproportionate effect on the Company and its subsidiaries);

 

·effects affecting the financial, credit or securities markets in the United States, the People’s Republic of China (the “PRC”) or any other country or region in the world, including changes in interest rates or foreign exchange rates (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries);

 

·effects attributable to the consummation of the transactions contemplated by, or the announcement of the execution of, the merger agreement;

 

·any change in the Company’s share price or trading volume (although the underlying cause of such change may be taken into account in determining whether a Material Adverse Effect has occurred or is reasonably expected to occur);

 

·any action taken by the Company or any of its subsidiaries required by the merger agreement, with Parent’s or Merger Sub’s written consent or at the written request of Parent or Merger Sub;

 

·any effect caused by acts of armed hostility, sabotage, terrorism or war (whether or not declared); including any escalation or worsening occurring after the date of the merger agreement (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries);

 

·earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides or other natural disasters, or other similar force majeure events occurring after the date of the merger agreement (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries);

 

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·changes or modifications in GAAP or applicable law or the interpretation or enforcement thereof occurring after the date of the merger agreement (in the case of changes or modifications in applicable law or the interpretation or enforcement thereof, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries);

 

·the failure by the Company or any of its subsidiaries to meet any internal or industry estimates, expectations, forecasts, projections or budgets for any period (although the underlying cause of such failure may be taken into account in determining whether a Material Adverse Effect has occurred or is reasonably expected to occur);

 

·any change or prospective change in the Company’s credit ratings;

 

·any change resulting or arising from the identity of, or any facts or circumstances relating to, Parent, Merger Sub or any of their respective affiliates; and

 

·any loss of, or change in, the relationship of the Company or any of its subsidiaries, contractual or otherwise, with its customers, suppliers, vendors, lenders, employees, investors, or joint venture partners arising out of the execution, delivery or performance of the merger agreement, the consummation of the transactions contemplated by the merger agreement or the announcement of any of the foregoing.

 

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;

 

·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;

 

·sufficiency of funds in the financing contemplated by the Promissory Notes, subject to certain assumptions;

 

·Parent not having any reason to believe the conditions to the financing will not be satisfied or that the financing will not be available;

 

·the absence of contingencies related to the funding of the financing other than as set forth in the Promissory Notes;

 

·the absence of any side letters or other agreements to which Parent or its affiliates are a party relating to the financing;

 

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

 

·governmental consents and approvals;

 

·the absence of (i) a breach or violation of, or a default under, the governing documents of Parent or Merger Sub, (ii) a material breach or violation of applicable law, (iii) a default or an acceleration of obligations under certain agreements and (iv) the creation of any lien on any properties or assets of Parent or Merger Sub, in each case, as a result of entering into and performing under the merger agreement and consummating the transactions contemplated by the merger agreement;

 

·the absence of legal proceedings against Parent or Merger Sub;

 

·the execution and the validity and enforceability of the limited guaranties provided by Arctic Spring Limited and Happy Indian Ocean Limited of certain obligations of Parent and the lack of any default thereunder;

 

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·the accuracy of the information provided by Parent or Merger Sub for inclusion in the Schedule 13E-3 and this proxy statement;

 

·solvency of Parent and the surviving company immediately following consummation of the merger;

 

·the absence of undisclosed shares and other securities of, any other rights to acquire the shares and other securities of, or any other economic interest in, the Company, beneficially owned by the Buyer Filing Persons;

 

·the absence of any undisclosed brokers’ or finders’ fees;

 

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

 

·acknowledgement as to the absence of any other representations and warranties.

 

Conduct of Business Prior to Closing

 

Under the merger agreement, the Company has agreed that, subject to certain exceptions in the merger agreement, from the date of the merger agreement until the earlier of the effective time or the termination of the merger agreement, the Company and its subsidiaries will cause their businesses to be conducted in all material respects in the ordinary course consistent with past practice and, to the extent consistent therewith, the Company and its subsidiaries will use their reasonable best efforts to preserve their business organizations intact and maintain existing relations with governmental entities, key customers, suppliers, distributors and other persons with whom they have material business relationships.

 

Subject to certain exceptions set forth in the merger agreement and the disclosure schedules the Company delivered in connection with the merger agreement, unless Parent consents in writing (which consent cannot be unreasonably withheld, conditioned or delayed), the Company will not and will not permit its subsidiaries to, among other things:

 

·adopt or propose any change in the Company’s organizational or governing documents;

 

·merge or consolidate the Company or any of its subsidiaries (except for transactions among wholly owned subsidiaries that are not obligors or guarantors of third party indebtedness), or other than in the ordinary course, restructure, reorganize or completely or partially liquidate or otherwise enter into any contracts imposing material changes or material restrictions on its assets, operations or businesses;

 

·acquire share or assets or make any investment;

 

·issue, sell, pledge, transfer or otherwise dispose of any shares of capital stock of the Company and its subsidiaries or any rights to acquire the Company’s securities, subject to certain exceptions;

 

·create or incur any lien on (i) intellectual property owned or exclusively licensed or material and non-exclusively licensed by the Company or its subsidiaries or on any other assets of the Company or any of its subsidiaries outside the ordinary course of business or (ii) any other assets of the Company or any of its subsidiaries, other than permitted liens;

 

·make any loans, advances, guarantees or capital contributions or investments (other than to the Company or its any direct or indirect subsidiaries), except pursuant to contracts in effect as of the date of the merger agreement which have been either filed as exhibits to the company reports filed with the SEC or identified in the disclosure schedule or trade credit extended by the Company or its subsidiaries on normal commercial terms and in the ordinary course of their trading activities;

 

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·declare, set aside, make or pay dividends or other distribution with respect to share capital of the Company or any of its subsidiaries (except for dividends paid by any subsidiaries in the ordinary course consistent with past practice) or enter into any contract with respect to the voting of the share capital of the Company or any of its subsidiaries;

 

·reclassify, split, combine or subdivide any of the share capital of the Company or any of its subsidiaries or securities convertible into or exercisable for any such share capital;

 

·other than in the ordinary course of business consistent with past practice, incur, alter, amend or modify, any indebtedness for borrowed money or guarantee such indebtedness of another Person, or permit any Subsidiary of the Company to guarantee any indebtedness of the Company

 

·issue or sell any debt securities or warrants or other rights to acquire any debt security of the Company or any of its subsidiaries;

 

·make or authorize capital expenditures in excess of RMB 2 million in the aggregate, other than expenditures necessary to maintain existing assets in good repair, consistent with past practice;

 

·make changes in accounting policies or procedures, except as required by changes in applicable generally accepted accounting principles or law;

 

·settle any action before a governmental authority by or against the Company or any of its subsidiaries, other than settlements entered into in the ordinary course of business consistent with past practice, requiring only the payment of monetary damages not exceeding RMB 1 million and not involving the admission of wrongdoings by the Company or any of its subsidiaries;

 

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

 

·create any new subsidiaries;

 

·enter into, amend or modify in any material respect or terminate, or waive any material rights under, any material contract, that is reasonably expected to result in a material adverse effect;

 

·make or change any material tax election, materially amend any tax return (except as required by applicable law), enter into any material closing agreements with respect to taxes, surrender any right to claim a material refund of taxes, settle or finally resolve any material controversy with respect to taxes or materially change any method of tax accounting;

 

·transfer, sell, license, mortgage, surrender, encumber, divest, cancel, abandon or allow to lapse or expire or otherwise dispose of (i) any of the Company’s material intellectual property, or (ii) any of the Company’s material assets, licenses, operations, rights, interests, product lines or businesses, except in connection with services provided in the ordinary course of business, sales of products in the ordinary of business, sales of obsolete assets, or sales, leases, licenses or other dispositions of assets of not more than RMB 2 million in the aggregate;

 

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·except for limited exceptions, (i) enter into any new employment or compensatory agreements; (ii) grant any severance or termination payments or benefits to any director or executive officer of the Company or any of its subsidiaries in an amount exceeding RMB 200,000 on an individual basis; (iii) increase the compensation, bonus, pension, welfare, severance or other benefits of, pay any bonus to, or make any new equity awards to any director or officer of the Company or any of its subsidiaries, (iv) establish, adopt, amend or terminate any benefit or compensation plan of the Company (except as required by law) or amend the terms of any outstanding equity-based awards; (v) take any action to accelerate the vesting or payment, or fund or in any other way secure the payment, of compensation or benefits under any benefit or compensation plan of the Company, to the extent not already required in any such benefit or compensation plan; (vi) materially change any actuarial or other assumptions used to calculate funding obligations with respect to any the Company’s benefit plan or change the manner in which contributions to such plans are made or the basis on which such contributions are determined (except as required by U.S. GAAP); or (vii) forgive any loans made to directors, officers or employees of the Company or its subsidiaries; or

 

·agree, authorize or commit to do any of the foregoing.

 

Acquisition Proposals

 

The Company agreed that from the date of the merger agreement until the effective time, neither the Company nor any of its subsidiaries nor any of the officers and directors of the Company or any of its subsidiaries will, and the Company will instruct and cause the Company’s and its subsidiaries’ representatives, not to, directly or indirectly, (a) initiate, solicit or knowingly encourage any inquiries or the making of any proposal or offer that constitutes or could reasonably be expected to lead to, any acquisition proposal, or (b) otherwise knowingly facilitate any effort or attempt to make an acquisition proposal.

 

Prior to obtaining the required shareholder approval of the merger agreement, the Company may, (i) after its receipt of an acquisition proposal from any person, contact such person who made an unsolicited acquisition proposal to clarify and understand the terms and conditions of such acquisition proposal so as to determine whether such acquisition proposal constitutes or could reasonably be expected to result in a superior proposal, (ii) provide information in response to an unsolicited request by any person who has made such acquisition proposal; (iii) engage or participate in any discussions or negotiations with such person; or (iv) approve, recommend, or declare advisable or propose to approve, recommend or declare advisable (publicly or otherwise) such an acquisition proposal. In each such case referred to in (ii) or (iii) above, the board of directors of the Company must have determined in good faith based on the information then available (and after consultation with its financial advisor and outside legal counsel) that such acquisition proposal either constitutes a superior proposal or is reasonably likely to result in a superior proposal. In the case referred to in (iv) above, the board of directors of the Company must have determined in good faith (after consultation with its financial advisor and outside legal counsel) that such acquisition proposal is a superior proposal.

 

No Change of Recommendation

 

The Company’s board of directors has unanimously resolved to recommend that the Company’s shareholders approve and authorize the merger agreement. The board of directors of the Company and the Independent Committee may not:

 

·withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent or Merger Sub, the board of directors’ recommendation with respect to the merger; or

 

·subject to certain exceptions, cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement relating to any acquisition proposal.

 

However, if the Company’s board of directors determines in good faith, after consultation with outside counsel, that the failure to take such action would be inconsistent with the board of directors’ fiduciary duties to the shareholders under applicable law, it may, based on the recommendation of the Independent Committee, at any time prior to obtaining the requisite shareholders’ approval under the merger agreement, withhold, withdraw, qualify or modify its recommendation or approve, recommend or otherwise declare advisable any unsolicited superior proposal.

 

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Shareholders’ Meeting

 

Unless the merger agreement is terminated, the Company is required to take all actions necessary to convene an extraordinary general meeting as promptly as reasonably practicable after the SEC confirms that it has no further comments on the Schedule 13E-3 and this proxy statement for the purpose of obtaining the shareholder approval required by the merger agreement. The Company may adjourn or postpone the extraordinary general meeting (i) with the consent of Parent; (ii) if as of the time for which the extraordinary general meeting proceeds to business there are insufficient shares represented to constitute a quorum necessary to conduct the business at the extraordinary general meeting or (iii) to allow reasonable time for the filing and mailing of any supplemental or amended disclosure which the board of directors of the Company has determined in good faith after consultation with outside counsel is necessary or advisable under applicable law and for such supplemental or amended disclosure to be disseminated and reviewed by the Company’s shareholders prior to the extraordinary general meeting.

 

Indemnification; Directors’ and Officers’ Insurance

 

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

 

·The indemnification, advancement and exculpation provisions of certain indemnification agreements by and among the Company and its directors and certain executive officers, as in effect at the effective time will survive the merger and may not be amended or modified for a period of six years from the effective time in any manner that would adversely affect the rights of the current or former directors, officers or employees of the Company or any subsidiaries.

 

·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 (i) the current and former directors, officers or employees 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, officer or employee 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; and (ii) such persons against all liabilities arising out of acts or omissions in connection with such persons serving as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of its subsidiaries.

 

·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 and amount 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. In addition, the Company may purchase a six-year “tail” prepaid policy prior to the effective time on terms and conditions providing substantially equivalent benefits as the existing directors’ and officers’ liability insurance maintained by the Company.

 

No Knowledge of Inaccuracies

 

Parent will not have any right to terminate the merger agreement based on material breaches of the Company or claim damages for any inaccuracy in the Company’s representations if:

 

·Mr. Shengcheng Wang, or any director or officer of Parent has knowledge of such breach or inaccuracy at or before signing of the merger agreement; or

 

·the breach is the proximate result of any action or inaction taken by the Company at the direction of Mr. Shengcheng Wang, or any officer or director of Parent without the approval or direction of the Company’s board (acting with the concurrence of the Independent Committee) or the Independent Committee.

 

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Financing

 

As of the date of the merger agreement, Parent has delivered to the Company a copy of the Promissory Note from each of Happy Indian Ocean Limited and Arctic Spring Limited, whose Shares in the Company are beneficially owned by Mr. Shengcheng Wang, pursuant to which Happy Indian Ocean Limited and Arctic Spring Limited unconditionally committed to extend a shareholder loan of $2,844,860 and $711,215 to Parent, respectively.

 

Parent and Merger Sub will use their reasonable best efforts to obtain the financing for the merger on the terms and conditions described in the Promissory Notes and will not permit any amendment or modification to be made thereto, or any waiver of any provision or remedy thereunder, if such amendment, modification or waiver (A) reduces (or would reduce) the aggregate amount of the financing, or (B) imposes new or additional conditions or otherwise expands, amends or modifies any of the conditions to the financing, or otherwise expands, amends or modifies any other provision of the Promissory Notes, in a manner that would reasonably be expected to (x) delay or prevent or make less likely the funding of the financing at the effective time or (y) adversely impact the ability of Parent, Merger Sub or the Company, as applicable, to enforce its rights against other parties to the Promissory Notes, in each of clauses (x) and (y) in any material respect. Parent may not release or consent to the termination of the obligations of Arctic Spring Limited and Happy Indian Ocean Limited under the Promissory Notes, except as otherwise expressly contemplated by the Promissory Notes.

 

Parent and Merger Sub will use their reasonable best efforts to:

 

·maintain in effect the Promissory Notes;

 

·satisfy on a timely basis all conditions to financing within their control;

 

·cause Arctic Spring Limited and Happy Indian Ocean Limited to fund the financing at the effective time;

 

·enforce their rights under the Promissory Notes; and

 

·comply with their obligations under the Promissory Notes.

 

Parent will give the Company notice promptly (i) upon becoming aware of any breach of any material provisions of, or termination by any party to the Promissory Notes or (ii) upon the receipt of any written or oral notice or other communication from any person with respect to any threatened breach or threatened termination by any party to Promissory Notes.

 

The merger agreement requires the Company to use its reasonable best efforts to provide to Parent and Merger Sub, to cause each of its subsidiaries to use its reasonable best efforts to provide and to use its reasonable best efforts to cause its representatives to provide, all reasonable cooperation in connection with the arrangement of the financing as may be reasonably requested by Parent (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company and its subsidiaries). Such cooperation by the Company and its subsidiaries includes, at the request of Arctic Spring Limited and Happy Indian Ocean Limited, (i) delivering such officer’s and other certificates as required by Arctic Spring Limited and Happy Indian Ocean Limited and as are, in the good faith determination of the persons executing such certificates, accurate; (ii) entering into any customary agreements to pledge, guarantee, grant security interests in, and otherwise grant liens on, the Company’s or its subsidiaries’ assets, and other customary documentation in connection with the financing, in each case, as may be reasonably requested by Parent, provided that no obligations of the Company and its subsidiaries under such agreements or arrangements will be effective until the effective time; (iii) providing Parent and Arctic Spring Limited and Happy Indian Ocean Limited with financial and other pertinent information with respect to the Company and its subsidiaries as required by Parent or Arctic Spring Limited and Happy Indian Ocean Limited; and (iv) taking all corporate actions, subject to the occurrence of the closing under the merger agreement, to permit consummation of the financing; provided, that in each case, (x) the Company will not be required to pay any commitment or other fees or incur any liability in connection with the financing prior to the effective time; (y) no credit support in connection with any financing will be provided by the Company or any of its affiliates and no new indebtedness of the Company or any of its subsidiaries, nor any assets of the Company or any of its subsidiaries, may be used in the provision of funding for the merger consideration except if it only becomes effective at the effective time; and (z) the effectiveness of any documentation executed by the Company or any of its subsidiaries will be subject to the closing having occurred.

 

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Parent will, upon termination of the merger agreement, (i) reimburse the Company for any reasonable and documented out-of-pocket costs incurred by the Company in connection with the Company’s cooperation in obtaining financing; and (ii) reimburse the Company and its representatives for any losses incurred by it in connection with the arrangement of the financing. Parent and Merger Sub agree that the Company and its affiliates and its and their respective representatives will not, prior to the effective time, incur any liability to any person under any financing that Parent and Merger Sub may raise in connection with the transactions contemplated by the merger agreement or any cooperation provided by the Company.

 

Conditions to the Merger

 

The consummation of the merger is subject to the satisfaction of the following conditions:

 

·the merger agreement and the merger being approved and authorized by the shareholders at the extraordinary general meeting; and

 

·no court or governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law, rule or regulation that is in effect which restrains, enjoins or otherwise prohibits consummation of the merger.

 

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

 

·the representations and warranties of the Company in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date, subject to a material adverse effect exception;

 

·the Company having performed in all material respects all obligations required to be performed by it under the merger agreement at or before the closing date;

 

·since the date of the merger agreement, no change, event, circumstance or development having occurred that has had, or would reasonably be expected to have, a material adverse effect; and

 

·our shareholders holding not more than 10% of the outstanding Shares having validly served a notice of dissent under Section 238(5) of the Cayman Companies Law.

 

The obligations of the Company to effect the merger are 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 as of the date of the merger agreement and as of the closing date, subject to a materiality exception; and

 

·each of Parent and Merger Sub having performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing date.

 

Termination of the Merger Agreement

 

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

 

by mutual written consent of the Company and Parent;

 

by either of the Company or Parent, if:

 

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·the merger is not completed by the “termination date” (which is February 6, 2013), provided that this termination right is not available to a party if the failure of the merger to have been consummated on or before the termination date was primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the merger agreement;

 

·any law, rule or regulation restraining, enjoining or otherwise prohibiting consummation of the merger shall become final and non-appealable; provided, that this termination right is not available to a party if the issuance of such final, non-appealable law, rule or regulation is primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the merger agreement; or

 

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

 

by Parent, if:

 

·the Company has breached any of its covenants or agreements under the merger agreement, or any representation or warranty made by it under the merger agreement shall have become untrue, 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 30 business days after written notice of such breach;

 

·the board of directors of the Company has made a change of recommendation; the board of directors of the Company approves or recommends any acquisition proposal other than the merger; or the Company or the board of directors of the Company has publicly announced its intention to do any of the foregoing or the Company fails to hold the extraordinary general meeting within 10 business days prior to the termination date due to a willful or intentional breach by the Company and not due to any material breach by Parent or Merger Sub that causes the failure of the Company to hold the extraordinary general meeting; or

 

·all of the closing conditions are otherwise satisfied but the Parent notifies the Company that it does not intend to fund the merger transaction.

 

by the Company:

 

·if Parent or Merger Sub has breached any of its covenants or agreements under the merger agreement, or any representation or warranty made by Parent or Merger Sub under the merger agreement shall have become untrue, 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 30 business days after written notice of such breach;

 

·prior to the receipt of the shareholders’ approval, in order to enter into an alternative acquisition agreement relating to a superior proposal; or

 

·if all of the closing conditions are otherwise satisfied and the Company stands ready to consummate the transaction, but the Parent fails to fund the exchange fund within five business days following the date on which such closing conditions were satisfied.

 

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Termination Fee and Reimbursement of Expenses

 

The Company is required to pay Parent a termination fee of $50,000 and fees and expenses incurred by Parent of up to $200,000 in the event the merger agreement is terminated (i) by Parent due to a material breach by the Company; (ii) by Parent if (x) the board of directors of the Company makes a change of recommendation; (y) the board of directors of the Company approves or recommends any acquisition proposal other than the merger; or (z) the Company or the board of directors of the Company publicly announces its intention to do any of the foregoing; (iii) by Parent due to failure of the Company to hold the extraordinary general meeting within 10 business days prior to the termination date due to a willful or intentional breach by the Company and not due to any material breach by Parent or Merger Sub that causes the failure of the Company to hold the extraordinary general meeting; or (iv) by the Company prior to the receipt of the shareholders’ approval, in order to enter into an alternative acquisition agreement relating to a superior proposal.

 

The Company is required to pay fees and expenses incurred by Parent of up to $200,000 if the merger agreement is terminated by Parent or the Company because the shareholders’ approval is not obtained and prior to the extraordinary general meeting, the Company’s board of directors has made a change of recommendation.

 

Parent is required to pay the Company a termination fee of $50,000 and fees and expenses incurred by the Company of up to $500,000 in the event the merger agreement is terminated (i) by the Company due to a material (but not willful or intentional) breach by Parent or Merger Sub; or (ii) by the Company if all of the closing conditions are otherwise satisfied but Parent fails to fund the merger and the Company stands ready to close.

 

Parent is required to pay the Company a termination fee of $100,000 and fees and expenses incurred by the Company of up to $500,000 in the event the merger agreement is terminated (i) by the Company due to material willful or intentional breaches by Parent or Merger Sub; or (ii) by the Company if all of the closing conditions are otherwise satisfied, but Parent notifies the Company that it does not intend to fund the merger consideration.

 

Fees and Expenses

 

If the merger is consummated, all costs and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated thereby will be paid by the party incurring such costs and expenses except as otherwise provided in the merger agreement.

 

Modification or Amendment; Waiver of Conditions

 

The merger agreement may be amended with the approval of the respective boards of directors of the parties at any time, provided that after any such adoption of the merger agreement by the requisite shareholders’ approval, no amendment shall be made which by law requires further approval of the shareholders of the Company without the further approval of such shareholders.

 

At any time before the consummation of the merger, each of the parties to the merger agreement may waive compliance with any of the agreements or conditions contained in the merger agreement to the extent permitted by applicable law.

 

Remedies

 

Subject to any equitable remedies the Company may be entitled to, our right to receive payment of a reverse termination fee of $50,000 or $100,000, as applicable, plus our out-of-pocket costs and expenses (up to $500,000) incurred in connection with the merger from Parent or Merger Sub, is our sole and exclusive remedy for any loss or damage suffered as a result of the failure of the merger to be consummated under certain circumstances or for a breach or failure to perform under the merger agreement or otherwise.

 

Subject to any equitable remedies Parent or Merger Sub may be entitled to, Parent’s and Merger Sub’s right to receive payment of a termination fee of $50,000, and/or Parent’s and Merger Sub’s out-of-pocket costs and expenses (up to $200,000) incurred in connection with the merger from us, is the sole and exclusive remedy of Parent and Merger Sub against us for any loss or damage suffered as a result of the failure of the merger to be consummated under certain circumstances or for a breach or failure to perform under the merger agreement or otherwise.

 

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The maximum aggregate liabilities of Parent and Merger Sub, on the one hand, and the Company, on the other hand, for monetary damages in connection with the Agreement are limited to the termination fees, the reverse termination fee, and reimbursement of expenses, as the case may be.

 

While the parties may pursue both a grant of specific performance and the payment of monetary damages, as applicable, neither Parent and Merger Sub, on the one hand, nor the Company, on the other hand, shall be permitted or entitled to receive both a grant of specific performance that results in a closing and payment of monetary damages, and (ii) and upon the payment of such amounts, the remedy of specific performance shall not be available against the party making such payment.

 

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PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

 

No provision has been made to (i) grant the Company’s shareholders or ADS holders access to corporate files of the Company and other parties to the proposed merger or any of their respective affiliates or (ii) obtain counsel or appraisal services at the expense of the Company or any other such party or affiliate.

 

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DISSENTERS’ RIGHTS

 

The following is a brief summary of the rights of holders of the Shares to object to the merger and receive cash equal to the fair value of their Shares (“Dissenters’ 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 perfect Dissenters’ 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 Dissenters’ Rights.

 

Requirements for Exercising Dissenters’ Rights

 

A dissenting registered shareholder of the Company is entitled to payment of the fair value of his Shares upon dissenting to the proposed merger.

 

The exercise of your Dissenters’ 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 preserve your Dissenters’ 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 Shares with respect to which he dissents and demanding payment of the fair value of his Shares. A Dissenting Shareholder must dissent in respect of all the Shares which he holds;

 

·Within seven days immediately following (i) the date of expiry of the Dissent Period or (ii) 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 purchase 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 with the Company as to fair value;

 

·If a petition is timely filed, the Grand Court will determine at a hearing which shareholders are entitled to Dissenters’ Rights and will determine the fair value of the Shares held by those shareholders.

 

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All notices and petitions must be executed by or for the shareholder of record, fully and correctly, as such shareholder’s name appears on the register of members of the Company. If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If the Shares are owned 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 shareholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the notice, he is acting as agent for the record owner. A person having a beneficial interest in Shares held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized above and in a timely manner to perfect whatever Dissenters’ Rights attached to the Shares.

 

You must be a registered holder of Shares in order to exercise your Dissenters’ Rights. A holder of ADSs representing Shares held by the ADS depositary who wishes to dissent must surrender his or her ADSs to the ADS depositary for cancellation, pay the applicable ADS cancellation fees ($5.00 per 100 ADS to be cancelled) and all applicable expenses and taxes (such as stamp taxes and stock transfer taxes) of the ADS depositary to cancel his or her ADSs and withdraw his or her Shares, deliver the requisite certification, and then become a record holder of such Shares and comply with the procedures described above in order to perfect the Dissenters’ Rights with respect to the Shares prior to the extraordinary general meeting. The ADS depositary will not exercise Dissenters’ 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 Companies Law. If you wish to cancel your ADSs, please contact the Depositary at Citibank, N.A. ― ADR Department, at 1-877-CITI-ADR (877-248-4237).

 

If you do not satisfy each of these requirements, you cannot exercise Dissenters’ Rights and will be bound by the terms of the merger agreement. Submitting a 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 approval of the merger and approval and adoption of the merger agreement and the other transactions contemplated thereby, will not alone satisfy the notice requirement referred to above. You must send all notices to the Company to China Mass Media Corp., 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China.

 

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 $0.0167 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 Shares covered by a Notice of Dissent, the Company and the Buyer Filing Persons intend to assert that the per Share merger consideration of $0.0167 is equal to the fair value of each of your Shares.

 

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 Dissenters’ Rights. You should consult your Cayman Islands legal counsel if you wish to exercise Dissenters’ Rights.

 

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FINANCIAL INFORMATION

 

Selected Historical Financial Information

 

The following sets forth summary historical consolidated financial information of the Company for each of the two years ended December 31, 2010 and 2011. The historical financial information as of December 31, 2010 and 2011 has been derived from our audited consolidated financial statements, prepared in accordance with U.S. GAAP, included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2011, at pages F-1 through F-33, which are incorporated into this proxy statement by reference. The information set forth below is not necessarily indicative of future results and 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, which are incorporated into this proxy statement by reference. See “Where You Can Find More Information” for a description of how to obtain a copy of such Annual Report.

 

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   Year Ended December 31, 
   2010   2011   2011 
   RMB   RMB   $ 
   (in thousands, except share, per share and per ADS data) 
Selected Combined/Consolidated Statement of Operations Data               
Revenues:               
Advertising agency services   222,298    185,320    29,444 
Special events services   -    14,659    2,329 
Production and sponsorship services   34,152    25,475    4,048 
Total revenues   256,450    225,454    35,821 
Less: business tax   (13,047)   (13,137)   (2,087)
Total net revenues   243,403    212,317    33,734 
Operating costs and expenses:               
Cost of revenues   (127,654)   (116,883)   (18,571)
Cost of revenues – media fees to a related party   -    -    - 
Sales and marketing expenses   (16,994)   (20,139)   (3,200)
General and administrative expenses   (35,832)   (29,033)   (4,613)
Total operating costs and expenses   (180,480   (166,055   (26,384
Operating income   62,923    46,262    7,350 
Interest and investment income   5,257    13,747    2,184 
Other income (expenses), net   (6,765)   (4,686)   (744)
Income before tax   61,415    55,323    8,790 
Income tax expense   (21,522   (40,290   (6,402
Net income   39,893    15,033    2,388 
Net income allocated to participating preferred shares   -    -    - 
Net income available to ordinary shareholders   39,893    15,033    2,388 
Earnings per ordinary share, basic and diluted   0.05    0.02    0.003 
Earnings per ADS, basic   15.2    5.9    0.94 
Earnings per ADS, diluted   15.2    5.9    0.94 
Dividends declared per share   -    0.48    0.08 
Shares used in calculating earnings per ordinary share, basic   787,182    758,715    758,715 
Shares used in calculating earnings per ordinary share, dilute   788,662    759,516    759,516 

 

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   As of December 31, 
   2010   2011   2011 
   RMB   RMB   $ 
   (in thousands) 
Selected Combined/Consolidated Balance Sheet Data               
Cash and cash equivalents   544,428    111,713    17,749 
Total current assets   753,106    407,037    64,672 
Total non-current assets   58,603    57,216    9,090 
Total assets   811,708    464,253    73,762 
Total current liabilities   303,086    314,178    49,918 
Total liabilities   303,086    314,178    49,918 
Total shareholder’s equity   508,622    150,075    23,844 
Total liabilities and shareholder’s equity   811,708    464,253    73,762 
Ordinary Shares   5,381    5,133    815 

 

Ratio of Earnings to Fixed Charge

 

Not applicable. (The Company does not have any fixed charges for the years ended December 31, 2010 and 2011).

 

Net Book Value per Share of Our Shares

 

The net book value per Share as of December 31, 2011 was RMB 0.20 (or $0.03, based on the weighted average number of outstanding Shares during 2011).

 

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TRANSACTIONS IN THE SHARES AND ADSs

 

Purchases by the Company

 

In September 2010, we announced that the board of directors had approved a share repurchase program, under which we may repurchase up to $6.0 million worth of our issued and outstanding ADSs by and before November 1, 2011. Any repurchase will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan or otherwise in compliance with applicable laws. The timing and extent of any repurchases are dependent upon market conditions, the trading price of ADSs and other factors, and are subject to the restrictions relating to volume, price and timing under applicable laws, including Rule 10b-18 under the United States Securities Exchange Act of 1934, as amended. As of April 27, 2012, we had repurchased and cancelled 136,520 ADSs (representing 40,956,000 ordinary shares), giving effect to the adjustment of the ratio of our ordinary shares to ADSs from 30:1 to 300:1 on November 28, 2011.

 

All of the Shares underlying the ADSs repurchased pursuant to the share repurchase programs 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.

 

The following table summarizes the repurchase of ADSs by us under the repurchase program:

 

   Total Number  of
the
ADSs
Repurchased(1)
   Range of Prices
Paid
per ADS
   Average Purchase
Price
Paid per ADS
 
2010               
First Quarter   -   $-   $- 
Second Quarter   -   $-   $- 
Third Quarter   -   $-   $- 
Fourth Quarter   46,200   $23.64-$34.96   $31.14 
Total   46,200   $23.64-$34.96   $31.14 
2011               
First Quarter   33,660   $22.73-$33.54   $27.15 
Second Quarter   22,350   $12.69-$23.66   $17.56 
Third Quarter   28,190   $8.26-$17.34   $14.58 
Fourth Quarter   6,120   $8.52-$24.05   $17.36 
Total   90,320   $8.527-$33,537   $20.19 
2012               
First Quarter   -   $-   $- 
Second Quarter   -   $-   $- 
Third Quarter (through September 7, 2012)   -   $-   $- 

 

(1) Our ADS to ordinary share ratio was one ADS for 30 ordinary share prior to November 28, 2011. Our ADS to ordinary share ratio changed to one ADS for 300 ordinary share, effective on November 28, 2011.

 

Purchase by Mr. Shengcheng Wang

 

Mr. Shengcheng Wang has not purchased any Shares or ADSs at any time within the past two years.

 

Purchases by Parent and Merger Sub

 

Neither Parent nor Merger Sub has purchased any Shares or ADSs at any time within the past two years.

 

Prior Public Offerings

 

On August 7, 2008, we sold 7,212,500 ADSs, representing 216,375,000 Shares, at a price of $6.80 per ADS (or $0.23 per Share). We raised approximately $49.0 million in gross proceeds from this offering, or approximately $42.7 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses.

 

Transactions in Prior 60 Days

 

There was no transaction in the Company’s Shares during the past 60 days by the Company or any member of the Buyer Group, or any of their respective executive officers, directors, associates or majority-owned subsidiaries.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY

 

The following table sets forth information with respect to the beneficial ownership of our Shares, as of the date of this proxy statement, by:

 

·each of our directors and executive officers;

 

·each of our directors and executive officers as a group; and

 

·each person known to us to own beneficially more than 5.0% of our Shares(1)(2).

 

 

   Shares Beneficially
Owned(1)(2)
 
   Number   % 
Directors and Executive Officers:          
Shengcheng Wang(3)   566,591,584    75.4 
Julie Zhili Sun   *    * 
Haiyan Xing   *    * 
Liping He        
Jianmin Qu        
Xingzhao Liu        
Yong Chen        
Shuo Cheng   *    * 
Weitao Xu   *    * 
Xinyu Zhang   *    * 
Zhenheng Huo        
Guanning Liang   *    * 
All directors and executive officers as a group   577,312,566    76.8 
           
Principal Shareholders:          
Shengcheng Wang(3)   566,591,584    75.4 

 

 

 
* The person beneficially own less than 1% of our ordinary shares.
   

 

(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act, and includes voting or investment power with respect to the securities and outstanding share options exercisable within 60 days of this proxy statement.

 

(2)

The number of ordinary shares outstanding in calculating the percentages for each listed person includes the ordinary shares underlying options held by such person. Percentage of beneficial ownership of each listed person is based on 751,697,920 ordinary shares outstanding as of the date of this proxy statement, and includes the ordinary shares underlying share options exercisable by such person within 60 days of this proxy statement.

 

(3) Consists of (a) 16,591,584 ordinary shares that are issuable upon the exercise of options by Mr. Shengcheng Wang within 60 days of September 7, 2012; (b) 440,000,000 ordinary shares owned by Happy Indian Ocean Limited and (c) 110,000,000 ordinary shares owned by Arctic Spring Limited.  Mr. Shengcheng Wang has the right to vote in respect of the 440,000,000 ordinary shares owned by Happy Indian Ocean Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Happy Indian Ocean Limited and China Mass Media Corp. Mr. Shengcheng Wang also has the right to vote in respect of the 110,000,000 ordinary shares owned by Arctic Spring Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Arctic Spring Limited and China Mass Media Corp.  Mr. Shengcheng Wang has no direct or indirect equity interests in either Happy Indian Ocean Limited or Arctic Spring Limited.  Both Happy Indian Ocean Limited and Arctic Spring Limited are part of an estate and asset preservation structure that was established for the ultimate benefit, and to advance the interests, of Mr. Shengcheng Wang and his family.  Mr. Shengcheng Wang may be deemed to be the beneficial owner of the ordinary shares owned by Happy Indian Ocean Limited and Arctic Spring Limited in the Company under the U.S. securities law.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

The following is a discussion of the material U.S. federal income tax consequences of the exchange of 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, 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 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 does not consider all aspects of U.S. federal income taxation that may be relevant to particular shareholders in light of their individual 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; (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 or (xi) U.S. Holders that actually or constructively own 10% or more of our voting stock. This discussion applies to U.S. Holders (as defined below) that hold Shares 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) an individual who is a citizen or 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 will depend on the status of the partner and the activities of 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.

 

Passive Foreign Investment Company Considerations

 

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 of the assets during a taxable year) 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. As disclosed in our Annual Report on Form 20-F for the year ended December 31, 2011, we believe that we were a PFIC for the taxable year ended December 31, 2011 and it is possible that we may be a PFIC for the current taxable year. Our status for the current taxable year will be based in part on the value of our assets as determined based on the market price of our ADSs and our Shares. Our actual PFIC status for the current taxable year will not be determinable until the close of the current taxable year. Except as specifically discussed below, the remainder of this discussion assumes that we will be a PFIC in the taxable year in which a U.S. Holder disposes of its Shares in the merger or by exercising its Dissenters’ Rights (as described under “Dissenters’ Rights”).

 

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Disposition of Shares Pursuant to the Merger or Exercise of Dissenters’ Rights

 

The receipt of cash, either as consideration in the merger or as a result of a U.S. Holder exercising its Dissenters’ Rights, in exchange for Shares will be a taxable transaction for U.S. federal income tax purposes, and a U.S. Holder will be taxed in the same manner as with respect to any other sale or taxable disposition of Shares, including a sale on a securities exchange. A U.S. Holder that receives cash, either as consideration in the merger or as a result of a U.S. Holder exercising its Dissenters’ Rights, 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. 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.

 

If, as expected, we are a PFIC for the current taxable year or were 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, as discussed below, any gain recognized by a U.S. Holder on the disposition of Shares pursuant to the merger or the exercise of Dissenters’ Rights 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 applicable to underpayments of tax would be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Shares cannot be treated as capital gains, even if a U.S. Holders holds the Shares as capital assets.

 

If a U.S. Holder has made a valid mark-to-market election with respect to its ADSs, 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. The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. As disclosed in our Annual Report on Form 20-F for the year ended December 31, 2011, as of December 31, 2011 and until March 19, 2012, our ADSs were traded on The New York Stock Exchange, or NYSE, which should be a qualified exchange for purposes of the applicable U.S. Treasury regulations. Trading in our ADSs on the NYSE was suspended on March 19, 2012 and our ADS were delisted on April 17, 2012. Our ADSs currently are traded on the over-the-counter market commonly referred to as “pink sheets”. It is unlikely that the pink sheets is a qualified exchange within the meaning of the applicable U.S. Treasury regulations. In addition, it is unclear whether there has been or is sufficient trading on the pink sheets for our ADSs to qualify as regularly traded within the meaning of the applicable U.S. Treasury regulations. Accordingly, it is unlikely that a U.S. Holder of ADSs would be able to rely on trading on the pink sheets to make a mark-to-market election after our ADSs ceased trading on the NYSE. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder would have continued to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as equity interest in a PFIC for U.S. federal income tax purposes even if it had made a valid mark-to-market election. A timely mark-to-market election is made by filing IRS Form 8621 with an original or amended U.S. federal income tax return for the first taxable year in which a non-U.S. corporation is a PFIC and a U.S. Holders holds an equity interest in the PFIC by the due date of the return (including extensions). U.S. Holders of ADSs or Shares should consult its tax advisors as to the availability of a mark-to-market election and the application of the mark-to-market election to a disposition of Shares pursuant to the merger or an exercise of Dissenters’ rights.

 

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 would be required to file IRS Form 8621 (or any other form specified by the U.S. Department of the Treasury) with respect to the disposition of Shares, generally with the U.S. Holder’s federal income tax return for the year of merger. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor 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 a U.S. Holder held Shares.

 

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If, contrary to our expectation expressed above under “Passive Foreign Investment Company Considerations”, we are not a PFIC for the current taxable year or any previous taxable year in a U.S. Holder’s holding period for its Shares, any gain or loss recognized will 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 currently subject to U.S. federal income tax at a reduced rate. The ability to use any capital loss to offset other income or gain is subject to certain limitations under the Code.

 

Any gain or loss recognized by a U.S. Holder generally should be treated as U.S. source gain or loss for U.S. foreign tax credit limitation purposes. However, in the event that we are deemed to be a PRC “resident enterprise” under the EIT Law and gain from the disposition of the Shares is subject to tax in the PRC, a U.S Holder 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 we are not eligible for the benefits of the Treaty or a U.S. Holder fails to make the election to treat any gain as PRC source, then such U.S. Holder 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 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.

 

Information Reporting and Backup Withholding

 

A U.S. Holder may be subject, under certain circumstances, to information reporting and backup withholding with respect to the amount of cash received in the merger. Under the backup withholding rules, a U.S. Holder may 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 regarding the application of the information reporting and backup withholding rules and as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption.

 

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MATERIAL PRC INCOME TAX CONSEQUENCES

 

Under the EIT Law, which took effect on January 1, 2008, enterprises established outside of the PRC whose “de facto management bodies” are located in the PRC are considered “resident enterprises” of the PRC, 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 adopted the Regulations on the Implementation of the EIT Law, or the “implementation regulations,” effective as of January 1, 2008, which define the “de facto management body” as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance, accounting, and properties of the enterprise. Under the EIT Law and its implementation regulations, PRC income tax at the rate of 10% is applicable to any gain recognized on the receipt of cash by a “non-resident enterprise” from transfer of its equity in a PRC resident enterprise. Although there has not been a definitive determination of the Company’s status by the PRC tax authorities, 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 our Shares or ADSs should otherwise be subject to PRC tax to holders of such Shares and ADSs that are not PRC residents. In addition, under the Circular on Strengthening the Administration of Enterprises Income Tax on Non-resident Enterprises’ Equity Transfer Income (“Circular 698”, Guo Shui Han [2009] No. 698), issued by the State Administration of Taxation, which became effective as of January 1, 2008, if any non-resident enterprise transfers equity of a PRC resident enterprise, the non-resident enterprise may be subject to a 10% PRC income tax on the gain from such equity transfer; provided, however, that any purchase or sale of equity through the open market will not be subject to such taxation. Where the non-resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, which was established in a jurisdiction with either (a) an actual rate of tax of less than 12.5%; or (b) a tax exemption for the income arising out of the disposition, the non-resident enterprise shall be required to file with the relevant taxation authorities certain information about the transfer. Where any such taxation authorities, upon review and examination of the documents submitted by the non-resident enterprise, deem such offshore holding company to be a vehicle incorporated for the purpose of tax evasion, they have the power to re-classify 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 an examination by the State Administration of Taxation. 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 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.

 

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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 (i) Cayman Islands stamp duty may be payable if any original transaction documents are brought to or executed in the Cayman Islands; and (ii) registration fees will be payable to the Registrar of Companies to register the plan of merger.

 

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FUTURE SHAREHOLDER PROPOSALS

 

If the proposed merger is completed, we will not have public shareholders and there will be no public participants in any future shareholders meeting. However, if the proposed merger is not completed, we plan to hold an annual general meeting later in the year.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this proxy statement, the documents attached hereto and the documents incorporated by reference in this proxy statement are forward-looking statements based on estimates and assumptions. These include statements as to such things as our financial condition, results of operations, plans, objectives, future performance and business, as well as forward-looking statements relating to the merger. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on current expectations, estimates and projections about our business and the proposed merger, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. The forward-looking statements are further based on assumptions made by management. Forward-looking statements can be identified by forward-looking language, including words such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “plans,” “projects,” “will” and similar expressions, or the negative of these words. These statements are not guarantees of the underlying expectations or future performance and involve risks and uncertainties that are difficult to predict. Readers of this proxy statement are cautioned to consider these risks and uncertainties and not to place undue reliance on any forward-looking statements.

 

The following factors, among others, could cause actual results or matters related to the merger to differ materially from what is expressed or forecasted in the forward-looking statements:

 

·the satisfaction of the conditions to consummation of the merger, including the approval of the merger agreement by our shareholders;

 

·the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

 

·financing may not be obtained on or prior to the effective time of the merger because of the failure of Parent to meet the closing conditions or for other reasons, which may result in the merger not being consummated promptly or at all;

 

·the effect of the announcement or pendency of the merger on our business relationships, operating results and business generally;

 

·the risk that the merger may not be completed in a timely manner or at all, which may adversely affect our business and the prices of our Shares and ADSs;

 

·the potential adverse effect on our business, properties and operations because of certain covenants we agreed to in the merger agreement;

 

·diversion of our management’s attention from our ongoing business operations;

 

·the amount of the costs, fees, expenses and charges related to the merger;

 

·the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us and others relating to the merger; and

 

·other risks detailed in our filings with the SEC, including the information set forth under the caption in “Item 3D. Risk Factors” in our Annual Report on Form 20−F for the year ended December 31, 2011. See “Where You Can Find More Information” on page 97.

 

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We believe that the assumptions on which our forward-looking statements are based are reasonable. However, many of the factors that will affect our future results are beyond our control and difficult to predict. We cannot guarantee any future results, levels of activity, performance or achievements. We cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. In light of the significant uncertainties inherent in the forward-looking statements, readers should not place undue reliance on forward-looking statements, which speak only as of the date on which the statements were made and it should not be assumed that the statements remain accurate as of any future date. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Further, forward-looking statements speak only as of the date they are made and, except as required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect future events or circumstances.

 

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WHERE YOU CAN FIND MORE INFORMATION

 

We are subject to the reporting requirements of the Exchange Act applicable to foreign private issuers and we file or submit our annual, quarterly and special reports, and other information with the SEC. You may read and copy these reports, and other information at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549 at prescribed rates. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The information we file or furnish is also available free of charge on the SEC’s website at http://www.sec.gov.

 

You also may obtain free copies of the documents the Company files with, or submits to, the SEC by going to the “Investor Relations” section of our website at http://phx.corporate-ir.net/phoenix.zhtml?c=222899&p=irol-IRHome. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.

 

Because the merger is a “going private” transaction, the Company, Mr. Shengcheng Wang, Parent and Merger Sub have filed with the SEC a Transaction Statement on Schedule 13E-3 with respect to the merger. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference therein, is available for inspection as set forth above. The Schedule 13E-3 will be amended to report promptly any material changes in the information set forth in the most recent Schedule 13E-3 filed with the SEC.

 

Statements contained in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document attached as an exhibit hereto. The SEC allows us to “incorporate by reference” information into this proxy statement. This means that we can disclose important information by referring to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. This proxy statement and the information that we later file with the SEC may update and supersede the information incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information in this proxy statement. The Company’s annual report on Form 20-F filed with the SEC on April 30, 2011, as amended on May 25, 2012, is incorporated herein by reference. The Company’s reports on Form 6-K filed with the SEC since April 30, 2012, if any, are incorporated herein by reference.

 

We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates.

 

Requests for copies of our filings should be directed to China Mass Media Corp., 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China. Attention: Julie Zhili Sun, and should be made at least ten business days before the date of the special meeting in order to receive them before the special meeting.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE EXTRAORDINARY GENERAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.

 

THIS PROXY STATEMENT IS DATED SEPTEMBER 7, 2012. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

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ANNEX A: Agreement and Plan of Merger

 

 

AGREEMENT AND PLAN OF MERGER

 

Dated as of August 6, 2012

 

among

 

CHINA MASS MEDIA HOLDINGS LIMITED

 

CMM HOLDINGS LIMITED

 

CHINA MASS MEDIA CORP.

 

and

 

MR. SHENGCHENG WANG

(solely for the purpose of section 6.18)

 

A-1
 

 

TABLE OF CONTENTS

 

1. THE MERGER; CLOSING; EFFECTIVE TIME   1
         
  1.1 The Merger   1
         
  1.2 Closing   2
         
  1.3 Effective Time   2
         
2. MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE SURVIVING CORPORATION   2
         
  2.1 The Memorandum and Articles of Association   2
         
3. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION   2
         
  3.1 Directors   2
         
  3.2 Officers   3
         
4. EFFECT OF THE MERGER ON ISSUED SHARE CAPITAL; MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES   3
         
  4.1 Effect on Issued Share Capital   3
         
  4.2 Exchange of Certificates   5
         
  4.3 Treatment of Stock Plans   7
         
5. REPRESENTATIONS AND WARRANTIES