As
filed with the Securities and Exchange Commission on January 30,
2009
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
(Exact
name of registrant as specified in its charter)
|
British
Virgin Islands
|
6770
|
Not
applicable
|
||
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
standard industrial
classification
code number)
|
(I.R.S.
Employer
Identification
Number)
|
233
East 69th Street, Suite 9J
New
York, New York 10021
Telephone: (646)
290-6104
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Michael
E. Weksel
Alyst
Acquisition Corp.
233
East 69th Street, Suite 6J
New
York, NY 10021
(646)
290-6104
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
|
Barbara
A. Jones, Esq.
|
Jose
Santos
|
Mitchell
S. Nussbaum, Esq.
|
||
|
Peter
J. Rooney, Esq.
|
Maples
and Calder
|
Loeb
& Loeb LLP
|
||
|
McDermott
Will & Emery LLP
|
Sea
Meadow House
|
345
Park Avenue
|
||
|
340
Madison Avenue
|
Road
Town, Tortola
|
New
York, New York 10154
|
||
|
New
York, New York 10173-1922
|
British
Virgin Islands VG1110
|
(212)
407-4000
|
||
|
(212)
547-5443
|
(284)
852-3000
|
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective and all other conditions to
the business combination described in the proxy statement/prospectus contained
herein have been satisfied or waived.
If the
securities being registered on this Form are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box: ¨
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨ (Do not check if
a smaller
reporting
company)
|
Smaller
Reporting Company x
|
CALCULATION
OF REGISTRATION FEE
|
Title of each Class of
Security being registered
|
Amount being
Registered
|
Proposed Maximum
Offering Price
Per Security(1)
|
Proposed Maximum
Aggregate
Offering Price
|
Amount of
Registration Fee
|
||||||||||||
|
Ordinary
shares, $.0001 par value
|
7,871,971 Shares
|
$ | 7.59 | $ | 59,748,260 | $ | 2,348 | |||||||||
|
Warrants,
each exercisable for one ordinary share(3)
|
7,871,971 Warrants
|
(2) | (2) | (2) | ||||||||||||
|
Ordinary
shares underlying the Warrants(3)(4)
|
8,044,400 Shares
|
$ | 5.00 | $ | 40,222,000 | $ | 1,581 | |||||||||
|
Units,
consisting of one ordinary share and one Warrant
|
172,429 Units
|
$ | 7.50 | $ | 1,293,218 | $ | 51 | |||||||||
|
Ordinary
shares included as part of the Units
|
172,429 Shares
|
(2) | (2) | (2) | ||||||||||||
|
Warrants
included as part of the Units
|
172,429 Warrants
|
(2) | (2) | (2) | ||||||||||||
|
Representative’s
Unit Purchase Option (“UPO”)(3)
|
1 | $ | 100 | (2) | (2) | |||||||||||
|
Units
underlying the UPO
|
300,000 Units
|
$ | 10 | $ | 3,000,000 | $ | 118 | |||||||||
|
Ordinary
shares included as part of the units issuable on exercise of
the Representative’s UPO
|
300,000 Shares
|
(2) | (2) | (2) | ||||||||||||
|
Warrants
included as part of the units issuable on exercise of the Representative’s
UPO(3)
|
300,000 Warrants
|
(2) | (2) | (2) | ||||||||||||
|
Ordinary
shares underlying Warrants included as part of the units issuable on
exercise of the Representative’s UPO (3)
|
300,000 Shares
|
$ | 7.50 | $ | 2,250,000 | $ | 89 | |||||||||
|
Total
|
$ | 106,513,478 | $ | 4,187 | ||||||||||||
|
(1)
|
Based
on the average high and low prices on
January 27, 2009 of the common stock, the closing price on January 23,
2009 of the units, or the exercise price for the purpose of
calculating the registration fee pursuant to Rule 457(c),
Rule 457(f)(1)
and Rule 457(g)(1).
|
|
(2)
|
No
fee pursuant to
Rule 457(g).
|
|
(3)
|
There
are also being registered such indeterminable additional securities as may
be issued pursuant to Rule 416 to prevent dilution resulting from
stock splits, stock dividends or similar transactions under the provisions
contained in the Warrants.
|
|
(4)
|
Includes 172,429
ordinary shares underlying the Warrants included as part of the
Units
|
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information contained in this proxy statement/prospectus is not complete and may
be changed. We may not sell these securities until the Registration Statement we
filed with the Securities and Exchange Commission is effective. This proxy
statement/prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state or jurisdiction where
the offer or sale is not permitted.
PRELIMINARY
PROXY STATEMENT/PROSPECTUS
SUBJECT
TO COMPLETION, DATED JANUARY 30,
2009
PROXY
STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
OF
ALYST ACQUISITION CORP.
AND
PROSPECTUS FOR ORDINARY SHARES, WARRANTS AND UNITS,
OF
CHINA NETWORKS INTERNATIONAL HOLDINGS LTD.
Proxy
Statement/Prospectus, dated ·, 2009
and
first mailed to stockholders on or about Ÿ, 2009
To
the Stockholders of Alyst Acquisition Corp.:
You are
invited to attend a special meeting (the “Special Meeting”) of the stockholders
of Alyst Acquisition Corp. (“Alyst”) relating to the agreement and plan of
merger, dated August 13, 2008 (the “Merger Agreement”), by and among Alyst,
China Networks Media Co., Ltd. (“China Networks Media”), China Networks
International Holdings, Ltd. (“CN Holdings”), China Networks Merger Co., Ltd.
(“China Networks Merger Co.”), Mr. Li Shuangqing, Kerry Propper and MediaInv.
This document is both a proxy statement containing information about Alyst’s
Special Meeting of stockholders and a prospectus of Alyst’s wholly-owned
subsidiary, CN Holdings, a British Virgin Islands company, with respect to the
securities to be issued to Alyst’s public stockholders in the proposed
redomestication of Alyst to the British Virgin Islands.
Pursuant
to the Merger Agreement and subject to stockholder approval, (a) Alyst will
merge with and into CN Holdings, thereby redomesticating to the
British Virgin Islands (the “Redomestication Merger”), and then (b) China
Networks Merger Co., a wholly-owned subsidiary of CN Holdings, will merge with
and into China Networks Media, a British Virgin Islands company (the “Business
Combination”). China Networks Media will be the surviving entity of that merger.
In the Business Combination, CN Holdings will issue to China Networks Media’s
shareholders aggregate merger consideration of (i) 2,880,000 CN Holdings
ordinary shares, (ii) an aggregate of $17,000,000 in cash, (iii) deferred cash
payments of up to $6,000,000 and deferred share payments of up to 9,000,000
ordinary shares of CN Holdings, in each case subject to the achievement of
specified financial milestones set forth in the Merger Agreement, and (iv)
$21,910,000 of proceeds from the exercise of CN Holdings
warrants.
China
Networks Media is a joint-venture provider of broadcast television services in
the People’s Republic of China (“PRC”), operating in partnership with two local
state-owned enterprises in the cities of Kunming and Yellow River which have
been authorized by the PRC government to control the distribution of broadcast
TV services. China Networks Media owns 100% of Advertising Networks
Ltd., a Hong Kong holding company that owns PRC joint-venture advertising
companies which provide services to the television stations. Alyst is
a blank check company formed for the purpose of acquiring, through a merger,
stock exchange, asset acquisition, reorganization or similar business
combination, one or more operating businesses.
In
addition to the proposals to approve the Redomestication Merger and the Business
Combination, stockholders are being asked to approve (i) a proposal to adopt and
approve the 2008 Omnibus Securities and Incentive Plan (the “Share
Incentive Plan”) for the surviving corporation, CN Holdings, and (ii) a proposal
to adjourn or postpone the Special Meeting in the event Alyst does not receive
the requisite vote by the stockholders to approve the Redomestication Merger and
the Business Combination. Each of these four proposals has been
unanimously approved by the Alyst Board of Directors.
CN
Holdings is applying to have its ordinary shares, warrants and units listed on
the Nasdaq Stock Market (“Nasdaq”) under the symbols CHTV, CHTV.W and CHTV.U,
respectively, effective upon consummation of the transactions contemplated by
the Merger Agreement. Alyst’s common stock, warrants and units are
currently listed on the NYSE Alternext under the symbols AYA, AYA.WS
and AYA.U, respectively. On Janaury 22, 2009, the last reported sale price of
Alyst’s common stock on the NYSE Alternext was $7.54.
Holders
of a majority of shares of Alyst’s common stock must vote in favor of the
Redomestication Merger and the Business Combination in order for the
transactions contemplated by the Merger Agreement to be consummated. All of
Alyst’s initial stockholders, including its directors and officers, have agreed
to vote the shares of common stock acquired by them prior to Alyst’s initial
public offering, or IPO, in accordance with the majority of the shares of common
stock voted by the public stockholders. Each Alyst stockholder who holds shares
of common stock issued as part of the units issued in the IPO (including shares
purchased in the public market following the IPO) has the right to vote against
the Redomestication Merger and Business Combination and demand that such shares
be converted into cash equal to a pro rata portion of the trust account in which
the net proceeds of Alyst’s IPO and private placement are
deposited. As of December 31, 2008, there was approximately
$63,229,004 in the Alyst trust account (inclusive of deferred underwriting
compensation) plus accrued interest on the funds in the trust account and less
accrued taxes, or approximately $7.86 per share issued in the
IPO. Alyst will not be permitted to consummate the Business
Combination if public stockholders of 2,413,320 (which number represents 30% of
the shares sold in Alyst’s IPO) or more shares vote against the Business
Combination and demand conversion of their shares. Prior to
exercising their conversion rights, stockholders should verify the market price
of Alyst’s common stock, as they may receive higher proceeds from the sale of
such stock in the public market than from exercising their conversion
rights.
In the
Redomestication Merger, CN Holdings will issue registered securities to the
public stockholders of Alyst in exchange for their outstanding securities.
Holders of Alyst units will receive one CN Holdings unit for every Alyst unit.
Holders of Alyst’s common stock will receive one ordinary share of CN Holdings
for every share of Alyst common stock. Holders of Alyst warrants will receive
one CN Holdings warrant for every Alyst warrant. Of the securities of
CN Holdings covered by this prospectus, up to 172,429 units, each consisting of
one ordinary share and one warrant exercisable for the purchase of one ordinary
share, 7,871,971 ordinary shares, and 7,871,971 warrants, each exercisable
for the purchase of one ordinary share, will be issued to the existing public
stockholders of Alyst in the Redomestication Merger. The holders of the unit
purchase option issued by Alyst to the representatives of the underwriters in
Alyst’s IPO will receive an equivalent option from CN Holdings to purchase
300,000 units, each consisting of one ordinary share and one warrant, and
exercisable for the purchase of one ordinary share, each of which are also
covered by this prospectus. In addition, 1,750,000 ordinary shares
and 1,820,000 warrants, each exercisable for the purchase of one ordinary share,
will be issued to the existing initial stockholders and warrant holders of Alyst
who acquired their securities in a private placement. CN Holdings
will issue its securities on the same terms as the outstanding corresponding
securities of Alyst.
Holders
of Alyst securities will not be entitled to any appraisal rights under the
Delaware General Corporation Law in connection with the Business Combination or
the Redomestication Merger.
This
proxy statement/prospectus provides you with detailed information about the
Special Meeting and the proposals to approve the Redomestication Merger, the
Business Combination, the Share Incentive Plan, and any adjournment or
postponement of the Special Meeting if the Redomestication Merger and the
Business Combination are not approved. Each stockholder’s vote is
very important. Please submit your proxy card without delay even if
you plan to attend the Alyst Special Meeting in person. You may
revoke your proxy at any time before it is voted at the
meeting. Voting by proxy will not prevent you from voting your shares
in person if you subsequently choose to attend the Alyst Special
Meeting.
HOW TO
OBTAIN ADDITIONAL INFORMATION
If you
would like to receive additional information or if you want additional copies of
this document, agreements contained in the appendices or any other documents
filed by Alyst with the Securities and Exchange Commission, or “SEC”, such
information is available without charge upon written or oral request
to:
Alyst
Acquisition Corp.
233 East
69th Street, Suite 6J
New York,
New York 10021
Attention:
Michael E. Weksel
Tel:
646-290-6104
If you
would like to request documents, please do so no later than
[ ], 2009, to receive them before Alyst’s Special
Meeting. Please be sure to include your complete name and address in
your request. Please see “Where You Can Find Additional Information”
to find out where you can find more information about Alyst and CN
Holdings. You should rely only on the information contained in this
proxy statement/prospectus in deciding how to vote on the Business Combination
and related proposals. Neither Alyst nor CN Holdings has authorized
anyone to give any information or to make any representations other than those
contained in this proxy statement/prospectus. Do not rely upon any
information or representations made outside of this proxy
statement/prospectus. The information contained in this proxy
statement/prospectus may change after the date of this proxy
statement/prospectus. Do not assume after the date of this proxy
statement/prospectus that the information contained in this proxy
statement/prospectus is still correct.
The
place, date and time of the Alyst Special Meeting is as follows: 340 Madison
Avenue, 2nd Floor, New York, New York, on [ ], 2009 at 10:00
a.m., Eastern time.
We
encourage you to read this proxy statement/prospectus carefully. In particular,
you should review the matters discussed under the caption “RISK FACTORS”
beginning on page 11.
Alyst’s
board of directors unanimously recommends that Alyst stockholders vote “FOR”
approval of each of the proposals.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the securities to be issued in the Redomestication
Merger or otherwise, or passed upon the adequacy or accuracy of this proxy
statement/prospectus. Any representation to the contrary is a
criminal offense.
|
/s/ Robert A.
Schriesheim
|
|
|
Robert
A. Schriesheim
|
|
|
Chairman
of the Board of Directors of
|
|
|
Alyst
Acquisition Corp.
|
·,
2009
ALYST
ACQUISITION CORP.
233
East 69th Street, #6J
New
York, NY 10021
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS OF ALYST ACQUISITION CORP. TO BE HELD
[ ] ·,
2009:
A
Special Meeting of stockholders of Alyst Acquisition Corp. (‘‘Alyst’’), a
Delaware corporation, will be held at 10:00 a.m., Eastern time, on
[ ], 2009, at 340 Madison Avenue, 2nd Floor, New York, New York
10173, to consider and vote upon proposals to approve:
|
|
(a)
|
The
redomestication of Alyst from the State of Delaware to the British Virgin
Islands by merging Alyst with and into China Networks International
Holdings Ltd. (‘‘CN Holdings’’), its wholly-owned British Virgin Islands
subsidiary (the ‘‘Redomestication Merger’’), in conjunction with the
acquisition of China Networks Media, Ltd. (“China Networks
Media”), a private British Virgin Islands company with limited liability,
as set out in paragraph (b) below. In connection with the
Redomestication Merger, Alyst will change its name to China Networks
International Holdings Ltd. and adopt the Amended and Restated Memorandum
and Articles of Association of CN Holdings, which will contain provisions
substantially equivalent to Alyst’s amended and restated certificate of
incorporation and by-laws, respectively. However, the CN
Holdings Amended and Restated Memorandum and Articles of Association will
provide for a perpetual existence. This proposal is called the
‘‘Redomestication Proposal” and is conditioned upon approval of the
Business Combination Proposal discussed in paragraph (b)
below.
|
|
|
(b)
|
The
proposed merger of China Networks Merger Co., Ltd., a wholly-owned British
Virgin Islands subsidiary of CN Holdings (“China Networks Merger Co.”),
with and into China Networks Media, resulting in China Networks Media
becoming a wholly-owned subsidiary of CN Holdings (the ‘‘Business
Combination’’), and the related transactions contemplated by the Agreement
and Plan of Merger, dated August 13, 2008, by and among Alyst, China
Networks Media, CN Holdings, China Networks Merger Co., Ltd., Mr. Li
Shuangqing, Kerry Propper and MediaInv Ltd. (the ‘‘Merger
Agreement’’). Pursuant to the Merger Agreement, CN Holdings
will pay China Networks Media’s shareholders an aggregate merger
consideration of (i) 2,880,000 CN Holdings ordinary shares, (ii) an
aggregate of $17,000,000 cash, (iii) deferred cash payments of up to
$6,000,000 and deferred share payments of up to 9,000,000 ordinary shares
of CN Holdings, in each case subject to the achievement of specified
financial milestones set forth in the Merger Agreement, and (iv)
approximately $21,910,000 of proceeds from the exercise of CN Holdings
warrants. This proposal is called the ‘‘Business Combination
Proposal” and is conditional upon approval of the Redomestication Proposal
discussed in paragraph (a)
above.
|
|
|
(c)
|
The
proposed 2008 Omnibus Securities and Incentive Plan pursuant to
which directors, officers, employees and consultants of CN Holdings or its
subsidiaries may be granted options to purchase up to 2,500,000 million
ordinary shares of CN Holdings. This proposal is called the
“Share Incentive Plan
Proposal.”
|
|
|
(d)
|
Any
adjournment or postponement of the Special Meeting for the purpose of
soliciting additional proxies in the event Alyst does not receive the
requisite stockholder vote for approval of the Redomestication Proposal
and the Business Combination Proposal. This proposal is called
the ‘‘Adjournment and
Postponement.’’
|
Pursuant
to Alyst’s amended and restated certificate of incorporation and the Merger
Agreement, Alyst is required to obtain stockholder approval of the Business
Combination with China Networks Media. Pursuant to the Merger
Agreement, the Redomestication Merger will not be consummated unless the
Business Combination is approved. Similarly, the Business Combination will not
take place if the Redomestication Merger is not approved. If China
Networks Media’s Board of
Directors chooses to waive those conditions to the Business Combination, Alyst
will still not be able to go forward with the Business
Combination. Consequently, each of the Redomestication Proposal and the
Business Combination Proposal must be approved for either transaction to be
completed.
As of
January 20, 2009, there were 9,794,400 shares of Alyst common stock issued and
outstanding and entitled to vote. The Board of Directors has fixed
the record date as the close of business on [ ], 2009, as the
date for determining Alyst stockholders entitled to receive notice of and to
vote at the Special Meeting and any adjournment or postponement thereof. Only
holders of record of Alyst common stock on that date are entitled to have their
votes counted at the Special Meeting or any adjournment or
postponement. In order for the Business Combination Proposal to be
approved, holders of a majority of the votes cast of the shares issued in
Alyst’s public offering must be voted in favor of such proposal. In
addition, regardless of the number of votes cast in favor of the Business
Combination Proposal, we cannot proceed with the Business Combination if holders
of 2,413,320 (representing 30% of the shares sold in the IPO) or more shares of
Alyst common stock, vote against the Business Combination Proposal and exercise
their conversion rights to have their shares converted for
cash.
Your vote
is important. Whether or not you plan to attend the Special Meeting, please
sign, date and return your proxy card as soon as possible to make sure that your
shares are represented and your vote counted. You may also vote by telephone, as
described on the proxy card. If you are a stockholder of record, you may also
cast your vote in person at the Special Meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct your broker or bank how
to vote your shares, or you may cast your vote in person at the Special Meeting
by obtaining a proxy from your brokerage firm or bank. If you fail to return
your proxy card or instruct your broker or bank how to vote, your shares will
not be counted for purposes of determining whether a quorum is present at the
Special Meeting. An abstention or failure to vote will have the
effect of voting against the Redomestication Proposal and the Share Incentive
Plan Proposal.
After
careful consideration of all relevant factors, Alyst’s Board of Directors has
determined that all four proposals are fair to and in the best interests of
Alyst and its stockholders, and has recommended that you vote or give
instruction to vote ‘‘FOR’’ adoption of each of them.
|
Dated: [ ],
2009
|
|
|
By
Order of the Board of Directors,
|
|
| /s/ Robert A. Schriesheim | |
|
Robert
A. Schriesheim
|
|
|
Chairman
|
TABLE
OF CONTENTS
|
Page
|
|
|
SUMMARY
|
1
|
|
RISK
FACTORS
|
11
|
|
SELECTED
SUMMARY HISTORICAL FINANCIAL INFORMATION
|
27
|
|
PRO
FORMA FINANCIAL INFORMATION
|
31 |
|
COMPARATIVE
PER SHARE DATA
|
42
|
|
THE
ALYST SPECIAL MEETING
|
45
|
|
THE
BUSINESS COMBINATION PROPOSAL
|
50
|
|
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
|
66
|
|
THE
REDOMESTICATION MERGER PROPOSAL
|
74
|
|
THE
SHARE INCENTIVE PLAN PROPOSAL
|
84
|
|
PROPOSAL
TO ADJOURN OR POSTPONE THE SPECIAL MEETING FOR THE PURPOSE OF
SOLICITING ADDITIONAL PROXIES
|
88
|
|
INFORMATION
ABOUT CHINA NETWORKS MEDIA
|
89
|
|
CHINA
NETWORKS MEDIA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
102
|
|
INFORMATION
ABOUT ALYST
|
124
|
|
ALYST
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
126
|
|
DIRECTORS
AND MANAGEMENT
|
128
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
134
|
|
BENEFICIAL
OWNERSHIP OF SECURITIES
|
136
|
|
SHARES
ELIGIBLE FOR FUTURE SALE
|
143
|
|
DESCRIPTION
OF ALYST’S SECURITIES
|
144
|
|
DESCRIPTION
OF CN HOLDINGS SECURITIES FOLLOWING THE BUSINESS
COMBINATION
|
147
|
|
TRANSFER
AGENT AND REGISTRAR
|
149
|
|
STOCKHOLDER
PROPOSALS
|
149
|
|
LEGAL
MATTERS
|
149
|
|
EXPERTS
|
149
|
|
DELIVERY
OF DOCUMENTS TO STOCKHOLDERS
|
150
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
151
|
|
INDEX
TO FINANCIAL STATEMENTS
|
F-1
|
ANNEXES
A —
Agreement and Plan of Merger
B —Amendment No. 1 to the Merger Agreement
C —
Form of Amended and Restated Memorandum of Association of CN
Holdings
D —
Form of Amended and Restated Articles of Association of CN
Holdings
i
E —
Section 262 of the Delaware General Corporation Law
F —
Section 179 of the British Virgin Islands Business Companies Act,
2004
G —
Form of 2008 Omnibus Securities and Incentive Plan
ii
SUMMARY
This
section summarizes information related to the proposals to be voted on at the
Special Meeting. These items are described in greater detail elsewhere in this
proxy statement/prospectus. You should carefully read this entire proxy
statement/prospectus and the other documents to which it refers
you.
MATERIAL
TERMS OF THE TRANSACTION
|
|
·
|
The
parties to the Merger Agreement are Alyst, China Networks Media, CN
Holdings, China Networks Merger Co., Mr. Li Shuangqing , MediaInv Ltd.,
and Kerry Propper. See the section entitled “The Business Combination
Proposal.”
|
|
|
·
|
Alyst
will merge with and into CN Holdings, Alyst’s wholly-owned subsidiary
incorporated in the British Virgin Islands, or BVI, resulting in CN
Holdings as the surviving corporation, for the purpose of redomesticating
Alyst from the State of Delaware to the BVI as part of the acquisition of
China Networks Media in the Business Combination. See the section entitled
“The Redomestication Proposal.”
|
|
|
·
|
In
connection with the Redomestication Merger, all of Alyst’s issued and
outstanding securities immediately prior to the Redomestication Merger
will be converted into securities of CN Holdings as set forth in the
Merger Agreement. See the section entitled “The Business Combination
Proposal – Terms of the Merger Agreement – Basic Deal
Terms.”
|
|
|
·
|
China
Networks Merger Co., a company incorporated in the BVI and a wholly-owned
subsidiary of CN Holdings, will merge with and into China Networks Media,
whereupon China Networks Media will be the surviving entity and the
wholly-owned subsidiary of CN Holdings. See the section entitled “The
Business Combination Proposal.”
|
|
|
·
|
In
connection with the Business Combination, each ordinary share of China
Networks Media issued and outstanding prior to the business combination
will be converted automatically into one ordinary share of CN Holdings and
each class A preferred share of China Networks Media outstanding
immediately prior to the business combination will be converted into one
ordinary share of CN Holdings. See the section entitled “The Business
Combination Proposal – Terms of the Merger Agreement – Basic Deal
Terms.”
|
|
|
·
|
China
Networks Media is a venture provider of broadcast television services in
the People’s Republic of China, or PRC, operating in partnership with a
local state-owned enterprise authorized by the PRC government to control
the distribution of broadcast TV services. See the section entitled
“Information about China Networks
Media.”
|
|
|
·
|
The
closing of the acquisition of China Networks Media is subject to the
satisfaction by each party of various conditions prior to closing. See the
section entitled “Proposal to Acquire China Networks Media – Terms of the
Merger Agreement – Closing
Conditions.”
|
|
|
·
|
The
Business Combination will not be consummated unless the Redomestication
Proposal is approved, and the Redomestication Merger will not be
consummated unless the Business Combination Proposal is approved. See the
section entitled “The Alyst Special Meeting – Vote
Required.”
|
|
|
·
|
Stockholders
are also being asked to approve the 2008 Omnibus Securities and
Incentive Plan pursuant to which directors, officers, employees and
consultants of the surviving corporation, CN Holdings, or its subsidiaries
may be granted options to purchase up to 2,500,000 ordinary shares of CN
Holdings. See the section entitled “The Share
Incentive Plan Proposal.”
|
1
QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS TO BE CONSIDERED AT THE ALYST SPECIAL
MEETING
These
Questions and Answers are only summaries of the matters they
discuss.
Please
read this entire proxy statement/prospectus.
|
Q.
What is being voted on?
|
A.You
are being asked to vote on four proposals:
|
|
|
·
The merger of Alyst with and into its wholly-owned British Virgin
Islands (“BVI”) subsidiary, CN Holdings, for the purpose of
redomesticating Alyst to the BVI. This proposal is called the
‘‘Redomestication Merger Proposal.’’
|
||
|
·
The proposed merger of CN Holdings’ wholly-owned subsidiary, China
Networks Merger Co., with and into China Networks Media, resulting in
China Networks Media becoming a wholly-owned subsidiary of CN Holdings.
This proposal is called the ‘‘Business Combination
Proposal.’’
|
||
|
·
The approval of the 2008 Omnibus Securities and Incentive
Plan pursuant to which directors, officers, employees and consultants
of the surviving corporation, CN Holdings, or its subsidiaries may be
granted up to 2.5 million ordinary shares of CN Holdings. This
proposal is called the “Share Incentive Plan
Proposal.”
|
||
|
·
The approval of any adjournment or postponement of the Special
Meeting for the purpose of soliciting additional proxies. This proposal is
called the ‘‘Adjournment and Postponement Proposal.’’
|
||
|
Q.
Why are stockholders of Alyst being asked to approve actions that will be
taken by CN Holdings?
|
Alyst
stockholders are being asked to approve the entry into of the Business
Combination by CN Holdings. The Memorandum and Articles of Association of
CN Holdings will be amended prior to the Special Meeting to include
protective provisions identical in substance to those contained in
Alyst’s amended and restated certificate of incorporation at the time of
its IPO, although CN Holdings will have a perpetual, rather than limited,
existence. As a result, immediately following the completion of the
Redomestication Merger, the constitutional documents of CN Holdings will
require that the majority of the shares issued in Alyst’s IPO approve its
Business Combination with China Networks Media, as well as the Share
Incentive Plan Proposal. Since the laws of the BVI also require the
affirmative vote of a majority of the shares of China Networks Media and
China Network Merger Co., the shareholders of each such corporation will
be approving such actions by written consent, effective upon receipt of
corresponding approval of Alyst’s stockholders. Such action by written
consent, together with the approval by Alyst’s stockholders at the Special
Meeting, will be effective under BVI law and CN Holding’s amended
constitutional documents.
|
|
|
Q.
Who is entitled to vote?
|
Holders
of Alyst’s outstanding common stock as of the close of business on ·, 2009, (the
“Record Date”) are entitled to vote on all proposals at the Special
Meeting by proxy or in person.
|
|
|
Q.
What vote is required to approve the Redomestication Merger
Proposal?
|
A.
Approval of the Redomestication Merger Proposal will require the
affirmative vote of a majority of the outstanding shares of Alyst’s common
stock as of the Record Date, provided there is a quorum and that the
Business Combination is also approved.
|
|
|
Q.
What vote is required to approve the Business Combination
Proposal?
|
A.
Under Alyst’s amended and restated certificate of incorporation, approval
of the Business Combination requires the affirmative vote of a majority of
the shares of common stock issued in the IPO present, in person or by
proxy and entitled to vote at the Special Meeting, provided that there is
a quorum. Alyst’s initial stockholders have agreed to vote their 1,750,000
shares acquired prior to the IPO and as part of the insider units sold
simultaneously with the consummation of the IPO in accordance with the
holders of a majority of the public shares voting in person or by proxy at
the meeting. Any other shares that may be acquired by Alyst’s initial
stockholders prior to the record date may be voted in any manner that they
choose. If the stockholders approve the Business Combination, the Business
Combination will only proceed if holders of less than 30% of the shares of
common stock sold in Alyst’s IPO exercise their conversion rights and vote
against the Business Combination. If the holders of 2,413,320 or more
shares purchased in Alyst’s IPO vote against the Business Combination and
demand that Alyst convert their shares into their pro rata portion of the
trust account established at the time of the IPO (as described below),
Alyst will not be permitted to consummate the Business Combination
pursuant to its amended and restated certificate of
incorporation.
|
2
|
Q.
What vote is required to approve the Share Incentive Plan
Proposal?
|
A. Approval
of the Share Incentive Plan Proposal will require the affirmative vote of
a majority of the outstanding shares of Alyst’s common stock represented
in person or by proxy and entitled to vote at the Special Meeting,
provided there is a quorum.
|
|
|
Q.
What vote is required to adopt the proposal to adjourn or postpone the
Special Meeting for the purpose of soliciting additional
proxies?
|
A.
Approval of the Adjournment and Postponement Proposal will require the
affirmative vote of holders of a majority of the shares of Alyst’s common
stock represented in person or by proxy and entitled to vote at the
Special Meeting, provided there is a quorum.
|
|
|
Q.
Do Alyst stockholders have appraisal rights under Delaware
law?
|
A.
The Alyst stockholders do not have appraisal rights under Delaware
corporate law in connection with either the Redomestication Merger or the
Business Combination.
|
|
|
Q.
How will the Redomestication Merger be accomplished?
|
A.
Alyst will merge into CN Holdings, Alyst’s wholly - owned subsidiary
that is incorporated as a BVI company. As a result of the Redomestication
Merger, each currently issued outstanding security of Alyst will
automatically convert into one corresponding security of CN Holdings. This
procedure will result in your becoming a securityholder in CN Holdings
instead of Alyst.
|
|
|
Q.
What happens post-Business Combination to the funds deposited in the trust
account?
|
A.
Alyst stockholders exercising conversion rights will receive their pro
rata portion of the trust account. The balance of the funds in the trust
account will be released to CN Holdings and will be utilized to pay to the
former shareholders of China Networks Media the cash portion of the merger
consideration in the amount of $17 million, repay approximately
$[ ] million of outstanding indebtedness of
China Networks Media and any remaining funds will be retained by CN
Holdings to make payments aggregating $[ ]
million to the PRC TV Stations (as defined below under “The Companies”)
and for operating capital subsequent to the closing of the Business
Combination.
|
|
|
Q.
What happens if the Business Combination and Redomestication Merger are
not consummated?
|
A.
If Alyst does not redomesticate and acquire China Networks Media in the
Business Combination, Alyst may seek an alternative business combination.
Under its amended and restated certificate of incorporation as currently
in effect, if Alyst does not acquire at least majority control of a target
business by June 29, 2009, Alyst will dissolve and distribute to its
public stockholders the amount in the trust account plus any remaining net
assets. Following dissolution, Alyst would no longer exist as a
corporation.
In
any liquidation, the funds held in the trust account, plus any interest
earned thereon (net of taxes payable), together with any remaining
out-of-trust net assets, will be distributed pro rata to Alyst’s common
stockholders who hold shares issued in Alyst’s IPO (other than the initial
stockholders, each of whom has waived any right to any liquidation
distribution with respect to them). See the risk factor on page 26 of
this proxy statement/prospectus relating to risks associated with the
dissolution of Alyst.
|
3
|
Q.
Do Alyst stockholders have conversion rights?
|
A.
If you hold shares of common stock issued in Alyst’s IPO, then you have
the right to vote against the Business Combination Proposal and demand
that Alyst convert these shares into a pro rata portion of the trust
account in which a substantial portion of the net proceeds of Alyst’s IPO
are held. These rights to vote against the Business Combination and demand
conversion of the shares into a pro rata portion of the trust account are
sometimes referred to herein as conversion rights. Holders of warrants
issued by Alyst do not have any conversion rights.
|
|
|
SIMPLY
VOTING AGAINST THE BUSINESS COMBINATION OR CHECKING THE ‘‘EXERCISE
CONVERSION RIGHTS’’ BOX ON A PROXY CARD DOES NOT PERFECT YOUR CONVERSION
RIGHTS – YOU MUST ALSO SEND ALYST THE WRITTEN DEMAND LETTER DESCRIBED
BELOW.
|
||
|
Pursuant
to the arrangements established at the time of Alyst’s IPO, shareholders
of Alyst representing 30% less one share of the outstanding
shares issued in Alyst’s IPO may exercise conversion rights in the event
they vote against the Business Combination and send a written demand
letter to Alyst as described in the section entitled ‘‘The Alyst Special
Meeting.’’
|
||
|
Q.
Will the Alyst stockholders be taxed as a result of the Redomestication
Merger?
|
A. It
is anticipated that Alyst stockholders or warrant holders generally should
not recognize gain or loss as a result of the Redomestication Merger for
U.S. federal income tax purposes. We urge you to consult your own tax
advisors with regard to the particular tax consequences to you of the
Redomestication Merger.
|
|
|
Q.
Will Alyst be taxed on the Redomestication Merger?
|
A. It
is anticipated that for U.S. federal income tax purposes, as to each of
its assets, Alyst should recognize gain (but not loss) realized as a
result of the Redomestication Merger in an amount equal to the excess
(if any) of the fair market value of such asset over such asset’s adjusted
tax basis at the effective time of the Redomestication Merger. Any U.S.
federal income tax liability incurred by Alyst as a result of the
recognition of such gain should become a liability of CN Holdings by
reason of the Redomestication Merger.
|
|
|
Q.
If I am not going to attend the Special Meeting in person, should I return
my proxy card instead?
|
A.
Yes. After carefully reading and considering the information in this proxy
statement/prospectus, please fill out and sign your proxy card. Then
return it in the return envelope as soon as possible, so that your shares
may be represented at the Special Meeting. You may also vote by telephone,
as explained on the proxy card. A properly executed proxy will be counted
for the purpose of determining the existence of a
quorum.
|
|
|
Q.
If I have conversion rights, how do I exercise them?
|
A.
If you wish to exercise your conversion rights, you must vote against the
Business Combination Proposal and at the same time demand that Alyst
convert your shares for cash. If, notwithstanding your vote, the Business
Combination is completed, then you will be entitled to receive a pro rata
portion of the trust account, including any interest earned thereon
through the record date. You will be entitled to convert each share of
common stock that you hold for approximately $7.86. If you exercise your
conversion rights, then you will be converting your shares of Alyst common
stock for cash and will no longer own these shares. You will be entitled
to receive cash for these shares only if you tender your stock certificate
to our transfer agent, Continental Stock Transfer & Trust Company, at
any time prior to the conclusion of the vote on the Business
Combination. Alternatively, you may deliver your shares to the
transfer agent electronically, at a nominal cost, using the Depository
Trust Company’s DWAC System. If you do not make a demand to exercise your
conversion rights at the time you vote against the Business Combination
Proposal (or if you do not vote against the Business Combination Proposal
and tender your share to the transfer agent prior to the vote), you will
lose your conversion rights, and that loss cannot be
remedied.
|
4
|
Q.
How do I withdraw my request for conversion?
|
A.
You may withdraw a request for conversion of your shares any time prior to
the date of the Special Meeting by requesting that the transfer agent
return your share certificate(s) either physically or
electronically.
|
|
|
Q.
What will happen if I abstain from voting or fail to instruct my broker to
vote?
|
A.
An abstention or the failure to instruct your broker how to vote (also
known as a broker non-vote) is not considered a vote cast at the meeting
with respect to the Business Combination Proposal. Therefore your vote
will have no effect on the vote relating to the Business Combination, and
you will not be able to convert your shares into a pro rata
portion of the trust account. An abstention or failure to vote will have
the effect of voting against the Redomestication Merger Proposal and the
Share Incentive Plan Proposal.
|
|
|
Q.
If my shares are held in “street name,” will my broker automatically vote
them for me?
|
A.
No. Your broker can vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your
shares. Your broker can tell you how to provide these
instructions.
|
|
|
|
||
|
Q.
How do I change my vote?
|
A.
You may send a later-dated, signed proxy card to Alyst’s secretary no
later than [ ], 2009, prior to the date of
the Special Meeting, or attend the Special Meeting in person and vote. You
also may revoke your proxy no later than [ ],
2009 by sending a notice of revocation to Michael Weksel, Alyst
Acquisition Corp., 233 E. 69th Street, #6J, New York, New York
10021.
|
|
|
Q.
Do I need to turn in my old certificates?
|
A.
If you wish to exercise your conversion rights, you must tender your
shares to the transfer agent prior to the Special Meeting. If
the Business Combination Proposal is approved and you hold your securities
in Alyst in certificate form, as opposed to holding them through your
broker, you do not need to exchange them for certificates issued by CN
Holdings. Your current certificates will represent your rights in CN
Holdings. You may exchange them by contacting the transfer agent,
Continental Stock Transfer & Trust Company, Reorganization Department,
and following their requirements for reissuance.
|
|
|
Q.
Who can help answer my questions?
|
A.
If you have questions, you may write or call Alyst Acquisition Corp., at
233 E. 69th Street, #6J, New York, New York 10021, (646) 290-6104,
Attention: Michael Weksel.
|
|
|
Q.
When and where will the Special Meeting be held?
|
A.
The meeting will be held at 10:00 a.m. Eastern time on ·, 2009 at 340
Madison Avenue, 2nd Floor, New York, New
York.
|
The
Companies
Alyst
is a Delaware corporation incorporated on August 16, 2006 in order to serve as a
vehicle for the acquisition of an operating business in any industry, with a
focus on the telecommunications industry, through a merger, capital stock
exchange, asset acquisition or other similar business
combination. The initial stockholders purchased 1,750,000 shares
of common stock, par value $0.0001 per share (“Common Stock”), in a private
placement for $25,000. On July 5, 2007, Alyst consummated its IPO of
8,044,400 of its units (“Units”). Each Unit consists of one share of Common
Stock and one warrant to purchase one share of Common Stock at an exercise price
of $5.00 per share. The Units were sold at an offering price of $8.00 per Unit,
generating gross proceeds of $64,355,200. Simultaneously with the
consummation of the IPO, Alyst consummated a private placement of 1,820,000
warrants at a price of $1.00 per warrant, generating total proceeds of
$1,820,000. After deducting the underwriting discounts and
commissions and offering expenses, an amount of $63,154,286 was placed in an
interest-bearing trust account and the remaining proceeds of approximately
$50,000, plus interest of up to $1,680,000 earned on the amount held in
trust became available to be used to provide for business, legal,
accounting, due diligence on prospective business combinations and continuing
operating expenses. Alyst’s management has broad discretion with respect to the
specific application of the net proceeds of the private placement and the public
offering, although substantially all of the net proceeds of the offerings are
intended to be generally applied toward consummating a business combination. As
of December 31, 2008, approximately $63,154,286 (plus accrued interest of
$74,718) was held in the trust account.
5
The
warrants issued in Alyst’s private placement were purchased by Robert A.
Schriesheim, Alyst’s Non-Executive Chairman of the Board, Dr. William Weksel,
Alyst’s Chief Executive Officer, Robert H. Davies, Alyst’s Chief Strategist,
Michael E. Weksel, one of Alyst’s directors, Paul Levy, one of Alyst’s former
directors, and Ira Hollenberg IRA, Silverman Realty Group, Inc. Profit Sharing
Plan (LCPSP), Norbert W. Strauss, David Strauss and Jonathan Strauss, each a
stockholder of Alyst. The warrants are identical to the warrants included in the
Units sold in the IPO except that they are exercisable on a cashless basis if
Alyst calls the warrants for redemption so long as they are held by these
purchasers or their affiliates. The purchasers of the warrants issued in the
private placement have agreed that the warrants issued in the private placement
will not be sold or transferred by them until Alyst has completed a business
combination. The mailing address of Alyst’s principal executive office is 233 E.
69th Street, #6J, New York, NY 10021 and its telephone number is (646)
290-6104. Alyst’s home page on the internet is at
http://www.alyst.net, but the information on Alyst’s website is not a part of
this proxy statement/prospectus.
CN
Holdings is a wholly-owned subsidiary of Alyst, incorporated in the British
Virgin Islands on April 17, 2008. CN Holdings was formed to
facilitate the proposed Business Combination and, assuming the Business
Combination Proposal and Redomestication Proposal are approved at the Special
Meeting, will become the surviving corporation of Alyst and ultimate parent of
China Networks Media.
China
Networks Media is a joint-venture provider of broadcast television services in
the People’s Republic of China (‘‘PRC’’), operating in partnership with two
local state-owned enterprises (‘‘SOE’’) in the cities of Kunming and Yellow
River which have been authorized by the PRC government to control the
distribution of broadcast TV services (collectively, “PRC TV Stations”). China
Networks Media owns 100% of Advertising Networks Ltd., a Hong Kong holding
company (‘‘ANT’’), that: (i) owns 50% of each of Shanxi Yellow River and
Advertising Networks Cartoon Technology Co., Ltd. and Kunming Taishi Information
Cartoon Co., Ltd., (collectively “JV Tech Cos”), PRC joint venture companies
formed with PRC TV Stations, and (ii) controls Beijing Guangwang Hetong
Advertising & Media Co., Ltd., a PRC company (‘‘Hetong’’), which in
turn, owns (a) 50% of Kunming Kaishi Advertising Co. Ltd., and (b) 50% of
Taiyuan Advertising Networks Advertising Co., Ltd. (collectively “JV Ad Cos”)
with PRC TV Stations. JV Ad Cos collects 100% of advertising revenue earned by
JV Tech Cos, joint ventures holding assets of PRC TV Stations, through a series
of asset purchase and services agreements. In each locale, these
companies form a group comprising of one JV Tech Co and one JV Ad Co
(collectively referred to as the “Local JV Cos”). PRC TV Stations are owned
directly or indirectly by local branches of the State Administration of Radio,
Film and Television (‘‘SARFT’’). Due to restrictions on foreign ownership of PRC
media and broadcasting entities, China Networks Media’s 50% joint venture
interest is held through a series of contractual arrangements intended to result
in the risks and benefits of JV Ad Cos’ operations being primarily borne by
China Networks Media, rather than through a direct ownership of equity
securities. In addition to seeking to avoid a violation of PRC law, these
arrangements provide, under relevant principles of US generally accepted
accounting principles (“U.S. GAAP”), for the consolidation of 50% of the results
of operations, financial position and cash flows of JV Ad Cos by China Networks
Media. In view of these PRC legal restrictions and prevailing industry practice
with regard to structuring foreign direct investment in China, Alyst has
determined that the Business Combination with China Networks Media satisfies the
requirement contained in its amended and restated certificate of incorporation
that it effect a business combination with an operating
business.
6
Rationale
for the Business Combination
After
careful consideration of the terms and conditions of each proposal, the board of
directors of Alyst has determined that the Redomestication Merger, the Business
Combination and the related transactions and each proposal made in this proxy
statement/prospectus are fair to and in the best interests of Alyst and its
stockholders. In reaching its decision with respect to the
Redomestication Merger, the Business Combination and the related transactions,
the board of directors of Alyst reviewed various industry and financial data and
considered the due diligence and evaluation materials provided by China Networks
Media and due diligence regarding the PRC television advertising market in order
to determine that the consideration to be paid in connection with the Business
Combination is reasonable. Based on such materials and information and on its
own financial and business expertise the board of directors of Alyst also has
concluded that the fair market value of China Networks Media was at least equal
to 80% of the balance of the trust account. Accordingly, Alyst’s
board of directors concluded that the Business Combination meets the
requirements for a business combination set forth in Alyst’s IPO prospectus and
amended and restated certificate of incorporation and recommends that Alyst
stockholders vote “FOR” the Redomestication Proposal, the Business Combination
Proposal, the Share Incentive Plan Proposal and the Adjournment and Postponement
Proposal.
The
Merger Agreement
Pursuant
to the Merger Agreement and subject to stockholder approval, (a) Alyst will
merge with and into CN Holdings, thereby redomesticating to the British Virgin
Islands (the “Redomestication Merger”), and then (b) China Networks
Merger Co., a wholly-owned subsidiary of CN Holdings, will merge with and into
China Networks Media, a British Virgin Islands company (the “Business
Combination”). China Networks Media will be the surviving entity of
that merger. In the Business Combination, CN Holdings will issue to
China Networks Media shareholders aggregate merger consideration of (i)
2,880,000 CN Holdings ordinary shares, (ii) an aggregate of $17,000,000 cash,
(iii) deferred cash payments of up to $6,000,000 and deferred share payments of
up to 9,000,000 ordinary shares of CN Holdings, in each case subject to the
achievement of specified financial milestones set forth in the Merger Agreement,
and (iv) $21,910,000 of proceeds from the exercise of CN Holdings
warrants.
The
Redomestication Merger will result in all of Alyst’s issued and outstanding
shares of common stock immediately prior to the Redomestication Merger
converting into ordinary shares of CN Holdings, and all units, warrants and
other rights to purchase Alyst’s common stock immediately prior to the
Redomestication Merger being exchanged for substantially equivalent securities
of CN Holdings at the rate set forth in the Merger Agreement. The
shares of CN Holdings shall continue to be quoted on Nasdaq, or such other
public trading market on which its shares may be trading at such time, Alyst
will cease to exist and CN Holdings will be the surviving
corporation.
The
Business Combination will be effected immediately after the Redomestication
Merger. Each ordinary share of China Networks Media issued and
outstanding prior to the business Combination will be converted automatically
into one ordinary share of CN Holdings, and each class A preferred share of
China Networks Media outstanding immediately prior to the Business Combination
will convert into one share of CN Holdings. The stockholders of China
Networks Media will also receive the cash and other consideration described
above. China Networks Merger Co. will cease to exist and China
Networks Media will be the surviving corporation.
Upon
the consummation of the Redomestication Merger and the Business Combination, CN
Holdings will own 100% of the issued and outstanding shares of China Networks
Media. As of the closing, the shares of CN Holdings will be owned 77%
by the previous stockholders of Alyst, 15% by the previous holders of ordinary
shares of China Networks Media and 8% by the previous holders of class A
preferred shares of China Networks Media.
If
Alyst does not consummate the Business Combination with China Networks Media and
it is unable to complete another acquisition by June 29, 2009, it will be
required to liquidate and dissolve pursuant to its amended and restated
certificate of incorporation. Under its amended and restated
certificate of incorporation as currently in effect, if Alyst does not acquire
at least majority control of a target business by June 29, 2009, Alyst will
dissolve and distribute to its public stockholders the amount in the trust
account plus any remaining net assets. Following dissolution, Alyst would no
longer exist as a corporation. See the risk factor on page 26 of this proxy
statement/prospectus relating to risks associated with the dissolution of
Alyst.
7
Management. The current management
of China Networks Media and its subsidiaries is led by Mr. Li Shuangqing. After
consummation of the Redomestication Merger and the Business Combination, Mr. Li
will be the Chief Executive Officer and Co-Chairman of China Networks Media and
Zhou Chuansheng will be the Vice President of Sales and Marketing. CN
Holdings’ board of directors after the Redomestication Merger and the Business
Combination is expected to consist of Li Shuangqing, Kerry Propper, Michael
Weksel and four other individuals that will be appointed prior to Alyst’s
Special Meeting, of which three may be selected by Alyst. As a
condition to the consummation of the Business Combination, Mr. Li Shuangqing
will enter into an employment agreement with CN Holdings, pursuant to
which he will serve as the Chief Executive Officer of CN Holdings. Michael
Weksel is the Chief Financial Officer of China Networks Media and he will
serve as the Chief Financial Officer of CN Holdings after the
consummation of the Business Combination.
Alyst’s
Recommendation; Interests of Alyst’s Management
After
careful consideration, Alyst’s board of directors has determined that the
Redomestication Merger, the Business Combination and the other proposals to be
presented at this Special Meeting are fair to, and in the best interests of,
Alyst and its stockholders. The board of directors has approved and declared
advisable the proposals, and recommends that you vote or direct that your vote
to be cast ‘‘FOR’’ the adoption of each proposal.
When you
consider the recommendation of the board of directors, you should keep in mind
that the members of the board of directors have interests in the Business
Combination that are different from, or in addition to, yours. These interests
include the following:
|
|
·
|
If
the proposed Business Combination is not completed, and Alyst is unable to
complete another acquisition by June 29, 2009, Alyst will subsequently be
required to liquidate. Upon liquidation, the shares of common stock owned
by Alyst’s directors will be worthless because the shares will no longer
have any value and the directors are not entitled to liquidation
distributions from Alyst. In addition, the possibility that Alyst’s
officers and directors will be required to perform their obligations under
the indemnity agreements referred to below will be substantially
increased.
|
|
|
·
|
In
connection with Alyst’s IPO, Alyst’s current officers and directors agreed
to indemnify Alyst for debts and obligations to vendors that are owed
money by Alyst for services rendered or products sold to Alyst, but only
to the extent necessary to ensure that certain liabilities do not reduce
funds in the trust account. If the Business Combination is consummated,
Alyst’s officers and directors will not have to perform such obligations.
If the Business Combination is not consummated, however, Alyst’s officers
and directors could potentially be liable for any claims against the trust
account by vendors who did not sign
waivers.
|
|
|
·
|
All
rights of Alyst’s officers and directors to be indemnified by Alyst, and
of Alyst’s directors to be exculpated from monetary liability with respect
to prior acts or omissions, will continue after the Business Combination
pursuant to provisions in CN Holdings’ Amended and Restated Memorandum and
Articles of Association, forms of which are attached hereto as Annexes C
and D, respectively. However, if the Business Combination is not approved
and Alyst subsequently liquidates, its ability to perform its obligations
under those provisions will be substantially impaired since it will cease
to exist. If the Business Combination is ultimately completed, CN
Holdings’ ability to perform such obligations will be substantially
enhanced.
|
|
|
·
|
It
is anticipated that China Networks Media’s current Chief Executive
Officer, Li Shuangqing, will enter into an employment agreement with CN
Holdings as a condition to the consummation of the Merger Agreement. The
employment agreement must be approved by a majority of the independent
directors of CN Holdings’ Board of
Directors.
|
|
|
·
|
Under
the Share Incentive Plan, as proposed, directors of CN Holdings’ Board of
Directors may be granted options to purchase shares of CN
Holdings. Under the Merger Agreement, Alyst is entitled to
appoint three directors to the post-merger CN Holdings’ Board of
Directors, who will be entitled to receive shares or option grants under
the Plan.
|
|
|
·
|
It
is expected that three of the current directors of Alyst, including
Michael Weksel, will serve as directors of CN Holdings if the
Business Combination is
consummated.
|
8
Certain
U.S. Federal Income Tax Consequences
As
described below under the heading ‘‘Material United States Federal Income Tax
Considerations,’’ subject to the qualifications included in that discussion, the
Redomestication Merger should qualify as a “reorganization” under applicable
U.S. federal income tax principles. In such case no gain or loss should be
recognized by Alyst stockholders or warrant holders for U.S. federal income tax
purposes as a result of their exchange of Alyst common stock or warrants for the
ordinary shares or warrants of CN Holdings, but it is anticipated that for
U.S. federal income tax purposes, as to each of its assets, Alyst should
recognize gain (but not loss) realized as a result of the Redomestication
Merger in an amount equal to the excess (if any) of the fair market value
of such asset over such asset’s adjusted tax basis at the effective time of the
Redomestication Merger. CN Holdings should not recognize any gain or loss for
U.S. federal income tax purposes as a result of the Business Combination.
Although it is anticipated that the ‘‘anti-inversion’’ provisions in the
Internal Revenue Code of 1986, as amended, should not apply to treat CN Holdings
as a U.S. corporation after the Redomestication Merger and Business Combination,
this matter is not free from doubt. It is expected that these anti-inversion
rules will apply, however, to restrict Alyst from using any net operating loss
that might otherwise be available to it to offset any gain it will recognize as
a result of the Redomestication Merger.
Listing
Alyst’s
common stock (AYA), warrants (AYA.WS) and units (AYA.U) are currently listed on
the NYSE Alternext.
CN
Holdings is applying to have its ordinary shares, warrants and units listed on
the Nasdaq under the symbols CHTV, CHTV.W, and CHTV.U,
respectively.
9
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This
proxy statement/prospectus contains or incorporates by reference certain
forward-looking statements and information relating to Alyst, CN Holdings and
China Networks Media that are based on the beliefs of their respective board of
directors and officers, as well as certain assumptions and information currently
available to them. Forward-looking statements include statements
concerning projected financial data, plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical fact. When used in this
proxy statement/prospectus, the words “anticipate,” “believe,” “estimate,”
“expect,” “plan,” “intend,” “project,” “predict,” “may,” and “should” and
similar expressions are intended to identify forward-looking
statements. These statements are based on the parties’ current
expectations and are naturally subject to uncertainty of and change in
circumstances. Actual results may vary materially from the
expectations contained in this document. The following factors, among
others, could cause results to differ materially from those described in this
proxy statement/prospectus: any economic, business, competitive and/or
regulatory factors affecting China Networks Media’s business
generally. Unless required by law, none of Alyst, CN Holdings or
China Networks Media undertakes any obligation to update publicly any
forward-looking statements set forth in this proxy statement/prospectus, whether
as a result of new information, future events or otherwise.
10
RISK
FACTORS
You
should carefully consider the following risk factors, together with all of the
other information included in this proxy statement/prospectus, before you decide
whether to vote or direct your vote to be cast to approve the Redomestication
Merger, the Business Combination and the other proposals described in this proxy
statement/prospectus.
China
Networks Media’s business substantially depends on the PRC TV Stations it
partners with.
China
Networks Media relies heavily on its access to advertising time slots on the PRC
TV Stations to broadcast clients’ advertisements. Any unfavorable change in the
PRC TV Stations’ advertising model, any changes that adversely affect their
market position or any limitation on China Networks Media’s access to desired
television advertising time slots would materially adversely affect its results
of operations and financial position.
The PRC
TV Stations are the sole television networks for which China Networks Media
currently sells advertising time and are owned by the Chinese
government. As a result, the PRC TV Stations enjoy certain favorable
governmental support that might not be available to privately owned networks.
For example, the government mandates that the PRC TV Stations be broadcast in
their local regions. The PRC TV Stations also face increasing
competition from other regional and national television networks that strive to
offer more attractive television programs to compete with the PRC TV Stations
for television audiences. If the PRC TV Stations fail to compete successfully
against these other networks, they may lose market share. Any changes that could
potentially erode the PRC TV Stations’ market position, such as relaxation of
media control by the government or inadequate response to competition from other
networks by the PRC TV Stations, could in turn reduce the attractiveness of
China Networks Media’s advertising offerings and materially adversely affect its
results of operations and financial position.
Television
advertising in China faces significant competition from existing and new
competitors, and if China Networks Media does not compete successfully against
them, it may lose market share and its profitability may be materially
harmed.
The
advertising industry in China is intensely competitive and highly
fragmented. China Networks Media competes with other industry
participants mainly on the basis of service quality, available advertising time
slots, price, reputation and relationships with television networks. China
Networks Media also faces significant competition in selling advertising space
to advertisers and their advertising agencies mainly from other media sales
companies that have dedicated relationships to particular PRC TV Stations and/or
companies that broker timeslots from those stations. At the national level these
include such companies as SinoMedia Holding Limited, Walk-on Advertising Co.
Ltd., China Mass Media International Advertising Corporation and Charm
Communication Group. At the local level, China Networks Media competes with
other local television stations in the region on the basis of desirability of
time slots offered, television network coverage, service quality, brand name and
pricing.
In
addition, in securing further media resources through JV or other contractual
relationships, China Networks Media faces competition from other media sales
companies and/or advertising agencies who could become its competitors for media
resources on other stations. China Networks Media also faces
competition from new entrants in the television advertising sector, including
the wholly foreign-owned advertising companies that have been allowed to operate
in China since December 2005, which exposes it to increased competition from
advertising media companies that have greater financial and other resources than
it does.
Television
advertising in China competes against other forms of advertising media and
advancing technology, and if China Networks Media does not adapt successfully,
it may lose market share and its profitability may be materially
harmed.
Television
advertising, upon which China Networks Media depends for its business, competes
with other forms of advertising media for overall advertising spending, such
as
|
|
·
|
radio,
|
11
|
|
·
|
newspapers,
|
|
|
·
|
magazines,
|
|
|
·
|
the
Internet,
|
|
|
·
|
indoor
or outdoor flat panel displays,
|
|
|
·
|
billboards
and
|
|
|
·
|
public
transport advertising.
|
According
to ZenithOptimedia, advertising spending in media other than television
collectively accounted for approximately 60.7% of total advertising spending in
China in 2007. In particular, the Internet is becoming increasingly popular as
an alternative advertising medium among advertisers.
In
addition, technology in television, video, data services and other media used in
the entertainment industry is changing rapidly, and advances in technology have
led to alternative methods of content delivery and storage, including in the
case of cable television, a significantly expanded menu of channel offerings.
Certain changes in the behavior of television viewers driven by these methods of
delivery and storage could have a negative effect on television advertising
revenues. For example, devices that enable users to view television programs on
a time-delayed basis or allow them to fast-forward or skip advertisements may
cause changes in consumer behavior that could adversely affect the advertising
revenues of television networks and China Networks Media’s results of
operations.
China
Networks Media has a very limited operating history, which may make it difficult
for you to evaluate its business and prospects.
In
2008, China Networks Media established certain equity joint ventures with PRC TV
Stations through its Hong Kong wholly-owned subsidiary, ANT. ANT established an
equity joint venture under the name of Shanxi Yellow River and Advertising
Networks Cartoon Technology Co., Ltd. (“Taiyuan JV”) with China Yellow River TV
Station in Shanxi Province in June 2008; and ANT established an equity joint
venture under the name Kunming Taishi Information Cartoon Co., Ltd. (“Kunming
JV”) with Kunming TV Station in Yunnan Province in July 2008 (Taiyuan JV and
Kunming JV are collectively referred to as the “JV Tech Cos”). The
respective historical operating results of the Kunming and Taiyuan TV
stations’ advertising operations may not provide a meaningful basis for
evaluating China Networks Media’s business, financial performance and prospects,
particularly in view of the fact that the networks comprising the operations of
China Networks have historically been operated independently.
China
Networks Media also faces numerous risks, uncertainties, expenses and
difficulties frequently encountered by companies at an early stage of
development. Some of these risks and uncertainties relate to its ability
to:
|
|
·
|
develop
new customers or new business from existing
customers;
|
|
|
·
|
expand
the technical sophistication of the products it
offers;
|
|
|
·
|
respond
effectively to competitive pressures;
and
|
|
|
·
|
attract
and retain qualified management and
employees.
|
China
Networks Media cannot predict whether it will meet internal or external
expectations regarding future performance. If China Networks Media is not
successful in addressing these risks and uncertainties, its business, operating
results and financial condition may be materially adversely
affected.
12
China
Networks Media may encounter difficulties in expanding into other regional
television networks, which may materially and adversely affect its business,
financial condition and results of operations.
One
important element of China Networks Media’s strategy is to expand its presence
into other regional television networks. Implementation of this strategy will be
subject to many risks, including, but not limited to, the
following:
|
|
·
|
China
Networks Media has no track record in obtaining advertisement resources
from other regional television
networks;
|
|
|
·
|
There
is expected to be intense competition from advertising companies that are
already well-established in those
markets;
|
|
|
·
|
China
Networks Media may not be able to accurately assess and adjust to the
consumer tastes, preferences and demands in the relevant regional markets;
and
|
|
|
·
|
It
may not be possible to generate enough revenue to offset
costs.
|
These and
other risks may make China Networks Media’s expansion into other regional
television networks unsuccessful. In addition, implementing this strategy may
require it to devote significant resources to promoting advertising time slots
on such regional television networks, which may divert management’s attention
from its existing business. If China Networks Media is not successful in
expanding into other regional television networks, its business, financial
condition and results of operations may be materially and adversely
affected.
CN
Holdings may need additional capital to fund the growth of China Networks
Media’s business, which may not be available on acceptable terms or at all, and
which, if available, could dilute your interest in CN Holdings.
Capital
requirements are difficult to plan in the rapidly changing advertising
industry. China Networks Media expects that its current cash and cash
equivalents, cash flow from operations and the proceeds from the Business
Combination with Alyst will be sufficient to meet its anticipated cash needs,
for both working capital and capital expenditures, for the foreseeable future.
If, however, there are unforeseen changes in general business conditions or
unexpected developments in its business or expansion, CN Holdings may require
additional cash resources. For example, CN Holdings may seek to sell additional
equity or debt securities or obtain a credit facility. The sale of convertible
debt securities or additional equity securities could result in additional
dilution to the shareholders of CN Holdings. Furthermore, if CN Holdings incurs
more debt, it will be liable for increased debt service costs and might have to
agree to operating and financing covenants that would restrict its operations
and liquidity.
CN
Holdings’ ability to obtain additional capital on commercially acceptable terms
is subject to significant risks and uncertainties, including:
|
|
·
|
investors’
perception of, and demand for, its
securities;
|
|
|
·
|
prevailing
conditions in the global financial and capital markets in
which it will seek to raise
funds;
|
|
|
·
|
the
future results of operations, financial condition and cash flows of China
Networks Media;
|
|
|
·
|
PRC
governmental regulation of foreign investment in advertising companies in
China;
|
|
|
·
|
PRC
governmental policies relating to foreign exchange;
and
|
|
|
·
|
economic,
political and other conditions in
China.
|
Any
failure to raise additional funds when needed could limit CN Holdings’ ability
to expand or develop its operations to respond to market demand or competitive
challenges.
13
The
Chinese government could change its policies toward, or even nationalize,
private enterprise, which could reduce or eliminate the interests held in China
Networks Media.
Over the
past several years, the Chinese government has pursued economic reform policies,
including the encouragement of private economic activities and decentralization
of economic regulation. The Chinese government may not continue to pursue these
policies or may significantly alter them to China Networks Media’s detriment
from time to time without notice. Changes in policies by the Chinese government
that result in a change of laws, regulations, their interpretation, or the
imposition of high levels of taxation, restrictions on currency conversion or
imports and sources of supply could materially and adversely affect China
Networks Media’s business and operating results. The nationalization or other
expropriation of private enterprises by the Chinese government could result in
the total loss of China Networks Media’s investment in China.
China
Networks Media’s business may be adversely affected by unforeseen events or
natural disasters that are beyond its control, such as the 2008 earthquake
in Sichuan Province, or the global financial crisis.
China
Networks Media’s business may be adversely affected by certain events, natural
disasters beyond its control, such as the magnitude 8.0 earthquake that struck
Sichuan Province in May 2008, or the global financial crisis. Many
television stations in China significantly changed their programming after the
earthquake to broadcast developments and rescue operations relating to the
earthquake. All television channels in China ceased to broadcast any
advertisements during a three-day national mourning period from May 19, 2008 to
May 21, 2008. Certain television advertisements with content that was deemed to
be inappropriate for broadcast during coverage of this tragic event were
suspended in May and June 2008. Such unforeseen events, natural disasters or the
global financial crisis may adversely affect advertisement spending of its
clients which in turn may adversely affect its sales and results of operations.
Furthermore, if other events occur in the future or the global financial crisis
is prolonged or deepens, its business, financial condition and results of
operations may be adversely affected.
China
Networks Media may become subject to government actions due to its advertising
content, which may have a material adverse effect on its financial condition and
results of operations.
PRC
advertising laws and regulations require advertisers, advertising distributors
and advertising service providers, such as China Networks Media, to ensure that
the content of the advertisements prepared or distributed are fair, accurate and
in full compliance with applicable laws. Violation of these laws or regulations
may result in penalties, including
|
|
·
|
fines,
|
|
|
·
|
confiscation
of advertising fees,
|
|
|
·
|
orders
to cease disseminating the advertisements
and
|
|
|
·
|
orders
to publish public announcements to correct the misleading
information.
|
In
circumstances involving serious violations, the PRC government may revoke a
license to operate an advertising business. In addition, such noncompliance
can constitute a violation of criminal law and criminal proceedings could be
brought as a result.
Under the
relevant PRC regulations, China Networks Media is required to independently
review and verify the content of a client’s advertisement for compliance and to
confirm that any required government review has been performed and that all
necessary approvals have been obtained. In addition, for advertising content
related to certain types of products, such as tobacco, alcohol, cosmetics,
pharmaceuticals and medical instruments, China Networks Media is required to
confirm that the advertisers have obtained requisite government approvals
relating to their operations, including the advertisers’ operating
qualifications and proofs of quality inspection. Under contracts with
advertising clients, advertisers are responsible for obtaining any PRC
government approvals or licenses required for their advertisements and providing
China Networks Media with proof of such approvals or licenses prior to it
placing its clients’ advertisements. While China Networks Media ensures
advertising content is reviewed for compliance with relevant PRC laws and
regulations, there can be no assurance that each advertisement placed is in
compliance with the relevant PRC laws and regulations or that the supporting
documentation and government approvals provided by advertising clients are true
and complete. Any failure to conduct such review may subject China Networks
Media to governmental inspections or actions.
14
Governmental
proceedings may harm China Networks Media’s reputation and may divert
significant amounts of management’s time and other resources. It may be
difficult and expensive to defend against such proceedings. There can be no
assurance that China Networks Media would successfully defend such claims, and
if it fails to do so it would have to bear the costs of all such actions as well
as any fines imposed. In addition, some of its existing contracts with
advertising clients do not provide China Networks Media with any indemnity from
its clients for claims relating to advertising content. As a result of the
foregoing, any governmental proceedings brought could have a material adverse
effect on its business, financial condition and results of
operations.
China
Networks Media may be subject to intellectual property infringement claims,
which may be expensive to defend and may disrupt its business and
operations.
China
Networks Media places advertisements provided by advertising clients on
television. In doing so, it may employ information, software programs,
technology or equipment supplied by other parties, to which such parties may not
have intellectual property rights. Some of its existing contracts with
advertising clients do not provide indemnity for any intellectual property
infringement claims relating to the advertisements provided. China
Networks Media cannot be certain that its operations or any aspects of its
business do not or will not infringe upon patents, copyrights or other
intellectual property rights held by third parties. Although China Networks
Media is not aware of any such claims, it may become subject to legal
proceedings and claims from time to time relating to the intellectual property
rights of others. If China Networks Media is found to have violated the
intellectual property rights of others, it:
|
|
·
|
may
be subject to liability for infringement activities or may be prohibited
from using such intellectual
property,
|
|
|
·
|
may
incur licensing fees or be forced to develop
alternatives.
|
|
|
·
|
may
incur significant expenses, and
|
|
|
·
|
may
be forced to divert management’s time and other resources from its
business and operations to defend against these third-party infringement
claims, regardless of their merits.
|
Successful
infringement or licensing claims may result in significant monetary liabilities
and may materially disrupt China Networks Media’s business and operations by
restricting or prohibiting the use of the intellectual property in
question.
Foreign
exchange regulations in the PRC may affect China Networks Media’s ability to pay
dividends in foreign currency or conduct other foreign exchange
business.
Renminbi,
or RMB, is not presently a freely convertible currency, and the restrictions on
currency exchanges may limit China Networks Media’s ability to use revenues
generated in RMB or to make dividends or other payments in U.S. dollars. The PRC
government, through the State Administration for Foreign Exchange (‘‘SAFE’’),
regulates conversion of RMB into foreign currencies. Currently, foreign invested
enterprises are required to apply for ‘‘Foreign Exchange Registration
Certificates’’ and to renew those certificates annually. In addition, SAFE
recently issued a new regulation, under which RMB converted from the registered
capital shall only be utilized in accordance with the purposes approved by the
relevant government authority (including the local SAFE). The local SAFE has the
right to
|
|
·
|
take
appropriate remedial action,
|
|
|
·
|
confiscate
any illegal income and
|
|
|
·
|
impose
a fine in the event of a contravention of the new
regulation.
|
15
In
the event that China Networks Media is unable to convert the registered capital
conveniently, this would restrict its ability to operate its foreign exchange
business.
China
Networks Media may have difficulty establishing adequate management, legal and
financial controls in the PRC, which could result in misconduct and difficulty
in complying with applicable laws and requirements.
As
quasi-governmental businesses in the PRC, the networks comprising China Networks
Media have not historically focused on establishing Western-style management and
financial reporting concepts and practices, as well as modern banking, computer
and other internal control systems. China Networks Media may have difficulty in
hiring and retaining a sufficient number of qualified internal control employees
to work in the PRC. As a result of these factors, China Networks Media may
experience difficulty in establishing management, legal and financial controls,
collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that meet Western
standards, especially on the operation level of China Networks Media’s joint
ventures with municipal broadcast TV network operators.
Advertising
clients periodically review and change their advertising or marketing models and
strategies, and if China Networks Media fails to adapt quickly to such changes,
it may be unable to attract advertisers and increase the demand for its
services.
Advertising
service contracts with clients are generally entered into on a short-term and
non-exclusive basis. A client’s decision to place its advertisements with China
Networks Media is affected by a number of factors, including
|
|
·
|
the
desirability of time slots it offers on the relevant PRC TV
Stations,
|
|
|
·
|
the
extent of television network coverage
provided,
|
|
|
·
|
the
service packages and pricing structure offered
and
|
|
|
·
|
the
client’s perception of the effectiveness and quality of its
services.
|
If China
Networks Media fails to retain its existing clients or increase advertisers’
awareness and utilization of its services, or to formulate attractive service
packages and pricing structures to attract new clients, demand for its services
will not grow and may even decrease. Advertisers might be unwilling to seek time
slots from China Networks Media or to pay the levels of advertising fees it
requires to generate profits, which could materially and adversely affect its
ability to increase revenues and profitability.
China
Networks Media depends on the services of key personnel, including Mr. Li
Shuangqing, chairman and chief executive officer, and its business and growth
prospects may be severely disrupted if it loses his services.
Mr. Li
Shuangqing, chairman and chief executive officer of China Networks Media, has
led the company since its establishment. The business and operations of China
Networks Media depend to a significant extent on his business vision, industry
expertise, experience with its business operations and management skills, as
well as his relationships with television stations, many key clients and
employees. China Networks Media does not maintain key-man life insurance for Mr.
Li Shuangqing. If he becomes unable or unwilling to continue in his
present position, it may not be possible to replace him in a timely manner or at
all, which would have a material adverse effect on business and growth prospects
of China Networks Media.
If
China Networks Media fails to maintain an effective and adequate sales and
marketing team, its sales and revenues could materially decrease.
China
Networks Media depends on its sales personnel to increase advertisers’
awareness, acceptance and utilization of its services, which are crucial to its
revenues, business and growth. China Networks Media currently has 17 employees
directly engaged in sales. Consistent with the industry norm, China Networks
Media typically experiences a high turnover rate among sales personnel, and
there can be no assurance that its current sales personnel will remain effective
or loyal. China Networks Media faces intense competition for
experienced sales personnel both from direct competitors and other advertising
and media companies. Furthermore, China Networks Media will need to continue
expanding its sales force if its business continues to grow. It may
not be able to hire, retain, integrate or motivate an adequate number of
qualified new sales personnel as it grows its business, which could disrupt its
business and cause revenues to materially decrease.
16
Risks
Relating to China Networks Media’s Corporate Structure
China
Networks Media exercises voting and economic control over Hetong pursuant to
contractual agreements among the Hetong shareholders, the JV Tech Cos and ANT
that may not be as effective as direct ownership.
As a
result of the contractual agreements entered into between ANT and the
shareholders of Hetong, ANT controls and is considered the primary beneficiary
of Hetong, and is entitled to consolidate the financial results of Hetong, which
includes Hetong’s 50% economic interest in the financial results of Kunming
Kaishi Advertising Co., Ltd. and Taiyuan Guangwang Hetong Advertising Co., Ltd.
(collectively, the “JV Ad Cos”). While the terms of these contractual agreements
are designed to minimize the operational impact of governmental regulation of
the media, cultural and telecommunications industries in the PRC, and provide
ANT with voting control and the economic interests associated with the
stockholders’ equity interest in Hetong, they are not accorded the same status
at law as direct ownership of Hetong and may not be as effective in providing
and maintaining control over Hetong as direct ownership. For
example:
|
|
·
|
ANT
may not be able to take control of Hetong upon the occurrence of certain
events, such as the imposition of statutory liens, judgments, court
orders, death or incapacity.
|
|
|
·
|
If
the PRC government proposes new laws or amends current laws that are
detrimental to the contractual agreements with Hetong, such changes may
effectively eliminate China Networks Media’s control over the Hetong and
its ability to consolidate the JV Tech Cos and the JV Ad
Cos.
|
|
|
·
|
If
the shareholders of Hetong fail to perform as required under those
contractual agreements, ANT will have to rely on the PRC legal system to
enforce those agreements and there is no guarantee that it will be
successful in an enforcement
action.
|
Furthermore,
if China Networks Media, or ANT, were found to be in violation of any existing
PRC laws or regulations, the relevant regulatory authorities would have broad
discretion to deal with such violation, including, but not limited to the
following:
|
|
·
|
levying
fines;
|
|
|
·
|
confiscating
income; and/or
|
|
|
·
|
requiring
a restructuring of ownership or
operations.
|
The
agreements that establish the structure for operating China Networks Media’s
business may result in the relevant PRC government regulators revoking or
refusing to renew JV Tech Cos respective operating permits.
JV
Tech Cos obtained exclusive operating rights by entering into exclusive
cooperation agreements with PRC TV Stations who are 100% owned by different
levels of branches of SARFT in Kunming and Taiyuan municipality. PRC TV Stations
enjoy the right to provide broadcast television services in their territories.
Any foreign-invested enterprise incorporated in the PRC is prohibited from
conducting a business that involves the transmission of broadcast television or
the provision of cable access services. China Networks Media’s contractual
arrangements with Hetong and its shareholders provide it with the economic
benefits of the JV Ad Cos. If SARFT determines that its control over Hetong, or
relationship with the JV Ad Cos through those contractual arrangements is
contrary to their generally restrictive approach towards foreign participation
in the PRC broadcast television industry, there can be no assurance that SARFT
will not reconsider JV Ad Cos’ eligibility to hold exclusive rights to provide
advertising services to PRC TV Stations. If that were to happen, China Networks
Media might have to discontinue all or a substantial portion of its business
pending the approval of exclusive service and operating rights on the required
operating permit held by PRC TV Stations. In addition, if China Networks Media
is found to be in violation of any existing or future PRC laws or regulations,
the relevant regulatory authorities, including the SARFT, would have broad
discretion in dealing with such violation, including:
17
|
|
·
|
levying
fines,
|
|
|
·
|
confiscating
its income,
|
|
|
·
|
revoking
the business licenses or operating licenses of its PRC affiliates and PRC
TV Stations,
|
|
|
·
|
requiring
China Networks Media to restructure the relevant ownership structure or
operations, and
|
|
|
·
|
requiring
it to discontinue all or any portion of its
operations.
|
Any of
these actions could cause significant disruption to its business operations and
may materially and adversely affect its business, financial condition and
results of operations.
Risks
Relating to the People’s Republic of China
Adverse
changes in economic policies of the PRC government could have a material adverse
effect on the overall economic growth of the PRC, which could reduce the demand
for China Networks Media’s services and materially adversely affect its
business.
All of
China Networks Media’s assets are located in and all of its revenue is sourced
from the PRC. Accordingly, China Networks Media’s business, financial condition,
results of operations and prospects will be influenced to a significant degree
by political, economic and social conditions in the PRC generally and by
continued economic growth in the PRC as a whole.
The PRC
economy differs from the economies of most developed countries in many respects,
including the amount of government involvement, level of development, growth
rate, control of foreign exchange and allocation of resources. Although the PRC
government has implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets
in the PRC is still owned by the PRC government. In addition, the PRC government
continues to play a significant role in regulating industry development by
imposing industrial policies. The PRC government also exercises significant
control over the PRC’s economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or
companies.
While
the PRC economy has experienced significant growth over the past decade, growth
has been uneven, both geographically and among various sectors of the economy.
The PRC government has implemented various measures to encourage economic growth
and guide the allocation of resources. Some of these measures benefit the
overall PRC economy, but may also have a negative effect on China Networks
Media. For example, China Networks Media’s operating results and financial
condition may be adversely affected by government control over capital
investments or changes in tax regulations that are applicable to it.
18
Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit
the legal protections available to you and China Networks Media.
The PRC
legal system is a civil law system based on written statutes. Unlike common law
systems, it is a system in which legal decisions have limited value as
precedents. In 1979, the PRC government began to promulgate a comprehensive
system of laws and regulations governing economic matters in general. The
overall effect of legislation over the past three decades has significantly
increased the protections afforded to various forms of foreign or private-sector
investment in the PRC. These laws and regulations change frequently, and their
interpretation and enforcement involve uncertainties. For example, China
Networks Media may have to resort to administrative and court proceedings to
enforce the legal protections that it enjoys either by law or contract. However,
since PRC administrative and court authorities have significant discretion in
interpreting and implementing statutory and contractual terms, it may be more
difficult to evaluate the outcome of administrative and court proceedings and
the level of legal protection China Networks Media enjoys than in more developed
legal systems. These uncertainties may also impede China Networks Media’s ability to enforce the contracts it has
entered into. As a result, these uncertainties could materially adversely affect
China Networks Media’s business and operations.
Under
the PRC’s
Enterprise Income Tax Law, it is unclear whether CN Holdings and China Networks
Media will be classified as “resident enterprises” or “non-resident enterprises”
of China. Depending on the classification, there could be certain unfavorable
tax consequences to CN Holdings and China Networks Media and their non-PRC
shareholders.
On
March 16, 2007, the National People’s Congress approved and promulgated a new
tax law, the PRC Enterprise Income Tax Law, or “EIT Law,” which took effect on
January 1, 2008. The EIT Law and its
implementation rules are relatively recent developments in the PRC and are
ambiguous in terms of definitions, requirements and procedures. There is also a
dearth of published official guidance with respect to the EIT Law, which makes
it difficult at this stage to determine how the PRC tax authorities will
interpret the provisions of the law and its implementing rules with respect to
certain of the tax matters addressed below.
Pursuant
to the EIT Law and its implementation rules, enterprises established outside the
PRC whose actual management or control is located in the PRC can be considered
“resident enterprises” for purposes of the EIT Law. According to the
implementation rules of the EIT Law, “management” generally refers to the person
or body of persons that exercises substantial and overall management and control
over the manufacturing and business-operations, personnel, accounting and
properties of an enterprise. China Networks Media’s management is
located in the PRC and is expected to remain located in the PRC in the future.
Therefore, it is likely that China Networks Media and potentially CN Holdings
could be considered “resident enterprises” by the PRC tax authorities. As
indicated above, it is unclear as to how the PRC tax authorities will determine
tax residency based on the facts of each case.
If the
PRC tax authorities determine that CN Holdings or China Networks Media is a
“resident enterprise” for purposes of the EIT Law:
|
|
·
|
Such
company would be subject to PRC enterprise income tax at a rate of 25
percent (the “EIT”) on its worldwide
income;
|
|
|
·
|
Such
company would be liable for the EIT on dividends it receives from
subsidiaries unless such company is a “qualifying resident enterprise” and
the dividend it receives is attributable to direct investment in another
“qualifying resident enterprise” that is paying the dividend (it is
unclear whether CN Holdings or China Networks Media would qualify as a
“qualifying resident enterprise” in light of uncertainties of
interpretation and lack of official
guidance);
|
|
|
·
|
Such
company may be required to withhold a 10 percent PRC withholding tax on
dividends it pays to non-resident enterprise shareholders (subject to
possible reduction under an applicable income tax treaty);
and
|
|
|
·
|
Gains
derived by non-resident enterprise shareholders upon disposition of shares
of such company may be subject to a 10 percent PRC withholding tax
(subject to possible reduction under an applicable income tax
treaty).
|
Non-PRC
shareholders may be entitled to a foreign tax credit with respect to the PRC
withholding tax referred to above against their domestic income tax liability
(subject to applicable conditions and limitations). Because of the lack of
clarity and the complexities in interpretation associated with potential PRC tax
liabilities, each holder of our securities should consult their own tax advisors
regarding the applicability of any such taxes, the effects of any applicable
income tax treaties, and any available foreign tax credits.
If CN
Holdings or China Networks is classified as a “non-resident
enterprise”
for purposes of the EIT Law, PRC-source dividends received by them may be
subject to a 10 percent PRC withholding tax. Under the EIT Law and its
implementing rules, a withholding tax at the rate of 10 percent will normally
apply to PRC-source dividends payable to investors who are “non-resident
enterprises” — defined as enterprises that do not have an establishment or place
of business in the PRC or that have such an establishment or place of business
but the relevant income is not effectively connected with such establishment or
place of business. Such withholding tax may be exempted or reduced by the State
Council of the PRC or pursuant to a tax treaty between the PRC and the
jurisdiction in which the non-resident enterprise resides.
Similar
PRC tax considerations to those discussed above may pertain to Advertising
Networks Ltd., (which also may be subject to local jurisdiction tax
obligations).
Risks
Relating to the Redomestication Merger
Following
consummation of the Redomestication Merger, Alyst will become a BVI company
and, because the rights of shareholders under BVI law differ from those
under U.S. law, you may have fewer protections as a
shareholder.
Following
the consummation of the Redomestication Merger, the resulting company’s
corporate affairs will be governed by its Amended and Restated Memorandum and
Articles of Association, the BVI Business Companies Act, 2004 (as amended) of
the British Virgin Islands (the ‘‘Act’’) and the common law of the British
Virgin Islands. Forms of CN Holdings's Amended and Restated Memorandum and
Articles of Association are attached hereto as Annexes C and D, respectively.
The rights of shareholders to take action against the directors, actions by
minority shareholders and the fiduciary responsibility of the directors
under BVI law are governed by the Act and the common law of the British
Virgin Islands. The common law of the British Virgin Islands is derived in part
from comparatively limited judicial precedent in the British Virgin Islands as
well as from English common law, which has persuasive, but not binding,
authority on a court in the British Virgin Islands. The rights of shareholders
and the fiduciary responsibilities of directors under BVI law are not as clearly
established as they would be under statutes or judicial precedent in some
jurisdictions in the United States. In particular, the British Virgin Islands
has a less prescriptive body of securities laws as compared to the United
States, and some states (such as Delaware) have more fully developed and
judicially interpreted bodies of corporate law. The rights of minority
shareholders are set forth below in the section entitled “The Redomestication
Proposal – Rights of Minority Shareholders.”
BVI
companies may not be able to initiate shareholder derivative actions, thereby
depriving shareholders of the ability to protect their interests.
BVI
companies may not have standing to initiate a shareholder derivative action in a
federal court of the United States. The circumstances in which any such action
may be brought, and the procedures and defenses that may be available in respect
to any such action, may result in the rights of shareholders of a BVI company
being more limited than those of shareholders of a company organized in the
United States. Accordingly, shareholders may have fewer alternatives available
to them if they believe that corporate wrongdoing has occurred. The BVI courts
are also unlikely to recognize or enforce against CN Holdings’ judgments of
courts in the United States based on certain liability provisions of U.S.
securities law and to impose liabilities against it, in original actions brought
in the British Virgin Islands, based on certain liability provisions of U.S.
securities laws that are penal in nature.
19
Although
there is no statutory enforcement in the British Virgin Islands of judgments
obtained in the United States, the courts of the British Virgin Islands will
recognize a foreign judgment as the basis for a claim at common law in the
British Virgin Islands provided:
|
|
·
|
the
U.S. court issuing the judgment had jurisdiction in the matter and the
company either submitted to such jurisdiction or was resident or carrying
on business within such jurisdiction and was duly served with
process;
|
|
|
·
|
the
judgment given by the U.S. court was not in respect of penalties, taxes,
fines or similar fiscal or revenue obligations of the
company;
|
|
|
·
|
in
obtaining judgment there was no fraud on the part of the person in whose
favour judgment was given or on the part of the
court;
|
|
|
·
|
recognition
or enforcement of the judgment in the BVI would not be contrary to public
policy; and
|
|
|
·
|
the
proceedings pursuant to which judgment was obtained were not contrary to
natural justice.
|
Under
the laws of the British Virgin Islands, there are some statutory provisions
for the protection of minority shareholders under the Act. The principal
protection under the Act is that shareholders may bring an action to enforce the
Amended and Restated Memorandum and Articles of Association of CN Holdings. The
Act sets forth the procedure to bring such a claim. Shareholders are entitled to
have the affairs of the company conducted in accordance with the general law and
the Amended and Restated Memorandum and Articles of Association. Pursuant to CN
Holdings’ constitutional documents, the company is obliged to hold an annual
general meeting and provide for the election of directors. Companies are not
obligated to appoint an independent auditor and shareholders are not entitled to
receive the audited financial statements of the company.
There
are common law rights for the protection of shareholders that may be invoked.
Such rights have also now been given a statutory basis under the Act. For
further discussion of the rights of minority shareholders, see the section
entitled “The Redomestication Proposal — Rights of Minority Shareholders.” The
Common law rights are largely dependent on English company law, since
the common law of the British Virgin Islands for business companies is limited.
Under the general rule pursuant to English company law, a court will generally
refuse to interfere with the management of a company at the insistence of a
minority of its shareholders who express dissatisfaction with the conduct of the
company’s affairs by the majority or the board of directors. However, every
shareholder is entitled to have the affairs of the company conducted properly
according to law and the constituent documents of the corporation. As such, if
those who control the company have persistently disregarded the requirements of
company law or the provisions of the company’s memorandum or articles of
association, then the courts will grant relief. Generally, the areas in which
the courts will intervene are the following:
|
|
·
|
an
act complained of which is outside the scope of the authorized business or
is illegal or not capable of ratification by the
majority,
|
|
|
·
|
acts
that constitute fraud on the minority where the wrongdoers control the
company,
|
|
|
·
|
acts
that infringe on the personal rights of the shareholders, such as the
right to vote, and
|
|
|
·
|
where
the company has not complied with provisions requiring approval of a
special or extraordinary majority of
shareholders,
|
which are
more limited than the rights afforded minority stockholders under the laws of
many states in the United States.
20
Risks
Relating to Tax Matters
There
is a risk that CN Holdings could be treated as a U.S. domestic corporation for
U.S. federal income tax purposes after the Redomestication Merger and Business
Combination, which could result in significantly greater U.S. federal income tax
liability to CN Holdings.
Section
7874(b) (‘‘Section 7874(b)’’) of the Internal Revenue Code of 1986, as amended,
generally provides that a corporation organized outside the United States which
acquires, directly or indirectly, pursuant to a plan or series of related
transactions, substantially all of the assets of a corporation organized in the
United States will be treated as a domestic corporation for U.S. federal income
tax purposes if shareholders of the acquired corporation, by reason of owning
shares of the acquired corporation, own at least 80% (of either the voting
power or the value) of the stock of the acquiring corporation after the
acquisition. If Section 7874(b) were to apply to the Redomestication Merger,
then CN Holdings, as the surviving entity, would be subject to U.S. federal
income tax on its worldwide taxable income following the Redomestication Merger
and Business Combination as if CN Holdings were a domestic
corporation.
Although
it is anticipated that Section 7874(b) should not apply to treat CN Holdings as
a domestic corporation for U.S. federal income tax purposes, due to the absence
of complete guidance on how the rules of Section 7874(b) apply to the
transactions contemplated by the Redomestication Merger and Business
Combination, this result is not free from doubt. As a result, stockholders and
warrant holders are urged to consult their own tax advisors on this issue. For a
more detailed discussion of the foregoing, see “Material United States Federal
Income Tax Considerations–U.S. Federal Income Tax Consequences of the
Redomestication Merger–Tax Consequences
to Alyst and CN Holdings.”
It
is anticipated that Alyst will recognize gain (but not loss) for U.S.
federal income tax purposes as a result of the Redomestication Merger, which may
result in increased U.S. federal income tax liability to Alyst.
It is
anticipated that for U.S. federal income tax purposes, as to each of its assets,
Alyst should recognize gain (but not loss) realized as a result of the
Redomestication Merger in an amount equal to the excess (if any) of the
fair market value of such asset over such asset’s adjusted tax basis at the
effective time of the Redomestication Merger. Since any such gain will be
determined based on the value of its assets at that time, the amount of such
gain (and any U.S. federal income tax liability to Alyst by reason of such gain)
cannot be determined at this time. If, as expected, former shareholders of Alyst
will, by reason of their ownership of Alyst shares, own at least 60 % (but
less than 80 %) of the shares of CN Holdings following the Redomestication
Merger and Business Combination, Alyst will not be permitted to use any net
operating losses otherwise available to Alyst to offset such gain. Stockholders
and warrant holders are urged to consult their own tax advisors on this tax
issue and other tax issues in connection with the Redomestication
Merger. For a more detailed discussion of the foregoing, see
“Material United States Federal Income Tax Considerations–U.S. Federal Income
Tax Consequences of the Redomestication Merger–Tax Consequences to Alyst and CN
Holdings.”
21
There
is a risk that CN Holdings will be classified as a passive foreign investment
company, or ‘‘PFIC,’’ which could result in adverse U.S. federal income tax
consequences to U.S. holders of ordinary shares or warrants of CN
Holdings.
CN
Holdings will be treated as a PFIC for any taxable year in which either (1) at
least 75% of its gross income (looking through certain corporate subsidiaries)
is passive income or (2) at least 50% of the average value of its assets
(looking through certain corporate subsidiaries) produce, or are held for the
production of, passive income. Passive income generally includes dividends,
interest, rents, royalties, and gains from the disposition of passive assets. If
CN Holdings were a PFIC for any taxable year during which a U.S. holder held its
ordinary shares or warrants, the U.S. holder may be subject to increased U.S.
federal income tax liability and may be subject to additional reporting
requirements. The actual PFIC status of CN Holdings for any taxable year,
however, will not be determinable until after the end of its taxable year, and
accordingly there can be no assurance as to the status of CN Holdings as a PFIC
for the current taxable year or any future taxable year. We urge U.S. holders to
consult their own tax advisors regarding the possible application of the PFIC
rules. For a more detailed discussion of the foregoing, see ‘‘Material United
States Federal Income Tax Considerations–U.S. Federal Income Tax Consequences to
U.S. Holders of Ordinary Shares and Warrants of CN Holdings–Passive Foreign
Investment Company Rules.’’
The
tax disclosure included as part of this Registration Statement expresses
uncertainty as to certain tax issues and does not address all tax issues,
including those that are dependent on future facts or events.
Due to
the absence of complete guidance as to how the transactions contemplated by the
Redomestication Merger and Business Combination and other
transactions discussed in the tax disclosure would be treated for U.S.
federal income tax purposes, there is a degree of uncertainty as stated in the
tax disclosure with respect to the U.S. federal income tax consequences of
certain of the tax matters considered therein. Moreover, certain tax
matters that are discussed in the tax disclosure are dependent on future facts
or events, such as whether CN Holdings will be classified as a PFIC for U.S.
federal income tax purposes following the Redomestication Merger and Business
Combination, and as to which no conclusion therefore can be
expressed. Finally, no assurance can be given that positions contrary
to those discussed in the tax disclosure may not be taken by the Internal
Revenue Service (“IRS”) or a court considering the tax issues discussed in the
tax disclosure. Accordingly, each stockholder and warrant holder is urged to
consult its own tax advisor on the tax issues discussed in the tax disclosure
and how they may relate to the holder’s particular circumstances. See “Material
United States Federal Income Tax Considerations.”
Risks
Relating to the Business Combination
Because
CN Holdings is organized under the laws of the British Virgin Islands, it may be
difficult to serve CN Holdings with legal process or enforce judgments against
it, its directors or its management.
CN
Holdings is organized under the laws of the British Virgin
Islands. After the Business Combination, substantially all of its
assets will be located outside of the United States, its principal executive
offices will be located in China, and some of its directors and officers will
reside outside the United States. As a result, it may be difficult or
impossible for you to bring an action against CN Holdings or against its
directors or its management in the United States if you believe that your rights
have been infringed under securities laws or otherwise. Even if you
are successful in bringing an action of this kind, the laws of the British
Virgin Islands and of other jurisdictions, including China, may prevent or
restrict you from enforcing, or make it difficult to enforce, a judgment against
CN Holdings’ assets or its directors and officers.
22
The
price of CN Holdings’ ordinary shares after the Business Combination may be
volatile.
The price
of CN Holdings’ ordinary shares after the Business Combination may be volatile,
and may fluctuate due to factors such as:
|
|
·
|
actual
or anticipated fluctuations in quarterly and annual
results;
|
|
|
·
|
limited
operating history;
|
|
|
·
|
mergers
and strategic alliances in the television industry in
China;
|
|
|
·
|
market
conditions in the industry;
|
|
|
·
|
changes
in U.S. or Chinese government
regulation;
|
|
|
·
|
fluctuations
in CN Holdings’ revenues and earnings and those of its
competitors;
|
|
|
·
|
shortfalls
in CN Holdings’ operating results from levels forecasted by securities
analysts;
|
|
|
·
|
announcements
covering CN Holdings or its competitors;
and
|
|
|
·
|
the
general state of the financial and
capital markets.
|
The
effects of the global financial crisis, which are far-reaching and difficult to
predict, may adversely affect the ability to secure the requisite
stockholder approval of the proposed transactions and the ability of China
Networks Media to execute its business plan successfully.
Since the date of the Merger
Agreement and the most recent audited financial statements included in this
proxy statement/prospectus, the international capital markets have experienced
severe volatility and exhibited overall significant declines in prices of equity
securities, which events taken in combination with a freezing of international
credit markets and lack of availability of private capital have led to severe
constraints in private flows of capital. In addition, the alleged
fraud perpetrated by Bernard Madoff has exacerbated a lack of confidence in
global financial institutions and their oversight.
Alyst’s ability to secure the
necessary approval by stockholders of the Business Combination Proposal and the
Redomestication Proposal may be adversely effected if certain investors vote
against these proposals without regard to the merits thereof and choose to
liquidate their investment in Alyst. In addition, the effects of the
global financial crisis on the industry and geographic sectors that China
Networks Media is engaged in are just beginning to become apparent and it is
impossible to predict the full impact they may have on China Networks Media,
including with respect to its expansion plans and the capital required to
implement such strategy.
If
shareholders sought to sue China Networks Media officers or directors, it may be
difficult to obtain jurisdiction over the parties and access to the assets
located in the PRC.
Because
most of China Networks Media’s officers and directors will reside outside of the
United States, it may be difficult, if not impossible, to acquire jurisdiction
over these persons in the event a lawsuit is initiated against such officers and
directors by shareholders in the United States. It also is unclear if
extradition treaties now in effect between the United States and the PRC would
permit effective enforcement of criminal penalties of the federal securities
laws. Furthermore, because substantially all of China Networks Media’s assets
are located in the PRC, it would also be extremely difficult to access those
assets to satisfy an award entered against CN Holdings in U.S. court. Moreover,
Alyst has been advised that the PRC does not have treaties with the United
States providing for the reciprocal recognition and enforcement of judgments of
courts. As a result, it may not be possible for investors in the United States
to enforce their legal rights, to effect service of process upon China Networks
Media’s directors or officers or to enforce judgments of U.S. courts predicated
upon civil liabilities and criminal penalties of its directors and officers
under Federal securities laws.
Alyst
and China Networks Media have incurred and expect to incur significant costs
associated with the Business Combination, whether or not the Business
Combination is completed and the incurrence of these costs will reduce the
amount of cash available to be used for other corporate purposes.
Alyst
and China Networks Media expect to incur significant costs associated with the
Business Combination. If the Business Combination is completed, they expect to
incur approximately $[ ] in expenses. These expenses will
reduce the amount of cash available to be used for other corporate
purposes.
Alyst
may waive one or more of the conditions to the Business Combination without
resoliciting stockholder approval.
Alyst may
agree to waive, in whole or in part, some of the conditions to its obligations
to complete the Business Combination, to the extent permitted by applicable
laws. The board of directors of Alyst will evaluate the materiality of any
waiver to determine whether amendment of this proxy statement/prospectus and
resolicitation of proxies is warranted. In some instances, if the board of
directors of Alyst determines that a waiver is not sufficiently material to
warrant resolicitation of stockholders, Alyst has the discretion to complete the
Business Combination without seeking further stockholder
approval.
23
The
combined company’s working capital could be reduced if stockholders exercise
their conversion rights.
Pursuant
to Alyst’s amended and restated certificate of incorporation, holders of shares
purchased in Alyst’s IPO (other than Alyst’s initial stockholders) may vote
against the Business Combination and demand that Alyst convert their shares into
pro rata portions of the trust account, net of taxes payable, as of the record
date. Alyst and China Networks Media will not consummate the Business
Combination if holders of 2,413,320 or more publicly-held shares exercise
these conversion rights. To the extent the Business Combination is consummated
and holders have demanded to so convert their shares, there will be a
corresponding reduction in the amount of funds available to the combined company
following the Business Combination. As of [ ],
2009, the record date, assuming the Business Combination is approved, the
maximum amount of funds that could be disbursed to Alyst’s stockholders upon the
exercise of their conversion rights is approximately
$[ ].
If
outstanding warrants are exercised, the underlying common shares will be
eligible for future resale in the public market. ‘‘Market overhang’’ from the
warrants results in dilution and has an adverse effect on the ordinary shares’
market price.
Outstanding
warrants and unit purchase options to purchase an aggregate of 10,164,400 shares
of common stock issued in connection with Alyst’s IPO will become exercisable
after consummation of the Business Combination. If they are exercised, a
substantial number of additional ordinary shares of CN Holdings will be eligible
for resale in the public market, which could adversely affect the market
price.
Registration
rights held by Alyst’s initial stockholders who purchased shares prior to
Alyst’s IPO may have an adverse effect on the market price of CN
Holdings.
Alyst’s
initial stockholders who purchased common stock prior to its IPO are entitled to
demand that Alyst register the resale of their shares at any time after they are
released from escrow. In addition, the investors in China Networks Media’s
bridge financing have the ability to request registration of the shares they
will own subsequent to the consummation of the Business Combination on
substantially the same terms as enjoyed by such shareholders. If such
stockholders exercise their registration rights with respect to all of their
shares, there will be an additional 2,730,000 ordinary shares eligible for
trading in the public market. The presence of these additional shares may have
an adverse effect on the market price of CN Holdings’ ordinary
shares.
Alyst’s
directors and officers have interests in the Business Combination that are
different from yours, because if the Business Combination is not approved, their
shares may become worthless.
In
considering the recommendation of Alyst’s Board of Directors to vote to approve
the Business Combination, you should be aware that Alyst’s directors, officers
and initial stockholders have agreements or arrangements that provide them
with interests in the Business Combination that differ from, or are in addition
to, those of Alyst stockholders generally. Alyst’s initial stockholders,
including its directors and officers, are not entitled to receive any of the
funds that would be distributed upon liquidation of the trust account.
Therefore, if the Business Combination is not approved, these original shares
may become worthless. The personal and financial interests of directors and
officers may have influenced their motivation in identifying and selecting a
target business and in timely completion of a business combination.
Consequently, their discretion in identifying and selecting a suitable target
business may result in a conflict of interest when determining whether the
terms, conditions and timing of a particular business combination are
appropriate and in the best interests of Alyst’s stockholders.
Because
CN Holdings does not intend to pay dividends on its ordinary shares,
stockholders will benefit from an investment in Alyst’s common stock only if the
ordinary shares of CN Holdings appreciate in value.
Alyst has
never declared or paid any cash dividends on its shares of common stock.
Post-merger, CN Holdings currently intends to retain all future earnings, if
any, for use in the operations and expansion of the business. As a result, CN
Holdings does not anticipate paying cash dividends in the foreseeable future.
Any future determination as to the declaration and payment of cash dividends
will be at the discretion of CN Holdings’ Board of Directors and will depend on
factors CN Holdings’ Board of Directors deems relevant, including among others,
CN Holdings’ results of operations, financial condition and cash requirements,
business prospects, and the terms of CN Holdings’ credit facilities, if any, and
any other financing arrangements. Accordingly, realization of a gain on
stockholders’ investments will depend on the appreciation of the price of CN
Holdings’ ordinary shares. There is no guarantee that CN Holdings’ ordinary
shares will appreciate in value.
24
CN
Holdings may choose to convert Alyst’s outstanding warrants at a time that is
disadvantageous to the warrant holders.
Subject
to there being a current prospectus under the Securities Act of 1933, CN
Holdings may redeem all of Alyst’s currently outstanding warrants at any time
after they become exercisable at a price of $.01 per warrant, upon a minimum of
30 days prior written notice of redemption, if and only if, the last sale price
of China Networks Media’s ordinary shares equals or exceeds $11.50 per share for
any 20 trading days within a 30 trading day period ending three business days
before CN Holdings sends the notice of redemption. Calling all of such warrants
for redemption could force the warrant holders:
|
|
·
|
To
exercise the warrants and pay the exercise price for such warrants at a
time when it may be disadvantageous for the holders to do
so;
|
|
|
·
|
To
sell the warrants at the then current market price when they might
otherwise wish to hold the warrants;
or
|
|
|
·
|
To
accept the nominal redemption price which, at the time the warrants are
called for redemption, is likely to be substantially less than the market
value of the warrants.
|
25
If
holders of 2,413,320 or more of the shares of Alyst’s common stock purchased in
Alyst’s IPO (which number represents 30% or more of the common stock sold in
Alyst’s IPO) decide to vote against the Business Combination and opt to convert
their shares to cash, Alyst may be forced to dissolve and liquidate,
stockholders may receive less than $7.86 per share, and Alyst’s warrants may
expire worthless.
Under the
terms of Alyst’s amended and restated certificate of incorporation, if holders
of 2,413,320 or more of the shares of Alyst’s common stock purchased in Alyst’s
IPO (which number represents 30% of the common stock issued in its IPO) decide
to vote against the acquisition and opt to convert their shares to cash, Alyst
may ultimately be forced to dissolve and liquidate. Under its charter as
currently in effect, if Alyst does not acquire at least majority control of a
target business by June 29, 2009, Alyst will dissolve and distribute to its
public stockholders the amount in the trust account plus any remaining net
assets. Following dissolution, Alyst would no longer exist as a corporation. If
Alyst does not consummate the acquisition of China Networks Media by that time,
it will be forced to dissolve and liquidate in accordance with the provisions of
Delaware law.
In any
liquidation, the net proceeds of Alyst’s IPO and private placement and the
deferred underwriting compensation held in the trust account, plus any interest
earned thereon (net of taxes payable), will be distributed on a pro rata basis
to the holders of Alyst’s common stock issued in Alyst’s IPO. As of December 31,
2008, and assuming Alyst expended all of the funds not in the trust account, the
per-share liquidation price would have been approximately $7.86, or $0.14 less
than the price ($8.00 per unit) that Alyst sold each unit for in its IPO. The
proceeds deposited in the trust account could, however, become subject to the
claims of Alyst’s creditors which could be prior to the claims of Alyst’s public
stockholders. Alyst cannot assure you that the actual per-share liquidation
price will not be less than $7.86, due to claims of creditors. Furthermore,
there will be no distribution with respect to Alyst’s outstanding warrants and,
accordingly, the warrants will expire worthless.
26
SELECTED
SUMMARY HISTORICAL FINANCIAL INFORMATION
You are
being provided the following financial information to assist you in your
analysis of the financial aspects of the Business Combination with China
Networks Media. China Networks Media’s historical, stand-alone results of
operations prior to the acquisition of JV Ad Cos are insignificant and not
reflective of the results of operations it anticipates immediately following the
consummation of the proposed transactions included in this proxy
statement/prospectus. Accordingly, selected summary historical financial
information relating to the acquisition of JV Ad Cos has been provided to assist
investors in evaluating the historical performance of these
businesses.
Alyst’s
balance sheet data as of June 30, 2008 and the statements of operations data for
the year then ended and for the periods from August 16, 2006 (inception)
through June 30, 2007 and June 30, 2008, are derived from Alyst’s financial
statements audited by Marcum & Kliegman LLP, independent registered public
accountants, which are included elsewhere in this proxy
statement/prospectus.
Alyst’s balance sheet data as of September 30, 2008, and the
statement of operations data for the three months ended September 30, 2008 are
derived from Alyst’s unaudited financial statements, which are included
elsewhere in this proxy statement/prospectus.
China
Networks Media’s balance sheet data as of December 31, 2007 and the statement of
operations data for the year ended December 31, 2007 are derived from China
Networks Media’s financial statements audited by UHY LLP, independent registered
public accountants, which are included elsewhere in this proxy
statement/prospectus.
China Networks Media’s balance sheet data as of September 30, 2008
and the statement of operations data for the nine months ended September 30,
2008 are derived from China Networks Media’s unaudited financial statements,
which are included elsewhere in this proxy statement/prospectus.
PRC TV
Stations’ balance sheet data as of December 31, 2007 and the statement of
operations data for the period from March 30, 2007 (inception)
to December 31, 2007 are derived from PRC TV Stations’ financial statements
audited by UHY Vocation HK CPA Limited, independent registered public
accountants, which are included elsewhere in this proxy
statement/prospectus.
PRC TV
Stations’ balance sheet data as of September 30, 2008 and the statement of
operations data for the nine months ended September 30, 2008 are
derived from PRC TV Stations’ unaudited financial statements, which are included
elsewhere in this proxy statement/prospectus.
The
selected financial information of China Networks Media, PRC TV Stations, and
Alyst is only a summary and should be read in conjunction with each company’s
historical financial statements and related notes and ‘‘China Networks Media
Limited’s Management’s Discussion and Analysis of Financial Condition and
Results of Operations’’ and ‘‘Alyst Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’ contained elsewhere in this
proxy statement/prospectus. The information presented may not be indicative of
future performance of China Networks Media, PRC TV Stations, Alyst or the
combined companies resulting from the Redomestication Merger and the Business
Combination.
27
ALYST
HISTORICAL FINANCIAL INFORMATION
|
For the three
months ended
September 30, 2008
|
For the year ended
June 30, 2008
|
For the period
from August 16,
2006 (inception)
through June 30,
2007
|
For the period
from August 16,
2006 (inception)
through June 30,
2008
|
||||||||||||
|
Statement
of Operations Data:
|
|||||||||||||||
|
Revenue
|
$ |
-
|
$ | - | $ | - | $ | - | |||||||
|
Formation
and operating costs
|
135,553
|
|
319,003 | 4,848 | 323,851 | ||||||||||
|
Loss
from operations
|
(135,553
|
) | (319,003 | ) | (4,848 | ) | (323,851 | ) | |||||||
|
Interest
income, net
|
347,520
|
2,426,933 | 1,536 | 2,428,469 | |||||||||||
|
Income
(loss) before provision for income taxes
|
211,967
|
2,107,930 | (3,312 | ) | 2,104,618 | ||||||||||
|
Provision
for income taxes
|
96,021
|
951,394 | 604 | 951,998 | |||||||||||
|
Net
loss
|
$ |
115,946
|
$ | 1,156,536 | $ | (3,916 | ) | $ | 1,152,620 | ||||||
|
Basic
and diluted net income (loss) per share
|
$ |
0.02
|
$ | 0.16 | $ | (0.00 | ) | ||||||||
|
Weighted
average number of shares outstanding excluding shares subject to possible
conversion - basic and fully diluted
|
7,381,081
|
7,319,371 | 1,750,000 | ||||||||||||
|
As of
September 30, 2008
|
As
of
June
30, 2008
|
||||||
|
Balance
Sheet Data:
|
|||||||
|
Total
assets
|
$ |
65,102,861
|
$ | 64,838,909 | |||
|
Total
Liabilities
|
$ |
607,031
|
$ | 459,025 | |||
|
Common Stock
Subject to Possible Conversion
|
$ |
18,946,276
|
$ | 18,946,276 | |||
|
Total
Stockholders’ equity
|
$ |
45,549,554
|
$ | 45,433,608 | |||
28
KUNMING
TELEVISION STATION – ADVERTISING CENTER AND
YELLOW RIVER TELEVISION STATION – ADVERTISING CENTER COMBINED CARVE-OUT HISTORICAL FINANCIAL
YELLOW RIVER TELEVISION STATION – ADVERTISING CENTER COMBINED CARVE-OUT HISTORICAL FINANCIAL
INFORMATION
|
Nine months
ended
September 30,
2008
|
Nine months
ended
September 30,
2007
|
Year
ended
December
31,
2007
|
Year
ended
December
31,
2006
|
Year
ended
December
31,
2005
|
|||||||||||||||
|
(Unaudited)
|
|
||||||||||||||||||
|
Statements
of Operations Data:
|
|||||||||||||||||||
|
Revenue
|
$ | 13,994,827 | $ |
15,318,025
|
$ | 20,684,055 | $ | 16,350,638 | $ | 15,528,457 | |||||||||
|
Sales
Tax
|
(1,129,634 | ) |
(1,255,188
|
) | (1,696,906 | ) | (1,199,132 | ) | (1,122,206 | ) | |||||||||
|
Cost
of Revenue
|
(4,584,533 | ) |
(3,653,174
|
) | (4,844,541 | ) | (3,757,422 |
)
|
(1,925,034 | ) | |||||||||
|
Gross
Profit
|
8,280,660 |
10,409,663
|
14,142,608 | 11,394,084 | 12,481,217 | ||||||||||||||
|
Other
Income
|
28,802 | 102,261 | 10,337 | ||||||||||||||||
|
Selling,
General and Administrative Expenses
|
(1,811,244 | ) |
(1,228,008
|
) | (1,712,931 | ) | (1,607,264 | ) | (1,376,299 | ) | |||||||||
|
Income
Before Income Taxes
|
6,469,416 |
9,181,655
|
12,458,479 | 9,889,081 | 11,115,255 | ||||||||||||||
|
Income
Taxes
|
- | - | - | - | |||||||||||||||
|
Net
Income
|
$ | 6,469,416 | $ |
9,181,655
|
$ | 12,458,479 | $ | 9,889,081 | $ | 11,115,255 | |||||||||
|
As
of
|
||||||||||||||||
|
September 30,
2008
|
December
31,
2007
|
December
31,
2006
|
December
31,
2005
|
|||||||||||||
|
(Unaudited)
|
|
|||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Total
Assets
|
$ | 4,983,779 | $ | 3,670,398 | $ | 2,428, 815 | $ | 2,282,025 | ||||||||
|
Total
Liabilities
|
$ | 3,906,787 | $ | 2,995,317 | $ | 2,177,276 | $ | 2,141,950 | ||||||||
|
Total
Equity
|
$ | 1,076,992 | $ | 675,081 | $ | 251,539 | $ | 140,075 | ||||||||
29
CHINA
NETWORKS MEDIA, LTD. HISTORICAL FINANCIAL INFORMATION
|
Nine months ended
September 30, 2008 |
For the period from
March 30, 2007 (inception) to September 30, 2007 |
For the period from
March 30, 2007 (inception) to September 30, 2008 |
||||||||||
|
(Unaudited)
|
|
|||||||||||
|
Income
Statement Data:
|
||||||||||||
|
Net
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Operating
expenses
|
||||||||||||
|
General
and administrative expenses
|
1,711,927
|
16,189 | 1,743,147 | |||||||||
| 1,711,927 | 16,189 | 1,743,147 | ||||||||||
|
Loss
from operations
|
(1,711,927 | ) | (16,189 |
)
|
(1,743,147 | ) | ||||||
|
Other
income (expense)
|
||||||||||||
|
Other
income
|
7,352 | - | 7,352 | |||||||||
|
Interest
expense
|
(1,303,354 | ) | - | (1,303,354 | ) | |||||||
|
Interest
income
|
83,510 | - | 83,510 | |||||||||
| (1,212,492 | ) | - | (1,212,492 | ) | ||||||||
|
Net
loss before noncontrolling interest
|
(2,924,419 | ) | (16,189 |
)
|
(2,955,639 | ) | ||||||
|
Non-controlling
interest
|
(11,835 | ) | - | (11,835 | ) | |||||||
|
Net
loss
|
$ | (2,936,254 | ) | $ | (16,189 |
)
|
$ | (2,967,474 | ) | |||
|
September 30, 2008
|
For the period from
March 30, 2007 (inception)
to December 31, 2007
|
|||||||
|
(Uuaudited)
|
|
|||||||
|
Balance
Sheet Data:
|
||||||||
|
Total
assets
|
$ | 55,835,232 | $ | 36,731 | ||||
|
Total
liabilities
|
$ | 26,279,325 | $ | 66,951 | ||||
| Noncontrolling Interest | $ | 28,582,799 | $ | _____- | ||||
|
Total
stockholders’ equity (deficit)
|
$ | 973,108 | $ | (30,220 | ) | |||
30
ALYST
ACQUISITION CORP./CHINA NETWORKS INTERNATIONAL HOLDINGS LTD.
CHINA
NETWORKS MEDIA LTD.
CHINA
NETWORKS MEDIA, LTD. (CARVE-OUT)
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED JUNE 30, 2008
AND
THE THREE MONTHS ENDED SEPTEMBER 30, 2008
The
following unaudited pro forma condensed combined financial statements of Alyst
Acquisition Corp./China Networks International Holdings Ltd. (“CN Holdings),
China Networks Media, Ltd. (“CN Networks”) and China Networks Media, Ltd.
(Carve-out) (“CN Media”) are provided to assist you in your analysis of the
financial aspects of the transactions described in the agreement and plan of
merger, dated August 13, 2008 (“Merger Agreement”).
The
unaudited pro forma condensed combined statement of operations for the year
ended June 30, 2008 combines the historical statements of operations of CN
Holdings, CN Networks and CN Media giving effect to the acquisition as if it had
occurred on July 1, 2007.
The
unaudited pro forma condensed combined statement of operations for the three
months ended September 30, 2008 combines the historical statements of operations
of CN Holdings, CN Networks and CN Media giving effect to the acquisition as if
it had occurred on July 1, 2008.
The
unaudited pro forma condensed combined balance sheet combines the historical
balance sheets of CN Holdings, CN Networks and CN Media giving effect to the
transactions described in the merger agreement as if they had occurred on
September 30, 2008.
The
pro forma adjustments give effect to events that are directly attributable to
the transactions discussed below and that have a continuing impact on the
operations of CN Holdings and are based on available data and certain
assumptions that management believes are factually supportable. In
addition, the effects of the Redomestication Merger have been treated as if it
occurred at the beginning of each period for which a pro forma statement of
operations is presented and as of the date of the pro forma balance sheet
presented below.
The
unaudited pro forma condensed combined financial statements described above
should be read in conjunction with the historical consolidated financial
statements of Alyst for the period August 16, 2006 (inception) to June 30,
2007 and the year ended June 30, 2008 and the related notes thereto,
the historical financial statements of CN Networks for the period March 30, 2007
(Inception) to December 31, 2008 and the three and nine months ended
September 30, 2008 and the related notes thereto and the historical special
purpose combined carve-out financial statements of CN Media for the years ended
December 31, 2007, 2006 and 2005 and in conjunction with the unaudited
historical financial statements of Alyst for the three months ended September
30, 2008 and 2007 and the related notes thereto and the unaudited historical
financial statements of CN Media for the three and nine months ended
September 30, 2007 and 2008 and the related notes thereto which are contained
elsewhere in this proxy statement. The appropriate historical periods derived
from CN Networks and CN Media (Carve-out) were added and subtracted to arrive at
the appropriate periods included in these pro forma statements of operations.
These adjustments are preliminary and the unaudited pro forma information is not
necessarily indicative of the financial position or results of operations that
may have actually occurred had the merger taken place on the dates noted, or the
future financial position or operating results of CN Holdings.
On
August 13, 2008, CN Holdings entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with CN Networks, and specified other persons, providing
for, among other things, the redomestication of Alyst from the State of Delaware
to the British Virgin Islands (the “Redomestication Merger”) and the merger of a
wholly-owned subsidiary of Alyst into CN Networks (the "Business Combination").
Consummation of the transactions contemplated by the Merger Agreement are
conditioned upon, among other things, (i) approval of the Redomestication Merger
and the Business Combination by our shareholders and (ii) approval of the Merger
Agreement and the Business Combination by the shareholders of CN Networks. In
connection with the Redomestication Merger, all of the holders of our common
stock outstanding immediately prior to the Redomestication Merger will receive,
on a one-for-one basis, ordinary shares of CN Holdings in exchange for their
Alyst common stock, and all units, warrants and other rights to purchase Alyst
common stock immediately prior to the Redomestication Merger will be exchanged
for substantially equivalent securities of CN Holdings at the rate set forth in
the Merger Agreement. For this pro forma presentation, the ratio is
assumed to be 1:1.
31
CN
Networks is a provider of broadcast television advertising services in the
People’s Republic of China (“PRC”), operating joint-venture partnerships with
PRC state-owned television broadcasters in Kunming and Taiyuan (collectively,
“PRC TV Stations”). It manages these regional businesses through a series of
joint ventures and contractual arrangements to sell broadcast television
advertising time slots and so-called “soft” advertising opportunities to local
advertisers directly and through advertising agencies and brokers. CN Networks
assists PRC TV Stations in selling advertising time slots and “soft” advertising
opportunities to national advertisers, specifically by offering multi-region
campaigns to maximize value and cut costs these national advertisers would
otherwise face when dealing with individual stations on a station by station
basis. It also provides advisory services to PRC TV Stations to help optimize
the impact that their program scheduling and content has on their key
advertising demographics. CN Networks owns 100% of Advertising Networks Ltd., a
Hong Kong holding company that owns the PRC joint-venture partnerships that
provide these services to the PRC TV Stations.
In the
Business Combination, (upon consummation of the Redomestication Merger) it is
assumed that on closing CN Network shareholders will receive
aggregate merger consideration of (i) 2,880,000 shares of CN
Holdings ordinary shares and (ii) an aggregate of
$17,000,000 in cash in exchange for their shares of preferred and common
stock. Further, upon the satisfaction of certain financial milestones
set forth in the Merger Agreement in each of the three years ending after
the consummation of the Merger, CN Holdings could be obligated for
the payment of additional contingent consideration to the shareholders of CN
Networks comprised of up to (i) cash payments of up to $6,000,000
($3,000,000 for year 1 and $3,000,000 for year 2) and issuances up to 9,000,000
ordinary shares (2,850,000 in year 1; 3,075,000 in year 2; and 3,075,000 in year
three) of CN Holdings. Based on management’s belief that it may achieve the
specified financial milestones, for purposes of these unaudited pro forma
financial statements, and in accordance with the provisions of Statement of
Financial Standards (“SFAS”) No. 141R, “Business Combinations”, the
consideration described in the preceding sentence has been included in the total
purchase price for CN Networks and is reflected as a liability in the
accompanying pro forma balance sheet ($3,000,000 contingent cash payment for
year 1 reflected as a current liability). The shares contingently
issuable in the future were valued at the amount of the trust account per share
as of September 30, 2008 of $7.85.
In
addition, up to approximately $21,910,000 of the potential proceeds from the
exercise of the post merger CN Holdings’ warrants (which are to be issued in
exchange for Alyst IPO and insider warrants with similar terms and conditions
upon consummation of the merger) would be payable to the holders of ordinary and
preferred shareholders of CN Networks. The cash amount payable to these holders
upon exercise of the warrants represents up to 66% of the actual cash proceeds
to be received upon exercise, if any. For purposes of these unaudited pro forma
financial statements, management is unable to determine if and/or when we would
receive proceeds from the exercise of these warrants. Therefore no
proceeds to us on warrant exercises are assumed and consequently no related
contingent payment has been included in the pro forma contingent merger
consideration.
There
remain a number of conditions to our completion of the merger with CN Networks
and there is no guarantee that the Merger Agreement will be approved by our
stockholders or the shareholders of CN Networks. In addition, in connection with
the transaction, Alyst/CN Holdings will file with the SEC a registration
statement on Form S-4 in connection with the proposed Redomestication Merger,
and we will file a preliminary and definitive proxy statement in connection with
the solicitation of proxies for our special meeting of stockholders to approve
the Merger Agreement and related transactions. If our stockholders do not
approve the Merger Agreement, we will continue to pursue other target business
candidates time permitting, or we could be required to return the trust funds
balance to the holders of our shares issued in our IPO, as described elsewhere
herein.
Consummation
of the asset acquisition is conditioned upon, among other things, the Alyst
stockholders adopting and approving the merger. If Alyst stockholders owning 30%
or more of the common stock sold in the IPO vote against the merger and exercise
their right to convert their shares of Alyst common stock issued in the IPO into
a pro rata portion of the funds held in the trust account, then the merger would
not be consummated. Consequently, up to 2,414,319 common shares of Alyst,
representing 30% of the 8,044,400 shares of Alyst common stock minus one share
issued in the IPO are subject to possible
conversion in this manner. This would represent an aggregate maximum conversion
liability of $18,946,276 as of September 30, 2008 which Alyst may be required to
pay from the trust account under certain circumstances. As indicated in the pro
forma balance sheet as of September 30, 2008 which follows, Alyst would have
adequate cash resources to satisfy this liability.
32
These pro
forma financial statements have been presented using two assumptions, as
follows:
•
Assuming no
conversions – under this assumption, no holders of Alysts’s
common stock sold in the IPO seek to convert their shares into a pro rata share
of the trust account, and
•
Assuming maximum
conversions – under this assumption, holders of 30% minus one
share of Alyst’s common stock sold in the IPO seek to convert their shares into
a pro rata share of the trust account.
The total
merger consideration as of September 30, 2008 determined based upon the pro
forma assumptions contained herein is as follows:
|
Payment
to be issued upon closing:
|
||||
|
Cash
– CN Network Preferred Shareholders
|
$ | 7,000,000 | ||
|
Cash
– CN Network Common Shareholders
|
10,000,000 | |||
|
980,000
shares of Alyst/CN Holdings common stock ($7.85 per share) issuable to CN
Network Preferred Shareholders
|
7,693,000 | |||
|
1,900,000
shares of Alyst/CN Holdings common stock ($7.85 per share) issuable to CN
Network Common Shareholders
|
14,915,000 | |||
|
Consideration
to selling stockholders on closing
|
39,608,000 | |||
|
Future
contingent consideration issuable upon attainment of certain
financial milestones – excluding a contingent fee of $883,000 which will
be expensed under SFAS 141R
|
76,650,000 | |||
|
Consideration
due on closing and contingent consideration
|
$ | 116,258,000 | ||
The
following are the components of the contingent consideration payable by year
assuming the attainment of defined annual financial milestones, based upon trust
account value per share of $7.85 as of September 30, 2008:
|
Total
|
Year
1
|
Year
2
|
Year
3
|
|||||||||||||
|
Cash
|
$ | 6,000,000 | $ | 3,000,000 | $ | 3,000,000 | $ | — | ||||||||
|
Issuance
of shares to CN Network holders
|
70,650,000 | 22,372,000 | 24,139,000 | 24,139,000 | ||||||||||||
|
Amount
|
$ | 76,650,000 | $ | 25,372,000 | $ | 27,139,000 | $ | 24,139,000 | ||||||||
|
Shares
of common stock
|
9,000,000 | 2,850,000 | 3,075,000 | 3,075,000 | ||||||||||||
33
The
Unaudited Pro Forma Condensed Combined Financial Statements reflect that the
Alyst/CN Holdings acquisition of 100% of CN Networks and CN Media is accounted
for under the purchase method of accounting in accordance with SFAS No. 141R.
Based upon a preliminary allocation, utilizing currently available information
and contingent upon the closing of the merger transaction and other necessary
transactions, the excess of purchase price of assets acquired over their
carrying value as of September 30, 2008 has been allocated entirely to Program
Rights in the amount of $116,258,000 (including contingent consideration of
$76,650,000). All other assets and liabilities acquired are preliminarily
estimated to be stated at their fair values, which approximates their recorded
historical cost. It is contemplated that the Redomestication Merger should be a
reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue
Code of 1986, as amended. It is also contemplated that the Redomestication
Merger should have no adverse U.S. federal income tax consequences to the
shareholders of Alyst. However, Alyst should recognize taxable gain (but not
loss) to the extent (if any) that the fair market value of each of its assets
exceeds the adjusted tax basis of such asset at the effective time of
the merger for income tax purposes. Since any such gain will be determined based
on the value of the relevant Alyst assets at the effective time of the
Redomestication Merger for U.S. federal income tax purposes, the amount of such
gain cannot be determined at this time.
Upon the
closing of the merger we intend to engage a firm to prepare a final valuation of
the acquired assets and liabilities. At such time as the valuation is complete,
we will adjust the allocation of the purchase price among the acquired assets
and assumed liabilities to reflect the final valuation as prescribed by SFAS No.
141R. While we do not anticipate any material changes to this preliminary
allocation, material changes may occur. The principal assets that may be subject
to adjustment upon closing are the Program Rights, or the identification of
other intangible assets not previously considered, including
goodwill.
34
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September
30, 2008
|
Alyst Acquisition
Corp./China
Networks
International
Holdings LTD.
|
China Networks
Media, LTD.
|
China Networks
(Carve- Out)
|
Pro Forma Adjustments - no
conversion
|
Notes
|
Pro Forma
Combined-no
conversion
|
Pro Forma Adjustments -
maximum allowable conversion
|
Notes
|
Pro Forma
Combined -
Maximum
allowable
conversion
|
||||||||||||||||||||||||||||||||||||
|
Assets
|
Dr
|
Cr
|
Dr
|
Cr
|
||||||||||||||||||||||||||||||||||||||||
|
Current
assets:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 722,578 | $ | 22,603,740 | $ | 79,660 | $ | 63,501,302 | $ | 22,633,980 |
1, 3, 4,
5, 7
|
$ | 64,273,300 | $ | - | $ | 18,946,276 |
9
|
$ | 45,327,024 | ||||||||||||||||||||||||
|
Cash
held in trust account, interest available for working capital and
taxes
|
521,011 | - | - | 521,011 |
1
|
- | - | - | - | |||||||||||||||||||||||||||||||||||
|
Accounts
receivable, net
|
- | 2,628,092 | - | - | 2,628,092 | - | - | 2,628,092 | ||||||||||||||||||||||||||||||||||||
|
Receivable
from television stations
|
- | 1,886,874 | - | - | 1,886,874 | - | - | 1,886,874 | ||||||||||||||||||||||||||||||||||||
|
Other
receivables and prepaid expenses
|
21,656 | 4,527 | 389,153 | - | - | 415,336 | - | - | 415,336 | |||||||||||||||||||||||||||||||||||
|
Loan
receivable from related party
|
- | 111,111 | - | - | - | 111,111 | - | - | 111,111 | |||||||||||||||||||||||||||||||||||
|
Total
current assets
|
1,265,245 | 22,719,378 | 4,983,779 | 63,501,302 | 23,154,991 | 69,314,713 | - | 18,946,276 | 50,368,437 | |||||||||||||||||||||||||||||||||||
|
Trust
Account:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Cash
held in trust account, restricted
|
62,980,291 | - | - | - | 62,980,291 | - | - | - | - | |||||||||||||||||||||||||||||||||||
|
Prepaid
income taxes
|
173,995 | - | - | - | - | 173,995 | - | - | 173,995 | |||||||||||||||||||||||||||||||||||
| 63,154,286 | - | - | - | 62,980,291 | 173,995 | - | - | 173,995 | ||||||||||||||||||||||||||||||||||||
|
Intangible
assets
|
||||||||||||||||||||||||||||||||||||||||||||
|
Program
Rights
|
- | 31,161,900 | - | 116,258,000 | - |
5,6
|
147,419,900 | - | - | 147,419,900 | ||||||||||||||||||||||||||||||||||
|
Less
accumulated Amortization
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
|
Total
program rights - net
|
- | 31,161,900 | - | 116,258,000 | - | 147,419,900 | - | - | 147,419,900 | |||||||||||||||||||||||||||||||||||
| - | - | |||||||||||||||||||||||||||||||||||||||||||
|
Deferred
target acquisition and financing costs
|
683,330 | 1,953,954 | - | - | 683,330 |
5
|
1,953,954 | - | - | 1,953,954 | ||||||||||||||||||||||||||||||||||
|
Total
assets
|
$ | 65,102,861 | $ | 55,835,232 | $ | 4,983,779 | $ | 179,759,302 | $ | 86,818,612 | $ | 218,862,562 | $ | - | $ | 18,946,276 | $ | 199,916,286 | ||||||||||||||||||||||||||
35
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
September
30, 2008
|
Alyst Acquisition
Corp./China
Networks
International
Holdings LTD.
|
China Networks
Media, LTD.
|
China Networks
(Carve- Out)
|
Pro Forma Adjustments - no
conversion
|
Notes
|
Pro Forma
Combined-no
conversion
|
Pro Forma Adjustments -
maximum allowable conversion
|
Notes
|
Pro Forma
Combined -
Maximum
allowable
conversion
|
||||||||||||||||||||||||||||||||||||
|
Liabilities
and Stockholders' Equity
|
Dr
|
Cr
|
Dr
|
Cr
|
||||||||||||||||||||||||||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Due
to television stations
|
$ | - | $ | 1,408,901 | $ | - | $ | - | $ | 1,408,901 | $ | - | $ | - | $ | 1,408,901 | ||||||||||||||||||||||||||||
|
Customer
deposits
|
- | - | 1,914,740 | - | - | 1,914,740 | - | - | 1,914,740 | |||||||||||||||||||||||||||||||||||
|
Accrued
expenses
|
607,031 | 1,953,973 | 583,146 | 960,000 | - |
4
|
2,184,150 | - | - | 2,184,150 | ||||||||||||||||||||||||||||||||||
|
Due
to related party
|
- | 185,877 | - | 185,877 | - | - | 185,877 | |||||||||||||||||||||||||||||||||||||
|
Notes
payable, net
|
24,139,475 | - | 24,139,475 | - | - | 24,139,475 | ||||||||||||||||||||||||||||||||||||||
|
Contingent
purchase price consideration
|
- | - | - | - | 3,000,000 |
6
|
3,000,000 | - | - | 3,000,000 | ||||||||||||||||||||||||||||||||||
|
Total
current liabilities
|
607,031 | 26,279,325 | 3,906,787 | 960,000 | 3,000,000 | 32,833,143 | - | - | 32,833,143 | |||||||||||||||||||||||||||||||||||
|
Contingent
purchase price consideration
|
74,533,000 |
6
|
74,533,000 | 74,533,000 | ||||||||||||||||||||||||||||||||||||||||
|
Common
stock, subject to possible conversion, 2,413,319 shares at conversion
value
|
18,946,276 | - | - | 18,946,276 | - |
2
|
- | 18,946,276 | 18,946,276 |
8,9
|
- | |||||||||||||||||||||||||||||||||
|
Total
liabilities
|
19,553,307 | 26,279,325 | 3,906,787 | 19,906,276 | 77,533,000 | 107,366,143 | 18,946,276 | 18,946,276 | 107,366,143 | |||||||||||||||||||||||||||||||||||
|
Stockholders’
equity:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Controlling
interest:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Preferred
stock
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
|
Common
stock
|
738 | - | - | 529 |
2,5
|
1,267 | 241 | - |
8
|
1,026 | ||||||||||||||||||||||||||||||||||
|
Total
controlling interest of acquired entities
|
973,108 | 1,076,992 | 2,050,100 | - | - | 2,050,100 | ||||||||||||||||||||||||||||||||||||||
|
Additional
paid-in capital
|
44,280,250 | - | - | 2,668,980 | 41,553,747 |
2,3,5,6
|
83,165,017 | 18,946,035 | - |
9
|
64,218,982 | |||||||||||||||||||||||||||||||||
|
Retained
earnings (deficit)
|
1,268,566 | - | - | 3,571,330 | - |
5,7
|
(2,302,764 | ) | - | - |
|
(2,302,764 | ) | |||||||||||||||||||||||||||||||
|
Total
controlling interest
|
45,549,554 | 973,108 | 1,076,992 | 6,240,310 | 41,554,276 | 82,913,620 | 18,946,276 | - | 63,967,344 | |||||||||||||||||||||||||||||||||||
|
Non-Controlling
Interest
|
- | 28,582,799 | - | - | - | 28,582,799 | - | - | 28,582,799 | |||||||||||||||||||||||||||||||||||
|
Total
stockholders’ equity
|
45,549,554 | 29,555,907 | 1,076,992 | 6,240,310 | 41,554,276 | 111,496,419 | 18,946,276 | - | 92,550,143 | |||||||||||||||||||||||||||||||||||
|
Total
liabilities and stockholders’equity
|
$ | 65,102,861 | $ | 55,835,232 | $ | 4,983,779 | $ | 26,146,586 | $ | 119,087,276 | $ | 218,862,562 | $ | 37,892,552 | $ | 18,946,276 | $ | 199,916,286 | ||||||||||||||||||||||||||
36
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
September
30, 2008
Balance
Sheet pro forma notes
assuming
no conversions:
|
Note
1
|
To
reflect release of cash held in trust
|
|||||
|
Increase
|
Cash
and cash equivalents
|
$ | 63,501,302 | |||
|
Decrease
|
Cash
held in trust account, interest available for working capital and
taxes
|
(521,011 | ) | |||
|
Decrease
|
Cash
held in trust account- restricted
|
(62,980,291 | ) | |||
|
Note
2
|
To
record reversal of conversion liability upon consummation of
merger
|
|||||
|
Decrease
|
Common
stock subject to conversion
|
$ | 18,946,276 | |||
|
Increase
|
Par
Value
|
(241 | ) | |||
|
Increase
|
Additional
Paid-in Capital (“APIC”)
|
(18,946,035 | ) | |||
|
Note
3
|
To
record additional underwriters compensation payable upon consummation of
merger
|
|||||
|
Decrease
|
APIC-3.277%
underwriters commission
|
$ | 2,108,980 | |||
|
Decrease
|
APIC-non-accountable
expense allowance
|
560,000 | ||||
|
Decrease
|
Cash
|
(2,668,980 | ) | |||
|
Note
4
|
To
record contractual payment of bridge loan placement fee for CN Network on
consummation of merger
|
|||||
|
Decrease
|
Accrued
expenses
|
$ | 960,000 | |||
|
Decrease
|
Cash
|
(960,000 | ) | |||
|
Note
5
|
To
record Purchase Price consideration to be paid on
closing:
|
|||||
|
Increase
|
Program
Rights
|
$ | 39,608,000 | |||
|
Decrease
|
Cash
|
(17,000,000 | ) | |||
|
Increase
|
Common
Stock
|
(288 | ) | |||
|
Increase
|
APIC
|
(22,607,712 | ) | |||
|
Decrease
|
Retained
earnings (accumulated deficit)
|
683,330 | ||||
|
Decrease
|
Deferred
fees target acquisition costs
|
(683,330 | ) | |||
|
Note
6
|
To
record contingent Purchase Price consideration to be paid upon the
occurrence of future events
|
|||||
|
Increase
|
Program
Rights
|
$ | 76,650,000 | |||
|
Decrease
|
Retained
earnings (accumulated deficit)
|
883,000 | ||||
|
Increase
|
Liability
for contingent purchase price consideration - current
|
(3,000,000 | ) | |||
|
Increase
|
Liability
for contingent purchase price consideration
|
(74,553,000 | ) | |||
|
Note
7
|
To
record additional deal costs to be incurred in the period from November 1,
2008 to the merger closing date
|
|||||
|
Decrease
|
Retained
earnings (accumulated deficit)
|
2,005,000 | ||||
|
Decrease
|
Cash
|
(2,005,000 | ) | |||
|
Assuming
maximum conversion:
|
||||||
|
Note
8
|
To
reinstate the conversion liability – full redemption
assumption
|
|||||
|
Decrease
|
Par
Value
|
$ | 241 | |||
|
Decrease
|
APIC
|
18,946,035 | ||||
|
Increase
|
Common
stock subject to redemption
|
(18,946,276 | ) | |||
|
Note
9
|
To
reflect cash payment in satisfaction of redemption
liability
|
|||||
|
Increase
|
Common
stock subject to redemption
|
$ | 18,946,276 | |||
|
Decrease
|
Cash
|
(18,946,276 | ) | |||
37
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three
Months Ended September 30, 2008
|
Alyst Acquisition
Corp./China
Networks
International
Holdings LTD.
|
China Networks
Media, LTD.
|
China Networks
(Carve- Out)
|
Pro Forma Adjustments - no
conversion
|
Notes
|
Pro Forma
Combined-no
conversion
|
Pro Forma Adjustments -
maximum allowable conversion
|
Notes
|
Pro Forma
Combined -
Maximum
allowable
conversion
|
||||||||||||||||||||||||||||||||||||
|
Dr
|
Cr
|
Dr
|
Cr
|
|||||||||||||||||||||||||||||||||||||||||
|
Revenue
|
$ | - | $ | - | $ | 4,439,548 | $ | - | $ | - | $ | 4,439,548 | $ | - | $ | - | $ | 4,439,548 | ||||||||||||||||||||||||||
|
Cost
or revenue
|
- | - | 1,547,094 | - | - | 1,547,094 | - | - | 1,547,094 | |||||||||||||||||||||||||||||||||||
|
Sales
tax
|
- | - | 346,603 | - | - | 346,603 | - | - | 346,603 | |||||||||||||||||||||||||||||||||||
|
General
and administrative - including transation costs
|
135,553 | 1,614,995 | 778,340 | 3,571,330 | 14,281 |
F,G
|
6,085,937 | - | - | 6,085,937 | ||||||||||||||||||||||||||||||||||
|
Operating
income (loss) before amortization of intangibles
|
(135,553 | ) | (1,614,995 | ) | 1,767,511 | (3,571,330 | ) | (14,281 | ) | (3,540,086 | ) | - | - |
-
|
(3,540,086 | ) | ||||||||||||||||||||||||||||
|
Amortization
of intangibles
|
- | - | - | 1,843,000 | - |
A
|
1,843,000 | - | - | 1,843,000 | ||||||||||||||||||||||||||||||||||
|
Operating
income (loss)
|
(135,553 | ) | (1,614,995 | ) | 1,767,511 | (5,414,330 | ) | (14,281 | ) | (5,383,086 | ) | - | - |
-
|
(5,383,086 | ) | ||||||||||||||||||||||||||||
|
Other
income (expense)
|
||||||||||||||||||||||||||||||||||||||||||||
|
Interest
income
|
347,520 | 83,510 | 94,000 | - |
C
|
337,030 | 105,000 | - |
E
|
232,030 | ||||||||||||||||||||||||||||||||||
|
Interest
(expense)
|
(1,303,354 | ) | - | - | (1,303,354 | ) | - | (1,050,445 | ) | |||||||||||||||||||||||||||||||||||
|
Other
|
- | 7,352 | - | - | - | 7,352 | - | - | (245,557 | ) | ||||||||||||||||||||||||||||||||||
|
Total
other income (expense), net
|
347,520 | (1,212,492 | ) | - | 94,000 | - | (958,972 | ) | 105,000 | - | (1,063,972 | ) | ||||||||||||||||||||||||||||||||
|
Income
(loss) before noncontrolling interest
|
211,967 | (2,827,487 | ) | 1,767,511 | (5,508,330 | ) | (14,281 | ) | (6,342,058 | ) | (105,000 | ) | - | (6,447,058 | ) | |||||||||||||||||||||||||||||
|
Non-controlling
interest
|
- | (11,835 | ) | - | 884,000 | - |
D
|
(895,835 | ) | - | - | (895,835 | ) | |||||||||||||||||||||||||||||||
|
Other
comprehensive income - foreign currency translation
adjustment
|
- | (12,457 | ) | - | - | - | (12,457 | ) | - | - | (12,457 | ) | ||||||||||||||||||||||||||||||||
|
Net
income (loss) before income taxes
|
211,967 | (2,851,779 | ) | 1,767,511 | (6,392,330 | ) | (14,281 | ) | (7,250,350 | ) | (105,000 | ) | - | (7,355,350 | ) | |||||||||||||||||||||||||||||
|
Pro
forma benefit (provision)
|
(96,021 | ) | - | - | - | 96,021 |
F
|
- | - | - | - | |||||||||||||||||||||||||||||||||
|
Total
income tax benefit (expense)
|
||||||||||||||||||||||||||||||||||||||||||||
|
NET
INCOME (LOSS)
|
$ | 115,946 | $ | (2,851,779 | ) | $ | 1,767,511 | $ | (6,392,330 | ) | $ | 110,302 | $ | (7,250,350 | ) | $ | (105,000 | ) | $ | - | $ | (7,355,350 | ) | |||||||||||||||||||||
|
Pro
forma weighted average common shares outstanding:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Basic
|
7,381,081 | 5,293,319 |
H
|
12,674,400 | 2,413,319 |
I
|
10,261,081 | |||||||||||||||||||||||||||||||||||||
|
Diluted
|
7,381,081 | 8,447,243 |
H
|
15,828,324 | 2,413,319 |
I
|
13,415,005 | |||||||||||||||||||||||||||||||||||||
|
Pro
forma income per common share:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Basic
|
$ | (0.57 | ) | $ | (0.71 | ) | ||||||||||||||||||||||||||||||||||||||
|
Diluted
|
$ | (0.46 | ) | $ | (0.55 | ) | ||||||||||||||||||||||||||||||||||||||
|
Pro
forma book value per common share
|
$ | 8.80 | $ | 9.02 | ||||||||||||||||||||||||||||||||||||||||
38
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year
Ended June 30, 2008
|
Alyst Acquisition
Corp.
|
China Networks
Media, LTD.
|
China Networks
(Carve- Out)
|
Pro Forma Adjustments - no
conversion
|
Notes
|
Pro Forma
Combined-no
conversion
|
Pro Forma Adjustments –
maximum allowable conversion
|
Notes
|
Pro Forma
Combined -
Maximum
allowable
conversion
|
||||||||||||||||||||||||||||||||||||
|
Dr
|
Cr
|
Dr
|
Cr
|
|||||||||||||||||||||||||||||||||||||||||
|
Revenues
|
$ | - | $ | - | $ | 19,735,361 | $ | - | $ | - | $ | 19,735,361 | $ | - | $ | - | $ | 19,735,361 | ||||||||||||||||||||||||||
|
Cost
or revenue
|
5,933,127 | - | - | 5,933,127 | - | - | 5,933,127 | |||||||||||||||||||||||||||||||||||||
|
Sales
tax
|
- | - | 1,640,758 | - | - | 1,640,758 | - | - | 1,640,758 | |||||||||||||||||||||||||||||||||||
|
General
and administrative
|
319,003 | 128,152 | 1,927,311 | 3,571,330 | 52,175 |
F,G
|
5,893,621 | - | - | 5,893,621 | ||||||||||||||||||||||||||||||||||
|
Operating
income (loss) before amortization of intangibles
|
(319,003 | ) | (128,152 | ) | 10,234,165 | (3,571,330 | ) | (52,175 | ) | 6,267,855 | - | - | 6,267,855 | |||||||||||||||||||||||||||||||
|
Amortization
of intangibles
|
- | - | - | 6,873,000 | - |
A
|
6,873,000 | - | - | 6,873,000 | ||||||||||||||||||||||||||||||||||
|
Income
(loss) before noncontrolling interest
|
(319,003 | ) | (128,152 | ) | 10,234,165 | (10,444,330 | ) | (52,175 | ) | (605,145 | ) | - | - | (605,145 | ) | |||||||||||||||||||||||||||||
|
Non-controlling
interest
|
- | - | - | 5,131,000 |
D
|
(5,131,000 | ) | - | - | (5,131,000 | ) | |||||||||||||||||||||||||||||||||
|
Other
income (expense):
|
||||||||||||||||||||||||||||||||||||||||||||
|
Interest
income
|
2,426,933 | - | - | 655,000 | - |
C
|
1,771,933 | 732,000 | - |
E
|
1,039,933 | |||||||||||||||||||||||||||||||||
|
Interest
(expense)
|
- | - | - | |||||||||||||||||||||||||||||||||||||||||
|
Other
|
- | - | 28,802 | - | - | 28,802 | - | - | 28,802 | |||||||||||||||||||||||||||||||||||
|
Total
other income (expense), net
|
2,426,933 | - | 28,802 | 5,786,000 | - | (3,330,265 | ) | 732,000 | - | (4,062,265 | ) | |||||||||||||||||||||||||||||||||
|
Income
(loss) before income taxes
|
2,107,930 | (128,152 | ) | 10,262,967 | (16,230,330 | ) | (52,175 | ) | (3,935,410 | ) | (732,000 | ) | - | (4,667,410 | ) | |||||||||||||||||||||||||||||
|
Income
tax benefit (expense)
|
(951,394 | ) | - | - | - | 951,394 |
F
|
- | - | - | - | |||||||||||||||||||||||||||||||||
|
NET
INCOME (LOSS)
|
$ | 1,156,536 | $ | (128,152 | ) | $ | 10,262,967 | $ | (16,230,330 | ) | $ | 1,003,569 | $ | (3,935,410 | ) | $ | (732,000 | ) | $ | - | $ | (4,667,410 | ) | |||||||||||||||||||||
|
Pro
forma weighted average common shares outstanding:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Basic
|
7,381,081 | 5,293,319 |
H
|
12,674,400 | 2,413,319 |
I
|
10,261,081 | |||||||||||||||||||||||||||||||||||||
|
Diluted
|
7,381,081 | 8,607,653 |
H
|
15,988,734 | 2,413,319 |
I
|
13,575,415 | |||||||||||||||||||||||||||||||||||||
|
Pro
forma income per common share:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Basic
|
$ | (0.31 | ) | $ | (0.45 | ) | ||||||||||||||||||||||||||||||||||||||
|
Diluted
|
$ | (0.25 | ) | $ | (0.34 | ) | ||||||||||||||||||||||||||||||||||||||
39
NOTES
TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
June
30, 2008 and September 30, 2008
Income
Statement Pro Forma Notes to Pro Forma Statements of Operations for the year
ended June 30, 2008 and three months ended September 30, 2008
Assuming
no conversions:
|
Three months ended
September 30, 2008
|
Year ended
June 30, 2008
|
|||||||||
|
Note
A
|
To
record intangible asset amortization of program rights
|
|||||||||
|
Expense
|
Amortization
- Program Rights
|
$ | 1,843,000 | $ | 6,873,000 | |||||
|
Note
B
|
Not
used
|
|||||||||
|
Note
C
|
To
adjust interest income for impact on application towards
merger
|
|||||||||
|
Expense
|
Interest
Income
|
$ | 94,000 | $ | 655,000 | |||||
|
Note
D
|
To
reflect impact on carved out entry earnings of merger
|
|||||||||
|
Expense
|
Non
controlling interest expense
|
$ | 884,000 | $ | 5,131,000 | |||||
|
Note
F
|
To
eliminate income tax provision assuming status BVI entity
|
|||||||||
|
Income
|
General
and Administrative
|
$ | (14,281 | ) | $ | (52,175 | ) | |||
|
Income
|
Income
Tax Provision
|
$ | (96,021 | ) | $ | (951,394 | ) | |||
|
Note
G
|
To
expense transaction costs upon consummation of merger
|
|||||||||
|
Expense
|
Transaction
costs – legal, accounting, etc
|
$ | 2,005,000 | $ | 2,005,000 | |||||
|
Expense
|
Transaction
costs – writeoff of deferred target acquistions costs
|
$ | 683,330 | $ | 683,330 | |||||
|
Expense
|
Transaction
costs – contingent placement fee
|
$ | 883,000 | $ | 883,000 | |||||
|
Assuming
full conversions:
|
||||||||||
|
Three
months ended
September
30, 2008
|
Year
ended
June
30, 2008
|
|||||||||
|
Note
E
|
To
adjust impact on interest income for conversion liability assuming full
conversion
|
|||||||||
|
Expense
|
Interest
income
|
$ | 105,000 | $ | 732,000 | |||||
40
Notes
H and I
Determination
of additional shares that would have been required to be issued and the
resulting pro forma common shares outstanding as of June 30, 2008 and September
30, 2008:
Reconciliation of weighted average common shares
outstanding - June 30, 2008
|
Without Contingent Consideration
|
With Contingent Consideration
|
|||||||||||||||
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
|
Shares
outstanding, June 30, 2008
|
9,794,400 | 9,794,400 | 9,794,400 | 9,794,400 | ||||||||||||
|
Less:conversion
shares as a liability
|
(2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | ||||||||
|
Shres
assumed outstanding on maximum conversion
|
7,381,081 | 7,381,081 | 7,381,081 | 7,381,081 | ||||||||||||
|
Conversion
shares add-back assuming no conversion
|
2,413,319 | 2,413,319 | 2,413,319 | 2,413,319 | ||||||||||||
|
Shares
issued - merger consideration on closing
|
2,880,000 | 2,880,000 | 2,880,000 | 2,880,000 | ||||||||||||
|
Fully
diluted - before contingent consideration
|
12,674,400 | 12,674,400 | 12,674,400 | 12,674,400 | ||||||||||||
|
Dilutive
shares issuable based upon the application of the treasury stock method
with respect to dilutive Alyst warrants outstanding
|
3,314,334 | 3,314,334 | ||||||||||||||
|
Shares
issued - purchase price - contingent consideration
|
9,000,000 | 9,000,000 | ||||||||||||||
|
Assuming
no conversion
|
12,674,400 | 15,988,734 | 21,674,400 | 24,988,734 | ||||||||||||
|
Note
Reference
|
H
|
H
|
||||||||||||||
|
Less
conversion shares - assuming maximum conversion
|
(2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | ||||||||
|
Shares
outstanding assuming maximum conversion, June 30, 2008
|
10,261,081 | 13,575,415 | 19,261,081 | 22,575,415 | ||||||||||||
|
Note
Reference
|
I
|
I
|
||||||||||||||
Reconciliation of weighted average common shares
outstanding - September 30, 2008
|
Without Contingent Consideration
|
With Contingent Consideration
|
|||||||||||||||
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
|
Shares
outstanding, September 30, 2008
|
9,794,400 | 9,794,400 | 9,794,400 | 9,794,400 | ||||||||||||
|
Less:conversion
shares as a liability
|
(2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | ||||||||
|
Shres
assumed outstanding on maximum conversion
|
7,381,081 | 7,381,081 | 7,381,081 | 7,381,081 | ||||||||||||
|
Conversion
shares add-back assuming no conversion
|
2,413,319 | 2,413,319 | 2,413,319 | 2,413,319 | ||||||||||||
|
Shares
issued - merger consideration on closing
|
2,880,000 | 2,880,000 | 2,880,000 | 2,880,000 | ||||||||||||
|
Fully
diluted - before
contingent consideration
|
12,674,400 | 12,674,400 | 12,674,400 | 12,674,400 | ||||||||||||
|
Dilutive
shares issuable based upon the application of the treasury stock method
with respect to dilutive Alyst warrants outstanding
|
3,153,924 | 3,153,924 | ||||||||||||||
|
Shares
issued - purchase price - contingent consideration
|
9,000,000 | 9,000,000 | ||||||||||||||
|
Assuming
no conversion
|
12,674,400 | 15,828,324 | 21,674,400 | 24,828,324 | ||||||||||||
|
Note
Reference
|
H
|
H
|
||||||||||||||
|
Less
conversion shares - assuming maximum conversion
|
(2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | (2,413,319 | ) | ||||||||
|
Shares
outstanding assuming maximum conversion, September 30,
2008
|
10,261,081 | 13,415,005 | 19,261,081 | 22,415,005 | ||||||||||||
|
Note
Reference
|
I
|
I
|
||||||||||||||
41
COMPARATIVE
PER SHARE
DATA
The
following table sets forth unaudited pro forma combined per share ownership
information of Alyst and China Networks Media after giving effect to the merger,
assuming (i) no conversions and (ii) conversion of 30% of Alyst’s common
shares (less one share) by Alyst stockholders. You should read this information
in conjunction with the selected summary historical financial information the
unaudited pro forma condensed combined financial information, and the historical
financial statements of Alyst and China Networks Media and related notes that
are included elsewhere in this proxy statement/prospectus. The unaudited Alyst
and China Networks Media pro forma combined per share information is derived
from, and should be read in conjunction with, the unaudited pro forma condensed
combined financial information and related notes included elsewhere in this
proxy statement/prospectus.
The
unaudited pro forma combined earnings per share information below do not purport
to represent the earnings per share which would have occurred had the companies
been combined, nor earnings per share for any future date or period. The
unaudited pro forma combined book value per share information below does not
purport to represent the value of Alyst and China Networks Media had the
companies been combined.
|
Alyst
|
China
Networks
Media
|
Combined
Company
|
||||||||||
|
(in
thousands, except per share data)
|
||||||||||||
|
Number
of ordinary shares outstanding upon consummation of the
merger:
|
||||||||||||
|
Assuming
no conversions (1)
|
12,674 | |||||||||||
|
Assuming
conversion of 30% less one share (2)
|
10,261 | |||||||||||
|
Earnings
(loss) per share - historical quarter ended September 30,
2008
|
||||||||||||
|
Basic
|
$ | 0.11 | $ | 0.99 | ||||||||
|
Diluted
|
$ | 0.09 | $ | 0.76 | ||||||||
|
Earnings
(loss) per share - proforma quarter ended September 30,
2008
|
||||||||||||
|
Assuming
no conversion (1)
|
||||||||||||
|
Basic
|
$ | (0.57 | ) | |||||||||
|
Diluted
|
$ | (0.46 | ) | |||||||||
|
Assuming
conversion of 30% less one share (2)
|
||||||||||||
|
Basic
|
$ | (0.71 | ) | |||||||||
|
Diluted
|
$ | (0.55 | ) | |||||||||
|
Earnings
(loss) per share - historical year ended June 30, 2008
|
||||||||||||
|
Basic
|
$ | 0.01 | $ | (0.11 | ) | |||||||
|
Diluted
|
$ | 0.01 | $ | (0.08 | ) | |||||||
|
Earnings
(loss) per share - proforma year ended June 30, 2008
|
||||||||||||
|
Assuming
no conversion (1)
|
||||||||||||
|
Basic
|
$ | (0.31 | ) | |||||||||
|
Diluted
|
$ | (0.25 | ) | |||||||||
|
Assuming
conversion of 30% less one share (2)
|
||||||||||||
|
Basic
|
$ | (0.45 | ) | |||||||||
|
Diluted
|
$ | (0.34 | ) | |||||||||
|
Book
value - historical September 30, 2008
|
$ | 45,550 | $ | 30,606 | ||||||||
|
Book
value - proforma September 30, 2008
|
||||||||||||
|
Assuming
no conversion (1)
|
$ | 111,469 | ||||||||||
|
Assuming
conversion of 30% less one share (2)
|
$ | 92,523 | ||||||||||
|
Book
value per share - historical September 30, 2008
|
$ | 3.59 | $ | 2.41 | ||||||||
|
Book
value per share- proforma September 30, 2008
|
||||||||||||
|
Assuming
no conversion (1)
|
$ | 8.79 | ||||||||||
|
Assuming
conversion of 30% less one share (2)
|
$ | 9.02 | ||||||||||
|
1.
|
Assumes
that no Alyst stockholders seek conversion of their Alyst stock into pro
rata shares of the trust account.
|
|
2.
|
Assumes
that 2,413,319 shares of Alyst common stock were converted into their
pro rata share of the trust
account.
|
42
PRICE
RANGE OF SECURITIES AND DIVIDENDS
Alyst
Alyst’s
common stock, warrants and units are currently listed on the NYSE
Alternext under the symbols AYA, AYA.WS and AYA.U, respectively. The closing
price for these securities on August 15, 2008, the last trading day before
announcement of the entering into of the Merger Agreement, was $7.46, $7.85 and
$.45, respectively. The closing price for the securities on January 22, 2009,
the most recent trading day practicable before the date of this proxy
statement/prospectus, was $7.54, $0.05 and $7.50, respectively.
Alyst
units commenced public trading on July 5, 2007, and common stock and warrants
commenced separate public trading on July 16, 2007. The table below sets forth,
for the calendar quarters indicated, the high and low sales prices for the
securities as reported on the NYSE Alternext in U.S. dollars.
|
Common Stock
|
Warrants
|
Units
|
||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||||||||
|
(US$)
|
||||||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||
|
Second
Quarter*
|
– | - | - | - | 8.03 | 8.03 | ||||||||||||||||||
|
Third
Quarter*
|
7.35 | 7.20 | 0.90 | 0.72 | 8.17 | 7.77 | ||||||||||||||||||
|
Fourth
Quarter
|
7.30 | 7.20 | 0.76 | 0.52 | 8.00 | 7.68 | ||||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
First
Quarter
|
7.43 | 7.22 | 0.73 | 0.25 | 7.90 | 7.45 | ||||||||||||||||||
|
Second
Quarter
|
7.53 | 7.27 | 0.60 | 0.25 | 7.93 | 7.48 | ||||||||||||||||||
|
Third
Quarter
|
7.70 | 7.30 | 1.07 | 0.29 | 8.80 | 7.57 | ||||||||||||||||||
|
Fourth
Quarter
|
7.55 |
7. 00
|
0.45 | 0.01 | 7.60 | 6.91 | ||||||||||||||||||
| 2009 | ||||||||||||||||||||||||
|
First
Quarter
(throught January 22)
|
7.61 | 7.45 |
0.07
|
0.02 | 7.50 | 7.35 | ||||||||||||||||||
|
*
|
The
stock prices from the Second Quarter of 2007 begin on the dates which
Alyst’s securities first commenced
trading.
|
Holders
of Alyst common stock, warrants and units should obtain current market prices
for their securities. The market price of these securities could vary at any
time before the Business Combination is completed.
Alyst
anticipates that CN Holdings’ securities will be listed on the Nasdaq Stock
Market after the Business Combination under the symbols CHTV, CHTV.W and
CHTV.U. There can be no assurance that a trading market will develop
for these securities.
Holders of Alyst. As of January 20, 2009 there were,
of record, 14 holders of common stock, 11 holders of warrants, and 1 holder of
units. Alyst believes the number of beneficial holders of each of these
securities is significantly greater than the number of record
holders.
Dividends. Alyst has not paid any dividends
on its common stock to date and does not intend to pay dividends prior to the
completion of the Business Combination.
China
Networks Media
China
Networks Media securities are not publicly traded.
Holders.
As of January 20, 2009 there were two record holders of China Networks Media’s
ordinary shares and 27 holders of class A preferred shares.
43
Dividends
The
payment of dividends by CN Holdings in the future will be contingent upon
revenues and earnings, if any, capital requirements and the general financial
condition subsequent to completion of the Business Combination. The payment of
any dividends subsequent to that time will be within the discretion of the Board
of Directors serving at that time. It is the present intention of the Board to
retain all earnings, if any, for use in business operations and, accordingly, it
does not anticipate declaring any dividends in the foreseeable future. Loans or
credit facilities may also limit CN Holdings’ ability to pay
dividends.
44
THE
ALYST SPECIAL MEETING
Alyst is
furnishing this proxy statement/prospectus to its stockholders as part of the
solicitation of proxies by the Board of Directors for use at the Special Meeting
in connection with the proposed Redomestication Merger of Alyst to the British
Virgin Islands and the proposed Business Combination with China Networks Media.
This document provides you with the information you need to know to be able to
vote or instruct your vote to be cast at the Special Meeting.
Date, Time and Place. Alyst will
hold the Special Meeting at 10:00 a.m., Eastern time, on
[ ], 2009, at 340 Madison Avnue, 2nd Floor, New
York, New York to vote on the proposals.
Purpose. At the Special Meeting,
holders of Alyst common stock will be asked to approve:
|
|
(a)
|
The
redomestication of Alyst from the State of Delaware to the British Virgin
Islands by merging Alyst with and into China Networks International
Holdings Ltd. (“CN Holdings”), its wholly-owned British Virgin Islands
subsidiary (the “Redomestication Merger”), in conjunction with the
acquisition of China Networks Media, Ltd. (“China Networks Media”), a
private limited liability British Virgin Islands company, as set out in
paragraph (b) below. In connection with the Redomestication
Merger, Alyst will change its name to China Networks International
Holdings Ltd. and adopt the Amended and Restated Memorandum and Articles
of Association of CN Holdings, which will contain provisions equivalent in
substance to Alyst’s amended and restated certificate of
incorporation and by-laws, respectively. However, the CN
Holdings Amended and Restated Memorandum and Articles of Association will
provide for a perpetual existence. This proposal is called the
“Redomestication Proposal” and is conditioned upon approval of the
Business Combination Proposal discussed in paragraph (b)
below:
|
|
|
(b)
|
The
proposed merger of China Networks Merger Co., Ltd., a wholly-owned British
Virgin Islands subsidiary of CN Holdings (“China Networks Merger Co.”),
with and into China Networks Media, resulting in China Networks Media
becoming a wholly-owned subsidiary of CN Holdings (the “Business
Combination”), and the related transactions contemplated by the Agreement
and Plan of Merger, dated August 13, 2008, by and among Alyst, China
Networks Media, CN Holdings, China Networks Merger Co., Ltd., Mr. Li
Shuangqing, Kerry Propper and MediaInv Ltd. (the “Merger
Agreement”). Pursuant to the Merger Agreement, CN Holdings will
pay China Networks Media’s shareholders an aggregate merger consideration
of (i) 2,880,000 CN Holdings ordinary shares, (ii) an aggregate of
$17,000,000 in cash, (iii) deferred cash payments of up to $6,000,000 and
deferred share payments of up to 9,000,000 ordinary shares of CN Holdings,
in each case subject to the achievement of specified financial milestones
set forth in the Merger Agreement, and (iv) $21,910,000 of proceeds from
the exercise of CN Holdings warrants. This proposal is called the
“Business Combination Proposal” and is conditional upon approval of the
Redomestication Proposal discussed in paragraph (a) above;
and
|
|
|
(c)
|
The
proposed 2008 Omnibus Securities and Incentive Plan (the “Share
Incentive Plan”) pursuant to which directors, officers. employees and
consultants of CN Holdings or its subsidiaries may be granted options to
purchase up to 2,500,000 million ordinary shares of CN
Holdings. This proposal is called the ‘‘Share Incentive Plan
Proposal;” and
|
|
|
(d)
|
Any
adjournment or postponement of the Special Meeting for the purpose of
soliciting additional proxies in the event Alyst does not receive the
requisite stockholder vote for approval of the Redomestication Proposal
and the Business Combination Proposal – this proposal is called the
‘‘Adjournment and Postponement
Proposal.’’
|
Pursuant
to Alyst’s amended and restated certificate of incorporation and the Merger
Agreement, Alyst is required to obtain stockholder approval of the Business
Combination with China Networks Media. Pursuant to the Merger Agreement, the
Redomestication Merger will not be consummated unless the Business Combination
is also approved. Similarly, the Business Combination will not take place if the
Redomestication Merger is not approved. If China Networks Media’s
Board of Directors chooses to waive those conditions to the Business
Combination, Alyst will still not be able to go forward with the Business
Combination. Consequently, each of the Redomestication Proposal and the Business
Combination Proposal must be approved for either transaction to be
completed.
45
Alyst’s
Board of Directors determined that the Redomestication Merger, the Business
Combination and the Share Incentive Plan are fair to and in the best interests
of Alyst and its stockholders, approved and declared each of them advisable, and
recommends that Alyst stockholders vote ‘‘FOR’’ (i) the Redomestication Merger,
(ii) the Business Combination, (iii) the Share Incentive Plan and (iv) the
approval of any adjournment or postponement of the Special Meeting. The Board of
Directors has also determined that the fair market value of China Networks Media
is at least 80% of Alyst’s net assets, which is necessary to satisfy the
provisions of its amended and restated certificate of incorporation enabling it
to consummate the Business Combination.
The
Special Meeting has been called only to consider approval of the Redomestication
Merger Proposal, the Business Combination Proposal, the Share Incentive Plan
Proposal and the Adjournment or Postponement Proposal of the Special Meeting.
Under Delaware law and Alyst’s bylaws, no other business may be transacted at
the Special Meeting.
Record Date; Who is Entitled to
Vote. The ‘‘record date’’ for the Special Meeting is
[ ], 2009. Record holders of Alyst common stock at
the close of business on the record date are entitled to vote or have their
votes cast at the Special Meeting. On the record date, there were 9,794,400
outstanding shares of Alyst common stock, of which 8,044,400 shares were sold to
the public in Alyst’s IPO. Each share of common stock is entitled to one vote
per proposal at the Special Meeting. Alyst’s warrants do not have voting
rights.
Pursuant
to letter agreements with Alyst, Alyst’s initial stockholders have agreed to
vote all of their 1,750,000 shares, which were purchased by them prior to the
IPO, in accordance with the vote of the holders of a majority of the public
shares on the Business Combination Proposal in person or by proxy at the
meeting. If holders of a majority of the public shares voting at the meeting
vote for or against, or abstain with respect to, the Business Combination
Proposal, the initial stockholders will cast the 1,750,000 shares in the same
manner as such majority votes on such proposal. No initial stockholders will
demand conversion of any shares owned by them. The initial stockholders intend
to vote all of their shares in favor of the Redomestication Merger Proposal. The
1,750,000 shares that Alyst’s initial stockholders will vote in favor of the
Redomestication Merger represent 17.87% of Alyst’s outstanding shares of common
stock. By voting these shares for the Redomestication Merger, Alyst’s initial
stockholders increase the number of shares held by Alyst’s public stockholders
that must be voted against the Redomestication Merger Proposal to reject the
proposal.
Alyst
shareholders are being asked to approve actions that will be taken by CN
Holdings (including the entry into of the Business Combination and related
transactions) because the Amended and Restated Memorandum and Articles of
Association of CN Holdings was filed with the Registrar of Corporate Affairs in
the British Virgin Islands Companies Registry on
[ ], 2009 to include protective provisions
substantially identical to those contained in Alyst’s amended and restated
certificate of incorporation at the time of its IPO. As a result, immediately
following the completion of the Redomestication Merger, the charter documents of
CN Holdings will require that the majority of the shares issued in Alyst’s IPO
approve its Business Combination with China Networks Media. Since the laws of
the British Virgin Islands also require the affirmative vote of a majority of
the shares of China Networks Media and China Network Merger Co., the
shareholders of each such corporation will be approving such actions by written
consent, effective upon receipt of corresponding approval of Alyst’s
shareholders. Such action by written consent, together with the approval by
Alyst’s shareholders at the Special Meeting, will be effective under British
Virgin Islands law and China Networks Media Holding’s amended charter
documents.
Vote Required. Approval of the
Business Combination requires the affirmative vote of a majority of the votes
cast at the Special Meeting. Approval of the Redomestication Merger Proposal
will require the affirmative vote of a majority of the outstanding shares of
Alyst’s common stock, provided there is a quorum and that the Business
Combination is also approved. The Adjournment and Postponement
Proposal will require the affirmative vote of a majority of the shares
represented in person or by proxy and entitled to vote at the meeting. If the
stockholders approve the Business Combination, the Business Combination will
only proceed if holders of shares purchased in Alyst’s IPO, representing less
than 30% of the total shares sold in the IPO, exercise their conversion rights.
Alyst’s Board of Directors will abandon the Business Combination if holders of
2,413,320 (which number represents 30% of the total shares sold in Alyst’s IPO)
or more of the shares of common stock issued in Alyst’s IPO vote against the
Business Combination and exercise their right to convert their shares into a pro
rata portion of the trust account. In addition, pursuant to the Merger
Agreement, it is a condition to the obligation of Alyst and China Networks Media
to consummate the Business Combination that the Redomestication Merger Proposal
be approved by Alyst’s stockholders. If the Business Combination is approved,
but the Redomestication Merger is not approved, Alyst will still not be able to
complete the Business Combination with China Networks
Media.
46
Abstaining
from voting or not voting on a proposal (including broker non-votes), either in
person or by proxy or voting instruction, will not have an effect on the vote
relating to the Business Combination, since Alyst’s amended and restated
certificate of incorporation provides that only votes cast at the meeting will
count toward the vote on the Business Combination. An abstention will not count
toward the 30% ‘‘against and converting’’ vote that would result in the Business
Combination’s abandonment, and if you abstain you will be unable to exercise any
conversion rights upon approval of the Business Combination. With respect to the
Redomestication Merger Proposal, an abstention or a broker non-vote will have
the same effect as a vote against the proposal. If the proposal relating to the
Redomestication Merger is not approved, Alyst will not be able to go forward
with the Business Combination with China Networks Media.
Broker Non-Votes. A broker non-vote
occurs when a broker submits a proxy card with respect to shares held in a
fiduciary capacity (typically referred to as being held in ‘‘street name’’) but
declines to vote on a particular matter because the broker has not received
voting instructions from the beneficial owner. Under the rules that govern
brokers who are voting with respect to shares held in street name, brokers have
the discretion to vote such shares on routine matters, but not on non-routine
matters. Routine matters include the election of directors and ratification of
auditors. The matters currently planned to be considered by the stockholders are
not routine matters. As a result, brokers can only vote the Alyst shares if they
have instructions to do so. Broker non-votes will not be counted in determining
whether the proposals to be considered at the meeting are
approved.
Voting Your Shares. Each share of
common stock that you own in your name entitles you to one vote per proposal.
Your proxy card shows the number of shares you own.
There are
three ways to vote your shares at the Special Meeting:
By signing and returning the enclosed proxy
card. If you vote by proxy card, your ‘‘proxy,’’ whose names
are listed on the proxy card, will vote your shares as you instruct on the card.
If you sign and return the proxy card, but do not give instructions on how to
vote your shares, your shares will be voted as recommended by the Alyst Board
‘‘FOR’’ approval of each proposal.
By telephone. You can vote this way
by following the telephone voting instructions included with your proxy card. If
you do, you should not return the proxy card. If you vote this way, however, you
will not be able to exercise conversion rights.
You can attend the Special Meeting and vote in
person. We will give you a ballot when you arrive. However, if
your shares are held in the name of your broker, bank or another nominee, you
must get a proxy from the broker, bank or other nominee. That is the only way
Alyst can be sure that the broker, bank or nominee has not already voted your
shares.
Conversion Rights. Any holder of
shares that were purchased in Alyst’s IPO who votes against the Business
Combination may, at the same time, demand that Alyst convert his or her shares
into a pro rata portion of the funds available for conversion in the trust
account. If so demanded and the Business Combination is consummated, Alyst will
convert the shares.
SIMPLY
VOTING AGAINST THE BUSINESS COMBINATION (WHETHER IN PERSON, BY PROXY OR BY
TELEPHONE) OR CHECKING THE ‘‘EXERCISE CONVERSION RIGHTS’’ BOX ON A PROXY CARD
DOES NOT PERFECT YOUR CONVERSION RIGHTS – YOU MUST ALSO SEND ALYST THE WRITTEN
DEMAND LETTER DESCRIBED BELOW.
47
Pursuant
to the arrangements established at the time of Alyst’s IPO, shareholders of
Alyst representing up to 2,413.319 shares of the outstanding shares
issued in Alyst’s IPO may exercise conversion rights in the event they vote
against the Business Combination and send a written demand letter to Alyst as
described in the section entitled ‘‘The Special Meeting.’’ A
stockholder who has not properly exercised conversion rights may still exercise
those rights prior to the Special Meeting by submitting a later dated proxy,
together with a demand that Alyst will convert these shares into a pro rata
portion of funds held in the trust account plus interest, as of the record date.
After the Special Meeting, an Alyst stockholder may not exercise conversion
rights or correct invalidly exercised rights. You will only be entitled to
receive cash for these shares if you continue to hold them through the closing
of the Business Combination and then tender your stock certificate(s) to Alyst
or to Alyst’s duly appointed tender agent. If you exercise your conversion
rights, then you will be exchanging your shares for cash and will no longer own
these shares. Exercise of conversion rights will not affect any warrants held by
that stockholder. Do not send your stock certificate(s) with your proxy. If the
Business Combination is consummated, converting stockholders should expect to
receive the conversion amount.
You will
lose your conversion rights if you submit an incomplete or untimely demand for
conversion. To exercise conversion rights a Alyst stockholder must:
|
|
·
|
Vote
against the Business Combination
Proposal;
|
|
|
·
|
Contemporaneous
with that vote against the Business Combination Proposal, send a written
demand to Alyst (Attn: William Weksel) at 233 E. 69th Street, #6J, New
York, NY 10021, which demand must
state:
|
|
|
a)
|
The
name and address of the
stockholder;
|
|
|
b)
|
That
the stockholder has voted against the Business
Combination;
|
|
|
c)
|
That
the stockholder demands conversion of the stockholder’s shares into cash;
and
|
|
|
d)
|
The
address for delivery of the check for the aggregate conversion payment to
be received by the stockholder if the shares are converted for cash;
and
|
|
|
e)
|
deliver
your shares to the transfer agent in the manner described
below.
|
If the
Business Combination is approved by the Alyst stockholders and is consummated,
Alyst will promptly pay to any holder who properly and timely demanded
conversion and who has submitted the holder’s stock certificate(s) to Alyst, or
to its duly appointed tender agent, the stockholder’s pro rata portion of funds
in the trust account. Any such payment will only be made after the holder
submits his or her stock certificates to Alyst or to its duly appointed tender
agent. The certificate(s) representing the shares being converted need not be
submitted prior to the meeting or at the time that the converting stockholder
votes against the Business Combination and submits the written demand for
conversion, but only after the Business Combination has been approved. Alyst
recommends sending the certificate by registered mail with proper insurance,
since risk of loss will remain with the stockholder until the certificate is
received by Alyst. Alyst will not charge any stockholder for costs incurred by
Alyst with respect to the exercise of conversion rights, such as the costs of
converting shares from street name to a physical certificates.
The
closing price of Alyst’s common stock on [ ], 2009
was $[ ] and the amount of cash held in the IPO
trust account on December 31, 2008 was $63,154,286 (plus accrued interest
of $74,718). If a public stockholder would have elected to exercise conversion
rights on such date, he or she would have been entitled to receive approximately
$7.86 per share.
Questions About Voting. If you have any
questions about how to vote or direct a vote in respect of your Alyst common
stock, you may call Michael Weksel of Alyst, at (646) 290-6104. You may also
want to consult your financial and other advisors about the
vote.
48
Revoking Your Proxy and Changing Your Vote. If
you give a proxy, you may revoke it or change your voting instructions at any
time before it is exercised by:
|
|
·
|
If
you sent in a proxy, by sending another proxy card with a later
date;
|
|
|
·
|
If
you voted by telephone, by calling the same number and following the
instructions;
|
|
|
·
|
Notifying
Alyst in writing before the Special Meeting that you have revoked your
proxy; or
|
|
|
·
|
Attending
the Special Meeting, revoking your proxy and voting in
person.
|
If your
shares are held in ‘‘street name,’’ consult your broker for instructions on how
to revoke your proxy or change your vote.
If you do
not vote your shares of Alyst common stock in any of the ways described above,
it will have the same effect as a vote against the adoption of the Business
Combination Proposal and the Redomestication Proposal, but will not have the
effect of a demand of conversion of your shares into a pro rata share of the
trust account in which a substantial portion of the proceeds of Alyst’s IPO are
held.
Appraisal Rights. Under Delaware
corporate law, neither the Redomestication Merger of Alyst with CN Holdings nor
the Business Combination results in the stockholders of Alyst having appraisal
rights due to the fact that the securities of Alyst are listed on the NYSE
Alternext and the securities of CN Holdings will be listed on
Nasdaq.
Solicitation Costs. Alyst is
soliciting proxies on behalf of the Alyst Board of Directors. This solicitation
is being made by mail, but also may be made in person or by telephone or other
electronic means. Alyst and its respective directors, officers, employees and
consultants may also solicit proxies in person or by mail, telephone or other
electronic means. In addition, China Networks Media stockholders, officers and
directors may solicit proxies in person or by mail, telephone or other
electronic means on Alyst’s behalf. These persons will not be paid for doing
this.
Alyst has
not hired a firm to assist in the proxy solicitation process but may do so if it
deems this assistance necessary. Alyst will pay all fees and expenses related to
the retention of any proxy solicitation firm.
Alyst
will ask banks, brokers and other institutions, nominees and fiduciaries to
forward its proxy materials to their principals and to obtain their authority to
execute proxies and voting instructions. Alyst will reimburse them for their
reasonable expenses.
Stock Ownership. Information
concerning the holdings of certain Alyst stockholders is set forth above in the
Summary and below under ‘‘Beneficial Ownership of
Securities.’’
49
THE
BUSINESS COMBINATION PROPOSAL
Alyst
Acquisition Corp. is a Delaware corporation incorporated on August 16, 2006 in
order to serve as a vehicle for the acquisition of an operating business in any
industry, with a focus on the telecommunications industry, through a merger,
capital stock exchange, asset acquisition or other similar business combination.
On July 5, 2007, Alyst consummated its IPO of 8,044,400 of its Units, including
1,044,400 Units subject to the underwriters’ over-allotment option. Each Unit
consists of one share of common stock, $.0001 par value per share, and one
warrant to purchase one share of common stock at an exercise price of $5.00 per
share. The Units were sold at an offering price of $8.00 per Unit, generating
gross proceeds of $64,355,200. Simultaneously with the consummation
of the IPO, the Company consummated a private placement of 1,820,000 warrants at
a price of $1.00 per warrant, generating total proceeds of
$1,820,000. After deducting the underwriting discounts and
commissions and offering expenses, an amount of $63,154,286 was placed in an
interest-bearing trust account and the remaining proceeds of approximately
$50,000, plus up to $1,680,000 accrued interest from the trust
account became available to be used to provide for business, legal,
accounting, due diligence on prospective business combinations and continuing
operating expenses. Alyst’s management has broad discretion with respect to the
specific application of the net proceeds of the private placement and the public
offering, although substantially all of the net proceeds of the offerings are
intended to be generally applied toward consummating a business combination. As
of December 31, 2008, approximately $63,154,286 (plus accrued interest of
$74,718) was held in the trust account.
The
warrants issued in Alyst’s private placement were purchased by Robert A.
Schriesheim, Alyst’s Non-Executive Chairman of the Board, Dr. William Weksel,
Alyst’s Chief Executive Officer, Robert H. Davies, Alyst’s Chief Strategist,
Michael E. Weksel, Alyst’s Director, Chief Operating Officer, and Chief
Financial Officer and Secretary, Paul Levy, one of Alyst’s Former
Directors, and Ira Hollenberg IRA, Silverman Realty Group, Inc. Profit Sharing
Plan (LCPSP), Norbert W. Strauss, David Strauss and Jonathan Strauss, each a
stockholder of Alyst. The warrants are identical to the warrants included in the
Units sold in the IPO except that they are exercisable on a cashless basis if
Alyst calls the warrants for redemption so long as they are held by these
purchasers or their affiliates. The purchasers of the warrants issued in the
private placement have agreed that the warrants issued in the private placement
will not be sold or transferred by them until Alyst has completed a business
combination.
General
Description of the Business Combination
The
following discussion of the principal terms of the Agreement and Plan of Merger,
dated August 13, 2008, by and among Alyst, China Networks Media, CN Holdings,
China Networks Merger Co., Mr. Li Shuangqing, Kerry Propper and MediaInv
Ltd. (the ‘‘Merger Agreement’’), is subject to, and is qualified in its
entirety by reference to the Merger Agreement. A copy of the Merger Agreement is
attached as Annex A to this proxy statement/prospectus and is incorporated
by reference into this proxy statement/prospectus.
Pursuant
to the Merger Agreement, Alyst established a wholly-owned subsidiary, CN
Holdings in April 17, 2008. As part of the series of transactions contemplated
by the Merger Agreement, Alyst will merge with and into CN Holdings in the
Redomestication Merger immediately prior to the Business Combination. CN
Holdings will be the surviving entity of the Redomestication Merger, and the
separate corporate existence of Alyst will cease at the effective time thereof.
Immediately afterwards, CN Holdings’ wholly-owned subsidiary, China Network
Merger Co. will merge with and into China Networks Media, which owns 100% of
Advertising Networks Ltd. (‘‘ANT’’), a Hong Kong holding company that: (1) owns
50% of each of Shanxi Yellow River and Advertising Networks Cartoon Technology
Co., Ltd. and Kunming Taishi Information Cartoon Co., Ltd., (collectively “JV
Tech Cos”), each PRC joint venture companies formed with PRC TV Stations, and
(2) controls Beijing Guangwang Hetong Advertising & Media Co., Ltd.
(‘‘Hetong’’), a PRC company, which in turn, owns (a) 50% of Kunming Kaishi
Advertising Co. Ltd., and (b) 50% of Taiyuan Advertising Networks Advertising
Co., Ltd. (collectively “JV Ad Cos”) with PRC TV Stations. JV Ad Cos collects
advertising revenue earned by JV Tech Cos, a joint venture holding assets of PRC
TV Stations. As a result of the Business Combination, the
shareholders of China Networks Media will own approximately 23% of the
outstanding shares of CN Holdings, assuming full participation in the
Redomestication Merger and no conversions. The foregoing percentage
does not reflect the effect that an exercise of the currently outstanding
warrants would have.
50
If Alyst
does not consummate the Business Combination with China Networks Media, it will
continue to seek another target business until it is required to liquidate and
dissolve pursuant to its amended and restated certificate of
incorporation. Under its amended and restated certificate of
incorporation as currently in effect, if Alyst does not acquire at least
majority control of a target business by June 29, 2009, Alyst will dissolve and
distribute to its public stockholders the amount in the trust account plus any
remaining net assets. Following dissolution, Alyst would no longer exist as a
corporation.
Background
of the Business Combination
The
following is a brief discussion of the background of Alyst’s efforts to identify
potential candidates for a business combination, the selection of China Networks
Media, and the negotiation of the Merger Agreement relating to the Business
Combination and related transactions.
Shortly
after Alyst’s IPO offering in July 2007, it actively started to seek a target
business for a business combination. In the months after Alyst’s IPO,
Alyst’s management, including Dr. William Weksel, Mr. Michael E. Weksel, and Mr.
Robert H. Davies reviewed information on over 75 companies in their search for a
target business. Although the focus of this effort was to find a
suitable acquisition candidate that owned an operating business in the
telecommunications industry, the prospective target business was not limited to
any particular industry, or any particular geography. As disclosed in
the prospectus for the IPO, at no time prior to the consummation of the IPO did
Alyst, or any of its officers, directors, advisors, consultants or affiliates,
contact, or engage in any discussions regarding a business combination with, any
potential target on behalf of Alyst.
During
July 2007, Alyst management developed representative criteria to be used in the
screening and evaluating of target companies for Alyst to acquire. These
criteria were utilized during the ensuing months by the Alyst team in the search
and evaluation process. While management felt it would not necessarily have been
possible to find a target that fully met all of the criteria, the team sought to
identify those companies with characteristics that were in close alignment with
the criteria.
The
following is a summary of the criteria:
|
|
·
|
Strong
organic growth potential
|
|
|
·
|
Attractive
purchase price
|
|
|
·
|
Growing
market for targets’ goods/services
|
|
|
·
|
Scalable
business model
|
|
|
·
|
Potential
for add-on acquisitions
|
|
|
·
|
Strong
competitive position in industry
|
|
|
·
|
Experienced
management team
|
|
|
·
|
Diversified
customer and supplier base
|
In the
initial months after the IPO, Alyst management initiated conversations (i)
directly with potential targets they believed could make attractive business
combination partners, (ii) with lawyers, accountants, consultants, investment
bankers and other professionals and (iii) with its own network of
contacts. Alyst educated these parties on the SPAC structure and
Alyst’s criteria for an acquisition. Alyst also responded to inquiries from
investment bankers or other similar professionals who represented companies
engaged in sale or financing processes.
On a
regular basis, the Alyst board of directors was updated with respect to the
status of the business combination search. These
efforts through Alyst’s professional network resulted in a multitude of
potential targets. These opportunities were evaluated based on Alyst’s stated
criteria. Many did not fit Alyst’s criteria, while some were
eliminated for various reasons including the target being too small and the
sellers’ valuation expectations being too high. The screening process
was repeated multiple times, and Alyst remained in continual dialogue with its
sourcing network. Through these efforts, the volume of potential targets
remained high.
51
Negotiation
with Potential Targets
As a
result of its efforts, Alyst identified three companies, in addition to China
Networks, which it found sufficiently attractive to engage in meaningful
negotiations regarding the terms of a potential transaction. All
three of these potential targets were in the telecommunications
industry.
One
target was a provider of multimedia content for use with cellular telephones,
based in the European Union. This target developed and marketed ring
tones and pictures for use with cellular telephones as well as related software,
and had 2008 projected annual revenues of approximately $50 million and earnings
before interest, taxes, depreciation and amortization (“EBITDA”) of
approximately $12 million. Alyst discussed a draft term sheet for an
acquisition with the owners of this target. Discussions between Alyst
and this party terminated due to the inability of the parties to reach agreement
on valuation.
Another
target with whom Alyst had significant discussions was an independent U.S.
regional provider of rural cellular telephone services. This
potential target had 2008 projected revenues of approximately $50 million and
operating earnings of approximately $12 million. Alyst terminated
discussions with this target due to Alyst’s conclusion that the value of the
target was not large enough to enable Alyst to successfully acquire
it.
A third
target with whom Alyst had significant discussions was a company that sells
satellite-based telecommunications services. Alyst discussed a draft
term sheet for an acquisition with the owners of this target, which was engaged
in an auction process to identify a buyer. Alyst determined not to
pursue this target after Alyst determined that the target was unwilling to
suspend its auction process in order to negotiate exclusively with Alyst with
respect to a transaction.
History
of Discussions between China Networks Media and Alyst
During
February 2008, Mr. George Kaufman, a director in investment banking for Chardan
Capital Markets, LLC contacted Alyst to discuss the opportunity for Alyst to
acquire China Networks. On February 13, 2008, at the offices of
Chardan Capital Management, Dr. Weksel, Mr. Weksel, and Mr. Davies (the “Alyst
Team”) met with a representative of MediaInv Ltd., the majority shareholder of
China Networks, Mr. Kerry Propper and Mr. Kaufman to discuss the business and
prospects of China Networks and the potential for a business combination between
China Networks and Alyst.
In the
ensuing weeks, Alyst, Chardan and China Networks held numerous additional
discussions regarding a potential transaction in person and by teleconference
which resulted in the execution of a non-binding letter of intent on March 5,
2008 that described many economic terms and conditions of a potential
business combination between the Alyst and China Networks.
On
March 9, 2008, the Alyst Team traveled to Beijing, China to conduct on-site due
diligence of China Networks. In Beijing, the Alyst Team met with Mr.
Li Shuangqing, the Chairman and Chief Executive Officer of China Networks, the
then Co-Chairman of China Networks and three other senior executives of China
Networks, Mr. Zhou Chuangsheng, Ms. Guan Yong and Mr. Liu Rui, to discuss (i)
the television advertising industry in the Peoples Republic of China; (ii) China
Networks’ overall business model; (iii) China Networks’ target television
station acquisition plan; (iv) the legal and financial structural possibilities
for a potential deal; (v) China Networks proposed business and investment plans,
(vi) financial forecasts for China Networks, and (vii) the business experience
and background of the China Networks management team. The Alyst Team,
Mr. Li and another representative of China Networks then traveled to Kunming,
China. There the Alyst Team met with the top managers of the Kunming
television station to discuss the business and operations of the television
station and potential joint venture between the station and China
Networks. On April 7, 2008, Dr. Weksel and Mr. Davies returned to
China to conduct further due diligence, including additional meetings with the
management of China Networks and visits to Zhuhai, China and Taiyuan, China to
conduct meetings with the top managers of the television stations in those
cities to discuss the business and operations of the television stations and
potential joint ventures between the stations and China
Networks.
52
Commencing
shortly thereafter, Alyst and its legal advisors commenced legal due diligence
on China Networks and began discussions regarding the agreement and plan of
merger and related legal documents. These discussions continued
through March and April. During this time, the legal counsel for
China Networks, Loeb & Loeb LLP, and the legal counsel for Alyst McDermott
Will & Emery LLP, exchanged several drafts of the Merger Agreement and held
several conference calls and in-person meetings to discuss and negotiate the
terms of the Merger Agreement. By the last week of April, the parties
were very close to agreement on the major terms of the form of merger agreement,
though they still had not reached final agreement.
On March
24, 2008, Alyst held a meeting of its board of directors to discuss the status
of the search for a potential business combination and to discuss the status of
the proposed transaction with China Networks. After detailed
discussion of China Networks and the television industry in China, the Board
authorized management to continue due diligence and negotiations with China
Networks, including preparing a definitive agreement relating to such
transaction, and to update the Board as negotiations progressed.
On
April 30, 2008, Alyst held a meeting of its board of directors that was attended
by its legal counsel from McDermott, Will & Emery as well as George Kaufman
of Chardan Capital, Alyst’s financial adviser. At the meeting, which
was attended in person or telephonically by all board members, Michael Weksel
reviewed for the directors the overall strategy of China Networks in the Chinese
media and advertising marketplace. A representative of SkillNet
connected to the meeting telephonically and reviewed with the board the market
research that SkillNet had conducted on behalf of Alyst with respect to the
Chinese advertising and media marketplace and China Network’s
strategy. A representative of McDermott, Will & Emery LLP then
discussed with the directors (i) the terms and conditions of the proposed merger
agreement whereby the Company would acquire China Networks and reincorporate as
a British Virgin Islands company; (ii) the fiduciary duties of directors under
Delaware law in connection with their decision whether or not to approve the
proposed Merger Agreement and (iii) certain tax aspects of the Merger
Agreement. Michael Weksel and William Weksel described the due
diligence that had been conducted regarding China Networks, including:
(i) the due diligence trips conducted in China to assess the
prospects of the television stations China Networks is seeking to enter into
partnership with in China; (ii) the background checks that had been performed on
the principals of China Networks; and (iii) the review of the “carve-out
financials” of the partnerships to be formed by China Networks that had been
conducted. George Kaufman of Chardan Capital then made a presentation
to the Board describing the proposed merger agreement and its projected impact
upon Alyst, its stockholders and its stock price.
The
Alyst board of directors considered and discussed the terms of the Merger
Agreement and the business, financial and legal due diligence that had been
conducted with respect to China Networks, its business and
finances. After concluding its deliberations, the Alyst board of
directors unanimously resolved to approve the form of Merger Agreement, declare
it to be advisable for Alyst to enter into the Merger Agreement and authorized
Alyst’s management to finalize and execute the Merger Agreement substantially in
the form presented at the meeting, with such amendments as the management of
Alyst deemed necessary and appropriate. Alyst’s board of directors
also determined that China Networks, assuming the closing of the acquisition of
the TV stations, had a fair market value equal to at least 80% of Alyst’s trust
value.
The
management of Alyst then resumed its negotiations with China
Networks. The parties continued their discussions and negotiations
sporadically from May 1, 2008 through June 19, 2008. On June 19,
2008, Alyst, China Networks and the other parties to the Merger Agreement
entered into an escrow agreement whereby they agreed to cease negotiations and
place the Merger Agreement, together with executed signature pages of each
party, in an escrow arrangement with Ed Grushko, Esq. (the counsel to the
investors providing the Financing discussed below) acting as the escrow
agent. Pursuant to the escrow agreement, the parties agreed that Mr.
Grushko would release the signature pages to the respective parties upon the
consummation by China Networks of its joint ventures with Yellow River TV
Station and Kunming TV Station, the owners of television stations in the
PRC. The consummation of such ventures was itself contingent upon
China Networks obtaining regulatory approval for the joint ventures and the
closing of bridge financing to fund its payment obligations pursuant to such
joint ventures.
On
August 12, 2008, China Networks informed the escrow agent that it had completed
the joint ventures. On August 13, 2008 China Networks and Alyst
requested the escrow agent to release the Merger Agreement from the escrow and
the parties entered into the Merger Agreement.
53
In the
months subsequent to its execution, the parties discussed
entering into an amendment to the Merger Agreement to clarify the agreement
of the parties that each holder of preferred stock of China Networks Media as of
the closing of the Business Combination will receive a maximum of $50,000 of the
cash received by CN Holdings in connection with the exercise of CN Holdings’
warrants by warrantholders, for each 17,500 preferred shares held by each
holder. The parties are in the process of presenting such amendment to the
investors in the bridge financing for their approval.
On
January 28, 2009, the parties agreed to amend certain provisions of the Merger
Agreement relating to the Deferred Cash Payments, Deferred Stock Payments and
Warrant Exercise Proceeds. The amended provisions serve to (i) increase
the requisite thresholds of future earnings by which the common shareholders of
China Networks Media are entitled to cash payments and (ii) decrease the amount
of cash payments such shareholders are entitled to upon exercise of the public
and insider warrants. All other provisions of the Merger Agreement remain
unchanged.
Alyst
announced that it had set __________, 2009 as the record date for the Special
Meeting.
China
Networks Media Financing
Mr.
Shuangqing Li determined with Mr. Kerry Propper that China Networks Media
would need to raise funds to support the acquisition of certain assets by China
Networks Media in advance of the business combination with Alyst. Mr. Shuangqing
engaged Chardan Capital Markets as advisor on this capital raise, because of
Chardan’s prior successful experiences raising funds for investments in China
and its understanding of the structure of special purpose vehicles. It was
determined that the proceeds would be used for acquisition through contractual
arrangements of the networks under consideration, for working capital for China
Networks Media, as well as a loan to Alyst to pay for merger transaction costs.
From March 2008 until the closing of the $28 million bridge financing on July
21, 2008, Chardan worked closely with China Networks Media and Alyst on the
financing efforts for China Networks Media.
On
July 21, 2008, China Networks Media entered into a Purchase Agreement with
several accredited investors (the “Purchase Agreement”), and consummated the
private placement of $28,000,000 in units (the ‘‘Financing’’), each unit
consisting of (i) a promissory note in the face amount of $499,825, bearing
interest at the rate of 10% per annum (the “Note”), and (ii) 17,500 detachable
shares of the China Networks Media’s class A preferred stock (the “CN Media
Units”). As security for the repayment of the Notes, MediaInv Ltd. and Mr.
Propper, China Networks Media’s two shareholders, pledged and granted to the
investors, on a pro rata basis, a first priority lien on 50.1% of the ordinary
shares of China Networks Media owned by them. The proceeds of the sale and
issuance of the CN Media Units were used in the following manner: (a) $13.6
million was used for initial equity contributions due from ANT for the JV Tech
Cos and (b) a fee of $980,000 paid to Chardan, as a placement fee for the
Financing, and (c) the remaining proceeds are being used for working capital,
including payment of certain administrative, legal and accounting
fees.
In
connection with the Financing, pursuant to the terms of a registration rights
agreement, China Networks Media has agreed to register for resale the ordinary
shares into which the shares of class A preferred stock issued as part of the CN
Media Units conversion, on a registration statement to be filed with the
Securities and Exchange Commission no later than the date that is 30 days after
the consummation of the Business Combination. Alyst has agreed to assume these
registration obligations in connection with the Business Combination. The shares
to be registered as part of the Business Combination will be the ordinary shares
of CN Holdings that will be exchanged for the common shares of
Alyst.
For its
activities as placement agent in the financing, Chardan received $980,000 in
fees upon the closing of the Financing and will receive an additional $980,000
in fees upon the earlier of the consummation of the Business Combination and
July 21, 2010.
It is
expected that Li Shuangqing, Kerry Propper, Michael Weksel and four other
individuals who will be appointed prior to Alyst’s Special Meeting, of
which three may be selected by Alyst, will become members of the Board of
Directors of CN Holdings upon the completion of the Redomestication
Merger.
Introduction
of the Redomestication Merger
In
addition to the subjects discussed above, during the structuring of the
Financing, Mr. Kerry Propper also discussed with Mr. Shuangqing the
obligations of being a U.S. reporting company, including compliance with the
reporting requirements of the federal securities laws, restrictions on insider
trading, accounting procedures and Sarbanes-Oxley requirements, public
disclosure requirements and timing, shareholder communications, website
disclosure, financial public relations, and transfer agent
requirements.
54
As
substantially all of the business operations of China Networks Media will be
conducted outside the United States, Alyst management decided to consider
redomesticating Alyst outside the United States prior to its merger with China
Networks Media. It concluded that the Redomestication Merger will permit greater
flexibility and possibly improved economic results in structuring future
acquisitions and creating subsidiaries in China and other countries as China
Networks Media expands, recognizing that potential acquisition targets may
view the status of being a shareholder in a non-U.S. corporation more favorably
than being a shareholder in a U.S. corporation. This reason is significant to
China Networks Media in view of its strategic plans to acquire new networks.
Alyst also believes that the regulatory burden in the British Virgin Islands is
significantly less onerous than in the United States, particularly with respect
to companies engaged in a series of acquisitions. Further, ownership of
operating businesses in the PRC through a holding company organized in the
British Virgin Islands is also well-established with the PRC authorities,
reducing the risk of a challenge to the ownership structure by SARFT or other
PRC governmental authorities. In addition, depending on the composition of the
shareholder base of CN Holdings after the Business Combination or changes in
board membership or location of its principal executive offices, there is the
availability of foreign private issuer status for CN Holdings with the U.S.
Securities and Exchange Commission. As a foreign private issuer, the reporting
requirements under the Securities Exchange Act of 1934, as amended, would be
reduced, resulting in less costs associated with financial and reporting
compliance. Accordingly, a decision was made to reincorporate Alyst under
the laws of the British Virgin Islands.
Interest
of Alyst’s Management in the Business Combination
When you
consider the recommendation of Alyst’s Board of Directors that you vote in favor
of the Business Combination, you should keep in mind that Alyst’s officers and
directors have interests in the Business Combination that are different from, or
in addition to, yours. These interests include the following:
|
|
·
|
If
the Business Combination is not approved and Alyst is therefore required
to liquidate, the securities owned by Alyst’s officers and directors will
be worthless because they will not be entitled to receive any of the
assets held in the trust account. In addition, the possibility that the
members of the Board of Directors will be required to perform their
obligations under the indemnity agreements referred to above will be
substantially increased.
|
|
|
·
|
In
connection with the IPO, Alyst’s current officers and directors agreed to
indemnify Alyst for debts and obligations to vendors that are owed money
by Alyst for services rendered or products sold to Alyst, but only to the
extent necessary to ensure that certain liabilities do not reduce funds in
the trust account. If the Business Combination is consummated, Alyst’s
officers and directors will not have to perform such obligations. As of
January 21, 2009, Alyst believes that the maximum amount of the indemnity
obligation of Alyst’s officers and directors is small or non-existent
because the total amounts owed to vendors for which Alyst has not received
a waiver of such Vendor’s right to
sue the trust account is less than the amount of funds available to Alyst
outside the trust account to pay such liabilities. If the Business
Combination is not consummated, Alyst anticipates the obligations would
total approximately $550,000. Alyst has sufficient funds outside
of the trust account to pay these obligations. All
vendors agreed to the waiver other than Alyst’s legal
counsel and accountants. If the Business Combination is not consummated,
China Networks Media will be responsible for its own expenses incurred in
connection with the Business
Combination.
|
|
|
·
|
Warrants
to purchase Alyst common stock held by Alyst’s directors and officers are
potentially exercisable upon consummation of the Business Combination.
Based upon the closing price of Alyst’s common stock on January 22, 2009
of $7.30, if all warrants held by Alyst’s directors and officers were
exercised for common stock the value of such shares of common stock would
be approximately $4,186,000.
|
|
|
·
|
All
rights specified in Alyst’s amended and restated certificate of
incorporation relating to the right of directors and officers to be
indemnified by Alyst, and of Alyst’s directors and officers to be
exculpated from monetary liability with respect to prior acts or
omissions, will continue after the Business Combination to the extent
permitted by British Virgin Islands law. If the Business Combination is
not approved and Alyst liquidates, it will not be able to perform its
obligations under those provisions. If the Business Combination is
ultimately completed, the combined company’s ability to perform such
obligations will probably be substantially
enhanced.
|
55
|
|
·
|
Alyst’s
financial, legal and other advisors have rendered services for which they
may not be paid if the Business Combination is not approved, and certain
of them may have the opportunity to provide additional services to Alyst
in the future. In connection with the China Networks Media negotiations,
the drafting of the Merger Agreement and this proxy statement/prospectus,
Alyst’s counsel, McDermott Will & Emery LLP, has provided
approximately $[ ] of services for which it
had not been paid as of January 22, 2009. In addition, [_________,
_________, _________ and __________] were owed a total of approximately
$___________ as of January 22, 2009, as to which waivers regarding
proceeding against the trust account had been received from vendors
representing approximately $[ ] of such
expenses. As any recovery of such fees and expenses by these vendors will
be much more difficult in the event the Business Combination is not
approved, while such recovery is not expressly contingent on the outcome
of the Alyst shareholder vote, these vendors could be viewed as having an
interest in the outcome of such
vote.
|
|
|
·
|
The
following table lists the securities owned by the members of Alyst’s
current management team and Board of Directors and the amount of potential
gain that each of them would realize if the Business Combination is
consummated, based on the market price of Alyst’s securities on
[ ], 2008. If a Business Combination is not
consummated, the securities held by these individuals would be valueless
since they would not be entitled to participate in distributions from the
trust account.
|
|
Securities in which named
individual has a
pecuniary interest
|
Value of such
securities as of
January
22, 2009
($)
|
Aggregate Initial
Purchase Price of
Securities ($)
|
Gain on
Securities
as of January
21,
2009
|
|||||||||||||||||||||||||
|
Name
|
Shares
|
Units
|
Shares
|
Units
|
Shares
|
Units
|
($)
|
|||||||||||||||||||||
|
Dr.
William Weksel
|
362,500 | (1) |
0
|
2,733,250 |
0
|
5,178.57 |
0
|
2,728,071.43 | ||||||||||||||||||||
|
Robert
A. Schriesheim
|
362,500 | (1) |
0
|
2,733,250 |
0
|
5,178.57 |
0
|
2,728,071.43 | ||||||||||||||||||||
|
Robert
H. Davies
|
362,500 | (1)(2) |
0
|
2,733,250 |
0
|
5,178.57 |
0
|
2,728,071.43 | ||||||||||||||||||||
|
Michael
E. Weksel
|
362,500 | (1)(3) |
0
|
2,733,250 |
0
|
5,178.57 |
0
|
2,728,071.43 | ||||||||||||||||||||
|
Paul
Levy
|
90,000 | (1) |
0
|
678,600 |
0
|
1,285.71 |
0
|
677,314.29 | ||||||||||||||||||||
|
Matthew
Botwin
|
30,000 |
0
|
226,200 |
0
|
428.57 |
0
|
225,771.43 | |||||||||||||||||||||
|
1.
|
Does
not include 227,500 shares of common stock issuable upon exercise of
warrants held by this individual that are not currently exercisable and
will not become exercisable within 60
days.
|
|
2.
|
Includes
10,000 shares of common stock held by the 2006 Robert H. Davies Delaware
Trust f/b/o Alexander B. Davies, a trust established for the benefit of
Mr. Davies’ son.
|
|
3.
|
Includes
12,500 shares of common stock held by the Carina Heart Weksel Irrevocable
Trust, a trust established for the benefit of Mr. Weksel’s
daughter.
|
Alyst’s
Reasons for the Business Combination and Recommendation of the Alyst
Board
Alyst’s
Board of Directors concluded that the Merger Agreement with China Networks Media
is in the best interests of Alyst’s stockholders.
Alyst’s
Board of Directors considered a wide variety of factors in connection with its
evaluation of the merger. Many of those factors, such as the international
experience and operational expertise of China Networks Media’s management were
not quantifiable. Those that could be quantified, such as the value of the
company if certain projections of net income levels and earnings multiples were
achieved based on assumed price/earnings ratios, were quantified, and some of
the factors considered, such as historical growth rates, were inherently
quantitative in nature. Alyst’s Board of Directors did not consider it useful to
assign relative weights to each of the specific factors it considered in
reaching its decision. Alyst’s Board of Directors focused instead on evaluating
the relative collective weight of the several positive factors and the few
negative factors in making its decision, in light of the fact that the pricing
of the transaction would provide value to Alyst’s stockholders in excess of the
conversion value of their stock.
56
Among the
factors that the Alyst Board of Directors considered in connection with its
evaluation of the Business Combination were: (i) the onsite due diligence visits
to be conducted by officers and directors of Alyst; (ii) the conclusions of
the analyses made by Skillnet with regards to the business concept, business
case, market potential, product and services, technology and technical assets,
competitive situation, marketing and sales strategy and organization; (iii) the
analyses and discussion with its legal and financial advisers regarding the
structure of a foreign investment in a PRC advertising company; (iv) the
qualitative analysis of China Networks Media’s management personnel and
executive leadership; (v) the quantitative analysis of China Networks Media’s
revenue and projections; and (vi) a qualitative comparison of the proposed China
Networks Media acquisition to the criteria previously established by the Alyst
Board of Directors.
Among the
factors that the advantages and disadvantages the Alyst Board of Directors
considered in connection with its evaluation of the Business Combination are
those described below.
Potential
Advantages of the Business Combination with China Networks Media
A
business combination with Alyst would strategically position China Networks
Media in the rapidly growing Chinese advertising market.
Ranking fifth
in size in the world in 2007, China’s total advertising spending was
approximately 3.25% of total worldwide spending, which was over $15
billion. Among the top ten countries, China is expected to experience
a compounded annual growth rate of 17.33% from 2007 to 2010, which is nearly 4%
higher than the next fastest growing advertising market. China’s
television advertising industry has been growing rapidly in recent years, and in
2008, comprised 39.6% of the total advertising market in the PRC,
representing approximately $7.5 billion in 2008, according to industry
reports. The Alyst Board of Directors believes that China Networks
Media position in this growing marketplace makes it an attractive acquisition
partner.
Fragmented
industry poised for consolidation
The
Chinese television industry is highly fragmented with no dominant provider of
advertising services in the market. The fragmented nature of the TV
industry in China creates significant demand for the expansion of the scale and
scope of the joint-venture relationships China Networks Media intends to build
with TV stations across the country. Industry conditions fit well
with China Networks Media’s expansion
strategy and create the opportunity for the significant future growth that the
Alyst Board of Directors found highly attractive.
Experienced
management
Another
criteria that was important to Alyst’s Board of Directors in identifying an
acquisition target was that the company have a seasoned management team with
specialized knowledge of the markets within which it operates and the ability to
lead a company in a rapidly changing environment. Alyst’s Board of Directors
concluded that China Networks Media’s management has demonstrated that ability,
addressing critical issues such as business strategy, competitive
differentiation, business development, public market experience, operational
experience and speed to market. The success and experience of China Networks
Media’s Chief Executive Officer, Mr. Li Shuangqing, in the field of media and
communications, was also judged to be a significant factor supporting the
company’s future expansion and success.
Limited
and constrained competition
The
competitive situation that China Networks Media operates in is favorable. There
are few short term or mid-term competitive threats. SARFT as the governing body
favors traditional media such as broadcast television and protects it from new
media distribution such as IPTV and direct-to-the-home satellite distribution.
In addition, the capital cost to build a duplicate, competitive network is a
barrier to entry limiting direct competition in the markets that China Networks
Media chooses to serve.
China
Networks Media’s ability to execute its business plan, even with the risk that a
significant number of Alyst’s public stockholders would vote against the
Business Combination and exercise their conversion rights
The
Alyst Board concluded that, based on its review of China Networks Media’s
business plan and project financial performance, the business plan could be
successfully executed even if significant numbers of Alyst stockholders
determine to convert their stock into cash. This aspect of China
Networks Media significantly mitigates the execution risk of the proposed
transaction and was an attractive feature of the deal from the perspective of
the Alyst Board of Directors.
57
If
projected performance is achieved, the Business Combination is expected to
create significant value for Alyst shareholders.
Based
upon the projected financial performance of China Networks Media and the
consideration being paid by Alyst in the Business Combination, a substantial
amount of which is contingent upon successful post-closing financial
performance, the Alyst Board of Directors concluded that the Business
Combination could create substantial value for the Alyst stockholders in excess
of the conversion value of the shares.
Potential
Disadvantages of the Business Combination with China Networks Media
The Alyst
Board of Directors evaluated potential disadvantages of a business combination
with China Networks Media. They were not able to identify any factors associated
specifically with China Networks Media or its industry that outweighed the
advantages of a business combination. Potential disadvantages of acquiring China
Networks Media considered by the Alyst Board of Directors are listed
below:
Legal
and regulatory regime in which China Networks Media will
operate
Over the
past several years, the Chinese government has pursued economic reform policies,
including the encouragement of private economic activities and decentralization
of economic regulation. Changes in policies by the Chinese government
that result in a change of laws, regulations, their interpretation, or the
imposition of high levels of taxation, restrictions on currency conversion or
imports and sources of supply could materially and adversely affect China
Networks Media’s business and operating results. In addition, the
advertising industry in particular could become subject to more stringent
regulation both in its activities and the ability of private enterprises to
acquire assets from state-owned television stations.
Dependence
of strategy upon partners not controlled by China Networks
Media
The
success of China Networks Media’s strategy of expanding in various locations in
China depends upon the cooperation of various joint venture parties not under
the control of China Networks Media. The Alyst Board of Directors
considered the risks involved in securing and maintaining the cooperation of
these parties to be a potential disadvantage of the business
combination.
Potential
difficulty in extracting profits from China
Renminbi,
or RMB, is not presently a freely convertible currency, and the restrictions on
currency exchanges may limit China Networks Media’s ability to use revenues
generated in RMB or to make dividends or other payments in U.S. dollars to its
investors. For example, SAFE recently issued a new regulation under
which RMB converted from the registered capital must only be utilized in
accordance with the purposes approved by the relevant government authority
(including the local SAFE). While in the short to intermediate term
it is not expected that China Networks Media would desire to extract cash from
its operations outside of China, the Alyst Board of Directors nevertheless
viewed the potential long-term difficulties to be a potential disadvantage of
the business combination.
The Board
of Directors concluded that, after the transaction is complete, the consolidated
strength of the merger of Alyst and China Networks Media overcomes the negative
factors that the Board of Directors had identified in its analysis.
Satisfaction
of the 80% Test
It is a
requirement that any business acquired by Alyst have a fair market value equal
to at least 80% of Alyst’s net assets at the time of acquisition, which assets
shall include the amount in the trust account. Based on standards generally
accepted by the financial community, including the financial analysis of China
Networks Media which was generally used to approve the Business Combination,
Alyst’s Board of Directors determined that 80% test requirement was met and
exceeded.
58
The Alyst
Board of Directors believes, because of the financial skills and background of
several of its members, it was qualified to perform the valuation analysis
described above and to conclude that the acquisition of China Networks Media met
this requirement.
Transaction
Costs
Alyst
anticipates that it will incur total transaction costs of approximately
$[ ]million. Such costs do not include transaction
costs of approximately $[ ] million anticipated to
be incurred by China Networks Media. Approximately
$[ ] of the $[ ] in
non-contingent anticipated costs has been incurred and recorded as
of [ ], 2008. The
$[ ] primarily relates to the accountants and
valuation consultants’ fees, road show expenses, printer fees and other
miscellaneous expenses.
Alyst’s
cash outside the trust and accrued expenses as of
[ ], 2008 was approximately
$[ ] and $[ ],
respectively. Through [ ], 2009, approximately
$[ ] of transaction costs had been paid in cash.
Alyst expects to incur the remaining anticipated non-contingent transaction
costs of approximately $[ ] before the
Business Combination is approved in [ ] 2008.
Additionally, recurring monthly operating expenses of approximately
$[ ] per month will continue to accrue in following
the Business Combination.
Alyst
anticipates that the costs to consummate the Redomestication Merger and the
Business Combination will exceed its available cash outside of the trust account
(excluding borrowings) by approximately $[ ]. Alyst
has not sought and does not anticipate seeking any fee deferrals. Alyst expects
these costs would ultimately be borne by CN Holdings after the Business
Combination and disbursed from the funds held in the trust if the proposed China
Networks Media Business Combination is completed. If the Business Combination is
not completed, the non-contingent excess costs of approximately
$[ ] would be subject to the potential
indemnification obligations of Alyst’s officers and directors to the trust
account related to expenses incurred for vendors or service providers. Alyst’s
officers and directors anticipate performing their obligations to the trust
account regarding expenses incurred for vendors or service providers in the
event the Business Combination is not consummated. Alyst’s officers and
directors are all accredited investors and as such, Alyst believes that they
have the financial ability to meet such obligations but has not done an
independent investigation to confirm such belief. If these obligations are not
performed or are inadequate, it is possible that vendors and/or service
providers could seek to recover these expenses from the trust account, which
could ultimately deplete the trust account and reduce a stockholder’s current
pro rata portion of the trust account upon liquidation.
Potential Dilution of Share Ownership
Post-Redomestication Merger and Post-Business Combination
The
following table sets forth the number of shares and percentage ownership of CN
Holdings after the Business Combination by each of (i) Alyst’s initial
stockholders, (ii) Alyst’s former public stockholders, (iii) the former
shareholders to China Networks Media and (iv) the officers and directors of CN
Holdings.
|
No Conversion
|
Maximum Conversion
|
|||||||||||||||
|
# of shares
|
Percentage
of
ownership
|
# of shares
|
Percentage
of
ownership
|
|||||||||||||
|
Alyst
initial stockholders
|
1,750,000 | 13.8 | % | 1,750,000 |
17.1
|
% | ||||||||||
|
Alyst
former public stockholders
|
8,044,400 | 63.5 | % | 5,631,081 | 54.9 | % | ||||||||||
|
Former
shareholders of China Networks Media
|
2,880,000 | 22.7 | % | 2,880,000 | 28.1 | % | ||||||||||
|
Officers
and Directors of CN Holdings (1)
|
2,045,000 | 16.1 | % | 2,045,000 | 19.9 | % | ||||||||||
|
Total
ownership
|
12,674,400 | 10,261,081 | ||||||||||||||
(1)
Includes 1,570,000 shares of Alyst officers and directors, included in Alyst
initial stock holders above, and
475,000 ordinary shares of China Networks Media
owned by Kerry Propper immediately
prior to the merger, included in Former shareholders of China Networks Media
above.
This
table does not include the effect of shares that may be issuable for contingent
merger consideration nor the effect of the exercise of outstanding warrants or
options.
59
Conclusion
of Alyst’s Board of Directors
After
careful consideration of all relevant factors, Alyst’s Board of Directors
determined that the Business Combination Proposal is in the best interests of
Alyst and its stockholders. The Board of
Directors has approved and declared the Business Combination Proposal advisable
and recommends that you vote or give instructions to vote ‘‘FOR’’ the Business
Combination Proposal.
The
foregoing discussion of the information and factors considered by the Alyst
Board is not meant to be exhaustive, but includes the material information and
factors considered by the Board.
Terms
of the Merger Agreement
The
discussion in this proxy statement/prospectus of the Business Combination and
the principal terms of the Merger Agreement catalogued below are qualified in
their entirety by reference to the copy which is attached as Annex A and
incorporated herein by reference. The following description summarizes the
material provisions of the Merger Agreement, which agreement we urge you to read
carefully because it is the principal legal document that governs the Business
Combination. For this discussion, we refer to the Merger Agreement simply as the
‘‘Agreement,’’ unless the context otherwise requires.
The
representations and warranties described below and included in the Agreement
were made by Alyst, China Networks Media, Li Shuangqing, Kerry Propper, MediaInv
Ltd, China Networks Holdings and China Networks Merger Co,. to each other as of
specific dates. The assertions embodied in these representations and warranties
may be subject to important qualifications and limitations agreed to by Alyst,
China Networks Media Li Shuangqing, Kerry Propper, MediaInv Ltd, China Networks
Holdings and China Networks Merger Co. in connection with negotiating its terms.
The representations and warranties may also be subject to a contractual standard
of materiality that may be different from what may be viewed as material to
stockholders, or may have been used for the purpose of allocating risk among the
contracting parties, rather than establishing matters as facts. The Agreement is
described in this proxy statement/prospectus and included as Annex A only
to provide you with information regarding its terms and conditions at the time
it was entered into by the parties. Accordingly, you should read the
representations and warranties in the Agreement not in isolation but rather in
conjunction with the other information contained in this document and in the
other publicly available information regarding Alyst and China Networks
Media.
General
Alyst
intends to change its domicile from the State of Delaware to the British Virgin
Islands by means of a merger with and into its wholly-owned subsidiary, CN
Holdings, and as a result, change its name to China Networks International
Holdings Ltd. The acquisition by Alyst of China Networks Media will be effected
through a business combination in the form of a merger of China Network Merger
Co. (the ‘‘China Networks Merger’’), a wholly-owned subsidiary of CN Holdings,
with and into China Networks Media. China Networks Media will be the surviving
corporation in the Business Combination and will become a wholly-owned
subsidiary of CN Holdings.
Basic
Deal Terms
The
Redomestication Merger will result in all of Alyst’s issued and outstanding
shares of common stock immediately prior to the Redomestication Merger
converting into ordinary shares of CN Holdings, and all units, warrants and
other rights to purchase Alyst’s common stock immediately prior to the
Redomestication Merger being exchanged for substantially equivalent securities
of CN Holdings at the rate set forth in the Merger Agreement. CN Holdings
has applied to have its shares listed on Nasdaq upon consummation of the
merger. Alyst will cease to exist and CN Holdings will be the surviving
corporation, and in connection therewith, will assume all the property, rights,
privileges, agreements, powers and franchises, debts, liabilities, duties and
obligations of Alyst, which includes the assumption by CN Holdings of any and
all agreements, covenants, duties and obligations of Alyst set forth in the
Agreement. Alyst’s amended and restated certificate of incorporation and by-laws
in effect immediately prior to the Redomestication Merger shall cease and the
Amended and Restated Memorandum and Articles of Association of CN Holdings will
be the organizational documents of CN Holdings as the surviving
corporation.
60
The
Business Combination will be effected immediately after the Redomestication
Merger. Each ordinary share of China Networks Media issued and outstanding prior
to the Business Combination will be converted automatically into one
ordinary share of CN Holdings, and each class A preferred share of China
Networks Media outstanding immediately prior to the Business Combination will
convert into one share of CN Holdings. In connection with the Business
Combination, China Networks Media will assume all the property, rights,
privileges, agreements, powers, franchises, debts, liabilities and duties of
China Networks Merger. China Networks Media’s Amended and Restated Memorandum
and Articles of Association will remain as the organizational documents after
the Business Combination.
Upon
the consummation of the Redomestication Merger and the Business Combination, CN
Holdings will own 100% of the issued and outstanding ordinary shares of China
Networks Media. As of the closing, the shares of CN Holdings will be owned 77%
by the previous stockholders of Alyst, 15% by the previous holders of ordinary
shares of China Networks Media and 8% by the previous holders of class A
preferred shares of China Networks Media.
Shares
Subject to Appraisal Rights
Under the
Delaware General Corporation Law, appraisal rights are not available to Alyst’s
stockholders in connection with the Redomestication Merger or the Business
Combination.
Shareholders
of China Networks Media’s ordinary shares and class A preferred shares who vote
against the Business Combination and who have properly exercised and perfected
their appraisal rights, and not subsequently withdrawn or lost or waived their
rights to demand payment with respect to their ordinary shares or class A
preferred shares of China Networks Media, in accordance with BVI law, shall not
have their shares converted into a right to receive shares of CN Holdings and
shall be entitled only to such rights as are granted by BVI law. Each
shareholder who becomes entitled to payment for such shares pursuant to BVI law
shall receive payment therefore from CN Holdings in accordance with the BVI law,
provided, however, that (i) if any shareholder who asserts appraisal rights in
connection with the Business Combination has failed to establish his entitlement
to such rights as provided under BVI law, or (ii) if any such shareholder has
effectively withdrawn his demand for payment for such shares or waived or lost
his right to payment for his shares under the appraisal rights process under BVI
law the shares of China Networks Media held by such shareholder shall be treated
as if they had been converted, as of the effective date of the Business
Combination, into a right to receive shares of CN Holdings. China Networks Media
shall give CN Holdings prompt notice of any demands for payment received by the
China Networks Media from a shareholder asserting appraisal rights, and CN
Holdings shall have the right to participate in all negotiations and proceedings
with respect to such demands. China Networks Media shall not, except with the
prior written consent of CN Holdings, make any payment with respect to, or
settlement or offer to settle, any such demands.
Representations
and Warranties
China
Networks Media makes customary representations and warranties about itself, ANT,
its wholly-owned Hong Kong subsidiary, and Hetong, a PRC company that is the 50%
owner of JV Ad Cos. The representations and warranties relate to, among other
things, organization standing and power, subsidiaries corporate and contractual
formalities observed in connection with the Merger Agreement, capitalization;
consents, approvals and authority in connection with the transactions
contemplated by the Merger Agreement, absence of changes and undisclosed
liabilities, restrictions on business activities, governmental authorizations,
financial statements, pending and potential legal proceedings, title to
property, intellectual property, governmental inquires, compliance with laws,
compliance with taxes, employee benefits, interested party transactions,
insurance coverage, material contractual arrangements, compliance with laws,
foreign corrupt practices and money laundering.
61
Alyst
makes customary representations and warranties relating to, among other things,
its organization standing and power, capitalization, corporate and contractual
formalities observed in connection with the Merger Agreement, financial
statements, filings with the SEC, compliance with the Sarbanes-Oxley Act of
2002, pending and potential legal proceedings, employee benefit plans, labor
matters interested party transactions, insurance coverage, transactions with
affiliates, compliance with laws, consents, approvals and authority in
connection with the transactions contemplated by the Merger Agreement, no
conflicts, absence of certain changes and undisclosed liabilities, restrictions
on business activities, no interest in properties, listing on the NYSE Alternext
and funds held in the trust account.
Conduct
of Business Pending Closing
Alyst
agrees, and China Networks Media agrees on behalf of itself and its
subsidiaries, to carry on their respective businesses in the ordinary course
consistent with past practice and to pay all debts and taxes when due, to use
reasonable best efforts to preserve their business organization, keep services
available and preserve relationships with customers, suppliers, distributors,
licensors, licensees and others having business dealings with them, and keep
goodwill and their ongoing businesses unimpaired.
Both
Alyst and China Networks Media agree not to, without the prior written consent
of the other, amend their respective organizational documents, declare or pay
dividends or alter their capital structure, including by splitting, combining,
reclassifying, issuing, or repurchasing its stock, enter into material
contracts, issue shares or securities convertible into shares, transfer or
license intellectual property other than the license of non-exclusive rights to
intellectual property in the ordinary course of business consistent with past
practice, sell, lease, license or otherwise dispose of or encumber properties or
assets, incur any indebtedness in excess of $100,000, pay or discharge any
claims, liabilities or obligations in excess of $100,000, make any capital
expenditures, additions or improvements except in the ordinary course of
business in excess of $100,000, make any acquisitions, other than future
acquisitions by China Networks Media of television advertising assets upon prior
consultation with Alyst, make or change any election with respect to taxes and
make any change to financial accounting policies and procedures.
Covenants
Alyst
agreed to file this proxy statement/prospectus with the SEC as soon as
reasonably practicable after receipt of all financial and other information
required to be included herein, for the purpose of soliciting proxies from
Alyst’s stockholders to vote at the Special Meeting and, as soon as practicable
after completing the SEC review process of this proxy statement/prospectus, to
distribute the same to all of Alyst’s stockholders and call the Special Meeting
in accordance with Delaware law. Alyst has also agreed to negotiate and finalize
the terms of the employment contracts with Li Shuangqing. China Networks Media
agreed to use reasonable best efforts to obtain the vote or consent of its
shareholders to effect the Business Combination.
The
Merger Agreement provides that Alyst will, within 30 days after the closing of
the Business Combination, file a registration statement relating to the resale
of the shares of Alyst’s common stock acquired by the stockholders of China
Networks Media, and that Alyst will use its commercially reasonable best efforts
to have the registration statement declared effective by the SEC within 120 days
after the closing of the Business Combination.
Additional
Agreements
China
Networks Media agrees not to make any claims against the trust account for any
reason whatsoever or any claim against Alyst. Alyst and China Networks Media
both agree to provide reasonable access to ‘‘due diligence’’ information and
promptly apply or otherwise seek to obtain all consents and approvals required
to be obtained for the consummation of the Redomestication Merger and the
Business Combination. Neither of Alyst nor China Networks Media are required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action that could be expected to result in a material
adverse effect on the business after the Redomestication Merger and Business
Combination.
Alyst and
China Networks Media both agree not to, directly or indirectly, solicit,
encourage or enter into any negotiation or arrangement with any party that could
reasonably be expected to lead to a proposal or offer for a stock purchase,
asset acquisition, merger, consolidation or other business combination involving
Alyst or China Networks Media, or any proposal to acquire in any manner a direct
or indirect substantial equity interest in, or all or any substantial part of
the assets of Alyst and China Networks Media.
62
Alyst and
China Networks Media both agree to take all reasonable actions to complete the
Redomestication Merger and Business Combination promptly, and cooperate with the
other to obtain any necessary, consents, approvals and authorizations,
registrations, declarations or perform any filings with any governmental entity
or any other person in connection with the transactions contemplated by the
Merger Agreement.
Closing
Conditions
China
Networks Media and Alyst’s obligations to complete the Redomestication Merger
and the Business Combination are subject to the satisfaction or waiver of the
following conditions. Neither China Networks Media nor Alyst will waive any
material closing condition.
|
|
(a)
|
Alyst’s
stockholders’ approval of the Redomestication Merger and the Business
Combination, with public stockholders of less than 30% of the shares of
common stock issued in Alyst’s IPO, which is equivalent to 2,413,319
shares of common stock, electing to have their common stock converted for
cash in the trust account;
|
|
|
(b)
|
approval
of the Merger Agreement and the Business Combination by the affirmative
vote of a majority of the votes of the shares entitled to vote, held by
the shareholders of the ordinary shares of China Networks Media, voting
together with the shareholders of class A preferred stock of China
Networks Media, voting on an as-converted
basis;
|
|
|
(c)
|
the
material accuracy of Alyst and China Networks Media’s respective
representations and warranties and the material performance of Alyst and
China Networks Media’s respective obligations under the Merger
Agreement;
|
|
|
(d)
|
delivery
of various documents in connection with the consummation of the
Redomestication Merger and the Business Combination, including an executed
employment agreement of Li Shuangqing, a lock-up Agreement executed by
Alyst, a registration rights agreement and certificates and other
agreements necessary to effect the Redomestication Merger and Business
Combination;
|
|
|
(e)
|
the
absence of legal requirements or orders limiting or restricting the
conduct or operation of business, and the absence of pending or threatened
legal action or proceedings involving any challenge to, or seeking damages
or other relief in connection with, any of the transactions contemplated
by the Merger Agreement, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with the transactions
contemplated by the Merger
Agreement;
|
|
|
(f)
|
no
material adverse effect shall have occurred or any change that has a
material adverse effect;
|
|
|
(g)
|
all
parties have timely obtained all approvals, waivers and consents from any
governmental authority, including under BVI and PRC laws, that are
necessary to consummate the transactions contemplated by the Merger
Agreement;
|
|
|
(h)
|
Alyst’s
common stock will be quoted on the NYSE Alternext and there will
be no action or proceeding pending or threatened against Alyst, which
would prohibit or termination the quotation of its common
stock;
|
|
|
(i)
|
Alyst
shall be in compliance with all of Alyst’s reporting requirements under
the Securities Exchange Act of 1934, as amended, and have timely filed all
reports under the Exchange Act for the twelve months prior;
and
|
|
|
(j)
|
Alyst’s
aggregate deferred business and operating expenses should not exceed
$1,000,000, exclusive of legal fees, unless Alyst has prior approval from
China Networks Media.
|
63
Survival
of Representations and Warranties; Indemnification
The
representations, warranties, covenants and obligations set forth in the Merger
Agreement shall survive the closing of the Business Combination and expire on
the first anniversary thereof.
MediaInv
Ltd. and Kerry Propper, the principal shareholders of China Networks Media,
have agreed to provide a limited indemnification to Alyst after the consummation
of the Business Combination, from and against any liabilities, loss, claims,
damages, fines, penalties, expenses or diminution of value, including taxes
arising, directly or indirectly, from or in connection with any breach of any
representation or warranty by China Networks Media in the Merger Agreement, any
breach by the principal shareholder or China Networks Media of any covenants or
obligations in the Merger Agreement, or the operation of the business of China
Networks Media and its subsidiaries prior to the closing. Alyst will
not be entitled to indemnification by Mr. Propper or MediaInv Ltd., unless and
until the aggregate amount of damages to Alyst exceeds $500,000, at which time
Alyst shall be entitled to indemnification for the total amount of such damages
which shall be recovered solely by the return of no more than 250,000 shares of
CN Holdings that Mr. Propper and MediaInv Ltd. will receive in exchange for
their shares of China Networks Media in the Business
Combination.
After
the Redomestication Merger, CN Holdings will assume, among other things, all of
Alyst’s duties and obligations, which shall include Alyst’s obligation to
fulfill and honor all obligations of China Networks Media, pursuant to the
indemnification provisions of its organizational documents in effect on the date
of the Merger Agreement, after the Business Combination. In the event that any
person to be indemnified is or becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter relating to the Merger
Agreement or the transactions contemplated by the Merger Agreement, CN Holdings
shall pay as incurred such indemnified person’s reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith to the fullest extent permitted by the BVI law. To the
extent there is a claim, action, suit, proceeding or investigation against an
indemnified party that arises out of or pertains to any action or omission in
his or her capacity as a director, officer, employee, fiduciary or agent of
China Networks Media occurring prior to the Business Combination, or arises out
of or pertains to the transactions contemplated by the Merger Agreement, the
indemnification obligations of CN Holdings shall survive for a period of five
years after the Business Combination.
Termination
The
Merger Agreement may be terminated at any time prior to the consummation of the
Redomestication Merger, whether before or after approval of the proposals being
presented to Alyst’s stockholders by:
|
|
·
|
mutual
consent of China Networks Media and
Alyst;
|
|
|
·
|
either
China Networks Media or Alyst, if the Merger Agreement and the approval of
the Redomestication Merger and Business Combination are not approved, or
holders of more than 30% of Alyst’s common stock issued in the IPO
exercise their right to convert their common stock for cash from the trust
account;
|
|
|
·
|
either
China Networks Media or Alyst, if without fault of the terminating party,
the closing of the Business Combination does not occur on or before June
29, 2009;
|
|
|
·
|
Alyst,
if China Networks Media breaches any of its representations, warranties or
obligations and such breach is not cured within 10 business days of
receipt by China Networks Media of written notice of such
breach;
|
|
|
·
|
by
China Networks Media, if Alyst breaches any of its representations,
warranties or obligations and such breach is not cured within 10 business
days of receipt by Alyst of written notice of such breach;
or
|
|
|
·
|
either
China Networks Media or Alyst, if any permanent injunction or other order
of a court prevents the consummation of the Redomestication Merger or the
Business Combination, or the failure to obtain the required vote of
Alyst’s stockholders at the Special
Meeting.
|
64
Effect
of Termination
In the
event of proper termination by either China Networks Media or Alyst, the Merger
Agreement will become void and have no effect, without any liability or
obligation on the part of China Networks Media or Alyst, except in connection
with the provisions in the Merger Agreement regarding confidentiality
obligations and expense and termination fees, and in the event that such
termination results from the breach by a party of any of its representations,
warranties or covenants in the Merger Agreement.
Whether
or not the transactions contemplated by the Merger Agreement are consummated,
all costs and expenses incurred in connection with the Merger Agreement shall be
borne by the party incurring such expense. However, if China Networks Media or
Alyst terminates the Agreement due to a breach by the other of its
representations, warranties or obligations, such breaching party shall promptly
reimburse the non-breaching party for all out-of-pocket costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby.
Amendment,
Extension and Waiver
The
parties may amend the Merger Agreement, provided that any amendment that is made
after approval of the Merger Agreement shall not alter or change the amount or
kind of consideration received on conversion of Alyst’s common stock or China
Networks Media’s shares, alter or change any term of the organizational
documents of CN Holdings, or alter or change any terms and conditions of the
Merger Agreement if such alteration or change would materially adversely affect
the China Networks Media shareholders.
At any
time prior to the consummation of the Redomestication Merger, either Alyst or
China Networks Media may, to the extent allowed by applicable law, extend the
time for the performance of the obligations under the Merger Agreement, waive
any inaccuracies in representations and warranties made to the other party and
waive compliance with any of the agreements or conditions for the benefit of the
other party. Any such extension or waiver must be in writing signed by both
parties.
Regulatory
and Other Approvals
Except
for approvals required by Delaware and BVI corporate law and compliance
with applicable securities laws and rules and regulations of the U.S. Securities
and Exchange Commission, there are no federal, state or foreign regulatory
requirements which remain to be complied with or other material approvals to
obtain or filings to make in order to consummate the Business Combination or the
Redomestication Merger.
Governing
Law
The
Agreement is governed by the laws of the State of Delaware.
Anticipated
Accounting Treatment
The
Business Combination will be accounted for under the purchase method of
accounting as a forward acquisition in accordance with U.S. GAAP as stipulated
in SFAS No. 141R “Business Combinations.” The assets and liabilities of China
Networks Media will be stated at fair value. China Networks Media’s assets,
liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of Alyst after consummation of the merger.
The pre-merger Alyst shareholders will have a controlling voting interest in CN
Holdings and will have equal representation in the senior management CN
Holdings. Further, Alyst will effect this merger through the distribution of
cash and equity securities and the incurrence of contingent
liabilities. With respect to the Business Combination and the
Redomestication Merger, China Networks Media will have (i) the ability, upon
consummation of the merger, to initially appoint a majority of the post-merger
board of directors of CN Holdings under the Merger Agreement, and (ii) the
benefit of voting agreements that the current holders of approximately 15% of
Alyst’s shares of common stock (which were not acquired in the IPO) have agreed
to vote in favor of the merger. These rights, however, are not long
term arrangements and therefore effective control by China Networks Media is not
assured.
65
Regulatory
Matters
The
Business Combination is not subject to the Hart-Scott-Rodino Act or any federal
or state regulatory requirement or approval, except for filings necessary to
effectuate related transactions with the state of Delaware.
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The
following is a summary of the material U.S. federal income tax consequences of
the Redomestication Merger to Alyst and the holders of Alyst’s common stock and
warrants (which we refer to collectively as our ‘‘securities’’), of the
Business Combination to CN Holdings, and of the ownership of ordinary
shares and warrants in CN Holdings following the Redomestication Merger and
Business Combination. Because
the components of a unit (i.e., the common stock or ordinary shares and
warrants) are separable at the option of the holder, the holder of a unit should
be treated, for U.S. federal income tax purposes (although there is no authority
directly on point in the contest of the matters considered herein), as the owner
of the underlying common stock, or ordinary shares, and warrants constituting
the unit. Therefore, the discussion below of the U.S. federal income tax
considerations for holders of common stock, or ordinary shares, and warrants
should also apply to the holder of a unit. The discussion below of the
U.S. federal income tax consequences to ‘‘U.S. Holders’’ will apply to a
beneficial owner of our securities that is for U.S. federal income tax
purposes:
|
|
·
|
an
individual citizen or resident of the United
States;
|
|
|
·
|
a
corporation (or other entity treated as a corporation) that is created or
organized (or treated as created or organized) in or under the laws of the
United States, any state thereof or the District of
Columbia;
|
|
|
·
|
an
estate whose income is includible in gross income for U.S. federal income
tax purposes regardless of its source;
or
|
|
|
·
|
a
trust if (i) a U.S. court can exercise primary supervision over the
trust’s administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust, or (ii) it has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
|
If a
beneficial owner of our securities is not described as a U.S. Holder and is not
an entity treated as a partnership or other pass-through entity for U.S. federal
income tax purposes, such owner will be considered a ‘‘Non-U.S. Holder.’’ The
U.S. federal income tax consequences applicable to Non-U.S. Holders of owning
common stock and warrants in CN Holdings are described below under the heading
‘‘– Tax Consequences to Non-U.S. Holders of Ordinary Shares and Warrants of CN
Holdings.’’
This
summary is based on the Internal Revenue Code of 1986, as amended (the
‘‘Code’’), its legislative history, Treasury regulations promulgated thereunder,
published rulings and court decisions, all as currently in effect. These
authorities are subject to change or differing interpretations, possibly on a
retroactive basis.
This
discussion does not address all aspects of U.S. federal income taxation that may
be relevant to CN Holdings, Alyst or any particular holder of our securities or
of common stock and warrants of CN Holdings based on such holder’s individual
circumstances. In particular, this discussion considers only holders that own
and hold our securities, and will acquire the ordinary shares and warrants of CN
Holdings as a result of owning our securities and own and hold such ordinary
shares and warrants as capital assets within the meaning of Code Section
1221. In addition, this discussion does not address the potential
application of the alternative minimum tax or the U.S. federal income tax
consequences to holders that are subject to special rules,
including:
|
|
·
|
financial
institutions or ‘‘financial services
entities’’;
|
|
|
·
|
broker-dealers;
|
|
|
·
|
taxpayers
who have elected mark-to-market
accounting;
|
|
|
·
|
tax-exempt
entities;
|
66
|
|
·
|
governments
or agencies or instrumentalities
thereof;
|
|
|
·
|
insurance
companies;
|
|
|
·
|
regulated
investment companies;
|
|
|
·
|
real
estate investment trusts;
|
|
|
·
|
certain
expatriates or former long-term residents of the United
States;
|
|
|
·
|
persons
that actually or constructively own 10% or more of our voting
shares;
|
|
|
·
|
persons
that hold our common stock or warrants as part of a straddle, constructive
sale, hedging, conversion or other integrated transaction;
or
|
|
|
·
|
persons
whose functional currency is not the U.S.
dollar.
|
This
discussion does not address any aspect of U.S. federal non-income tax laws, such
as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally,
the discussion does not consider the tax treatment of partnerships or other
pass-through entities or persons who hold our common stock and warrants, or will
hold the ordinary shares and warrants of CN Holdings, through such entities. If
a partnership (or other entity classified as a partnership for U.S. federal
income tax purposes) is the beneficial owner of our securities (or the ordinary
shares and warrants of CN Holdings), the U.S. federal income tax treatment of a
partner in the partnership will generally depend on the status of the partner
and the activities of the partnership.
Alyst has
not sought, and will not seek, a ruling from the Internal Revenue Service
(‘‘IRS’’) as to any U.S. federal income tax consequence described herein. The
IRS may disagree with the discussion herein, and its determination may be upheld
by a court.
BECAUSE
OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ALYST, CN
HOLDINGS OR ANY PARTICULAR HOLDER OF OUR SECURITIES OR OF THE ORDINARY SHARES OR
WARRANTS OF CN HOLDINGS FOLLOWING THE REDOMESTICATION MERGER AND BUSINESS
COMBINATION MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF OUR
SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE REDOMESTICATION MERGER AND THE BUSINESS COMBINATION, AND
THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES AND OF THE ORDINARY SHARES AND
WARRANTS OF CN HOLDINGS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL
AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS.
U.S.
Federal Income Tax Consequences of the Redomestication
Merger
The
Redomestication Merger should qualify as a reorganization for U.S. federal
income tax purposes under Code Section 368(a). However, due to the absence of
guidance directly on point on how the provisions of Code Section 368(a) apply in
the case of a merger of a corporation (such as Alyst) with no active business
and only investment-type assets, this result is not free from
doubt. The remainder of the discussion assumes that the
Redomestication Merger qualifies as a reorganization under Code Section
368(a).
Tax
Consequences to U.S. Holders of Alyst Common Stock and Warrants
If the
Redomestication Merger qualifies as a reorganization under Code Section 368(a),
a U.S. Holder of our securities should not recognize gain or loss upon the
exchange of our securities solely for equivalent ordinary shares and
warrants of CN Holdings pursuant to the Redomestication Merger. A U.S. Holder’s
aggregate tax basis in the ordinary shares and warrants of CN Holdings received
in connection with the Redomestication Merger also should be the same as the
aggregate tax basis of our securities surrendered in the transaction (except to
the extent of any tax basis allocated to a fractional share for which a cash
payment is received in connection with the transaction). In addition, the
holding period of the ordinary shares and warrants in CN Holdings received in
the Redomestication Merger should include the holding period of the securities
of Alyst surrendered in the Redomestication Merger. A shareholder of Alyst who
converts its shares of common stock for cash (or receives cash in lieu of a
fractional share of our common stock pursuant to the Redomestication Merger)
should recognize gain or loss in an amount equal to the difference between the
amount of cash received for such shares (or fractional share) and its adjusted
tax basis in such shares (or fractional share).
67
Tax
Consequences to Alyst and CN Holdings
Code
Section 7874(b) (‘‘Section 7874(b)’’) generally provides that a corporation
organized outside the United States which acquires, directly or indirectly,
pursuant to a plan or series of related transactions, substantially all of the
assets of a corporation organized in the United States will be treated as a
domestic corporation for U.S. federal income tax purposes if shareholders of the
acquired corporation, by reason of owning shares of the
acquired corporation, own at least 80% of either the voting power or the
value of the stock of the acquiring corporation after the acquisition. If
Section 7874(b) were to apply to the Redomestication Merger, then CN Holdings,
as the surviving entity, would be subject to U.S. federal income tax on its
worldwide taxable income following the Redomestication Merger and Business
Combination as if it were a domestic (U.S.) corporation; in such case Alyst
should not recognize gain (or loss) as a result of the Redomestication
Merger.
After
the completion of the Business Combination, which will occur immediately after
and as part of the same plan as the Redomestication Merger, it is expected that
the former shareholders of Alyst will own, by reason of their ownership of Alyst
shares, less than 80% of the shares of CN Holdings. Accordingly, it is not
expected that Section 7874(b) will apply to treat CN Holdings as a domestic
corporation for U.S. federal income tax purposes. However, due to the absence of
complete guidance on how the rules of Section 7874(b) will apply to the
transactions contemplated by the Redomestication Merger and the Business
Combination, this result is not free from doubt. If, for example, the
Redomestication Merger were ultimately determined for purposes of Section
7874(b) as occurring prior to, and separate from, the Business Combination, the
stock ownership threshold for applicability of Section 7874(b) generally would
be satisfied (and CN Holdings would be treated as a domestic corporation for
U.S. federal income tax purposes) because the shareholders of Alyst, by reason
of owning shares of Alyst, would own all of the shares of CN Holdings
immediately after the Redomestication Merger. Although the temporary regulations
promulgated under Code Section 7874 support the view that the Redomestication
Merger and the Business Combination should be viewed together for purposes of
determining whether Section 7874(b) is applicable, because of the absence of
guidance under Section 7874(b) directly on point, this result is not certain.
The balance of the discussion set forth in this summary entitled “Material
United States Federal Income Tax Considerations,” assumes
that CN Holdings will be treated as a foreign corporation for U.S. federal
income tax purposes.
Even
if Section 7874(b) does not apply to a transaction, Code Section 7874(a)
(‘‘Section 7874(a)’’) generally provides that where a corporation organized
outside the United States acquires, directly or indirectly, pursuant to a plan
or series of related transactions substantially all of the assets of a
corporation organized in the United States, the acquired corporation will be
subject to U.S. federal income tax on its ‘‘inversion gain’’ (which cannot be
reduced by, for example, net operating losses otherwise available to the
acquired corporation) if the shareholders of the acquired corporation, by reason
of owning shares of the acquired corporation, own at least 60%
(but less than 80%) of either the voting power or the value of the stock of the
acquiring corporation after the acquisition. For this purpose, inversion gain
includes any gain recognized under Code Section 367 by reason of the transfer of
the properties of the acquired corporation to the acquiring corporation pursuant
to the transaction.
Under
Section 367 of the Code, Alyst should recognize gain (but not
loss) realized with respect to any of its assets as a result of
the Redomestication Merger in an amount equal to the excess, if any, of the fair
market value of each such asset over such asset’s adjusted tax basis at the
effective time of the Redomestication Merger. In addition, since after the
completion of the Redomestication Merger and Business Combination it is expected
that the former shareholders of Alyst will own, by reason of their ownership of
Alyst shares, more than 60% of the shares of CN Holdings, under Section 7874(a),
such gain, in the aggregate, will be subject to U.S. federal income tax without
regard to any net operating losses that may otherwise be available to
Alyst.
U.S.
Federal Income Tax Consequences of the Business Combination to CN
Holdings
CN
Holdings should not recognize any gain or loss for U.S. federal income tax
purposes as a result of the Business Combination.
68
U.S.
Federal Income Tax Consequences to U.S. Holders of Ordinary Shares and Warrants
of CN Holdings
Taxation
of Distributions Paid on Ordinary Shares
Subject
to the passive foreign investment company (‘‘PFIC’’) rules discussed below, a
U.S. Holder will be required to include in gross income as ordinary income the
amount of any dividend paid on the ordinary shares of CN Holdings. A
distribution on such ordinary shares will be treated as a dividend for U.S.
federal income tax purposes to the extent the distribution is paid out of
current or accumulated earnings and profits of CN Holdings (as determined for
U.S. federal income tax purposes). Such dividend will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations. Distributions in excess of
such earnings and profits will be applied against and reduce the U.S. Holder’s
basis in its ordinary shares in CN Holdings and, to the extent in excess of such
basis, will be treated as gain from the sale or exchange of such ordinary
shares.
With
respect to non-corporate U.S. Holders for taxable years beginning before January
1, 2011, dividends may be taxed at the lower applicable long-term capital gains
rate (see ‘‘– Taxation on the Disposition of Ordinary Shares and Warrants’’
below) provided that (1) the ordinary shares of CN Holdings are readily tradable
on an established securities market in the United States, (2) CN Holdings is not
a PFIC, as discussed below, for either the taxable year in which the dividend
was paid or the preceding taxable year, and (3) certain holding period
requirements are met. It is not entirely clear, however, whether a U.S. Holder’s
holding period for its shares in CN Holdings would be suspended for purposes of
clause (3) above for the period that such holder had a right to have its common
stock in Alyst converted by Alyst. Under published IRS authority, ordinary
shares are considered for purposes of clause (1) above to be readily tradable on
an established securities market in the United States only if they are listed on
certain exchanges, which presently include Nasdaq (the only exchange on which
the ordinary shares of CN Holdings are currently anticipated to be listed and
traded). Accordingly, it is possible that dividends paid on the ordinary shares
of CN Holdings may qualify for the lower rate. U.S. Holders should consult their
own tax advisors regarding the availability of the lower rate for any dividends
paid with respect to the shares of CN Holdings.
If PRC
taxes apply to dividends paid to a U.S. Holder by
CN Holdings, such taxes may be treated as foreign taxes eligible for
credit against such holder’s
U.S. federal income tax liability (subject to certain limitations). U.S. Holders
should consult their own tax advisors regarding the creditability of any such
PRC taxes. U.S. Holders should also consult their
own tax advisors regarding their eligibility for the benefits of the
income tax treaty between the United States and the PRC.
Taxation
on the Disposition of Ordinary Shares and Warrants
Upon a
sale or other taxable disposition of the ordinary shares or warrants in CN
Holdings, and subject to the PFIC rules discussed below, a U.S. Holder should
recognize capital gain or loss in an amount equal to the difference between the
amount realized and the U.S. Holder’s adjusted tax basis in the ordinary shares
or warrants. See ‘‘– Exercise or Lapse of a Warrant’’ below for a discussion
regarding a U.S. Holder’s basis in the ordinary shares acquired pursuant to the
exercise of a warrant.
Capital
gains recognized by U.S. Holders generally are subject to U.S. federal income
tax at the same rate as ordinary income, except that long-term capital gains
recognized by non-corporate U.S. Holders are generally subject to U.S. federal
income tax at a maximum rate of 15% for taxable years beginning before January
1, 2011 (and 20% thereafter). Capital gain or loss will constitute long-term
capital gain or loss if the U.S. Holder’s holding period for the ordinary shares
or warrants exceeds one year. The deductibility of capital losses is subject to
various limitations.
If PRC
taxes apply to any gain from the disposition by a U.S. Holder of the ordinary
shares or warrants in CN Holdings, such taxes may be treated as foreign taxes
eligible for credit against such holder’s
U.S. federal income tax liability (subject to certain limitations). U.S. Holders
should consult their own tax advisors regarding the creditability of any such
PRC taxes. U.S. Holders should also consult their own tax advisors regarding
their eligibility for the benefits of the income tax treaty between the United
States and the PRC.
Exercise
or Lapse of a Warrant
Subject
to the discussion of the PFIC rules below, a U.S. Holder should not recognize
gain or loss upon the exercise for cash of a warrant to acquire ordinary shares
in CN Holdings. Ordinary shares acquired pursuant to the exercise for cash of a
warrant generally will have a tax basis equal to the U.S. Holder’s tax basis in
the warrant, increased by the amount paid to exercise the warrant. The holding
period of such ordinary shares generally would begin on the day after the date
of exercise of the warrant. If the terms of a warrant provide for any adjustment
to the number of ordinary shares for which the warrant may be exercised or to
the exercise price of the warrants, such adjustment may, under certain
circumstances, result in constructive distributions that could be taxable to the
U.S. Holder of the warrants. Conversely, the absence of an appropriate
adjustment similarly may result in a constructive distribution that could be
taxable to the U.S. Holders of the ordinary shares in CN Holdings. See ‘‘–
Taxation of Distributions Paid on Common Stock,’’ above. If a warrant is allowed
to lapse unexercised, a U.S. Holder should recognize a capital loss equal to
such holder’s tax basis in the warrant.
69
Passive
Foreign Investment Company Rules
A foreign
corporation will be a passive foreign investment company, or PFIC, if at least
75% of its gross income in a taxable year, including its pro rata share of the
gross income of any company in which it is considered to own at least 25% of the
shares by value, is passive income. Alternatively, a foreign corporation will be
a PFIC if at least 50% of its assets in a taxable year, ordinarily determined
based on fair market value and averaged quarterly over the year, including its
pro rata share of the assets of any company in which it is considered to own at
least 25% of the shares by value, are held for the production of, or produce,
passive income. Passive income generally includes dividends, interest, rents,
royalties, and gains from the disposition of passive assets.
Based
on the expected composition of the assets and income of CN Holdings and its
subsidiaries after the Redomestication Merger and the Business Combination,
Alyst’s
valuation of the business of CN Holdings and its subsidiaries, and the anticipated cash
deployments at the time of and shortly after these transactions, it is not
anticipated that CN Holdings will be treated as a PFIC following the
Redomestication Merger and the Business Combination; however, there can be no
assurance of this. Moreover, the actual PFIC status of CN Holdings for any
taxable year will not be determinable until after the end of its taxable year,
and accordingly there can be no assurance with respect to the status of CN
Holdings as a PFIC
for the current taxable year or any future taxable year.
If CN
Holdings were a PFIC for any taxable year during which a U.S. Holder held its
ordinary shares or warrants, and the U.S. Holder did not make either a timely
qualified electing fund (‘‘QEF’’) election for the first taxable year of its
holding period for the ordinary shares or a mark-to-market election, as
described below, such holder will be subject to special rules with respect
to:
|
|
·
|
any
gain recognized by the U.S. Holder on the sale or other disposition of its
ordinary shares or warrants; and
|
|
|
·
|
any
excess distribution made to the U.S. Holder (generally, any distributions
to such U.S. Holder during a taxable year that are greater than 125% of
the average annual distributions received by such U.S. Holder in respect
of the ordinary shares of CN Holdings during the three preceding taxable
years or, if shorter, such U.S. Holder’s holding period for the ordinary
shares).
|
Under
these rules,
|
|
·
|
the
U.S. Holder’s gain or excess distribution will be allocated ratably over
the U.S. Holder’s holding period for the ordinary shares or
warrants;
|
|
|
·
|
the
amount allocated to the taxable year in which the U.S. Holder recognized
the gain or excess distribution will be taxed as ordinary
income;
|
|
|
·
|
the
amount allocated to each prior year, with certain exceptions, will be
taxed at the highest tax rate in effect for that year and applicable to
the U.S. Holder; and
|
|
|
·
|
the
interest charge generally applicable to underpayments of tax will be
imposed in respect of the tax attributable to each such
year.
|
In
addition, if CN Holdings were a PFIC, a U.S. Holder who acquires its ordinary
shares or warrants from a deceased U.S. Holder who dies before January 1, 2010
generally will be denied the step-up of U.S. federal income tax basis in such
shares or warrants to their fair market value at the date of the deceased
holder’s death. Instead, such U.S. Holder would have a tax basis in such shares
or warrants equal to the deceased holder’s tax basis, if lower.
In
general, a U.S. Holder may avoid the PFIC tax consequences described above in
respect to its ordinary shares in CN Holdings by making a timely QEF election to
include in income its pro rata share of CN Holdings’ net capital gains (as
long-term capital gain) and other earnings and profits (as ordinary income), on
a current basis, in each case whether or not distributed. A U.S. Holder may make
a separate election to defer the payment of taxes on undistributed income
inclusions under the QEF rules, but if deferred, any such taxes will be subject
to an interest charge.
70
A U.S.
Holder may not make a QEF election with respect to its warrants. As a result, if
a U.S. Holder sells or otherwise disposes of a warrant to purchase ordinary
shares of CN Holdings (other than upon exercise of a warrant), any gain
recognized generally will be subject to the special tax and interest charge
rules treating the gain as an excess distribution, as described above, if CN
Holdings were a PFIC at any time during the period the U.S. Holder held the
warrants. If a U.S. Holder that exercises such warrants properly makes a QEF
election with respect to the newly acquired ordinary shares in CN Holdings (or
has previously made a QEF election with respect to its ordinary shares in CN
Holdings), the QEF election will apply to the newly acquired ordinary shares,
but the adverse tax consequences relating to PFIC shares will continue to apply
with respect to such ordinary shares (which generally will be deemed to have a
holding period for the purposes of the PFIC rules that includes the period the
U.S. Holder held the warrants), unless the U.S. Holder makes a purging election.
The purging election creates a deemed sale of such shares at their fair
market value. The gain recognized by the purging election will be subject to the
special tax and interest charge rules treating the gain as an excess
distribution, as described above. As a result of the purging election, the U.S.
Holder will have a new basis and holding period in the ordinary shares acquired
upon the exercise of the warrants for purposes of the PFIC
rules.
The QEF
election is made on a shareholder-by-shareholder basis and, once made, can be
revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF
election by attaching a completed IRS Form 8621 (Return by a Shareholder of a
Passive Foreign Investment Company or Qualified Electing Fund), including the
information provided in a PFIC annual information statement, to a timely filed
U.S. federal income tax return for the tax year to which the election relates.
Retroactive QEF elections generally may be made only by filing a protective
statement with such return and if certain other conditions are met or with the
consent of the IRS.
In order
to comply with the requirements of a QEF election, a U.S. Holder must receive
certain information from CN Holdings. Upon request from a U.S. Holder, CN
Holdings will endeavor to provide to the U.S. Holder, no later than 90 days
after the request, such information as the IRS may require, including a PFIC
annual information statement, in order to enable the U.S. Holder to make and
maintain a QEF election. However, there is no assurance that CN Holdings will
have timely knowledge of its status as a PFIC in the future or of the required
information to be provided.
If a U.S.
Holder has elected the application of the QEF rules to its ordinary shares in CN
Holdings, and the special tax and interest charge rules do not apply to such
stock (because of a timely QEF election for the first tax year of the U.S.
Holder’s holding period for such shares or a purge of the PFIC taint pursuant to
a purging election), any gain recognized on the appreciation of such shares
should be taxable as capital gain and no interest charge will be imposed. As
discussed above, U.S. Holders of a QEF are currently taxed on their pro rata
shares of the QEF’s earnings and profits, whether or not distributed. In such
case, a subsequent distribution of such earnings and profits that were
previously included in income should not be taxable as a dividend. The tax basis
of a U.S. Holder’s shares in a QEF will be increased by amounts that are
included in income, and decreased by amounts distributed but not taxed as
dividends, under the above rules. Similar basis adjustments apply to property if
by reason of holding such property the U.S. Holder is treated under the
applicable attribution rules as owning shares in a QEF.
Although
a determination as to CN Holdings’ PFIC status will be made annually, an initial
determination that it is a PFIC will generally apply for subsequent years to a
U.S. Holder who held ordinary shares or warrants of CN Holdings while it was a
PFIC, whether or not it met the test for PFIC status in those years. A U.S.
Holder who makes the QEF election discussed above for the first tax year in
which the U.S. Holder holds (or is deemed to hold) ordinary shares in CN
Holdings and for which it is determined to be a PFIC, however, will not be
subject to the PFIC tax and interest charge rules (or the denial of basis
step-up at death) discussed above in respect to such shares. In addition, such
U.S. Holder will not be subject to the QEF inclusion regime with respect to such
shares for the tax years in which CN Holdings is not a PFIC. On the other hand,
if the QEF election is not effective for each of the tax years in which CN
Holdings is a PFIC and the U.S. Holder holds (or is deemed to hold) ordinary
shares in CN Holdings, the PFIC rules discussed above will continue to apply to
such shares unless the holder makes a purging election and pays the tax and
interest charge with respect to the gain inherent in such shares attributable to
the pre-QEF election period.
71
Alternatively,
if a U.S. Holder owns ordinary shares in a PFIC that is treated as marketable
stock, the U.S. Holder may make a mark-to-market election. If the U.S. Holder
makes a valid mark-to-market election for the first tax year in which the U.S.
Holder holds (or is deemed to hold) ordinary shares in CN Holdings and
for which it is determined to be a PFIC, such holder generally will not be
subject to the PFIC rules described above in respect to its ordinary shares.
Instead, in general, the U.S. Holder will include as ordinary income each year
the excess, if any, of the fair market value of its ordinary shares at the end
of its taxable year over the adjusted basis in its ordinary shares. The U.S.
Holder also will be allowed to take an ordinary loss in respect of the excess,
if any, of the adjusted basis of its ordinary shares over the fair market value
of its ordinary shares at the end of its taxable year (but only to the extent of
the net amount of previously included income as a result of the mark-to-market
election). The U.S. Holder’s basis in its ordinary shares will be adjusted to
reflect any such income or loss amounts, and any further gain recognized on a
sale or other taxable disposition of the ordinary shares will be treated as
ordinary income. Currently, a mark-to-market election may not be made with
respect to warrants.
The
mark-to-market election is available only for stock that is regularly traded on
a national securities exchange that is registered with the Securities and
Exchange Commission (including Nasdaq), or on a foreign exchange or market that
the IRS determines has rules sufficient to ensure that the market price
represents a legitimate and sound fair market value. Since it is expected that
the ordinary shares of CN Holdings will be quoted and traded on Nasdaq, it is
possible, if certain other conditions are met, that such shares may qualify as
marketable stock for purposes of the election. U.S. Holders should consult their
own tax advisors regarding the availability and tax consequences of a
mark-to-market election in respect to the ordinary shares of CN Holdings under
their particular circumstances.
If CN
Holdings is a PFIC and, at any time, has a non-U.S. subsidiary that is
classified as a PFIC, U.S. Holders generally would be deemed to own a portion of
the shares of such lower-tier PFIC, and generally could incur liability for the
deferred tax and interest charge described above if CN Holdings receives a
distribution from or disposes of all or part of its interest in, the
lower-tier PFIC. Upon request, CN Holdings will endeavor to cause any lower-tier
PFIC to provide to a U.S. Holder no later than 90 days after the request the
information that may be required to make or maintain a QEF election with respect
to the lower-tier PFIC. U.S. Holders are urged to consult their own tax advisors
regarding the tax issues raised by lower-tier PFICs.
If a U.S.
Holder owns (or is deemed to own) shares during any year in a PFIC, such holder
may have to file an IRS Form 8621 (whether or not a QEF or mark-to-market
election is made).
The rules
dealing with PFICs and with the QEF and mark-to-market elections are very
complex and are affected by various factors in addition to those described
above. Accordingly, U.S. Holders of ordinary shares and warrants in CN Holdings
should consult their own tax advisors concerning the application of the PFIC
rules to such ordinary shares and warrants under their particular
circumstances.
U.S. Federal Income
Tax Considerations for Non-U.S. Holders of Ordinary Shares and Warrants of
CN Holdings
As
noted above (see the discussion under the heading “Material United States
Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the
Redomestication Merger — Tax Consequences to Alyst and CN Holdings”), for the
purpose of this summary it has been assumed that CN Holdings will be treated as
a foreign corporation for U.S. federal income tax
purposes.
Based
on such assumption, dividends paid to a Non-U.S. Holder in respect to its
ordinary shares in CN Holdings generally will not be subject to U.S. federal
income tax, unless the dividends are effectively connected with the Non-U.S.
Holder’s conduct of a trade or business within the United States (and, if
required by an applicable income tax treaty, are attributable to a permanent
establishment or fixed base that such holder maintains in the United
States).
In
addition, a Non-U.S. Holder generally will not be subject to U.S. federal income
tax on any gain attributable to a sale or other disposition of ordinary shares
or warrants in CN Holdings unless such gain is effectively connected with its
conduct of a trade or business in the United States (and, if required by an
applicable income tax treaty, is attributable to a permanent establishment or
fixed base that such holder maintains in the United States) or the Non-U.S.
Holder is an individual who is present in the United States for 183 days or more
in the taxable year of sale or other disposition and certain other conditions
are met (in which case, such gain from United States sources generally is
subject to tax at a 30% rate or a lower applicable tax treaty
rate).
Dividends
and gains that are effectively connected with the Non-U.S. Holder’s conduct of a
trade or business in the United States (and, if required by an applicable income
tax treaty, are attributable to a permanent establishment or fixed base in the
United States) generally will be subject to tax in the same manner as for a U.S.
Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S.
federal income tax purposes, may also be subject to an additional branch profits
tax at a 30% rate or a lower applicable tax treaty rate.
72
Backup
Withholding and Information Reporting
In
general, information reporting for U.S. federal income tax purposes will apply
to distributions made on the ordinary shares of CN Holdings within the United
States to a non-corporate U.S. Holder and to the proceeds from sales and other
dispositions of ordinary shares or warrants of CN Holdings by a non-corporate
U.S. Holder paid to or through a U.S. office of a broker. Payments
made (and sales and other dispositions effected at an office) outside the United
States will be subject to information reporting in limited
circumstances.
In
addition, backup withholding of U.S. federal income tax, currently at a rate of
28%, generally will apply to dividends paid on the ordinary shares of CN
Holdings to a non-corporate U.S. Holder and the proceeds from sales and other
dispositions of shares or warrants of CN Holdings by a non-corporate U.S.
Holder, in each case who:
|
|
·
|
fails
to provide an accurate taxpayer identification
number;
|
|
|
·
|
is
notified by the IRS that backup withholding is required;
or
|
|
|
·
|
in
certain circumstances, fails to comply with applicable certification
requirements.
|
A
Non-U.S. Holder generally may eliminate the requirement for information
reporting and backup withholding by providing certification of its foreign
status, under penalties of perjury, on a duly executed applicable IRS Form W-8
or by otherwise establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S.
Holder’s U.S. federal income tax liability and may entitle such holder to a
refund, provided that certain required information is timely furnished to the
IRS.
73
THE
REDOMESTICATION MERGER PROPOSAL
General
Alyst is
redomesticating to the British Virgin Islands, or BVI, and in that process
changing its name and corporate documents and reconstituting its board of
directors. Redomestication to the BVI is an obligation under the Merger
Agreement and is a condition to consummation of the Business
Combination.
As
substantially all of the business operations of China Networks Media will be
conducted outside the United States, Alyst management decided to consider
redomestication in connection with a merger with China Networks Media. Alyst
management concluded that the Redomestication Merger will permit greater
flexibility and possibly improved economics in structuring acquisitions as China
Networks Media expands, as potential target acquisitions would view the status
of being a shareholder in a publicly-traded BVI corporation more favorably than
being a shareholder in a U.S. corporation, which is significant to China
Networks Media in view of its strategic plans to acquire new networks. Alyst
also believes that the regulatory burden in the British Virgin Islands is less
onerous than in the United States, particularly with respect to companies
engaged in on-going acquisitions. Further, ownership of operating businesses in
the PRC through a holding company organized in the British Virgin Islands is
also well-established with the PRC authorities, reducing the risk of a challenge
to the ownership structure by SARFT or other PRC governmental authorities. In
addition, depending on the composition of the shareholder base of CN Holdings
after the Business Combination or changes in board membership or location of its
principal executive offices, there is the availability of foreign private issuer
status for CN Holdings with the U.S. Securities and Exchange Commission, which
would reduce the reporting requirements under the Securities Exchange Act of
1934, as amended, resulting in less costs associated with financial and
reporting compliance.
As a
result of the Redomestication Merger, Alyst’s corporate name will be that of the
surviving company, ‘‘China Networks International Holdings Ltd.’’ As all legal
rights, benefits, duties and obligations enjoyed, owned or owed by Alyst will,
by means of the merger statutes in effect in Delaware and the British Virgin
Islands, be enjoyed, owned or owed, as the case may be, by CN Holdings following
the Redomestication Merger, except to the extent such rights, duties or
obligations will be governed by the law of the British Virgin Islands as opposed
to Delaware, depending upon the issue under consideration. As a result, all of
the restrictions applicable to Alyst’s initial securityholders (including the
holding of their securities pursuant to escrow arrangements) will continue to
apply until the consummation of the Business Combination, which will take place
immediately following the consummation of the Redomestication Merger, and
certain of which will continue to apply following such consummation. Similarly,
all agreements to which Alyst is currently a party, including the warrants
originally issued by Alyst, will be assumed by CN Holdings.
The
full text of the Merger Agreement, Amendment No. 1 to the Merger Agreement
and forms of Amended and Restated Memorandum and Articles of Association of
China Networks International Holdings Ltd. are attached to this proxy
statement/prospectus as Annexes A, B, C and D, respectively. The discussion of
these documents and the comparison of rights set forth below are qualified in
their entirety by reference to those annexes.
Adoption
of the Redomestication Merger
Alyst’s
Board of Directors has unanimously approved the Redomestication Merger and
recommends that Alyst’s stockholders approve it.
The
affirmative vote of holders of a majority of Alyst’s outstanding shares is
required for approval of the Redomestication Merger. Abstentions and broker
non-votes will have the effect of a vote against the proposal.
The
Redomestication Merger will not be consummated if the Merger Agreement and the
Business Combination are not approved. The Business Combination will not be
consummated if the Redomestication Merger Proposal is not approved. As all of
Alyst’s public stockholders are voting upon the Redomestication Merger in
connection with their vote upon the Business Combination, and such transactions
are cross-conditioned, Alyst believes that the consummation of the
Redomestication Merger immediately prior to the Business Combination is not
violative of its amended and restated certificate of
incorporation.
74
Alyst’s
Board of Directors unanimously recommends a vote ‘‘FOR’’ the approval of the
Redomestication Merger.
Redomestication
Merger
Redomestication
will be achieved by the merger of Alyst, a Delaware corporation, with and into
its wholly-owned subsidiary, CN Holdings, a BVI company. CN Holdings will be the
surviving entity in the Redomestication Merger. The Amended and Restated
Memorandum and the Amended and Restated Articles of Association, the equivalent
of an amended and restated certificate of incorporation and by-laws of a U.S.
company, of the surviving company will be those of CN Holdings, prepared in
compliance with BVI law. The effectiveness of the Redomestication Merger is
conditioned upon the filing by both Alyst and CN Holdings of a certificate of
merger with the State of Delaware and the filing and approval by the Registrar
of Corporate Affairs in the BVI of the articles and a plan of merger. Upon the
filing and approval of these documents, Alyst will cease its corporate existence
in the State of Delaware, and its business will be continued by CN Holdings
pursuant to BVI law.
At the
time of the Redomestication Merger, one new share of CN Holdings will be issued
for each outstanding Alyst share, one new warrant of CN Holdings will be issued
for each Alyst warrant and one new unit of CN Holdings will be issued for each
Alyst unit held by our stockholders on the effective date of the Redomestication
Merger. Alyst securities no longer will be eligible to trade on the NYSE
Alternext. We expect that CN Holdings securities will be eligible to
trade on Nasdaq beginning on or about the effective date of the
Redomestication Merger under new CUSIPs numbers and trading
symbols.
Your
percentage ownership of Alyst/CN Holdings will not be affected by the
Redomestication Merger. As part of the Business Combination, however, a
substantial number of additional CN Holdings shares will be issued as
consideration for China Networks Media. As part of the Redomestication Merger,
CN Holdings will assume Alyst’s outstanding warrants on their current terms, and
will otherwise assume all outstanding obligations of Alyst and succeed to those
benefits enjoyed by Alyst. The business of Alyst, upon the Redomestication
Merger and completion of the Business Combination, will become that of China
Networks Media.
It will
not be necessary to replace current Alyst stock certificates after the
Redomestication Merger. DO NOT DESTROY YOUR CURRENT STOCK CERTIFICATES IN THE
ALYST NAME. Issued and outstanding Alyst stock certificates will represent
rights in CN Holdings. Stockholders may, if they like, submit their stock
certificates to our transfer agent, Continental Stock Transfer and Trust
Company, 17 Battery Place, New York, New York 10004 (212-509-4000), for new
share certificates, subject to normal requirements as to proper endorsement,
signature guarantee, if required, and payment of applicable taxes.
If you
have lost your certificate, you can contact our transfer agent to have a new
certificate issued. You may be requested to post a bond or other security to
reimburse us for any damages or costs if the lost certificate is later delivered
for sale or transfer.
Appraisal
Rights
Alyst
stockholders do not have appraisal rights in connection with the Redomestication
Merger or the Business Combination. Holders of options or warrants to
purchase Alyst common stock also do not have appraisal rights.
75
Differences
of Stockholder Rights
Upon
the completion of the Redomestication Merger, the Amended and Restated
Memorandum and Articles of Association of CN Holdings will become the governing
documents of the surviving corporation. The Amended and Restated Memorandum and
Articles of Association of CN Holdings will be amended prior to the Special
Meeting to include protective provisions substantially identical to those
contained in Alyst’s amended and restated certificate of incorporation at the
time of its IPO, including the formation of a staggered board of directors with
three classes, each with a term of three years. Upon the effectiveness of such
amendment, there will not be any material differences between the provisions of
Alyst’s amended and restated certificate of incorporation and CN Holdings’
Amended and Restated Memorandum and Articles of Association. Although the
corporate statutes of Delaware and the British Virgin Islands are similar,
certain differences exist. A comparison of the material provisions of Alyst’s
and CN Holdings’ governing documents, as well as a comparison of the material
provisions of the Delaware and BVI corporate statutes, and all material
differences, if any in Alyst management’s judgment, are summarized below.
Stockholders should refer to the annexes of the forms of Amended and Restated
Memorandum and Articles of Association, the Delaware General Corporation Law and
the corporate law of the British Virgin Islands, including the Act, to
understand how these laws apply to Alyst and CN Holdings and may affect you.
Under BVI law, holders of a company’s stock or shares are referred to as
shareholders, as opposed to stockholders.
|
Provision
|
Alyst
|
CN
Holdings
|
||
|
Authorized
Capital/Shares
|
31,000,000
shares, of which 30,000,000 are shares of common stock, $.0001 par value
per share, and 1,000,000 are shares, of preferred stock, par value $.0001
per share
|
75,000,000
shares, of which 74,000,000 are ordinary shares, with $.0001 par value per
share, and 1,000,000 are preferred shares of $.0001 par value per
share
|
||
|
Par
Value
|
Stated
in U.S. dollars
|
Same
as Alyst
|
||
|
Changes
in capital generally require stockholder approval
|
Changes
in number of shares company may issue may, subject to the constitutional
documents, be made by resolution of shareholders or
directors
|
|||
|
Preferred
Shares
|
Directors
may fix the designations, powers, preferences, rights, qualifications,
limitations and restrictions by resolution
|
Same
as Alyst, but preferred shares must be authorized in the Amended and
Restated Memorandum and Articles of Association and the rights attaching
to such shares set out in the Memorandum of
Association
|
||
|
Registered
Shares
|
Shares
of capital stock of Alyst to be registered shares
|
Same
as Alyst
|
||
|
Purpose
of Corporation
|
To
engage in any lawful act not prohibited by law
|
To
carry on or undertake any business activity irrespective of corporate
benefit and not prohibited by law
|
||
|
Amended
and Restated Certificate of Incorporation/Amended
and Restated Memorandum and Articles of
Association
|
Requires
stockholder vote and, except in limited circumstances, by the board of
directors
|
Requires
vote of the shareholders or, as permitted by the Act and the Amended and
Restated Memorandum of Association, by resolution of the board of
directors only where such amendment is required to provide for the rights
conferred by preferred shares on their holders pursuant to the Amended and
Restated Memorandum and Articles of Association
|
||
|
Registered
Office
|
c/o
National Corporate Research, Ltd.
615
DuPont Highway
Dover,
Delaware 19901
|
Maples
Corporate Service (BVI) Limited of Kingston Chambers, P.O. Box 173, Road
Town, Tortola, British Virgin
Islands
|
76
|
Provision
|
Alyst
|
CN
Holdings
|
||
|
Transfer
Agent
|
Continental
Stock Transfer & Trust Company
|
Same
as Alyst
|
||
|
Voting
Rights
|
Common
stock: one share, one vote on all matters before the holders of the common
stock
|
Ordinary
shares: one share, one vote on all matters before the holders of the
ordinary shares
|
||
|
Other
classes of equity may have voting rights as assigned to them by the board
of directors or as approved by stockholders
|
||||
|
Directors
elected by plurality, all other matters either by majority of issued and
outstanding or majority of those present and entitled to vote as specified
by law
|
Directors
elected by plurality as provided in Amended and Restated Memorandum and
Articles of Association; all other matters by a majority of those shares
present and entitled to vote
|
|||
|
Redemption
of Equity
|
Shares
may be repurchased or otherwise acquired, provided the capital of the
company will not be impaired by the Redomestication Merger and the
Business Combination
|
Shares
may be repurchased or otherwise acquired, provided the company will remain
solvent after the Redomestication Merger and the Business
Combination
|
||
|
Company
may hold or sell treasury shares
|
Same
as Alyst
|
|||
|
Stockholder
consent
|
Permitted
as required for a vote at a meeting
|
Same
as Alyst
|
||
|
Notice
Requirements for Stockholder Nominations and Other
Proposals
|
In
general, to bring a matter before an annual meeting or to nominate a
candidate for director, a stockholder must give notice of the proposed
matter or nomination not less than 60 days and not more than 90 days prior
to public disclosure of the date of annual meeting
|
The
Amended and Restated Memorandum and Articles of Association do not contain
an express right for shareholders to bring a matter before an annual
meeting or nominate a director candidate
|
||
|
In
the event that less than 70 days notice or prior public disclosure of the
date of the meeting is given or made to stockholder, to be timely, the
notice must be received by the company no later than the close of business
on the 10th day following the day on which such notice of the date of the
meeting was mailed or public disclosure was made, whichever first
occurs
|
|
|||
|
Meetings
of Stockholders –
Presence
|
In
person or by proxy or other appropriate electronic
means
|
In
person or by proxy or by telephone or other electronic means and all
shareholders can hear one another
|
||
|
Meeting
of Stockholder –
Notice
|
Not
less than 10 days or more than 60 days
|
Not
less than seven days; no maximum
limit
|
77
|
Provision
|
Alyst
|
CN
Holdings
|
||
|
Meeting
of Stockholders –
Call
of Meeting
|
Regular
and annual meetings shall be called by the directors. Special meetings may
be called only by majority of board of directors, chief executive officer
or by a majority of the issued and outstanding capital stock entitled to
vote
|
Meetings
may be called by the directors or by shareholders holding 30% of the
outstanding votes. The articles require an annual meeting of the members
for the election of directors to be called by the
directors
|
||
|
Meetings
on short notice may be called upon waiver or presence of all the members
holding shares entitled to vote or 90% of the total number of shares
entitled to vote agree to short notice
|
||||
|
Meeting
of Stockholders –
Place
|
Within
or without Delaware
|
Within
or outside the BVI as the directors consider necessary or
desirable
|
||
|
Meeting
of Stockholders –
Quorum
|
Majority
of the capital stock issued and outstanding and entitled to vote at
meeting. Meeting may be adjourned for up to 30 days without additional
notice to stockholders.
|
Not
less than 50% of the votes of the shares entitled to vote. Adjournment to
the next business day at the same time and the same place if quorum is not
present.
|
||
|
Meeting
of Stockholders –
Record
Date
|
As
fixed by the directors, no more than 60 days and no less than 10 days
before the meeting. If not fixed, the day before notice of meeting is
given
|
As
fixed by the directors, may be the date on which notice of the meeting is
given to the shareholders or such later date as specified in the notice,
being a date not earlier than the date of the
notice.
|
||
|
Directors
– Election
|
By
the stockholders as entitled by their terms, including the holders of
common stock
|
By
the shareholders, including the holders of ordinary shares, or by the
directors who have the power to appoint additional directors in the
interim period between annual or special meetings of members called for
the election of directors and/or the removal of one or more directors and
the filling of any vacancy in that connection.
|
||
|
Directors
– Term
|
Staggered
board of three classes; for terms of three years
|
Same
as Alyst
|
||
|
Directors
– Removal
|
By
the stockholders for cause
|
By
resolution of shareholders, passed by a majority vote or by resolution of
directors passed by majority vote, in either case with or without
cause.
|
||
|
Directors
– Vacancy
|
May
be filled by majority of remaining directors (unless they are the result
of the action of stockholders) and newly created vacancies may be filled
by majority of remaining directors
|
Same
as
Alyst
|
78
|
Provision
|
Alyst
|
CN
Holdings
|
||
|
Directors
– Number
|
Unless
established by the amended and restated certificate of incorporation, as
determined by board of directors, but not less than
one
|
There is
no minimum or maximum number of directors
|
||
|
Directors
– Quorum and Vote Requirements
|
A
majority of the entire board. The affirmative vote of a majority of
directors present at a meeting at which there is a quorum constitutes
action by the board of directors
|
Not
less than one-third of the total number of directors (with a minimum of 2)
present in person or by alternate, except if there is only one
director, then a quorum will be one director, and a sole director passes
resolution by written consent. A resolution is passed at a meeting by the
affirmative vote of a majority of the directors or consented to in writing
by all directors
|
||
|
Directors
– Managing Director
|
Not
applicable
|
Not
applicable
|
||
|
Directors
– Powers
|
All
powers to govern the corporation not reserved to the
stockholders
|
Same
as Alyst
|
||
|
Directors
– Committees
|
Directors
may establish one or more committees with the authority that the board
determines
|
Directors
may establish one or more committees with the authority that the board
determines, subject to certain restrictions under the
Act
|
||
|
Directors
– Consent Action
|
Directors
may take action by written consent of all directors, in addition to action
by meeting
|
Same
as Alyst
|
||
|
Director
– Alternates
|
Not
permitted
|
Directors
may, by written instrument, appoint an alternate who need not be a
director, who may attend meetings in the absence of the director and vote
in the place of the directors
|
||
|
Directors
– Appoint Officers
|
Directors
appoint the officers of the corporation, subject to the by-laws, with such
powers as they determine
|
Same
as Alyst, subject to the Amended and Restated Memorandum and Articles of
Association and certain restrictions under the Act
|
||
|
Director
– Limitation of Liability
|
Directors
liability is limited, except for (i) breach of loyalty, (ii) act not in
good faith or which involves international misconduct or a knowing
violation of law, (iii) willful violation of law in respect of payment of
dividend or converting shares, or (iv) actions in which director receives
improper benefit
|
Duty
to act honestly and in good faith with a view to the best interests of the
company and exercise care, diligence and skill that a reasonable director
would exercise in the same circumstances, taking the factual circumstances
into account. No provisions in the memorandum, articles or agreement may
relieve a director from the duty to act in accordance with the memorandum
or articles or from personal liability arising from the management of the
business or affairs of the company. Further, a director who vacates office
remains liable in respect of acts or omissions that occurred while he was
a
director.
|
79
|
Provision
|
Alyst
|
CN
Holdings
|
||
|
Director
– Indemnification Insurance
|
Company
may purchase insurance in relation to any person who is or was a director
or officer of the company
|
Same
as Alyst
|
||
|
Amendments
to Organizational Documents
|
Amendments
must be approved by the board of directors and by a majority of the
outstanding stock entitled to vote on the amendment, and if applicable, by
a majority of the outstanding stock of each class or series entitled to
vote on the amendment as a class or series. By-laws may be amended by the
stockholders entitled to vote at any meeting or, if so provided by the
amended and restated certificate of incorporation, by the board of
directors
|
Amendments
to the Amended and Restated Memorandum and Articles of Association, with
certain restrictions, may be made by resolution of the shareholders or by
the resolution of the board of directors only where such amendment is
required to provide for the rights conferred by preferred shares on their
shareholders pursuant to the Amended and Restated Memorandum of
Association
|
||
|
Sale
of Assets
|
The
sale of all or substantially all the assets of the company requires
stockholder approval
|
The
sale of more than 50% of the assets of the company requires shareholder
approval, other than in the regular course of
business
|
||
|
Dissenters’
Rights
|
Provision
is made under Delaware corporate law to dissent and obtain fair value of
shares in connection with certain corporate actions that require
stockholder approval or consent
|
Provision
is made under the Act to dissent and obtain fair value of shares in
connection with certain corporate actions that require shareholder
approval or
consent
|
Indemnification
of Officers and Directors
As
indicated in the comparison of charter provisions, a director of a company
formed under the laws of the British Virgin Islands is obligated to act honestly
and in good faith and exercise the care, diligence and skill that a reasonable
director would exercise in the same circumstances, taking into account the
factual circumstances. The Amended and Restated Memorandum and Articles of
Association of CN Holdings do not relieve directors from personal liability
arising from the management of the business of the company. Notwithstanding the
foregoing, Section 132 of the Act provides that CN Holdings may indemnify
directors against all expenses, including legal fees and judgments, fines and
settlements, in respect of actions related to their employment. There are no
agreements that relieve directors from personal liability. There are no
provisions under the Act or the Amended and Restated Memorandum and Articles of
Association of CN Holdings which provide for the indemnification of any persons
other than directors. CN Holdings is permitted and intends to obtain director
and officer insurance.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, CN Holdings and Alyst have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy, as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable.
80
Defenses
Against Hostile Takeovers
While the
following discussion summarizes the reasons for, and the operation and effects
of, the principal provisions of CN Holdings’ Amended and Restated Memorandum and
Articles of Association that management has identified as potentially having an
anti-takeover effect, it is not intended to be a complete description of all
potential anti-takeover effects, and it is qualified in its entirety by
reference to the full texts of CN Holdings’ Amended and Restated Memorandum and
Articles of Association.
In
general, the anti-takeover provisions of CN Holdings’ Amended and Restated
Memorandum and Articles of Association are designed to minimize susceptibility
to sudden acquisitions of control that have not been negotiated with and
approved by CN Holdings’ board of directors. As a result, these provisions may
tend to make it more difficult to remove the incumbent members of the board of
directors. The provisions would not prohibit an acquisition of control of CN
Holdings or a tender offer for all of CN Holdings’ shares. The provisions are
designed to discourage any tender offer or other attempt to gain control of CN
Holdings in a transaction that is not approved by the board of directors, by
making it more difficult for a person or group to obtain control of CN Holdings
in a short time and then impose its will on the remaining shareholders. However,
to the extent these provisions successfully discourage the acquisition of
control of CN Holdings or tender offers for all or part of CN Holdings’ shares
without approval of the board of directors, they may have the effect of
preventing an acquisition or tender offer which might be viewed by shareholders
to be in their best interests.
Tender
offers or other non-open market acquisitions of shares will generally be made at
prices above the prevailing market price of CN Holdings’ shares. In addition,
acquisitions of shares by persons attempting to acquire control through market
purchases may cause the market price of the shares to reach levels that are
higher than would otherwise be the case. Anti-takeover provisions may discourage
such purchases, particularly those of less than all of CN Holdings’ shares, and
may thereby deprive shareholders of an opportunity to sell their shares at a
temporarily higher price. These provisions may therefore decrease the likelihood
that a tender offer will be made, and, if made, will be successful. As a result,
the provisions may adversely affect those shareholders who would desire to
participate in a tender offer. These provisions may also serve to insulate
incumbent management from change and to discourage not only sudden or hostile
takeover attempts, but also any attempts to acquire control that are not
approved by the board of directors, whether or not shareholders deem such
transactions to be in their best interest.
Shareholder Meetings. BVI law
provides that shareholder meetings shall be convened by the board of directors
upon the written request of shareholders holding more than 30% of the votes of
the outstanding voting shares of the company. CN Holdings’ Amended and Restated
Articles of Association provide that annual shareholder meetings for the
election of directors may be called by the directors or by shareholders holding
more than 30% of the votes of the outstanding voting shares of the
company.
Number of Directors and Filling Vacancies on the Board
of Directors. BVI law requires that the board of directors of
a company consist of one or more members and that the number of directors shall
be fixed by the company’s Articles of Association. CN Holdings’ Amended and
Restated Articles of Association provide for no maximum number of
directors, subject to any subsequent amendment to change the number of
directors. The power to determine the number of directors is vested in the board
of directors and the shareholders. The power to fill vacancies, whether
occurring by reason of an increase in the number of directors or by resignation,
is vested in the board of directors in the interim period between annual or
special meetings of members called for the election of directors and/or the
removal of one or more directors and the filling of any vacancy in that
connection. Directors may be removed by the members for cause or without cause
on a vote of a majority of the shareholders passed at a meeting called for the
purpose of removing the director or by written resolution or with cause by a
resolution of directors passed at a meeting or by written
resolution.
Election of
Directors. Under BVI law, there is no cumulative voting
by shareholders for the election of the directors. The absence of cumulative
voting rights effectively means that the holders of a majority of the shares
voted at a shareholders meeting may, if they so choose, elect all directors of
CN Holdings, thus precluding a small group of shareholders from controlling the
election of one or more representatives to the board of
directors.
81
Advance Notice Requirements for Nomination of
Directors and Presentation of New Business at Meetings of Stockholders; Action
by Written Consent. The CN Holdings Amended and Restated
Articles of Association will provide for advance notice requirements for
shareholder proposals and nominations for director. Generally, to be timely,
notice must be delivered to the secretary of CN Holdings at its principal
executive offices not fewer than 30 days nor more than 60 days prior to the
first anniversary date of the annual meeting for the preceding year. Special
meetings may be called by CN Holdings’ board of directors or by shareholders
comprising 50% of the combined voting power of the holders of the then
outstanding shares entitled to vote. These provisions make it more procedurally
difficult for a shareholder to place a proposal or nomination on the meeting
agenda or to take action without a meeting, and therefore may reduce the
likelihood that a shareholder will seek to take independent action to replace
directors or seek a shareholder vote with respect to other matters that are not
supported by management.
Rights
of Minority Shareholders
Under
the law of the British Virgin Islands, there is statutory protection of minority
shareholders under the Act. The principal protection under the Act is that
shareholders may bring an action to enforce the memorandum and articles of
association of the company. The Act sets forth the procedure to bring such an
action. Shareholders are entitled to have the affairs of the company conducted
in accordance with the general law and the company’s memorandum and articles of
association. The company is obliged to hold an annual general meeting under its
memorandum and articles of association and provide for the election of
directors. Companies may appoint an independent auditor and shareholders may
receive the audited financial statements of the company, but are not entitled to
do so under the Act.
The
Act has introduced a series of remedies available to members. Where a company
incorporated under the new legislation conducts some activity which breaches the
Act or the company’s memorandum and articles of association, the court can issue
a restraining or compliance order. Members can now also bring derivative,
personal and representative actions under certain circumstances. The traditional
English basis for members’ remedies have also been incorporated into the Act –
where a member of a company considers that the affairs of the company have been,
are being or are likely to be conducted in a manner likely to be oppressive,
unfairly discriminating or unfairly prejudicial to him, he may now apply to the
court for an order on such conduct.
Any
member of a company may apply to court for the appointment of a liquidator for
the company and the court may appoint a liquidator for the company if it is of
the opinion that it is just and equitable to do so.
The
Act provides that any member of a company is entitled to payment of the fair
value of his shares upon dissenting from any of the following: (a) a merger; (b)
a consolidation; (c) any sale, transfer, lease, exchange or other disposition of
more than 50% in value of the assets or business of the company if not made in
the usual or regular course of the business carried on by the company but not
including (i) a disposition pursuant to an order of the court having
jurisdiction in the matter, (ii) a disposition for money on terms requiring all
or substantially all net proceeds to be distributed to the members in accordance
with their respective interest within one year after the date of disposition, or
(iii) a transfer pursuant to the power of the directors to transfer assets for
the protection thereof; (d) a redemption of 10%, or fewer of the issued shares
of the company required by the holders of 90%, or more of the shares of the
company pursuant to the terms of the Act; and (e) an arrangement, if permitted
by the court.
Generally
any other claims against a company by its shareholders must be based on the
general laws of contract or tort applicable in the British Virgin Islands or
their individual rights as shareholders as established by the company’s
memorandum and articles of association.
There
are common law rights for the protection of shareholders that may be invoked,
largely dependent on English common law, since the common law of the British
Virgin Islands for BVI business corporations is limited. Under the
general rule pursuant to English company law, known as the rule in Foss v. Harbottle, a court will generally
refuse to interfere with the management of a company at the insistence of a
minority of its shareholders who express dissatisfaction with the conduct of the
company’s affairs by the majority or the board of directors. However, every
shareholder is entitled to have the affairs of the company conducted properly
according to law and the constituent documents of the corporation. As such, if
those who control the company have persistently disregarded the requirements of
company law or the provisions of the company’s memorandum and articles of
association, then the courts may grant relief. Generally, the areas in which the
courts will intervene are the following: (i) an act complained of which is
outside the scope of the authorized business or is illegal or not capable of
ratification by the majority, (ii) acts that constitute fraud on the minority
where the wrongdoers control the company, (iii) acts that infringe on the rights
of the shareholders, such as the right to vote, and (iv) where the company has
not complied with provisions requiring approval of a special or extraordinary
majority of shareholders.
82
Under
the law of Delaware, the rights of minority shareholders are similar to that
which will be applicable to the shareholders of CN Holdings. The principal
difference, as discussed elsewhere, will be the methodology and the forum for
bringing such an action. It is also generally the case that the Delaware courts
can exercise a wide latitude in interpretation and wide discretion in fashioning
remedies in a particular case. Under English precepts of the law of minority
shareholders, there is generally a more restricted approach to the enforcement
of the rights through the interpretation of the law and the memorandum and
articles of association.
Transfer
of CN Holdings Securities Upon Death of Holder
Because
CN Holdings is a BVI company, the transfer of the securities of CN Holdings,
including the ordinary shares and warrants, for estate administration purposes
will be governed by BVI law. This may require that the estate of a decedent
security holder of CN Holdings seek to obtain a grant of probate or letters of
administration from a BVI court in order to transfer the shares upon the
shareholder’s death. CN Holdings has attempted to modify this
requirement by inserting in its Articles of Association a provision that permits
the board of directors to decide whether or not to permit decedent transfers
based on estate documentation from non-BVI jurisdictions, more in accordance
with U.S. practice, without any action having to be taken in the British Virgin
Islands. The board of directors intends to follow this procedure. There is no
assurance that this will result in an enforceable transfer. The board of
directors will be fully indemnified for its actions in this regard pursuant to
the Articles of Association.
Conclusion of Alyst’s Board of
Directors. After careful consideration of all relevant factors, Alyst’s
Board of Directors determined that the Redomestication Merger Proposal is in the
best interests of Alyst and its stockholders. The Board of Directors has approved and declared the
Redomestication Merger Proposal advisable and recommends that you vote or give
instructions to vote ‘‘FOR’’ the Redomestication Merger
Proposal.
Status
as a Foreign Private Issues
Upon
consummation of the Redomestication Merger, CN Holdings may be a foreign private
issuer within the meaning of the rules promulgated under the Securities Exchange
Act of 1934, depending upon the composition of its shareholder base, location of
assets and certain other factors. As such, it would be exempt from
certain provisions applicable to the U.S.-incorporated public companies
including:
|
|
·
|
The
rules requiring the filing with the SEC of quarterly reports on Form 10-Q
or current reports on Form 8-K;
|
|
|
·
|
The
sections of the Exchange Act regulating the solicitation of proxies,
consents or authorizations with respect to a security registered under
such Act;
|
|
|
·
|
Provisions
of Regulation FD aimed at preventing issuers from making selective
disclosures of material information;
and
|
|
|
·
|
The
sections of the Securities Exchange Act requiring insiders to file public
reports of their stock ownership and trading activities and establishing
insider liability for profits realized from any “short swing” trading
transactions (i.e., a purchase and sale, or a sale and purchase, of the
issuer’s equity securities within less than six
months).
|
Therefore,
CN Holdings’ stockholders may not be afforded the same protections or
information generally available to investors holding shares in public companies
organized in the United States.
83
THE
SHARE INCENTIVE PLAN PROPOSAL
On
__________, 2009, Alyst’s board of directors approved and adopted, subject to
stockholder approval, China Networks International Holdings Ltd. 2008 Omnibus
Securities and Incentive Plan (the “Share Incentive Plan”), which is
substantially in the form attached as Annex G and is made a part
hereof.
Up to
2,500,000 ordinary shares of CN holdings have been reserved for awards under the
Share Incentive Plan to directors, officers, employees and consultants of CN
Holdings or its affiliates.
A
summary of the principal features of the Share Incentive Plan is provided below,
but is qualified in its entirety by reference to the full text of the Share
Incentive Plan, a form of which is attached to this proxy statement/prospectus
as Annex G.
Awards
The Share
Incentive Plan provides for the grant of distribution equivalent rights,
incentive share options, non-qualified share options, performance share awards,
performance unit awards, restricted share awards, share appreciation rights,
tandem share appreciation rights and unrestricted share awards for an aggregate
of not more than 2,500,000 shares of CN Holdings’ ordinary shares, to directors,
officers, employees and consultants of CN Holdings or its affiliates. If
any award expires, is cancelled, or terminates unexercised or is forfeited, the
number of shares subject thereto, if any, is again available for grant under the
Share Incentive Plan. The number of ordinary shares with respect to which share
options or share appreciation rights may be granted to an employee under the
Share Incentive Plan in any calendar year cannot exceed
[ ].
Assuming
the Redomestication Merger and Business Combination is completed, there would be
approximately [ ] employees, directors and consultants who
would be eligible to receive awards under the Share Incentive Plan. New
officers, directors, employees and consultants of CN Holdings or its
affiliates would be eligible to participate in the Share Incentive Plan as
well.
CN
Holdings does not currently have any outstanding options or any intention,
agreement or obligation to issue any options outside the Share Incentive
Plan.
Administration
of the Share Incentive Plan
The Share
Incentive Plan will be administered by CN Holdings’ compensation committee
(the “Committee”). Among other things, the Committee has complete discretion,
subject to the express limits of the Share Incentive Plan, to determine the
employees, directors and consultants to be granted awards, the types of
awards to be granted, the number of CN Holdings ordinary shares to be subject to
each award, if any, the exercise price under each option, the base price of each
share appreciation right, the term of each award, the vesting schedule and/or
performance goals for each award that utilizes such a schedule or provides for
performance goals, whether to accelerate vesting, the value of the ordinary
shares, and any required withholdings. Either CN Holdings’ Board of Directors or
the Committee may amend, modify or terminate any outstanding award, provided
that the participant’s consent to such action is required if the action would
materially and adversely affect the participant. The Committee is also
authorized to construe the award agreements and may prescribe rules relating to
the operation of the Share Incentive Plan.
Share
Options
The Share
Incentive Plan provides for the grant of share options, which may be either
“incentive share options” (ISOs), which are intended to meet the requirements
for special U.S. federal income tax treatment under the Code, or “nonqualified
share options” (NQSOs). Options may be granted on such terms and conditions as
the Committee may determine; provided, however, that the per share exercise
price under an option may not be less than the fair market value of an
underlying CN Holding ordinary share on the date of grant, and the term
of an ISO may not exceed ten years (110% of such value and five years in
the case of an ISO granted to an employee who owns (or is deemed to own) more
than 10% of the total combined voting power of all classes of capital Share of
CN Holdings or a parent or subsidiary of CN Holdings). ISOs may only be granted
to employees. In addition, the aggregate fair market value of the ordinary
shares underlying one or more ISOs (determined at the time of grant) which are
exercisable for the first time by any one employee during any calendar year may
not exceed $100,000.
84
Restricted
Shares
A
restricted share award under the Share Incentive Plan is a grant or sale of CN
Holdings ordinary shares to the participant, subject to such transfer,
forfeiture and/or other restrictions specified by the Committee in the
award. Dividends, if any, declared by CN Holdings will be paid on the
shares, even during the period of restriction.
Unrestricted
Share Awards
An
unrestricted share award under the Share Incentive Plan is a grant or sale of CN
Holdings ordinary shares to the participant that is not subject to
transfer, forfeiture or other restrictions, in consideration for past
services rendered thereby to CN Holdings or an affiliate or for other valid
consideration.
Performance
Unit Awards
Performance
unit awards under the Share Incentive Plan entitle the participant to receive a
specified payment in cash upon the attainment of specified individual or company
performance goals.
Performance
Share Awards
Performance
share awards under the Share Incentive Plan entitle the participant to receive a
specified number of CN Holdings ordinary shares upon the attainment of specified
individual or company performance goals.
Distribution
Equivalent Right Awards
A
distribution equivalent right award under the Share Incentive Plan entitles the
participant to receive bookkeeping credits, cash payments and/or CN Holdings
ordinary share distributions equal in amount to the distributions that would
have been made to the participant had the participant held a specified number of
CN Holdings ordinary shares during the period the participant held the
distribution equivalent right. A distribution equivalent right may be awarded
under the Share Incentive Plan as a component of another award, where, if so
awarded, such distribution equivalent right will expire, terminate or be
forfeited by the participant under the same conditions as under such other
award.
Share
Appreciation Rights (SARs)
The
award of an SAR under the Share Incentive Plan entitles the participant, upon
exercise, to receive an amount in cash, CN Holdings ordinary shares or a
combination thereof, equal to the increase in the fair market value of the
underlying CN Holdings ordinary shares between the date of grant and the date of
exercise. SARs may be granted in tandem with, or independently of, options
granted under the Share Incentive Plan. An SAR granted in tandem with an option
under the Share Incentive Plan is granted at the same time as the related
option and is exercisable only at such times, and to the extent, that the
related option is exercisable and expires upon termination or exercise of
the related option. In addition, the related option may be exercised
only when the value of the CN Holdings ordinary shares subject to the option
exceeds the exercise price under the option. An SAR that is not granted in
tandem with an option is exercisable at such times as the Committee may
specify.
Additional
Terms
The Share
Incentive Plan prohibits the issuance of an award with terms and conditions that
would cause the award to be considered nonqualifed deferred compensation under
Section 409A of the Internal Revenue Code. Except as provided in the Share
Incentive Plan, awards granted under the Share Incentive Plan are not
transferable and may be exercised only by the participant or by the
participant’s guardian or legal representative. Each award agreement will
specify, among other things, the effect on an award of the disability, death,
retirement, authorized leave of absence or other termination of employment of
the participant. CN Holdings may require a participant to pay CN Holdings the
amount of any required withholding in connection with the grant, vesting,
exercise or disposition of an award. A participant is not considered a
shareholder with respect to the CN Holdings ordinary shares underlying an award
until the shares are issued to the participant.
85
Amendments
CN
Holdings’ Board of Directors (the “Board”) may at any time terminate the Share
Incentive Plan with respect to any awards that have not theretofore been
granted, provided that no such termination may be effected if it would
materially and adversely affect the rights of a participant with
respect to any award theretofore granted without the participant’s consent. The
Board may at any time amend or alter the Share Incentive Plan, provided that no
change in any award theretofore granted may be made which would materially and
adversely impair the rights of a participant with respect to such award without
that participant’s consent.
Certain
U.S. Federal Income Tax Consequences of the Share Incentive Plan
The
following is a general summary of certain U.S. federal income tax consequences
under current tax law to individual participants in the Share Incentive Plan who
are individual citizens or residents of the United States of ISOs, NQSOs,
restricted share awards, unrestricted share awards, performance unit
awards, performance share awards, distribution equivalent rights awards and
SARs granted pursuant to the Share Incentive Plan. It does not purport to
cover all of the special rules that may apply, including special
rules relating to deferred compensation, golden parachutes,
participants subject to Section 16(b) of the Exchange Act and the
exercise of an option with previously-acquired shares. In addition, this
summary does not address the state, local or foreign income or other tax
consequences inherent in the acquisition, ownership, vesting, exercise,
termination or disposition of an award under the Share Incentive Plan or CN
Holdings ordinary shares issued pursuant thereto.
A
participant generally does not recognize taxable income upon the grant of a NQSO
or an ISO. Upon the exercise of a NQSO, the participant generally recognizes
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares acquired on the date of exercise over the exercise price
paid therefor. If the participant later sells shares acquired pursuant to the
exercise of an NQSO, the participant generally recognizes a long-term or a
short-term capital gain or loss, depending on the period for which the shares
were held. A long-term capital gain is generally subject to more favorable tax
treatment than ordinary income or a short-term capital gain. The deductibility
of capital losses is subject to certain limitations.
Upon the
exercise of an ISO, the participant generally does not recognize taxable income.
If the participant disposes of the shares acquired pursuant to the exercise of
an ISO more than two years after the date of grant and more than one year after
the transfer of the shares to the participant, the participant generally
recognizes a long-term capital gain or loss. However, if the participant
disposes of such shares prior to the end of the required holding period, all or
a portion of the gain is treated as ordinary income to the
participant.
In
addition to the tax consequences described above, a participant may be subject
to the alternative minimum tax, which is payable to the extent it exceeds the
participant’s regular tax. For this purpose, upon the exercise of an ISO, the
excess of the fair market value of the shares over the exercise price thereunder
is a preference item for purposes of the alternative minimum tax. In addition,
the participant’s basis in such shares is increased by such excess for purposes
of computing the gain or loss on the disposition of the shares for alternative
minimum tax purposes. If a participant is required to pay alternative minimum
tax, the amount of such tax which is attributable to deferral preferences
(including any ISO adjustment) generally may be allowed as a credit against
the participant’s regular tax liability (and, in certain cases, may be refunded
to the participant) in subsequent years. To the extent the credit is not used,
it is carried forward.
A
participant who receives an unrestricted share award recognizes ordinary
compensation income upon receipt of the award equal to the excess, if any, of
the fair market value of the shares received over the amount paid by the
participant for the shares, if any.
86
A
participant who receives a restricted share award that is subject to a
substantial risk of forfeiture and certain transfer restrictions generally
recognizes ordinary compensation income at the time the restriction
lapses in an amount equal to the excess, if any, of the fair market value
of the shares at such time over the amount paid by the participant for the
shares, if any. Alternatively, the participant may elect to be taxed upon
receipt of the restricted shares based on the value of the shares at the
time of grant. Dividends received with respect to restricted shares are
generally treated as compensation, unless the participant elects to be taxed on
the receipt (rather than the vesting) of the restricted shares.
A
participant generally does not recognize income upon the grant of an SAR and has
ordinary compensation income upon exercise of the SAR equal to the increase in
the value of the underlying shares.
A
participant generally does not recognize income upon the awarding of a
performance unit award, a performance share award or a distribution
equivalent right award until payments are received. At such time, the
participant recognizes ordinary compensation income equal to the amount
of any cash payments and/or the fair market value of any CN Holdings
ordinary shares so received.
Conclusion of Alyst’s Board of
Directors. After careful consideration of all relevant
factors, Alyst’s Board of Directors has determined unanimously that the proposal
to adopt the Share Incentive Plan is in the best interests of Alyst and its
stockholders. Alyst’s Board of Directors has
unanimously approved and declared advisable the proposal and recommends that you
vote or give instructions to vote “FOR” the
proposal.
87
PROPOSAL
TO ADJOURN OR POSTPONE THE SPECIAL MEETING
FOR
THE PURPOSE OF SOLICITING ADDITIONAL PROXIES
This
proposal allows Alyst’s Board of Directors to submit a proposal to adjourn or
postpone the Special Meeting to a later date or dates, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes at
the time of the Special Meeting to approve the proposed merger.
If this
proposal is not approved by Alyst’s stockholders, its Board of Directors may not
be able to adjourn or postpone the Special Meeting to a later date in the event
there are not sufficient votes at the time of the Special Meeting to approve the
proposed merger.
Conclusion
of Alyst’s Board of Directors. After careful consideration of all relevant
factors, Alyst’s Board of Directors determined that the Adjournment and
Postponement Proposal of the Special Meeting for the purpose of soliciting
additional proxies is in the best interests of Alyst and its stockholders.
The Board of Directors has approved and
declared the Adjournment and Postponement proposal advisable and recommends that
you vote or give instructions to vote ‘‘FOR’’ the
proposal.
88
INFORMATION
ABOUT CHINA NETWORKS MEDIA
Overview
China
Networks Media is a provider of broadcast television advertising services in the
People’s Republic of China (“PRC”), operating joint-venture partnerships with
PRC state-owned television broadcasters (“PRC TV Stations”) in regional areas of
the country. It manages these regional businesses through a series of joint
ventures and contractual arrangements to sell broadcast television advertising
time slots and so-called “soft” advertising opportunities to local advertisers
directly and through advertising agencies and brokers. It also assists PRC TV
Stations in selling advertising time slots and “soft” advertising opportunities
to national advertisers, specifically by offering multi-region campaigns to
maximize value and cut costs these national advertisers would otherwise face
when dealing with individual stations on a station-by-station basis. China
Networks Media also provides advisory services to the PRC TV Stations to help
optimize the impact that their program scheduling and content has on their key
advertising demographics. China Networks Media believes that it is one of the
leading companies building a network of regional television advertising
operations in the PRC.
On a
pro forma basis, giving effect to the joint venture acquisition of the
advertising operations of the PRC TV stations in Kunming and Taiyuan as if they
had occurred on January 1, 2007, China Networks Media had combined audited
carve-out revenue for the year ending 2007 of approximately $20 million, with
net income of approximately $6.2 million. As a combined entity, China
Networks Media’s two-year compound annual growth rate was 15% for 2006 and
2007.
China
Networks Media’s strategy is to replicate this operating partnership model and
seek other such JV partnership opportunities in other regions in the PRC and
then introduce operating efficiencies and increase service offerings across its
network of Local JV Cos. These efficiencies are expected to include
reducing the costs associated with advertising delivery and designing more
effective incentive structures to drive sales. In addition, China Networks Media
is considering establishing strategic relationships with advertising agencies
with an objective of exploiting unsold advertising inventory.
The
PRC Television Advertising Industry
According
to publicly-available information, China’s total advertising spend in 2007 of
approximately $15 billion represented 3.25% of total worldwide spend, ranking
fifth overall in total spend. Industry experts project that China will
experience a compound annual growth rate (“CAGR”) of 17.33% from 2007 to 2010,
which is nearly 4% higher than the next fastest growing advertising market among
the ten largest markets, which is Brazil, and nearly triple the worldwide
average of 5.97%.
China’s
Advertising Spend by Category ($ million)
|
2005
|
2006
|
2007
|
2008E
|
2009E
|
2010E
|
|||||||||||||||||||
|
Advertising
Spending: ($ million)
|
||||||||||||||||||||||||
|
TV
|
4,670 | 5,311 | 6,187 | 7,826 | 8,452 | 9,128 | ||||||||||||||||||
|
Newspapers
& Magazines
|
3,693 | 4,426 | 5,152 | 6,094 | 6,385 | 7,343 | ||||||||||||||||||
|
Radio
|
511 | 752 | 876 | 1,074 | 1,181 | 1,287 | ||||||||||||||||||
|
Outdoor
|
1,655 | 1,890 | 2,202 | 2,678 | 3,348 | 3,850 | ||||||||||||||||||
|
Internet
|
535 | 927 | 1,606 | 2,618 | 3,553 | 4,598 | ||||||||||||||||||
|
Cinema
|
20 | 22 | 26 | 29 | 32 | 37 | ||||||||||||||||||
|
Total
|
11,084 | 13,327 | 16,049 | 20,319 | 22,951 | 26,243 | ||||||||||||||||||
Source:
Advertising Expenditure Forecasts (2008.06),
ZenithOptimedia
89
In the
television advertising sector, China has not demonstrated the same weaknesses
currently affecting the United States and Western Europe, namely the trends
towards personal video recorders and other time-shifting devices, migration of
viewers from premium mass-audience channels to cheaper specialist channels and
competition from the internet. As a result, China’s television
advertising industry has grown rapidly in recent years and now comprises 39.6%
of the total advertising market, representing approximately $7.5 billion in
2008, according to industry reports. China’s television advertising
market has developed significantly over the last decade, and is expected to
continue to grow in the coming years. By 2010, China’s television
advertising spending is projected to reach US$9.1 billion according to industry
reports, implying a CAGR of 13.8% from 2007 to 2010. This compares
favorably to growth of 8.2% in Hong Kong, 4.9% in Korea, and 1.5% in the United
States.
China
Networks Media expects to benefit from the following trends underlying the PRC
TV advertising industry:
|
|
·
|
According
to the PRC National Statistics Bureau, household consumption grew by a
5-year CAGR of 10.2%, reaching RMB 8.0 trillion in 2006. This underlying
dramatic expansion in consumption is expected to continue to drive growth
in the advertising industry.
|
|
|
·
|
Notwithstanding
this rapid recent growth, advertising spending per capita and spending as
percentage of gross domestic product in China are still much lower than
other countries, representing significant opportunity for further
growth.
|
PRC
Operating Structure
In
order to comply with current PRC laws limiting foreign ownership in the
television advertising industry, China Networks Media’s operations are conducted
through direct ownership of ANT and contractual arrangements with its trustee
company, Hetong and Hetong’s affiliated wholly foreign-owned enterprise (“WFOE”). China Networks
Media does not have an equity interest in Hetong, but instead enjoys the
economic benefits derived from Hetong through a series of contractual
arrangements. Hetong is owned 100% by two PRC nationals (Trustees, Li
Shuangqing and Guan Yong). Through these contractual arrangements, ANT controls
Hetong, which in turn owns 50% of a joint venture advertising companies
(“JV Ad Cos”) established with PRC TV Stations. The television advertising
revenue earned by the JV Ad Cos is paid, however, to an equity joint venture in
which ANT has a direct 50% interest (a “JV Tech Co”), which owns the assets
transferred from PRC TV Stations.
ANT
established a JV Tech Co under the name of Shanxi Yellow River and Advertising
Networks Cartoon Technology Co., Ltd. (“Taiyuan JV”), with China Yellow River TV
Station in Shanxi Province in June 2008; and ANT established a JV Tech Co under
the name Kunming Taishi Information Cartoon Co., Ltd. (“Kunming JV”) with
Kunming TV Station in Yunnan Province in July 2008.
In
August 2008, Hetong (the trustee company) established two JV Ad Cos with Kunming
TV Station and China Yellow River TV Station, under the respective name of
Kunming Kaishi Advertising Co., Ltd. (“Kunming Ad Co.”) and Taiyuan Guangwang
Hetong Advertising Co., Ltd. (“Taiyuan Ad Co.”). In each locale, these companies
form a group comprising of one JV Tech Co and one JV Ad Co (collectively
referred to as the “Local JV Cos”).
The JV
Tech Cos bear 100% of the costs of selling the advertising time-slots, and are
entitled to 100% of the revenues earned by the JV Ad Cos associated from such
sales.
Competitive
Strengths
|
|
·
|
Advantageous
joint-venture relationship
structure
|
The
long-term nature of the exclusive joint-venture contracts (typically 20-30
years) that China Networks Media has established with the PRC TV Stations is
unique in the market and compares favorably with other operating structures in
that it aligns the incentives of the joint-venture partners around ensuring that
a sustainable business is created that generates significant advertising
revenue. This revenue is expected to be maximized through, on China
Networks Media’s part, the efficient management of the operation of the
advertising sales force, and on the part of the PRC TV Stations, the continued
delivery of a high-quality schedule of programming that is attractive to
audiences.
90
|
|
·
|
Network
business model
|
China
Networks Media’s business model is also distinctive and robust as there are
significant benefits that accrue from the collaborative association of multiple
regional TV stations operations – essentially, the beneficial network
effects of operating a number of TV advertising businesses. These benefits
include factors such as ability to share certain costs, most importantly
increased effectiveness in selling to national advertisers, and also across the
many businesses a certain portfolio effect is created that insulates the overall
business from volatility in any one market/subsidiary operation. These network
effects are expected to increase as the number of partnerships that CN
is able to enter into expands.
|
|
·
|
China
Networks Media’s opportunity to grow and scale the business and embark on
more partnerships
|
China
Networks Media has a strong opportunity to grow its network by investing in
further partnerships in additional territories, and in addition, has a rich set
of growth options including expanding the relationships with its partner
stations to include provision of additional services. The highly fragmented
nature of the TV industry in China creates significant demand for the expansion
of the scale and scope of the joint-venture relationships China Networks
Media can build with TV stations across the country.
|
|
·
|
Seasoned
Management
|
China
Networks Media has attracted a highly-experienced team with solid experience and
proven track record in the TV and advertising industry in China and
internationally, as well as established relationships with national and local
governments, led by the CEO and Co-Chairman, Li Shuangqing, who has specific
experience of establishing and building a network of advertising sales agencies
handling the business of multiple regional television stations across China.
This directly relevant experience is matched among the key senior managers –
Zhou Chuansheng (VP Sales and Marketing), Guan Yong (VP Business Development)
and Liu Rui (Head of Media Planning) – who not only have significant industry
experience individually, but also have considerable experience working together
as a team over many years with Mr. Li.
Strategies
for Future Growth
|
|
·
|
Improve
core business profitability in the Local JV
Cos
|
In
order to maximize advertising sales and the effectiveness of its operations,
China Networks Media is in the process of implementing new incentive structures,
bringing in new talent and senior managers, and significantly enhancing the
skill base of the sales force in Kunming and Taiyuan through training and
development programs. In addition, China Networks Media is exploring
ways of reducing the costs of advertising delivery – including by utilizing new
storage/transmission technologies and exploiting economies of scale China
Networks Media enjoys to keep net margins in the range of 68-70% – as well as
leveraging its network to offer advantageous pricing for advertising
customers.
|
|
·
|
Expanded
offering across the network of partner
stations
|
Through
its consulting work for PRC TV Stations, China Networks Media goes beyond the
typical means of serving advertisers and seeks to improve the quality of the
programming offering and of the advertiser’s on-air promotion strategy,
including by utilizing research aimed at better understanding the demographics
of the audience. This may also include coordinating the acquisition of quality
programming across the PRC TV Stations in its network and advising on the
exploitation and promotion of successful programming produced by the local TV
stations into the national TV market, and across other media
platforms. By offering a higher level of value-added services to
local advertisers, including media planning and creative services, China
Networks Media expects to increase the volume and level of local advertiser
spending and may work with PRC TV Stations to develop new offerings, such as
Home Shopping, on their existing channels.
91
|
|
·
|
Expand
the network to include more TV station
partners
|
China
Networks Media is actively continuing to seek new opportunities to form
partnerships with additional PRC TV Stations in other regions across China using
the template operating and regulatory structure established with Kunming and
Taiyuan. It is also considering establishing relationships with
advertising agencies to exploit unsold ad inventory.
Television
Advertising Products and Services
The
China television industry has grown rapidly in recent years. The total number of
available television channels increased considerably to 2,983 in 2006 from 932
in 1995, and volume of television programming increased to 2,618,034 hours in
2006 from 383,513 hours in 1995.
These
channels historically operated on a four-level system established by the PRC
government in 1983: central (two stations), provincial (77 stations),
city (264 stations) and county (1,935 stations). As a result of the
promulgation of Document No. 82 in 1999, the last category of stations – which
were effectively only re-broadcasting programs from the other three levels of
stations as they had no means of producing their own programming – was merged
with the other three levels of stations in their regions, resulting in the
current three-level system, which closely mirrors the structure of the PRC
government. In 2001, the three-level system was expanded to include
cable television operators and the stations also began to acquire satellite TV
operations, beginning with Shenzhen City TV in 2004.
The
three current levels are as follows:
|
|
·
|
Central
Level (2) – The central level has two channels, CCTV and CETV, which
broadcast 16 channels
nationally.
|
|
|
·
|
Province
Level (76) – The province level has 27 province stations with satellite
channels that can be rebroadcast in other regions. The province
level also includes 45 education TV stations and the 4 major
municipalities – Beijing, Shanghai, Tianjin and Chongqing – that have
satellite channels.
|
|
|
·
|
City
Level (264) – At the city level, most of the channels are broadcast only
in the city areas. However, some, such as Shenzhen and Harbin,
provide a broader provincial footprint and/or have satellite
channels.
|
China
Networks Media’s focus is, in general, on partnering with city TV
stations. These PRC TV stations then agree to, effectively, have
China Networks Media run the advertising operations formerly managed directly by
the PRC TV Stations. By operating the JV Tech Cos on behalf of the
PRC TV Stations, China Networks Media believes that it brings its experience in
commercial best-practices to bear and provides centralized coordination and
sales force services for reaching national advertisers to local advertising
markets. Through its demographic reach and network of affiliations, China
Networks Media is able to maximize the value of the advertising time-slots on
the stations it serves and offers a compelling value proposition to PRC TV
Stations, which are in themselves profitable and thriving
businesses.
Kunming
Kunming
City
Kunming
is a prefecture-level city and the capital of Yunnan province, located in
southwestern China. It is the political, economic, communications and cultural
center of Yunnan. In 2007, the gross domestic product, or GDP, of
Kunming was 139.4 billion yuan and the GDP per capita was 22,580 yuan. As of
December 31, 2007, the population was 6.2 million, with urban residents
constituting 59.1% of the population.
92
Kunming
TV Station
The
Kunming Television Station was originally established in March 1985 and, in July
2001, merged with the Kunming Cable Television station to form the new Kunming
Television Station. Kunming TV has six television channels covering
five districts, eight counties and one city, in Kunming, with a combined
population of approximately 6.2 million. Kunming TV’s six channels
are comprised of: General Channel, Living Channel, Entertainment Channel,
Economic Channel, Movies Channel and News Channel, collectively offering more
than 130 hours per day of programming including drama, documentary, news and
entertainment of which Kunming TV produces 7 programming hours per day
in-house. The General Channel and the Movies Channel are broadcast
through terrestrial and cable dual launches, while the other four channels are
broadcast through cable transmission. The Kunming TV Station has
comparatively higher audience ratings and markets shares in the Kunming city
area. Kunming TV’s General Channel was ranked third and its Movies
Channel was ranked fourth in audience ratings in the Kunming city area in
2006. Collectively, Kunming TV’s channels generated advertising sales
revenues of approximately $15.3 million in 2007 and net income of approximately
$10 million. Kunming TV sells advertising on all six of Kunming TV’s
channels.
Top
10 TV Channels by Average Ratings in Kunming (2006)
|
Ranking
|
Channel
|
Rating
(%)
|
Share
(%)
|
|||||||
| 1 |
CCTV
General Channel
|
2.2
|
14.9
|
|||||||
| 2 |
Yunnan
TV City Channel(TV2)
|
1.8
|
12.2
|
|||||||
| 3 |
Kunming
TV General Channel
|
1.5
|
9.8
|
|||||||
| 4 |
Kunming
TV Movies Channel
|
0.8
|
5.6
|
|||||||
| 5 |
CCTV-6
|
0.8
|
5.1
|
|||||||
| 6 |
Yunnan
TV Movies Channel(TV5)
|
0.8
|
5.0
|
|||||||
| 7 |
CCTV-5
|
0.6
|
4.1
|
|||||||
| 8 |
CCTV-3
|
0.6
|
4.0
|
|||||||
| 9 |
CCTV-8
|
0.6
|
4.0
|
|||||||
| 10 |
Yunnan
TV Satellite Channel(TV1)
|
0.4
|
2.8
|
|||||||
Data
Source： CSM
Media Research 2006
General
Channel
The
General Channel offers many regional current affairs programming, such as local
community news and discussion on hot topics, which attracts a large audience. It
also offers three prime-time drama series, which attract a large
audience. China Networks Media believes that more than 80% of the
viewers who watch the General Channel are between 15-54 years old, with
male viewers accounting for 54% of the viewers. China Networks Media
also believes that the percentage of the public officers who view the channel
constitute 24.4% of the viewers. The cadre, management level
personnel, personnel at private enterprises, public officers, students and
retirees constitute a majority of the channel’s viewers. China Networks Media
believes that viewers with incomes of more than RMB 600 account for 65% of the
viewers and viewers with incomes between RMB 2,001 and RMB 2,300 account for
viewership as high as 63.9%.
Living
Channel
The
Living Channel, with its focus on, among other things, fashion, lifestyle,
traveling and cooking, targets an audience mainly comprised of young viewers who
enjoy the new and modern lifestyle. The Living Channel has the largest number of
young viewers between 18 to 35 years old in the Kunming area.
Entertainment
Channel
The
Entertainment Channel broadcasts distinctive TV dramas, which appeals to a wide
audience. It broadcasts 13 classic drama series daily, which many
married women who stay at home enjoy.
Economic
Channel
The
Economic Channel broadcasts a combination of discovery and science programs,
money management programs, and movies and drama series during the day, which
appeals to a wide audience. In addition, this channel has created a home
shopping forum.
93
Movies
Channel
The
Movies Channel has ranked at the top, as compared to other Kunming channels in
the Kunming area for many years. This channel is known for its self-produced
local dialect drama series. “My Theater” program which has one of the top
ratings continuously for many years in the Kunming area. In addition, “Dawn
Theater”, “Action Theater”, “Your Family My Family”, “My Theater”, “Overseas
Theater” and other programs appeal to all levels of family
members.
News
Channel
The
News Channel offers news program in which the news programs are linked together
as series. Program contents are supplementary and compatible with each other in
order to attract its audience to continuously watch the news programs, and to
reduce the possibility of its viewers changing channels. Such arrangements have
provided effective advertisement delivery among programs. China Networks Media
believes that the viewers who watch the News Channel are primarily comprised of
males, between 15-54 years old.
In
2007, the percentages of revenue from advertising agency and direct client were
as follows:
|
Channel
|
Source
|
Percentage
(%) of revenue
|
||||
|
General
Channel
|
Advertising
Agency
|
94.32%
|
||||
|
Direct
Client
|
5.68%
|
|||||
|
Living
Channel
|
Advertising
Agency
|
86.59%
|
||||
|
Direct
Client
|
13.41%
|
|||||
|
Entertainment
Channel
|
Advertising
Agency
|
98.86%
|
||||
|
Direct
Client
|
1.14%
|
|||||
|
Economic
Channel
|
Advertising
Agency
|
26.06%
|
||||
|
Direct
Client
|
73.94%
|
|||||
|
Movies
Channel
|
Advertising
Agency
|
90.04%
|
||||
|
Direct
Client
|
9.96%
|
|||||
|
News
Channel
|
Advertising
Agency
|
61.30%
|
||||
|
Direct
Client
|
38.70%
|
|||||
The table below describes the
broadcast characteristics of the six Kunming TV channels:
|
Channel
|
Broadcasting time of program
(Daily)
|
Broadcasting time of advertisement
(Daily)
|
||
|
General
Channel
|
21
hrs 2 minutes
|
5
hrs 43 minutes
|
||
|
Living
Channel
|
19
hrs 59 minutes
|
4
hrs 50 minutes
|
||
|
Entertainment
Channel
|
19
hrs 58 minutes
|
3
hrs 12 minutes
|
||
|
Economic
Channel
|
19
hrs 20 minutes
|
3
hrs 19 minutes
|
||
|
Movies
Channel
|
24
hrs
|
4
hrs 44 minutes
|
||
|
News
Channel
|
22
hrs 31 minutes
|
3
hrs 45
minutes
|
Yellow
River
Taiyuan
City
Taiyuan
is a prefecture-level city and the capital of Shanxi province, China. In 2007,
the GDP in Taiyuan was 125.5 billion yuan, and the GDP per capita was 36,377
yuan. As of December 31, 2007, the population was 3.45 million, with urban
residents constituting 82% of the population.
94
China
Yellow River TV Station
China
Yellow River TV Station was established and officially approved by the State
Council Information Office and the Ministry of the Radio, Film and TV in 1991.
Yellow River TV Station is a professional radio and television broadcast
organization which is run by the Radio and Television Bureau of Shanxi
Province. Its operation principle is to disseminate Chinese culture,
introduce China to the world and facilitate China’s understanding of the
world. It has one TV Channel and one radio channel: Minsheng TV
Channel and Art and Entertainment Radio Station. Minsheng TV Channel
reaches a population of approximately 30 million across Shanxi province, and its
sister radio stations, Art and Entertainment Radio, reaches an approximately 20
million people. The Minsheng TV Channel is a general entertainment television
channel offering a wide range of content. The channel broadcasts
programs 20 hours per day, of which it produces 2.5 hours per day
in-house. It is the only provincial terrestrial TV station, two-ways
cable channel covering the ground. Its programs cover the entire
Shanxi province and neighboring area, including Inner Mongolia, Shanxi, Henan
and parts of Hebei, with more than 30 million potential viewers. Collectively,
the Yellow River television and radio stations generated advertising sales
revenues of $5.3 million in 2007 and net income of $3.3 million, of which
approximately 20% of its revenues were generated from its radio channel. Yellow
River TV Station sells advertising on the Minsheng TV and Art and Entertainment
Radio Station.
Minsheng
TV Channel
With
the channel’s desire to focus on current events and politics, its program
ratings have increased, and it has increased social influence and public
credibility. This channel has won the highest audience rating in ground-level
television, the largest number of award-winning programs, the highest-level
awards, and has become the best income-generating economic channel in Shanxi
province.
Art
and Entertainment Radio Station
The
Arts and Entertainment Radio Station was established in April
1995. It is a general entertainment radio station offering a wide
range of programs, including news, music and comedy, and is the only
professional arts FM stereo radio in Shanxi province. It draws
strength from different areas, imports a number of outstanding programs from
radio stations abroad, and creates programming that combine local
characteristics with international trends. It keeps the highest
listening rate and daily reach rate in Shanxi province. In 2005, it
became the first broadcast medium to achieve a simultaneous live broadcast
online across the province.
In
2007, the percentage of revenue from advertising agencies and direct clients
were as follows:
|
Channel
|
Source
|
Percentage (%) of revenue
|
||||
|
Minsheng
TV Channel
|
Advertising
Agency
|
58.38%
|
||||
|
Direct
Client
|
41.62%
|
|||||
|
Arts
and Entertainment Radio Station
|
Advertising
Agency
|
27.66%
|
||||
|
Direct
Client
|
72.34%
|
|||||
The broadcast characteristics of the
Yellow River TV Channel and FM
Station are as follows:
|
Channel
|
Broadcasting time of program
(daily)
|
Broadcasting time of advertising
(daily)
|
||
|
Minsheng
TV Channel
|
20
hours 10 minutes
|
4
hours 13 minutes
|
||
|
Arts
and Entertainment Radio
|
24
hours
|
3
hours 50
minutes
|
Media
Sales
China
Networks Media provides media sales services to its clients by providing them
with on-air advertising opportunities that may take the form of direct
advertising time slots (i.e., “commercials”) or “soft” advertising
opportunities, such as in-program product placement and program sponsorship
rights. Through its JV Tech Cos, China Networks Media provides its services to
“national advertisers,” which China Networks Media considers to be those
advertisers who seek advertising opportunities across multiple geographies in
China, and to “local advertisers,” which China Networks Media considers to be
advertisers who seek advertising coverage in one limited geographic
area. China Networks Media’s services its national advertisers
through its National Client Service Center, which it maintains in its principal
office in Beijing.
95
A
typical campaign for a national advertiser begins with a meeting between China
Networks Media’s national sales personnel and the potential advertiser or its
agency to learn more about the potential client’s business and its advertising
goals. China Networks Media then proposes a media plan that includes
our recommendations for specific television channels and time slots on which to
place advertisements, and typically also include proposals for utilization of
soft advertising opportunities.
China
Networks Media’s national advertisers or their agencies purchase advertising
time slots or “soft” advertising opportunities directly from the Local JV
Cos. Once the client approves the advertising plan or “soft”
advertising concept, China Networks Media’s National Client Service Center team
negotiates the contract for the ad to appear on the particular national channel.
Typically, China Networks Media’s National Client Service Center then enters
into a “back-to-back contract” with the Local JV Cos team selling local
advertising space and retains a commission for its services. The National Client
Service Center team will coordinate with the Local JV Cos’ local operations
teams to ensure that handling, review, approval and broadcast of the relevant
advertising complies with the contract, as well as help the client prepare and
collect the relevant legal documents, business licenses and trademark
certificates that PRC TV Stations require to run an advertisement. China
Networks Media then follows up the national broadcast with an individualized
report to the client analyzing and evaluating the effectiveness of the
advertisement. Sales to local advertisers are handled in a similar
fashion, although the local team typically does not liaise with the National
Client Service Center team and the National Client Service Center team would not
generate a report analyzing the local advertisement’s effectiveness in the local
market.
Competitors
and Threats of Substitution
The
television advertising industry in China is intensely competitive and highly
fragmented. China Networks Media finds that to successfully compete with other
industry participants it relies heavily on its management and advertising sales
teams to maintain an inventory of advertising time slots available for purchase,
sustain competitive prices, uphold its strategic relationships with
television networks and maintain its reputation within the industry. It
faces significant competition in selling advertising space to advertisers and
their advertising agencies, both on the national and local
levels. Its primary competitors are other media sales companies that
have dedicated relationships to particular television stations and/or companies
that broker timeslots from those stations. At the national level these include
such companies such as SinoMedia Holding Limited, China Mass Media International
Advertising Corporation, Qin Jia Yuan Media Services Company Limited and
Cosmedia Group Holdings Limited. Major local competitors are other local TV
stations, such as Yunnan TV station and Taiyuan TV station. Local
level competitors compete with China Networks Media for advertising sales
revenue based on the desirability of time slots it offers, the television
network coverage PRC TV Stations provide, the quality of services it provides
its clients, and its prices. Additionally, television as an advertising medium
competes with other forms of advertising media, such as radio, newspapers,
magazines, the Internet, indoor or outdoor flat panel displays, billboards and
public transport advertising, for overall advertising spending. As
providers of broadcast television advertising, it necessarily competes with
providers of advertising over such other media for advertising
revenue.
To the
extent that existing local advertising sales competitors try to expand
their relationships with local broadcast television providers, they also pose a
threat to China Networks Media’s ability to
create new joint venture relationships with additional local broadcast
television stations. China Networks Media also faces competition from
new entrants in the television advertising sector, including the wholly-owned
foreign advertising companies that have been allowed to operate in China since
December 2005. These foreign entities expose China Networks Media to
increased competition from international advertising media companies that may
have greater financial resources or more advantageous professional connections
than it does.
PRC
Corporate Structure
China
Networks Media conducts substantially all of its business in the PRC through
ANT, its wholly-owned subsidiary in Hong Kong, and Beijing Guangwang Hetong
Advertising & Media Co., Ltd. (‘‘Hetong’’), a PRC company and a domestic
variable interest entity, or (VIE). Hetong is controlled by ANT
through contractual arrangements.
96
In
order to comply with the PRC’s regulations on private investment in the
television advertising industry, China Networks Media operates its business in
two joint ventures with two separate local state-owned PRC TV Stations. China
Networks Media’s operations are conducted through direct ownership of ANT and
contractual arrangements through ANT with Hetong. China Networks Media does
not have an equity interest in Hetong, but instead enjoys the economic benefits
derived from Hetong through a series of contractual arrangements.
ANT
and the PRC TV Stations each own 50% of the JV Tech Cos, the PRC joint ventures
which hold the television assets transferred from PRC TV
Stations. Hetong owns 50% of Kunming Ad Co. and 50% of Taiyuan Ad
Co., established with the PRC TV Stations. The JV Tech Cos collect
the television advertising revenue earned by the JV Ad Cos, using assets
transferred from the PRC TV Stations, which own the remaining 50% of the JV Tech
Cos.
Corporate
Structure for China Networks Media
97
China
Networks Media does not directly or indirectly have an equity interest in
Hetong, but ANT, our wholly owned subsidiary, has entered into a series of
contractual arrangements with Hetong and its shareholders. As a result of the
following contractual arrangements, China Networks Media controls and is
considered the primary beneficiary of Hetong and, accordingly, it consolidates
Hetong’s results of operations in its financial statements. These arrangements
include the following:
|
|
·
|
The
shareholders of Hetong have jointly granted ANT an exclusive and
irrevocable option to purchase all or part of their equity interests in
Hetong at any time; this option may only be terminated by mutual consent
or at the direction of ANT;
|
|
|
·
|
Without
ANT’s consent, the shareholders of Hetong may not (i) transfer or pledge
their equity interests in Hetong, (ii) receive any dividends, loan
interest or other benefits from Hetong, or (iii) make any material
adjustment or change to Hetong’s business or
operations;
|
|
|
·
|
The
shareholders of Hetong agreed to (i) accept the policies and guidelines
furnished by ANT with respect to the hiring and dismissal of employees, or
the operational management and financial system of Hetong, and (ii)
appoint the candidates recommended by ANT as directors of
Hetong;
|
|
|
·
|
Each
shareholder of Hetong has appointed ANT’s designee as their
attorneys-in-fact to exercise all its voting rights as shareholders of
Hetong. This power of attorney is effective until 2037;
and
|
|
|
·
|
Each
shareholder of Hetong has pledged all of its respective equity interests
in Hetong to Guangwang Tonghe Technology Consulting (Beijing) Co. Ltd.
(“WFOE”), a wholly-owned subsidiary of ANT in the PRC to secure the
payment obligations of Hetong under certain contractual arrangements
between Hetong and WFOE. This pledge is effective until the later of the
(i) date on which the last surviving of the Exclusive Service Agreements,
the Loan Agreement and the Equity Option Agreement terminates and (ii)
date on which all outstanding Secured Obligations are paid in full or
otherwise satisfied.
|
In
addition, Hetong, the JV Tech Cos and PRC TV Stations have entered into the
following contractual arrangements that provide Hetong with the ability to
control and consolidate the results of operations of the JV Ad Cos. As a
result of these agreements, China Networks Media controls and consolidates the
JV Tech Cos and JV Ad Cos in its financial statements.
Asset Transfer
Agreement. Pursuant to the Asset Transfer
Agreement between the JV Tech Cos and the PRC TV Stations, the PRC TV Stations
agree to transfer to the JV Tech Cos the assets of the PRC TV Stations in two
installments which have been appraised and the JV Tech Cos are obligated to pay
the full consideration to PRC TV Stations in two installments. The assets relate
to the advertising business operated by the PRC TV Stations, including, but not
limited to, tangible and intangible assets. Until the assets are delivered to
the JV Tech Cos, PRC TV Stations should be responsible for the custody and
maintenance thereof. Following delivery of the assets, the PRC TV
Stations will be entitled to continue using the assets for the purpose of the
advertising business for no consideration other than liability for loss or
damage. Furthermore, upon the expiration of two years from the date of
establishment of the JV Tech Cos, the PRC TV Stations will continuously transfer
assets to the JV Tech Cos and the JV Tech Cos shall continuously purchase such
assets, provided that such purchased assets are necessary for the operational
activities of the JV Tech Cos and that such purchases comply with the Asset
Transfer Agreement concluded separately between the parties.
Kunming
TV Station and Kunming JV entered into such Asset Transfer Agreement on August
11, 2008, under which Kunming TV Station will transfer its assets to Kunming JV,
valued at RMB150 million and Kunming JV will pay the same to Kunming TV Station.
China Yellow River TV Station and Shanxi Yellow River and Advertising Networks
Cartoon Technology Co., Ltd. (“Taiyuan JV”) entered into such Asset Transfer
Agreement on July 17, 2008, under which China Yellow River TV Station will
transfer its assets, valued at RMB45 million, to Taiyuan JV, and the same
consideration should be paid by Taiyuan JV accordingly. All governmental,
statutory and other approvals required for the transfer of the assets had been
obtained as of the date of the first transfer in August 2008. No further
approvals are required for the remaining transfers.
Exclusive Cooperation
Agreement. Pursuant to the Exclusive Cooperation Agreement
between the JV Tech Cos and the PRC TV Stations, the PRC TV Stations exclusively
and irrevocably grant to the JV Tech Cos the right to carry out advertising
operations on its channels, and to provide to the JV Tech Cos all necessary and
relevant support, as well as most-favored terms for the conduct of the
advertising business. The PRC TV Stations shall share their resources with the
JV Tech Cos, including, but not limited to, all client’s information, such
as databases. Under the terms of this agreement, the PRC TV Stations will
not engage any other party in any similar cooperation. As such, the JV Tech Cos
has the exclusive right to carry out advertising business on PRC TV Stations’
channels.
98
Kunming
JV and Kunming TV Station entered into the Exclusive Cooperation Agreement
on August 6, 2008, while Taiyuan JV and China Yellow River TV Station entered
into an Exclusive Cooperation Agreement on July 17, 2008.
Exclusive Services
Agreement. Pursuant to the Exclusive Services Agreement
between the JV Tech Cos and the JV Ad Co, the JV Ad Co engages the JV Tech Cos
to be its sole and exclusive provider of services relating to technical support
for the production of advertising and the advertising consulting. At the same
time, the JV Tech Cos engages the JV Ad Co to be its sole and exclusive
advertising agent and grants to the JV Ad Co agency rights for all advertising
under the exclusive right to carry out advertising operations, granted by the
corresponding PRC TV Stations to the JV Tech Cos in accordance with the
Exclusive Cooperation Agreement. Under the terms of this agreement, the JV Ad Co
will pay the service fee to the JV Tech Cos as accrued, in accordance with the
JV Tech Cos’ regular invoices. As such, all of the JV Ad Co’s pre-tax income
(less the relevant business tax) generated during the term of this agreement and
relating to the marketing of advertising and other operations will be
transferred to the JV Tech Cos as the service fee. Kunming JV and Kunming Ad Co.
entered into an Exclusive Services Agreement on August 6, 2008, while Taiyuan
Advertising Networks Advertising Co., Ltd (“Taiyuan Ad Co.”) and Taiyuan JV
entered into an Exclusive Services Agreement on July 17, 2008.
Transition
Arrangements
Following
the execution of the foregoing agreement, China Networks Media has been engaged
in the process of determining which of the employees of the PRC TV Stations must
be employed by the JV Tech Cos, which are to be hired by the relevant JV Ad Co
and those who will remain as employees of the relevant PRC TV
Station. In addition, China Networks Media has been deploying
extensive integration management software system which allows management and
investors to access and analyze the Company’s operation, financial, sales,
marketing and personnel data. It also has been conducting personnel
integration analyses and formalizing its policies with respect to customer
relations, pricing, incentivizing management and sales personnel and government
relations. China Networks Media has also begun the process of
transitioning the accounts receivable and establishing registered and working
capital at the JV Tech Cos and JV Ad Cos to enable it to fully commence
operations as joint ventures. The Company has been in the process of
re-executing contracts with their clients who had signed contracts with the PRC
TV Stations. In order to best understand local markets, China
Networks Media’s management has been conducting extensive market research and
analysis.
Facilities
China
Networks Media maintains executive offices at Suite 801, Tower C, Central
International Trade Center, 6A Jianguomenwai Avenue, Chaoyang District, Beijing,
China. The base rental cost for this space is approximately $10,542 per
month. China Networks Media considers its current office space with 400 square
meters should adequate for current operations.
China
Networks Media’s Kunming JV is located at No. 198, Danxia Road, Kunming city,
Yunan province. Yellow River JV is located at No. 318, Yingze Street, Taiyuan
city, Shanxi Province.
Employees
As of
December 31, 2008, China Networks Media had a total of 112 employees in the
following entities: Beijing headquarters (10), Kunming JV and Kunming
Ad Co. (72), and Yellow River JV and Taiyuan Ad Co. (30). China Networks Media
offers employees competitive compensation packages and various training
programs, which are intended to attract and retain qualified
personnel. As required by PRC regulations, China Networks Media
participates in various employee benefit plans that are organized by municipal
and provincial governments, including housing, pension, medical and unemployment
benefit plans. China Networks Media is required under PRC law to make
contributions to the employee benefit plans at specified percentages of the
salaries, bonuses and certain allowances of employees, up to a maximum amount
specified by the local government from time to time. Members of the retirement
plan are entitled to a pension equal to a fixed proportion of the salary
prevailing at the member’s retirement date. China Networks Media typically
enters into a standard employment agreement and a confidentiality agreement with
its employees and it believes its relationship with its employees is good. China
Networks Media’s employees are not represented by any collective bargaining
agreements or labor unions.
99
Governmental
Regulation
China’s
advertising industry is highly regulated by numerous PRC regulatory
authorities. Under the direct legal authority of the State Council,
the State Administration for Industry and Commerce (SAIC) is the primary
regulator of advertising industry in the PRC, and maintains a qualification
system by issuing business licenses with a business scope that covers
advertising to qualified entities through its local bureaus. A number of
industry-specific authorities work with the SAIC and/or under the SAIC’s
regulatory framework to issue rules and policies relating to advertising. For
example, the State Administration of Radio, Film and Television (“SARFT”) is
involved in regulating TV advertising.
Regulatory
Framework
In
late 1987, the State Council issued the Regulations for the Administration of
Advertising (Advertising Regulations, promulgated on October 26, 1987 by the
State Council and effective as of December 1, 1987), which were supplemented
several months later by Detailed Implementing Rules for the Regulations for the
Administration of Advertising (Implementing Rules, promulgated on January 9,
1988 by the SAIC and revised on December 3, 1998, December 1, 2000, and November
30, 2004).
The
Advertising Regulations and Implementing Rules established the SAIC as the
governmental authority chiefly responsible for overseeing the advertising
industry, and initiated a system of licensing and censorship requirements for
advertising content. This legislation covers advertisements in print media,
television and radio broadcasts, and films, on public posters and billboards, in
vehicles, in printed materials sent through the mail, in exhibitions and product
displays, and in “any other media, as well as the use of other forms to publish,
broadcast, install, or post advertisements.” The Advertising Regulations and
Implementing Rules also specify penalties for legal violations.
It was
not until 1994 that the National People’s Congress promulgated the Advertising
Law of the People’s Republic of China (Advertising Law, promulgated on October
27, 1994 by the National People’s Congress as Decree No. 34 and effective as of
February 1, 1995). Although as a national law it takes precedence over the
Advertising Regulations, the Advertising Law adopts the requirements,
definitions, and penalties set forth in those regulations and the Implementing
Rules. The Advertising Law thus contains the terms and definitions subsequently
used throughout the existing PRC regulatory structure for advertising. In
addition, the Advertising Law requires advertisers, publishers and advertising
agencies to publicize their fee standards and fee collection methods.
Advertising agencies are also required to issue special invoices provided by the
state tax authorities when receiving payment for services rendered. Only those
companies licensed to undertake advertising agency and publishing activities can
obtain such invoices, which are necessary for accounting and tax purposes.
Further, the Advertising Law outlines the basic requirements for advertising
content published in the PRC, namely, that it must be truthful, lawful and not
misleading to consumers.
Requirements
for Establishing Foreign-invested Advertising Enterprises
The
Rules for the Administration of Foreign-Invested Advertising Enterprises
(promulgated on March 2, 2004 by the SAIC and the Ministry of Commerce) detail
the application and approval procedures, and qualification requirements for
advertising joint ventures and wholly-foreign owned enterprises in the
PRC.
The
requirements for establishing Sino-foreign advertising joint ventures include a
two years or more operating history in the advertising business for each of the
joint venture parties, together with records evidencing the parties’
achievements in the advertising business.
100
To
establish a wholly foreign-owned advertising company, the foreign investor must
be engaged in advertising as its primary form of business, and must have been
established and operating for at least three years. Given that certain
foreign investors are unable to meet the two or three years qualification
requirement, the adoption of the trustee structure (as described below) is still
the preferred mode of entry in this industry.
Given
that China Networks Media and ANT are unable to meet the two or three years
qualification requirement, it currently relies on the trustee structure with
these affiliated PRC companies to establish domestic advertising companies that
operate our advertising business in China.
Once
ANT or any other subsidiary of China Networks Media meets the aforementioned
statutory requirements on foreign direct investment within the advertising
industry in the PRC, China Networks Media may, depending on the circumstances
and legal requirements in effect at such time, unwind the trustee structure and
adopt the form of either a wholly foreign-owned advertising company or a
Sino-foreign advertising joint venture.
Regulation
on Broadcasting Radio and TV Advertisements
SARFT
and its local branches at the county level or above are responsible for the
regulation and screening of programs for radio and TV broadcasting. This
includes restrictions on the content and airtime of the broadcast of TV
commercials. On September 15, 2003, SARFT promulgated the Provisional Measures
on Administration of Broadcasting Radio and Television Advertisements, which
provides detailed requirements for the broadcast of radio and TV advertisements,
including the following:
|
|
·
|
Radio
and TV advertisements shall be clearly differentiated from other TV
programs and should not be broadcasted in the form of news report. Current
events and political news programs shall not carry the names of any
enterprises or products. Advertisements with addresses, telephone numbers
or contact information shall not be broadcasted during special reports on
individuals or enterprises.
|
|
|
·
|
Radio
stations and TV stations shall examine the content of the advertisements
and the qualifications of the enterprises involved and shall only
broadcast the advertisements that have been so
examined.
|
|
|
·
|
Radio
and TV advertisements on each channel must not exceed 20% of the total of
each channel’s daily program time and must not exceed 15% of each
channel’s program time per hour (i.e. nine minutes per hour) between 11:00
a.m. - 1:00 p.m. for radio programs and between 7:00 p.m. - 9:00 p.m. for
TV programs.
|
|
|
·
|
Advertisements
shall not be broadcasted in a way that would affect completion of the
programs. Except for the period between 7:00 p.m. - 9:00 p.m.,
advertisements can only be broadcasted once and for a maximum period of
2.5 minutes during the airing of any movie or TV
drama.
|
|
|
·
|
The
broadcast of advertisements related to tobacco are prohibited by radio
stations and TV stations. Advertisements relating to alcohol are strictly
controlled in accordance with relevant PRC laws, rules and regulations.
The number of alcohol advertisements cannot exceed 12 segments for each TV
channel per day or exceed two segments between 7:00 p.m. - 9:00
p.m.
|
101
CHINA
NETWORKS MEDIA LIMITED’S MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
China
Networks Media, Ltd. (formerly known as China Networks Limited) was first
incorporated in the Cayman Islands and registered with the Cayman Islands
Registrar of Companies on March 30, 2007. China Networks Media, Ltd. (“China
Networks Media”) was continued into the British Virgin Islands as a BVI Business
Company under the “BVI Business Companies Act” on June 2, 2008 in anticipation
of a business combination with a U.S. reporting company.
China
Networks Media is a development stage enterprise. At September 30, 2008, China
Networks Media had not yet commenced any operations nor generated revenue.
Activity through September 30, 2008 relates to China Networks Media’s formation,
private placement offering, establishment of joint ventures and contractual
relationships in the People’s Republic of China (the “PRC”), and potential
business combination with Alyst Acquisition Corp. as described
below. China Networks Media has selected December 31 as its
fiscal year end. China Networks Media’s business plan is dependent
upon financing and the proposed business combination with Alyst Acquisition
Corp. as described below.
On
August 13, 2008, China Networks Media, Alyst and certain other persons, executed
the Merger Agreement providing for, among other things, the Redomestication
Merger and the Business Combination. China Networks Media will be the surviving
corporation in the Business Combination and will become a wholly-owned
subsidiary of CN Holdings.
The
Business Combination will be accomplished by the merger of CN Holdings’
wholly-owned subsidiary, China Networks Merger Co., with and into China Networks
Media, resulting in China Networks Media becoming a wholly-owned subsidiary of
CN Holdings. Pursuant to the Merger Agreement, (i) each ordinary share of China
Networks Media will be converted automatically into (A) a number of ordinary
shares of CN Holdings determined as follows: (x) 1,900,000 divided by (y) the total
number of ordinary shares of China Networks Media issued and outstanding
immediately prior to the Business Combination, plus (B) the right to receive a
cash amount determined as follows: (x) U.S. $10,000,000 divided by (y) the total
number of ordinary shares of China Networks Media issued and outstanding
immediately prior to the Business Combination, plus (C) the additional common
share consideration as set forth in the merger agreement, and (ii) each
preferred share of China Networks Media will be converted automatically into (A)
a number of ordinary shares of CN Holdings determined as follows: (x) 980,000
divided by (y) the
total number of preferred shares of China Networks Media issued and outstanding
immediately prior to the Business Combination, plus (B) the right to receive
$7.143 per share in cash, plus (C) the Additional Preferred Share Consideration,
as defined in the Merger Agreement.
On
July 21, 2008, China Networks Media entered into a purchase agreement with
several accredited investors (the ‘‘Purchase Agreement’’). Pursuant
to the Purchase Agreement, it consummated a private placement of 56 units, each
unit consisting of (i) a promissory note in the face amount of $499,825, bearing
interest at the rate of 10% per annum (the ‘‘Note’’), and (ii) 17,500 detachable
shares of the China Networks Media’s class A preferred stock (collectively, the
Notes and the class A preferred stock are referred to as the ‘‘Units’’). As
security for the repayment of the Notes, China Networks Media’s two
shareholders, MediaInv Ltd. and Kerry Propper, collectively pledged and
granted to the investors, on a pro rata basis, a first priority lien on 50.1% of
the ordinary shares of China Networks Media owned by them. The proceeds of the
sale and issuance of the Units were used in the following manner: (a) $13.6
million was used for initial equity contributions due from Advertising Networks
Ltd. (“ANT”), a Hong Kong wholly-owned subsidiary of China Networks Media, for
investment in joint ventures established with PRC TV Stations, and (b) a fee of
$980,000 was paid to Chardan, as a placement fee for the financing, and (c)
the remaining proceeds are being used for working capital, including payment of
certain administrative, legal and accounting fees.
102
In
connection with the transaction and pursuant to the terms of a registration
rights agreement (the ‘‘Registration Rights Agreement’’), China Networks Media
has agreed, and Alyst has agreed to assume the obligation, to register for
resale the ordinary shares underlying the shares of class A preferred stock
issued as part of the Units. China Networks Media has agreed to file with the
Securities and Exchange Commission a registration statement with respect to the
resale of the shares no later than the date that is 30 days after the
consummation of the business combination between China Networks Media and Alyst.
Such obligation will be assumed by CN Holdings.
Joint
Ventures between Advertising Networks Ltd. (“ANT”) and the PRC TV
Stations
In
2008, China Networks Media established certain equity joint ventures with the
state owned PRC TV Stations. ANT established the equity joint venture, Taiyuan
JV, with China Yellow River TV Station in Shanxi Province in June 2008; and
established an equity joint venture, Kunming JV, with Kunming TV Station in
Yunnan Province in July 2008 (Taiyuan JV and Kunming JV are collectively
referred to as the “JV Tech Cos”, and China Yellow River TV Station and Kunming
TV Station are collectively referred to as the “PRC TV
Stations”). ANT holds 50% equity interest in the Kunming JV and
Taiyuan JV, respectively, and Kunming TV Station and China Yellow River TV
Station own the remaining 50% of the respective JV Tech Cos. Under
the terms of the Kunming JV agreement, Kunming TV Station will contribute
certain assets with a fair value of RMB150 million (approximately $21,900,000)
and ANT will contribute an equal amount in cash. Kunming TV Station
and ANT have contributed 100% and 50%, respectively, of their obligations under
this agreement at September 30, 2008. Under the terms of
the Taiyuan JV agreement, China Yellow River TV Station will contribute certain
assets with a fair value of RMB45 million (approximately $6,600,000) and ANT
will contribute an equal amount in cash. China Yellow River TV
Station and ANT have contributed 100% and 40%, respectively, of their
obligations under this agreement at September 30, 2008.
In
August 2008, Beijing Guangwang Hetong Advertising & Media Co.,
Ltd.(“Hetong”), the trustee company, established two domestic advertising
companies with Kunming TV Station and China Yellow River TV Station, under the
respective name of Kunming Kaishi Advertising Co., Ltd. (“Kunming Ad Co.”) and
Taiyuan Guangwang Hetong Advertising Co., Ltd. (“Taiyuan Ad Co.”) (Kunming Ad
Co. and Taiyuan Ad Co. are collectively referred to as the “JV Ad Cos”). Hetong
is 100% owned by two PRC nationals, who are the trustees.
In
order to comply with current PRC laws limiting foreign ownership in the
television advertising industry, China Networks Media’s operations are conducted
through direct ownership of ANT and through contractual arrangements with
Hetong. China Networks Media does not have an equity interest in Hetong, but
instead derives indirect economic benefits from Hetong through a series of
contractual arrangements. Through these arrangements, ANT controls
Hetong, which in turn owns 50% of Kunming Ad Cos, and 50% of Taiyuan Ad Co.
established with PRC TV Stations. The JV Tech Cos collect the television
advertising revenue earned by the JV Ad Cos pursuant to the Exclusive Services
Agreement described below, using assets transferred from PRC TV Stations to the
JV Tech Cos pursuant to the Asset Transfer Agreement described
below.
China
Networks Media's accounts include the accounts of its joint-ventures with the
PRC TV Stations, the JV Tech Cos, as a result of China Networks Media’s
effective control of these entities. As a result of several contractual
arrangements with Hetong and its shareholders, China Networks Media controls and
is considered the primary beneficiary of Hetong, and, accordingly, consolidates
the accounts of Hetong in its financial statements. Hetong is a variable
interest entity (“VIE”) as defined by Financial Accounting
Standards Board Interpretation No. 46(R): Consolidation
of Variable Interest Entities, an interpretation of ARB 51 (‘‘FIN 46R’’).
Asset Transfer
Agreement. Pursuant to the Asset Transfer
Agreement entered into between each of the JV Tech Cos and the corresponding PRC
TV Stations, respectively, the PRC TV Stations must transfer to the relevant JV
Tech Cos the assets of the PRC TV Stations in two installments which have been
appraised and the JV Tech Cos are obligated to pay the full consideration to PRC
TV Stations in two installments accordingly. The assets relate to the
advertising business operated by the PRC TV Stations, including, but not limited
to, tangible and intangible assets. Until the assets are delivered to the JV
Tech Cos, PRC TV Stations are responsible for their custody and
maintenance. Following delivery of the assets, the PRC TV Stations
will be entitled to continue using the assets for the purpose of the advertising
business for no consideration other than liability for loss or
damage.
103
Kunming
TV Station and Kunming JV entered into an Asset Transfer Agreement on
August 11, 2008, under which Kunming TV Station will transfer certain of its
assets to Kunming JV, valued at RMB150 million, and Kunming JV will pay the same
to Kunming TV Station. China Yellow River TV Station and Shanxi Yellow River and
Advertising Networks Cartoon Technology Co., Ltd. (“Taiyuan JV”) also entered
into such Asset Transfer Agreement on July 17, 2008, under which China Yellow
River TV Station will transfer certain of its assets, valued at RMB45 million,
to Taiyuan JV, and the same consideration will be paid by Taiyuan JV. All
governmental, statutory and other approvals required for the transfer of these
assets were obtained as of the date of the first transfer in August
2008. At September 30, 2008, Taiyuan JV paid China Yellow River TV
Station RMB18 million (approximately $2,600,000) for certain assets under the
Asset Transfer Agreement. No assets were purchased under the Asset
Transfer Agreement as of September 30, 2008.
Exclusive Cooperation
Agreement. Pursuant to the Exclusive Cooperation
Agreement between the JV Tech Cos and the PRC TV Stations, the PRC TV Stations
have exclusively and irrevocably granted to the JV Tech Cos the right to carry
out advertising operations on its channels, and to provide to the JV Tech Cos
all necessary and relevant support, as well as most-favored terms for the
conduct of the advertising business. The JV Tech Cos share their resources with
the PRC TV Stations, including, but not limited to, all client information (e.g.
databases). Under the terms of this agreement, the PRC TV Stations will not
engage any other party in any similar agreements. As such, the JV Tech Cos have
the exclusive right to carry out advertising business on PRC TV Stations’
channels.
Kunming
JV and Kunming TV Station entered into such Exclusive Cooperation Agreement on
August 6, 2008, while Taiyuan JV and China Yellow River TV Station entered into
such Exclusive Cooperation agreement on July 17, 2008.
Exclusive Services
Agreement. Pursuant to the Exclusive Services
Agreement between the JV Tech Cos and the JV Ad Cos, the JV Tech Cos will be the
sole and exclusive provider of services to JV Ad Cos relating to technical
support for the production of advertising and advertising consulting. In
addition, the JV Ad Cos will be the sole and exclusive advertising agent to the
JV Tech Cos and the JV tech Cos will grant to the Ad Co. agency rights for all
advertising under the exclusive right to carry out advertising operations. Under
the terms of the Exclusive Services Agreement, the Ad Co. will pay the service
fee to the JV Tech Cos as accrued, in accordance with the JV Tech Cos’ regular
invoices. As such, all of the Ad Co.’s pre-tax revenue (less the relevant
business tax) generated during the term of this agreement and relating to the
marketing of advertising and other operations will be transferred to the JV Tech
Cos as the service fee and the JV Tech Cos’ foreign shareholder will be entitled
to transfer 50% of the profit to an offshore holding company under this
contractual arrangement.
Kunming
JV and Kunming Ad Co. entered into an Exclusive Services Agreement on August 6,
2008, while Taiyuan Advertising Networks Advertising Co., Ltd (“Taiyuan Ad Co.”)
and Taiyuan JV entered into an Exclusive Services Agreement on July 17,
2008.
China
Networks Media revenue sources and costs and expenses
Revenues
Upon
commencement of the JV Tech Cos’ operations, China Networks Media will earn
substantially all of their revenues from advertising service
income.
|
|
·
|
Sale of advertising time-slots. Through
the JV Tech Cos, China Networks Media will derive a substantial majority
of its revenue from selling advertising time slots to advertising agencies
and advertisers. Advertising agencies account for more than 60% of total
customers, and such percentage is expected to increase gradually in the
future. Advertising customers typically pay a deposit before
the relevant advertisements are broadcast, and the balance is paid monthly
or immediately after broadcast. Certain key customers with good track
records of payment are allowed to make payments two months after
broadcast. Revenues are recognized when advertisements are actually
broadcast.
|
104
|
|
·
|
Sale of program-related advertising
services. A small portion of revenues are generated from
advertising opportunities relating to programs produced by the PRC TV
Stations themselves. These include, without limitation, program
sponsorship ‘sting’ slots, in-program product placements and other ‘soft’
advertising opportunities, as well as revenue from value-added services,
such as short message service, messages relating to program content. These
represented approximately 2.9 %, 6.9%, 6.3%, and 6.2%, of our total
revenues for the years ended 2005, 2006, 2007 and for the nine months
ended September 30, 2008,
respectively.
|
The
tables below sets forth the breakdown of revenue sources for the periods
indicated based on the Kunming Television Station – Advertising Center and the
Yellow River Television Station – Advertising Center combined historical
carve-out financial information:
|
Year Ended December 31,
|
||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
||||||||||||||||||||||
|
Amount
|
% of
Total
Revenues
|
Amount
|
% of
Total
Revenues
|
Amount
|
% of
Total
Revenues
|
|||||||||||||||||||
|
($)
|
($)
|
($)
|
||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||
|
advertising
time-slots
|
15,081,218 | 97.1 | % | 15,214,422 | 93.1 | % | 19,372,649 | 93.7 | % | |||||||||||||||
|
program-related
advertising services
|
447,239 | 2.9 | % | 1,136,216 | 6.9 | % | 1,311,406 | 6.3 | % | |||||||||||||||
|
Total
revenues
|
15,528,457 | 100.0 | % | 16,350,638 | 100.0 | % | 20,684,055 | 100.0 | % | |||||||||||||||
|
Less:
business tax
|
1,122,206 | 7.2 | % | 1,199,132 | 7.3 | % | 1,696,906 | 8.2 | % | |||||||||||||||
|
Total
net revenues
|
14,406,251 | 92.8 | % | 15,151506 | 92.7 | % | 18,987,149 | 91.8 | % | |||||||||||||||
105
|
Nine Months Ended September 30,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Amount
|
% of
Total
Revenues
|
Amount
|
% of
Total
Revenues
|
|||||||||||||
|
($)
|
($)
|
|||||||||||||||
|
Revenues:
|
||||||||||||||||
|
advertising
time-slots
|
14,348,817 | 93.7 | % | 13,124,600 | 93.8 | % | ||||||||||
|
program-related
advertising services
|
969,208 | 6.3 | % | 870,227 | 6.2 | % | ||||||||||
|
Total
revenues
|
15,318,025 | 100.0 | % | 13,994,827 | 100.0 | % | ||||||||||
|
Less:
sales tax
|
1,255,188 | 8.2 | % | 1,129,634 | 8.1 | % | ||||||||||
|
Total
net revenues
|
14,062,837 | 91.8 | % | 12,865,193 | 91.9 | % | ||||||||||
106
Operating
Costs and Expenses
The
following table sets forth operating costs and expenses for the periods
indicated, both in absolute amounts and as percentages of net
revenues:
|
Year Ended December 31,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||||||||||||||
|
2005
|
2006
|
2007
|
2007
|
2008
|
||||||||||||||||||||||||||||||||||||
|
Amount
|
% of
Net
Revenues
|
Amount
|
% of
Net
Revenues
|
Amount
|
% of
Net
Revenues
|
Amount
|
% of
Net
Revenues
|
Amount
|
% of
Net
Revenues
|
|||||||||||||||||||||||||||||||
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||||||||||||||||||||||
|
Cost
of revenues
|
1,925,034 | 17.3 | % | 3,757,422 | 24.8 | % | 4,844,541 | 25.5 | % | 3,653,174 | 26.0 | % | 4,584,533 | 35.6 | % | |||||||||||||||||||||||||
|
Sales
and marketing expenses
|
153,944 | 1.1 | % | 228,589 | 1.5 | % | 318,928 | 1.7 | % | 254,655 | 1.8 | % | 481,681 | 3.7 | % | |||||||||||||||||||||||||
|
General
and administrative expenses
|
1,222,355 | 8.5 | % | 1,378,675 | 9.1 | % | 1,394,003 | 7.3 | % | 973,353 | 6.9 | % | 1,329,563 | 10.3 | % | |||||||||||||||||||||||||
|
Total
operating costs and expenses
|
3,301,333 | 22.9 | % | 5,364,686 | 35.4 | % | 6,557,472 | 34.5 | % | 4,881,182 | 34.7 | % | 6,395,777 | 49.7 | % | |||||||||||||||||||||||||
Cost of Revenues. Cost of Revenues
is primarily comprised of purchased TV program costs, rental fees for equipment
used in generating advertising revenue and commissions paid to advertising
agents. Cost of purchasing programs is expected to increase over time as China
Networks Media plans to coordinate with the PRC TV Stations to acquire a greater
number of high quality programs to increase audience rate and advertisers
demand.
107
Selling Expenses. Selling and
marketing expenses have not been significant to the operations of the PRC TV
Stations because they previously functioned as a public utility in the PRC,
which had not been a priority for them. It anticipates that under its
management, these expenses will increase in order to ensure that its operations
remain competitive. However, they will not become significant as they are
primarily comprised of sales promotion, program promotion expenses and
entertainment expenses directly related to sales and marketing activities. The
major cost of acquiring advertising space on other media, such as radio and
newspaper, is covered through barter arrangements.
General and Administrative
Expenses. General and administrative expenses include salaries
and benefits for China Networks Media’s employees, including the advertising
sales force. General and administrative expenses also include costs and expenses
associated with office, utilities, transportation, travel and other costs. They
also include office rental and property and plant leasing. It expects general
and administrative expenses to increase as it expands its sales force. In
connection with China Networks Media’s transition to a public company,
post-consummation of the business combination, it expects to incur incremental
general and administrative expenses, including full-time employees related to
legal, accounting and SEC reporting and other costs associated with regulatory
filings, which are estimated to exceed $400,000 on an annualized
basis.
Revenue
and product offering trends affecting the JV Tech Cos.
Currently,
substantially all of the JV Tech Cos’ revenues are generated from sales of
advertising time-slots. However, China Networks Media expects revenues over the
next five years to increase as a result of the following:
Price
increase for sales of advertising times-slots: Increased price of advertising by
leveraging multi-territory network to capture additional national advertising
sales, as well as improved efficiency of local advertising sales
force;
Expanded
advertising services: Expand full-service offer to local advertisers offering
media planning and creative services, such as advertising production, which will
generate additional revenues, as well as higher volumes of local
advertising;
Programming:
Leverage buying power to coordinate the acquisition of programming from local
and international content owners to the stations in its network, as well as the
development of additional channel and/or programming options, such as home
shopping, improving audience size and generating additional advisory and other
revenues.
Overview
of historical financial information presented
China
Networks Media’s operating activities from March 30, 2007 (inception date)
to September 30, 2008, were limited and related to its formation, and
professional fees and expenses associated with its acquisition activities.
Through September 30, 2008, its historical results of operations were
insignificant and not reflective of the results of operations it anticipates
following the partnership operation with the JV Tech Cos. As a result, the
following historical results of operations and financial operations related to
its recently completed joint venture with the PRC TV Stations have been provided
to assist investors in evaluating the historical performance of this business,
in addition to its other activities:
108
|
|
·
|
China
Networks Media for the period from March 30, 2007 (inception) to the nine
months ended September 30,
2008;
|
|
|
·
|
Kunming
Television Station – Advertising Center and Yellow River Television
Station – Advertising Center for the nine months ended September 30,
2008 as compared to the nine months ended September 30,
2007;
|
|
|
·
|
Kunming
Television Station – Advertising Center and Yellow River Television
Station – Advertising Center for the year ended December 31, 2007
compared to the year ended December 31, 2006;
and
|
|
|
·
|
Kunming
Television Station – Advertising Center and Yellow River Television
Station – Advertising Center for the year ended December 31, 2006
compared to the year ended December 31,
2005.
|
Significant
Accounting Policies and Estimates
China Networks Media, a
Development Stage Enterprise
Valuation of long-lived assets.
China Networks Media periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner, except
that fair market values are reduced for the cost to dispose.
Income taxes. China Networks
Media was originally incorporated in the Cayman Islands and subsequently
reincorporated in the British Virgin Islands (“BVI”). China Networks Media is
not subject to income taxes under the current laws of the Cayman Islands or BVI.
PRC entities will be subject to the PRC Enterprise Income tax at the applicable
rates on taxable income at the commencement of operations.
Use of estimates. The
preparation of China Networks Media’s financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Recently
Issued Accounting Pronouncements
During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115 (“SFAS 159”), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. China Networks Media adopted SFAS 159 on January 1, 2008 and has
elected not to measure any additional financial assets, liabilities or other
items at fair value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. This statement is effective for China
Networks Media beginning January 1, 2009 and will change the accounting for
business combinations on a prospective basis. The potential Business Combination
described above will be accounted for in accordance with SFAS
141R.
109
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. This statement is effective for the Company
beginning January 1, 2009. China Networks Media is currently assessing the
potential effect of SFAS 160 on its financial statements.
In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which is effective January 1,
2009. SFAS 161 requires enhanced disclosures about derivative instruments and
hedging activities to allow for a better understanding of their effects on an
entity’s financial position, financial performance, and cash flows. Among other
things, SFAS 161 requires disclosures of the fair values of derivative
instruments and associated gains and losses in a tabular formant. SFAS 161 is
not currently applicable to China Networks Media since it does not have
derivative instruments or hedging activity.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting
Principles (“FAS 162”). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs the hierarchy to the entity, rather than the independent auditors, as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board amendments to remove the hierarchy of
generally accepted accounting principles from the auditing standards. FAS 162 is
not expected to have an impact on the financial statements.
In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. This Staff Position is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. This FSP is not currently
applicable to China Networks Media.
110
In
June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities.
This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. China Networks Media does
not currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on China Networks Media’s financial reporting.
In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
(“FSP 14-1”). FSP 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008. The FSP includes guidance
that convertible debt instruments that may be settled in cash upon conversion
should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest costs are recognized in
subsequent periods. FSP 14-1 is not currently applicable to China Networks Media
since it does not have convertible debt.
China Networks Media –
Kunming Television Station – advertising Center
and Yellow River Television Station – advertising Center
China
Networks Media’s discussion and analysis of its financial condition and results
of operations are based upon its consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles
(‘‘GAAP’’) in the United States. The preparation of these financial statements
requires China Networks Media to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. China Networks Media evaluates
its estimates on an on-going basis based on historical experience and on various
other assumptions it believes are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
China
Networks Media believes the following critical accounting policies affect its
significant judgments and estimates used in the preparation of its financial
statements.
Revenue
Recognition. China Networks Media typically signs standard
advertising contracts with advertising clients, which require it to run the
advertiser’s advertisements on the PRC TV Stations’ network for a specified
period. The advertising customers typically pay a deposit before the relevant
advertisements are broadcast, and the balance is paid after
broadcast. Customer deposits received prior to the broadcast of
advertisements are recorded as receipts in advance and recorded as revenue upon
the broadcast of advertisements.
Advertising
service revenues are recognized when all four of the following criteria are met:
(i) persuasive evidence of agreement exists; (ii) delivery of service has
occurred; (iii) the price is both fixed and determinable; and (iv) collection of
the resulting receivable is reasonably assured. Revenues are recognized when
advertisements are broadcast. Provision for discounts and estimated
returns and allowances are provided for in the same period the related revenue
is recorded. No discount has been provided for the periods ended September 30,
2008 and 2007.
Sales Tax. Revenues
from services are subject to the PRC business tax of 5%, cultural levies of 3%
and some surcharges. Business tax, cultural levies and surcharges are paid on
gross revenues generated from advertising services. In addition, under the PRC
regulations, China Networks Media is required to pay the city construction tax
(7%), education surcharges (3%), price governing fund (2%), and river management
fee (1%) based on the calculated business tax payments. China
Networks Media had complied with EITF 06-3 and reports their revenues net of
PRC’s business tax and surcharges for all the periods presented in the
statements of operations.
111
Accounts
Receivable. Accounts receivable is stated net of trade
discounts and allowance for doubtful accounts. China Networks Media
provides an allowance for doubtful accounts based upon prior experience and
management's assessment of the collectibility of specific accounts. As of
September 30, 2008 and December 31, 2007, China Networks Media considered all
accounts receivable collectable and therefore did not record an allowance for
doubtful accounts.
Cost of Revenue. Cost of
revenue is primarily comprised of purchased TV program costs, rental fees for
equipment used in generating advertising revenue and commissions paid to
advertising agents.
Sales, General and Administrative
Expenses. Historical allocation of all the expenses related to
the business being carved-out has not been possible due to the fact that many
expenses, incurred at the corporate level, are shared and relate to the entire
company. In these circumstances, the proportional cost allocation
method has been used for allocating these shared expenses. Management
is of the opinion that the expenses allocated are not materially different from
expenses that would be incurred by the business on a stand-alone
basis.
Foreign Currency
Translation. China Networks Media’s functional currency is
Renminbi (“RMB”); however, the reporting currency is the United States
dollar. Reported assets and liabilities of China Networks Media has
been translated using the exchange rate at the balance sheet date. The average
exchange rate for the period has been used to translate revenues and
expenses. Foreign currency translation differences are included as a
component of Accumulated Other Comprehensive Income.
Use of
Estimates. The preparation of the combined financial
information in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. These estimates are based
on management's best knowledge of current events and actions that the China
Networks Media may take in the future. Actual results could differ from these
estimates.
Concentrations of Credit
Risk. Financial instruments of China Networks Media that
potentially expose to concentrations of credit risk consist principally of
accounts and others receivables.
Results
of Operations of China Networks Media, Limited
The
following table summarizes the accounts of China Networks Media, its wholly
owned subsidiary, Advertising Networks Ltd. (“ANT”), variable interest entities
(“VIEs”), Kunming Taishi Information Cartoon Co., Ltd (“Kunming JV”), Shanxi
Yellow River and Advertising Networks Cartoon Technology Co., Ltd (“Taiyuan
JV”), and Beijing Guangwang Hetong Advertising and Media Co., Ltd. (“Hetong”)
result of operations from March 30, 2007 (Inception) to the nine months ended
September 30, 2008:
112
|
Period
from
|
Period
from
|
|||||||||||
|
For
the
|
March
30, 2007
|
March
30, 2007
|
||||||||||
|
nine
months ended
|
(Inception)
to
|
(Inception)
to
|
||||||||||
|
September
30, 2008
|
September
30, 2007
|
September
30, 2008
|
||||||||||
|
NET
REVENUE
|
$
|
- |
$
|
- |
$
|
- | ||||||
|
OPERATING
EXPENSES
|
||||||||||||
|
General
and administrative expenses
|
1,711,927 | 16,189 | 1,743,147 | |||||||||
| 1,711,927 | 16,189 | 1,743,147 | ||||||||||
|
LOSS
FROM OPERATIONS
|
(1,711,927 | ) | (16,189 | ) | (1,743,147 | ) | ||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
|
Other
income
|
7,352 | - | 7,352 | |||||||||
|
Interest
expense
|
(1,303,354 | ) | - | (1,303,354 | ) | |||||||
|
Interest
income
|
83,510 | - | 83,510 | |||||||||
| (1,212,492 | ) | - | (1,212,492 | ) | ||||||||
|
NET
LOSS BEFORE NON-CONTROLLING INTEREST
|
(2,924,419 | ) | (16,189 | ) | (2,955,639 | ) | ||||||
|
NON-CONTROLLING
INTEREST
|
(11,835 | ) | - | (11,835 | ) | |||||||
|
NET
LOSS
|
$
|
(2,936,254 | ) |
$
|
(16,189 | ) |
$
|
(2,967,474 | ) | |||
113
Net
revenue. China Networks Media is a development stage enterprise. As
of September 30, 2008, it had not yet commenced any operations nor generated
revenue.
Operating expenses. All operating
expenses are general and administrative expenses which are related to China
Networks Media’s formation, private placement offering, establishment of joint
ventures and contractual relationships in the PRC, and potential business
combination with Alyst.
Income
tax expense. China Networks Media was originally incorporated in the
Cayman Islands and subsequently continued into the British Virgin Islands
(“BVI”) as a BVI Business Company. China Networks Media is not
subject to income taxes under the current laws of the Cayman Islands or BVI. PRC
entities will be subject to the PRC Enterprise Income tax at the applicable
rates on taxable income at the commencement of operations.
The
following table summarizes the results of operations of the Kunming Television
Station – Advertising Center and the Yellow River Television Station –
Advertising Center:
Nine
Months Ended
September
30, 2008 Compared to
Nine
Months Ended September 30, 2007
Results
of Operations of the Kunming Television Station – Advertising Center and the
Yellow River Television Station – Advertising Center
|
For
the nine months ended September 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Unaudited
|
Unaudited
|
|||||||
|
Net
revenue
|
$
|
13,994,827 |
$
|
15,318,025 | ||||
|
Sales
Tax
|
(1,129,634 | ) | (1,255,188 | ) | ||||
|
Cost
of Revenues
|
(4,584,533 | ) | (3,653,174 | ) | ||||
|
Gross
Profit
|
8,280,660 | 10,409,663 | ||||||
|
Selling,
General and Administrative Expenses
|
1,811,244 | 1,228,008 | ||||||
|
Income
before Income Taxes
|
6,469,416 | 9,181,655 | ||||||
|
Income
Taxes
|
- | - | ||||||
|
Net
Income
|
$
|
6,469,416 |
$
|
9,181,655 | ||||
114
Net
revenue. The net revenue for the nine months ended September 30, 2008 were
$12,865,193, a decrease of $1,197,644 or approximately 8%, from $14,062,837 for
the nine months ended September 30, 2007. Substantially all of the revenues are
earned from advertising income, which is composed of sale of advertising
times-slots and sales of program-related advertising. The
amount in excess of 93% of revenues represent sales of advertising times-slots,
which decreased $1,224,217 or approximately 8.5% for the nine months ended
September 30, 2008. The decrease was primarily incurred in the second and third
quarter of 2008 caused by the Sichuan Province earthquake in May and the Beijing
Olympic and Paralympic Games from August to September. After the earthquake, no
advertisements were permitted to be broadcast nationwide from May 19, 2008 to
May 21, 2008. For a one-month period subsequent to such ban,
advertising time slots were then reserved for earthquake news updates by
government mandates, which caused approximately $ 0.4 million loss in sales. In
the third quarter of 2008, audience rates of local TV stations dropped sharply
because of the Beijing Olympic Games, As a result, local advertisers reduced
their advertisements in local TV stations. Meanwhile, local advertisers
postponed their plan to advertise to avoid competition with Olympic sponsors.
These two reasons resulted in approximately $ 0.6 million loss in sales in the
third quarter of 2008. Additionally, the Bureau of Industry and Commerce
restricted the broadcast of medical advertisements which related to, among other
things, cosmetic surgery and slimming products from end of May 2008 to October
2008.
Cost
of revenues. The cost of revenues for the nine months ended September 30, 2008
was $4,584,533, an increase of $931,359 or approximately 25.5%, from $3,653,174
for the nine months ended September 30, 2007.
Cost
of revenues for the nine months ended September 30, 2008 are from approximately
$3,417,085 in purchased TV program costs, approximately $71,540 in the rental
fee for equipment used in generating advertising revenue, and approximately
$1,095,909 of paid commission.
The
increase in cost of revenues was primarily attributable to an increase of
approximately $567,926 or 19.9 % in programs purchase costs, which was 15%
higher per unit than fiscal year 2007. The PRC TV Stations paid much more for
the high quality drama series due to the intense competition among provincial TV
stations and city TV stations, as well as the increase of production costs of
drama series. Additionally, there was an increase of $327,447 or 42.6%, in
commission paid to agents for the nine months ended September 30,
2008.
115
Gross
profit. The gross profit for the nine months ended September 30, 2008
was $8,280,660, a decrease of $ 2,129,003 or 20.4%, from $10,409,663 for the
nine months ended September 30, 2007. The gross margin was 59.2% for the nine
months ended September 30, 2008, compared to 68.0% for the nine months ended
September 30, 2007.
The
significant impact on gross margin is associated with the modest decrease of
revenues from the PRC TV stations and the increase in cost of revenues
including the increased amount of purchased TV program costs as described
above.
Selling
expenses. The selling expenses for the nine months ended September
30, 2008 were $481,681, an increase of $227,026 or 89.2%, from $254,655 for the
nine months ended September 30, 2007.
Selling
expenses are primarily comprised of sales promotion, program promotion expenses
and entertainment expenses directly related to sales and marketing activities.
The increase was primarily attributable to the promotion for television drama
series held at local PRC TV stations, which invited well-known film stars to
participate.
General
and administrative expenses. General and administrative expenses for the nine
months ended September 30, 2008 was $1,329,563, an increase of $356,210 or
36.6%, from $973,353 for the nine months ended June 30, 2007.
The
increase was mainly due to increase of approximately $122,236 in the benefit and
bonus for part-time employees and sales person as a result of the newly enacted
labor law effective on January 1, 2008 requiring companies to pay for employees’
social insurance.
Net
income. Net income for the nine months ended September 30, 2008 was
$6,469,416, a decrease of $2,712,239 or 29.7%, from $9,181,655 for the nine
months ended September 30, 2007.
The
decrease in net income was primarily due to the large increase of cost of
revenue plus the increase in general and administrative expense, along with
decrease of revenue as described above.
Year
Ended December 31, 2007 Compared to
Year
Ended December 31, 2006
Results
of Operations of PRC TV Stations
Net
revenue. The net revenue for the year ended
December 31, 2007 were approximately $18,987,149, an increase of
$3,835,643 or approximately 25.3%, from approximately $15,151,506 for the year
ended December 31, 2006.
Substantially
all of the revenue is earned from advertising income, which is composed of
sales of advertising times-slots and sales of program-related advertising. In
excess of 93% of revenues represent sale of advertising times-slots, which
mainly contributed to the increase in revenues. The increase in revenues was
primarily driven by an increase in the total advertising times-slots sold by
China Networks Media. The increase in the total advertising time slots sold by
China Networks Media resulted primarily from an increase in the number of
advertising customers and an increase in the unit price of the advertising
times-slots by approximately 15% compared to the year ended December 31,
2006.
116
Cost
of revenue. Cost of revenue for the year ended December 31,
2007 were $4,844,541, an increase of $1,087,119 or 28.9%, from $3,757,422 for
the year ended December 31, 2006.
Cost
of revenue for the year ended December 31, 2007 included purchased TV
program costs of $3,856,322, the rental fee for equipment used in generating
advertising revenue of $50,171, and the commissions of
$900,228.
The
increase in cost of revenue was primarily attributable to an increase of
approximately $621,605 or 22.5 % in program purchase costs. The PRC TV
Stations paid significantly more for high quality drama series due to increased
competition among provincial TV stations and city TV stations, as well as the
increase of production costs of drama series. Additionally, the increase in cost
of revenues was also attributable to an increase in the commissions of $610,399
for the fiscal year 2007 compared with fiscal year 2006 which was attributable to an
increase in the number of customers and the total advertising
times-slots.
Gross
profit. The gross profit for the year ended December 31, 2007
was $14,142,608, an increase of $2,748,524 or 24.1%, from $11,394,084 for the
year ended December 31, 2006. The gross margin was 68.4% for the year ended
December 31, 2007 compared to 69.7% for the year ended December
31, 2006.
The
increase in gross profit is primarily due to an increase in revenues of
$3,835,643 as described above combined with a modest increase in cost of
revenues of $1,087,119 as described above, resulting in no significant change in
gross margin for the fiscal year 2007 compared to fiscal year
2006.
Selling
expenses. The selling expenses for the year ended December 31, 2007
were $318,927, an increase of $90,338 or 39.5%, from $228,589 for the year ended
December 31, 2006.
The
increase was primarily attributable to the increased expenses in brand
promotion, marketing and offline activates in order to occupy more local
advertisement market.
General
and administrative expenses. General and administrative expenses for the year
ended December 31, 2007 were $1,394,004, an increase of $15,328 or 1.1%, from
$1,378,675 for the year ended December 31, 2006.
The
slight increase was mainly due to improvement in the control of office expenses
and due to the fact that the Company did not hire additional administrative
staff.
Net
income. Net income for the year ended December 31, 2007 was $12,458,479, an
increase of $2,569,398 or 26.0%, from $9,889,081 for the year ended December 31,
2006. The increase in net income was due to increased revenue, while costs were
controlled and expenses were maintained at a reasonable level as described
above.
117
Year
Ended December 31, 2006 Compared to
Year
Ended December 31, 2005
Results
of Operations
Net
revenue. The net revenue for the year ended December 31, 2006
was $15,151,506, which increased $745,255 or 5.2%, compared to $14,406,251 for
the year ended December 31, 2005.
The
revenues were composed of advertising times-slots and program-related
advertising services. In excess of 93% of revenues represent sales of
advertising times-slots.
The increase in revenues was primarily
driven by an increase in the revenues from program-related advertising service.
Our revenues from program-related advertising service for the year ended
December 31, 2006 was $1,136,216, increased $688,977 or 154% compared to $447,239 for the
year ended December 31, 2005. The increase was mainly due to an increase in the
customers of program-related advertising service which was incurred by improved
quality of the programs.
Cost
of revenues. Cost of revenues for the year ended December 31, 2006 was
$3,757,422, an increase of $1,832,388 or 95.2%, from $1,925,034 for the year
ended December 31, 2005.
Cost
of revenues for the year ended December 31, 2006 included purchased TV
program costs of $3,408,749, the rental fee for equipment used in generating
advertising revenue of $30,701, and the commissions of
$289,829.
The
dramatic increase in cost of revenues was primarily attributable to increased
costs of purchased TV program of $1,546,882 which was incurred by an increase in
television programs costs compared to 2006, and increased commissions of the
$289,830 which was driven by an increase in the total advertising times-slots
sold.
Gross
profit. The gross profit for the year ended December 31, 2006 was $11,394,084,
which decreased $1,087,133 or 9.5% compared to $12,481,217 for the year ended
December 31, 2005. Gross margin decreased to 69.7% for the fiscal year 2006 from
80.4% for the fiscal year 2005. This decrease was mainly due to an increase in
the cost of revenue of $1,832,388 or 95.2% in fiscal year 2006 compared with
fiscal year 2005.
Selling
expenses. The selling expenses for the year ended December 31, 2006 were
$228,589, an increase of $74,645 or 48.5%, from $153,944 for the year ended
December 31, 2005. The significant increase in the selling expenses was
primarily attributable to the increased expenses of promotion and marketing
activities.
General
and administrative expenses. The general and administrative expenses for the
year ended December 31, 2006 was $1,378,675, an increase of $156,320 or 12.8%,
from $1,222,355 for the year ended December 31, 2005.
The
increase in general and administrative expenses was primarily attributable to
increased salaries which was mainly incurred by an increase in headcount,
accounting for an increase by 7%, increased office administration fee of 5% and
increased expenses in staff training and traveling of 2%.
118
Net
income. The net income for the year ended December 31, 2006 was
$9,889,081, a decrease of $1,226,174 or 12.4%, from $11,115,255 for the year
ended December 31, 2005. The decrease in net income was due primarily to the
significant increase in expenses and cost alongside a decrease in revenues as
described above.
Liquidity
and Capital Resources
As of
September 30, 2008 and December 31, 2007, China Networks Media had cash and cash
equivalents in the amount of $22,603,740 and $28,670.
Historically,
China Networks Media had two shareholders who funded its operation, including
advances related to its formation as well as professional fees and expenses
associated with its acquisition activities. On July 21, 2008, China Networks
Media completed a debt and equity bridge financing as described below to finance
the initial payments for its paid-in capital to Taiyuan JV and Kunming
JV.
Assuming
the merger between Alyst and China Networks Media is consummated, China Networks
Media will have cash and cash equivalents of approximately $64.3
million.
China
Networks Media management has determined the following financing strategies
to pay its obligations due under the bridge financing and the second payment for
its paid-in capital to the Taiyuan JV and Kunming JV:
|
|
§
|
Approximately
$4 million (RMB27,000,000) of the second payment for the paid-in capital
to the Taiyuan JV which is due by March 31,
2009.
|
|
|
§
|
Approximately
$ 11 million (RMB 75,000,000) of the second payment for the paid-in
capital to the Kunming JV which is due by September 30,
2009.
|
|
|
§
|
$19.11
million due immediately following exercise of Alyst’s warrants pursuant to
the Merger Agreement.
|
|
|
§
|
Assuming
the merger between Alyst and China Networks Media is consummated, $28
million related to equity bridge financing plus accrued interests are due
10 days following the consummation of the Business
Combination
|
|
|
§
|
If
the merger between Alyst and China Networks Media is not consummated by
March 31, 2009, $14 million related to equity bridge financing plus
accrued interests are due 18 months from the issuance of the
promissory notes and the remaining $14 million related to equity bridge
financing plus accrued interests are due 36 months from the issuance
of the promissory notes.
|
China
Networks Media believes that its cash and cash equivalents balance, together
with its access to financing sources, will be sufficient to meet the working
capital, capital expenditure and debt obligations associated with its current
operations on an ongoing basis, although that cannot be assured. However, it is
possible that its cash requirement could increase beyond current forecasts as a
result of a number of factors, including the use of cash for the formation of
joint venture to run its advertisement business to accelerate its rate of
growth.
119
Debt and equity bridge
financing. On July 21, 2008, China Networks Media issued an aggregate of
$27,990,200 in promissory notes and 980,000 class A preferred shares, with a par
value of $0.0001 to 27 investors in exchange for proceeds of $28,000,000. Each
share of preferred stock is convertible into one share of China Networks Media’s
common stock. The use of proceeds of the financing was as follows:
(a) $13.6 million was used for initial equity contributions due from ANT for the
JV Tech Cos (b) a fee of $980,000 paid to Chardan, as a placement fee for the
financing, and (c) the remaining proceeds are being used for working capital,
including payment of certain administrative, legal and accounting fees. The
promissory notes are secured by a pledge of 50.1% of the outstanding common
stock of China Networks Media.
Assuming
the merger between Alyst and China Networks Media is consummated, all principal
outstanding plus accrued interest is due 10 days following the consummation of
the Business Combination. If the merger between Alyst and China
Networks Media is not consummated by March 31, 2009, one-half of the principal
outstanding plus accrued interest is due 18 months from the issuance of the
promissory notes and the remaining one-half of the principal outstanding plus
accrued interest is due 36 months from the issuance of the promissory
notes.
China
Networks Media’s management has determined that the fair value of the 980,000
class A preferred stock on the issuance date is $5.27 per share, calculated
using the Black-Scholes valuation model and the following assumptions: expected
life of 30 years; volatility of 25%; risk free interest rate of 0%; common stock
price of China Networks Media of $5.28 per share on grant date. Using the
relative fair value method, China Networks Media allocated $23,641,059 of the
gross proceeds to the promissory notes and $4,358,941 to class A preferred
stock. Each share of class A preferred stock has the right to receive
a cash amount equal to $7.143 plus deferred cash payments contingent upon the
achievement of future net income. The face amount of the promissory notes of
$27,990,200 was reduced by debt discount of $4,358,941, resulting in an initial
carrying value of $23,641,059. China Networks Media estimated that the life of
these promissory notes will be approximately 18 months with the expectation that
the contemplated merger between China Networks Media and Alyst will be approved
by the stockholders of Alyst before January, 2010. With such estimated life of
the bridge loan, China Networks Media adopted the effective interest rate method
to amortize the debt discount over the 18-month period and an effective monthly
rate of 1.49%.
Anticipated partnership
program. In the future, China Networks Media may partner with additional
television networks utilizing the cash obtained from Alyst’s trust fund and
other sources if available on acceptable terms.
Quantitative
and Qualitative Disclosures about Market Risk
Substantially
all of China Networks Media’s revenues and expenses are denominated in Renminbi,
but a substantial portion of its cash is kept in U.S. dollars. Although China
Networks Media believes that, in general, its exposure to foreign exchange risks
should be limited, its cash flows and revenues will be affected by the foreign
exchange rate between U.S. dollars and Renminbi. It is possible that the Chinese
government may elect to loosen further its current controls over the extent to
which the Renminbi is allowed to fluctuate in value in relation to foreign
currencies. China Networks Media’s business and the price of its
ordinary shares could be negatively affected by a revaluation of the Renminbi
against the U.S. dollar or by other fluctuations in prevailing Renminbi-U.S.
dollar exchange rates. For example, to the extent that China Networks Media need
to convert funds expected to be released from the Alyst trust account or from
its debt and equity bridge financing from U.S. dollars into Renminbi for its
operational or acquisition needs and should the Renminbi appreciate against the
U.S. dollar at that time, its cash flows would be reduced which could materially
adversely affect our business. Conversely, if China Networks Media decides to
convert its Renminbi balances into U.S. dollars for the purpose of declaring
dividends on its ordinary shares or for other business purposes and the U.S.
dollar appreciates against the Renminbi, the U.S. dollar equivalent of China
Networks Media’s earnings from its subsidiaries, including its VIE affiliates,
in China would be reduced.
120
The
following table sets forth the average buying rate for Renminbi expressed as per
one U.S. dollar for the years 2004, 2005, 2006, 2007 and
2008:
|
Year
|
Renminbi
Average (1)
|
|||
|
2004
|
8.2768
|
|||
|
2005
|
8.1826
|
|||
|
2006
|
7.9579
|
|||
|
2007
|
7.6172
|
|||
|
2008
|
6.9623
|
|||
|
1.
|
Determined
by averaging the rates on the last business day of each month during the
relevant period.
|
The
following table sets forth the high and low exchange rates for Renminbi
expressed as per one U.S. dollar for the periods indicated.
|
Renminbi
Average
|
||||||||
|
Month
Ended
|
High
|
Low
|
||||||
|
April
30, 2008
|
7.029 | 6.983 | ||||||
|
May
30, 2008
|
7.001 | 6.939 | ||||||
|
June
30, 2008
|
6.939 | 6.859 | ||||||
|
July
31, 2008
|
6.864 | 6.813 | ||||||
|
August
31, 2008
|
6.867 | 6.833 | ||||||
|
September
30, 2008
|
6.846 | 6.801 | ||||||
| October 31, 2008 | 6.844 | 6.748 | ||||||
| November 30, 2008 | 6.834 | 6.803 | ||||||
| December 31, 2008 | 6.881 | 6.805 | ||||||
The
value of China Networks Media’s investment will be affected by the foreign
exchange rate between U.S. dollars and Renminbi. From 1994 to July
21, 2005, the conversion of Renminbi into foreign currencies, including U.S.
dollars, was based on exchange rates published by the People’s Bank of China,
which was set daily based on the previous day’s interbank foreign exchange
market rates in China and current exchange rates on the world financial markets.
During that period, the official exchange rate for the conversion of Renminbi to
U.S. dollars was generally stable. However, on July 21, 2005, as a result of the
Renminbi being re-pegged to a basket of currencies, the Renminbi was revalued
and appreciated against the U.S. dollar. There can be no assurance
that such exchange rate will continue to remain stable in the
future. Our investment could be negatively affected by a revaluation
of the Renminbi against the U.S. dollar or by other fluctuations in prevailing
Renminbi-U.S. dollar exchange rates. For example, to the extent that China
Networks Media needs to convert U.S. dollars into Renminbi for its investment
and should the Renminbi appreciate against the U.S. dollar at that time, its
financial position and the costs of finance may be adversely
affected.
INFORMATION
ABOUT ALYST
Alyst’s
History and Business Plans
Alyst is
a blank check company formed under the laws of the State of Delaware on August
16, 2006 for the purpose of acquiring, through a merger, stock exchange, asset
acquisition, reorganization or similar business combination, one or more
operating businesses. Its efforts in identifying a prospective target
business are not limited to a particular industry although Alyst has initially
focused its efforts on acquiring an operating business in the telecommunications
industry, broadly defined.
Alyst
consummated its IPO on July 5, 2007. All activity from August 16, 2006 through
July 5, 2007 related to its formation and its IPO. Since July 5, 2007, Alyst’s
management has actively searched for a prospective target business to
acquire. On August 13, 2008, Alyst announced it had entered into the
Merger Agreement with China Networks Media and others as described under “The
Business Combination Proposal – Background of the Business
Combination.”
Alyst
does not currently have any employees or operations.
The IPO and Trust
Account. The net funds received by Alyst in the IPO are held
in a trust account and are not to be released until the earlier of the
consummation of a business combination or liquidation of Alyst. However, as
noted elsewhere in this proxy statement/prospectus, claims might be made against
Alyst as a result of extending the period in which it may complete a business
combination in order to avoid liquidation (or in other circumstances not now
anticipated by Alyst). The trust account contained approximately $63,229,004 as
of December 31, 2008. If the Business Combination is consummated, the trust
account, reduced by amounts paid to stockholders of Alyst who do not approve the
Business Combination and elect to convert their shares of common stock into
their pro rata shares of net funds in it, will be released to
Alyst.
Fair Market Value of Target
Business. Pursuant to Alyst’s amended and restated certificate
of incorporation, the initial target business that Alyst acquires or merges with
must have a fair market value equal to at least 80% of Alyst’s net assets at the
time of such acquisition/merger, determined by Alyst’s Board of Directors based
on standards generally accepted by the financial community, such as actual and
potential sales, earnings, cash flow and book value. Alyst is not required to
obtain an opinion from an investment banking firm as to fair market value if its
Board of Directors independently determines that the target business has
sufficient fair market value.
Limited Ability to Evaluate The
Target Business’ Management. Although Alyst closely examined
the management of China Networks Media, Alyst cannot assure you that its
assessment of China Networks Media’s management will prove to be correct, or
that future management will have the necessary skills, qualifications or
abilities to manage its business successfully. Essentially, all of China
Networks Media’s current management will remain with the combined company, and
will be primarily responsible for the day-to-day operations.
Stockholder Approval of Business
Combination. Provided that a quorum exists, Alyst will proceed
with the Business Combination only if a majority of the shares of common stock
sold in Alyst’s IPO are voted at the Special Meeting in favor of the Business
Combination and holders of shares sold in Alyst’s IPO, representing less than
30% of the shares sold in the IPO and the private placement, exercise their
conversion rights. The holders of Alyst common stock issued prior to its IPO
have agreed to vote all of their 1,750,000 shares in accordance with the holders
of a majority of the public shares voting in person or by proxy at the meeting
regarding the Business Combination. The 1,750,000 shares that Alyst’s initial
stockholders will vote in accordance with the holders of a majority of the
public shares voting in person or by proxy at the meeting represent 17.9% of
Alyst’s outstanding shares of common stock. If holders of at least 2,413,320
shares of Alyst’s common stock purchased in Alyst’s IPO (which number represents
30% or more of the shares of Alyst common stock issued in Alyst’s IPO and
private placement) vote against the Business Combination and exercise their
right to convert their shares for cash, the Business Combination will not be
consummated.
If the Business Combination is Not
Consummated. If Alyst does not consummate the business
combination with China Networks Media, it will continue to seek another target
business until it is required to liquidate and dissolve pursuant to its amended
and restated certificate of incorporation. Under its charter as
currently in effect, if Alyst does not acquire at least majority control of a
target business by June 29, 2009, Alyst will dissolve and distribute to its
public stockholders the amount in the trust account plus any remaining net
assets. Following dissolution, Alyst would no longer exist as a
corporation.
124
Conversion
rights. Each holder of public shares who votes against the
Business Combination has the right to have his or her public shares converted
for cash, if the Business Combination is approved and completed.
The
actual per-share conversion price will be equal to the amount in the trust
account, inclusive of any interest, as of two business days prior to the
consummation of the Business Combination, less taxes payable, divided by the
number of shares issued in Alyst’s IPO and the private placement, which, as of
December 31, 2008 would be approximately $7.86 per share.
An
eligible stockholder may request conversion at the time the vote is taken with
respect to the Business Combination, but the request will not be granted unless
the stockholder votes against the Business Combination and the Business
Combination is approved and completed. Any request for conversion, if made by
proxy prior to the date of the Special Meeting, may be withdrawn at any time up
to the date of the meeting. Funds to be distributed to stockholders who elect
conversion will be distributed promptly after consummation of the Business
Combination. Any stockholder who converts stock into a portion of the trust
account still has the right to exercise any warrants to purchase Alyst common
stock. Alyst will not complete the merger if holders of 2,413,320 or more shares
of Alyst’s common stock purchased in Alyst’s IPO (which number represents 30% or
more of the shares of Alyst common stock issued in Alyst’s IPO and private
placement) vote against the Business Combination and exercise their conversion
rights.
Competition. If the
Business Combination is completed, Alyst will become subject to competition from
competitors of China Networks Media. For more information of the competition
China Networks Media faces, please see the section entitled, ‘‘Information About
China Networks Media – Competitors
Threats of Substitution’’ elsewhere in this document.
Future Plans. Alyst
intends to become a leading company in the broadcast TV industry in the PRC. See
the section entitled “The Business Combination
Proposal.”
Facilities. Alyst
maintains executive offices at 233 E. 69th Street, #6J, New York, NY 10021.
Alyst’s director, Michael E. Weksel, is providing this space at no charge.
Although Alyst considers its current office space, together with other office
space otherwise available to Alyst’s executive officers, adequate for its
existing activities, Alyst anticipates that it will lease space from an
unaffiliated third party if the Business Combination is approved and
consummated..
Employees
Alyst has
three executive officers. These individuals are not obligated to contribute any
specific number of hours per week on Alyst’s affairs, and they devote only as
much time as they deem necessary to Alyst’s matters. Alyst has no other
employees.
Periodic
Reporting and Audited Financial Statements
Alyst
has registered its securities under the Exchange Act and has reporting
obligations, including the requirement to file annual and quarterly reports with
the SEC. In accordance with the requirements of the Securities Exchange Act of
1934, Alyst’s annual report contains financial statements audited and reported
on by Alyst’s independent accountants. If the Redomestication Merger and the
Business Combination are consummated, the successor corporation, CN Holdings,
will be a reporting company under the Exchange Act. However, CN
Holdings is expected to be considered a “foreign private issuer” as described
under “The Redomestication Merger.”
Legal
Proceedings
To the
knowledge of Alyst’s management and Board of Directors, Alyst is not currently a
party to any pending legal proceedings.
125
ALYST
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion should be read in conjunction with the Company’s
Consolidated Financial Statements and notes thereto contained elsewhere in this
proxy/prospectus.
Plan
of Operations
Alyst is
a blank check company organized under the laws of the State of Delaware on
August 16, 2006. Alyst was formed with the purpose of effecting a merger,
capital stock exchange, asset acquisition or other similar business combination
with an operating business. Its efforts in identifying a prospective target
business are not limited to a particular industry although Alyst has initially
focused its efforts on acquiring an operating business in the telecommunications
industry, broadly defined.
Alyst
consummated its IPO on July 5, 2007. All activity from August 16, 2006 through
July 5, 2007 related to its formation and its IPO. Since July 5, 2007, Alyst’s
management has actively searched for a prospective target business to
acquire. On August 13, 2008, Alyst entered into the Merger Agreement
with China Networks Media and others as described under “The Business
Combination Proposal – Background of the Business Combination.”
From
August 16, 2006 (inception) through June 30, 2008, Alyst had net income of
$1,152,620 derived from interest income of $2,428,469 offset by $323,851 of
formation and operating costs, and $951,998 of income tax expense. For the
fiscal year ended June 30, 2008, Alyst had net income of $1,156,536 derived from
interest income of $2,426,933 offset by $319,003 of formation and operating
costs, and $951,394 of income tax expense as compared to a net loss of $3,916
derived from $4,848 of formation costs and $604 of income taxes offset by $1,536
of interest income for the period from August 16, 2006 (inception) through June
30, 2007. The difference was due to the interest earned on the net proceeds
received from the consummation of an IPO on July 5, 2007 and the sale of the
insider warrants, and the subsequent incurrence of costs related to searching
for an acquisition candidate.
From
August 16, 2006 (inception) through September 30, 2008, Alyst had net income of
$1,268,566 derived from interest and dividend income of $2,775,989 offset by
$459,404 of formation and operating costs, and $1,048,019 of income tax expense.
For the three months ended September 30, 2008, Alyst had net income of $115,946
derived from interest and dividend income of $347,520 offset by $135,553 of
formation and operating costs, and $96,021 of income tax expense as compared to
a net income of $460,199, $40,814 of formation and operating costs, and $260,875
of income taxes and by $761,888 of interest and dividend income for the three
months ended September 30, 2007. The difference was due to the interest earned
on the net proceeds received from the consummation of an offering on July 5,
2007 and the sale of the insider warrants, and the subsequent incurrence of
costs related to searching for an acquisition candidate.
Upon
consummation of its IPO and the sale of the insider warrants, $63,154,286 of the
net proceeds was deposited in trust. The remaining net proceeds of $47,878 is
available to pay for business, legal and accounting due diligence on prospective
acquisitions and continuing formation and operating costs. Alyst intends to
utilize its cash, including the funds held in the trust account, capital stock,
debt or a combination of the foregoing to effect a business combination. To the
extent that its capital stock or debt securities are used in whole or in part as
consideration to effect a business combination, the proceeds held in the trust
account as well as any other available cash will be used to finance the
operations of the target business. At September 30, 2008, Alyst had current
assets of $1,265,245 and current liabilities of $607,031, resulting in working
capital of $658,214.
From
the date of the consummation of the IPO until such time as Alyst effectuates a
business combination, Alyst may draw from the interest earned on the trust
account (i) up to $1,680,000 for use as working capital, and (ii) all funds
necessary to meet its tax obligations. Since the IPO, Alyst has drawn from the
trust account a total of $2,409,000, of which $1,223,564 was drawn to meet its
tax obligations and $1,185,436 was drawn for working capital.
Alyst
believes it will have sufficient funds available to it from interest earned on
the trust account to operate through the later of June 29, 2009 or the date upon
which it consummates a business combination. Up to $1,680,000 of interest earned
on the assets of the trust account are available to it for the payment of
expenses associated with the due diligence and investigation of a target
business or businesses, structuring, negotiating and documenting an initial
business combination, legal, and accounting fess relating to its SEC reporting
obligations and general working capital that will be used for miscellaneous
expenses and reserves. Alyst does not believe it will need to raise additional
funds in order to meet the expenditures required for operating its business.
However, it may need to raise additional funds through a private offering of
debt or equity securities if such funds are required to consummate a business
combination. Alyst would only consummate such a financing simultaneously with
the consummation of a business combination. As needed, additional funds are also
available to it from the interest earned on the assets of the trust account to
pay all of its tax obligations.
126
Off-Balance
Sheet Arrangements
Alyst
does not have any off-balance sheet arrangements.
Summarized
Quarterly Data (unaudited)
The
following table summarizes our quarterly results of operations for the quarter
ended September 30, 2008 for
the past five quarters. :
|
Quarter
ended
September 30,
2007 |
Quarter
ended
December 31,
2007 |
Quarter
ended
March 31,
2008
|
Quarter
ended
June 30,
2008
|
Quarter
ended
September 30,
2008
|
|||||||||||||||
|
Revenue
|
$ | $ | $ | $ | $ | ||||||||||||||
|
Loss
from operations
|
(41,765 | ) | (41,599 | ) | (139,154 | ) | (96,485 | ) |
(135,553
|
) | |||||||||
|
Interest
income
|
762,841 | 744,043 | 555,785 | 364,264 |
347,520
|
||||||||||||||
|
Income
before provision for income taxes
|
721,076 | 702,444 | 416,631 | 267,779 |
211,967
|
||||||||||||||
|
Provision
for income taxes
|
260,875 | 530,000 | 41,421 | 119,098 |
96,021
|
||||||||||||||
|
Net
Income
|
460,201 | 172,444 | 375,210 | 148,681 |
115,946
|
||||||||||||||
|
Weighted
average shares outstanding (basic and diluted)
|
7,133,561 | 7,381,081 | 7,381,081 | 7,381,081 |
7,381,081
|
||||||||||||||
|
Basic
and diluted net income per share
|
$ | .06 | $ | .02 | $ | .05 | $ | .02 | $ |
.02
|
|||||||||
127
DIRECTORS
AND MANAGEMENT
Directors,
Management and Key Employees Following the Redomestication Merger and the
Business Combination
Upon
consummation of the Redomestication Merger and the Business Combination, the
board of directors and executive officers of CN Holdings shall be as
follows:
|
Name
|
Age
|
Position
|
||
|
Li
Shuangqing
|
55
|
Chief
Executive Officer and Chairman
|
||
|
Kerry
Propper
|
34
|
Director | ||
|
Michael
E. Weksel
|
44
|
Chief
Financial Officer and Director
|
Mr. Li
Shuangqing has been Chairman and CEO and a director of China Networks Media
since May 2008. From 2006 to 2007, Mr. Li was the Chairman of
Shandong Huashi Media & Technology, a leading Electronic Program Guide
provider in China. Prior to that, he was from 2001 to 2006 the
General Manager of Huicong Advertising, a leading Chinese internet and TV
advertising company and Director of Advertising Department of Qilu TV Station
from 1997 to 2001. Mr. Li had various management and TV production
roles with Shandong and Qilu TV Stations from 1980 to 1997. Mr. Li
completed EMBA course from Guanghua School of Management, Peking
University.
Kerry
Propper has been a director of China Networks Media since May
2008. Mr. Propper has been the owner and chief executive officer of
Chardan Capital Markets LLC, a New York based broker/dealer, since July 2003. He
has also been a managing director of SUJG, Inc., an investment company, since
April 2005. From its inception in December 2003 until November 2005, Mr. Propper
served as a member of the board of directors of each of Chardan China
Acquisition Corp., Chardan North China Acquisition Corporation and Chardan South
China Acquisition Corporation, each an OTC Bulletin Board listed blank check
company. In November 2005, Chardan China Acquisition Corp. completed its
business combination with State Harvest Holdings Ltd. and changed its name to
Origin Agritech Ltd., in September 2007, Chardan North completed its business
combination with Gifted Time Holdings, Limited and changed its name to HLS
Systems International, Ltd. and in January 2008 Chardan South completed its
business combination with Head Dragon Holdings, Limited and changed its name to
A-Power Energy Generation Systems, Ltd. Mr. Propper has continued to
serve as a member of the board of directors of Origin Agritech and HLS Systems
International Ltd. since their mergers. Mr. Propper also sits on the board of
directors of China Cablecom Holdings, Ltd., a joint-venture provider of cable TV
services in China. Mr. Propper was a founder, and from February 1999 to July
2003 owner and managing director of Windsor Capital Advisors, a full service
brokerage firm also based in New York. Mr. Propper also founder The Private
Capital Group LLC, a small private investment firm specializing in hard money
loans and convertible preferred debt and equity offerings for small companies,
in May 2000 and was affiliated with it until December 2003. From July 1997 until
February 1999, Mr. Propper worked at Aegis Capital Corp., a broker dealer and
member firm of NASD. Mr. Propper received his B.A. (with honors) in Economics
and International Studies from Colby College and studied at the London School of
Economics.
Michael
E. Weksel is the current chief executive officer, principal financial
and accounting officer, and sole director of CN Holdings, and assumed the
position of chief financial officer of China Networks Media in January
2009. Mr. Weksel will serve as Chief Financial Officer and a director of CN
Holdings if the Business Combination and Redomestication Merger are
approved. Mr. Weksel has also been a member of the board of directors
of Alyst since inception and he serves as Alyst’s chief operating
officer, chief financial officer and secretary. From 2000 to 2007, Mr. Weksel
was a principal in Industrial Acquisitions Management, LLC, a private venture
firm. From 1994 to 1999, Mr. Weksel served on the board of directors and as
chief financial officer and vice president of LogistiCare which he co-founded.
From 1992 to 1994, Mr. Weksel served as a managing director at Weksel, Davies
& Co. Inc. In that capacity, Mr. Weksel acted as the sole executive officer
at Viking Mobile Communications and as project director for the implementation
of a new enterprise computing solution at The E.F. Johnson Company. Mr. Weksel
also served on the board of directors of The E.F. Johnson Company. Prior to
1992, Mr. Weksel worked for three years as an associate at the merchant banking
firm of Joseph, Littlejohn and Levy, Inc. Mr. Weksel currently is a director of
both GovDelivery, Inc., a leading e-mail subscription management system
provider, and Safe Lites, LLC, a developer of applications of electroluminescent
technologies. Mr. Weksel received a B.S. from the State University of New York
at Albany and an M.B.A. from Columbia University. Mr. Weksel is the son of Dr.
William Weksel, the Chief Executive Officer of Alyst.
128
Alyst’s
board of directors is currently divided into three classes with only one class
of directors being elected in each year and each class serving a three-year
term. Upon consummation of the Business Combination, this classified board
feature will terminate and CN Holdings will then have only one class of
directors, with each director elected annually.
Director
Independence
The
NYSE Alternext requires that a majority of the board of directors be composed of
“independent directors,” which is defined generally as a person other than an
officer or employee of the company or its subsidiaries or any other individual
having a relationship, which in the opinion of the company’s board of directors
would interfere with the director’s exercise of independent judgment in carrying
out the responsibilities of a director.
Alyst
Robert
A. Schriesheim, Matthew Botwin and Stephen J. DeGroat are Alyst’s independent
directors, constituting a majority of its board. Alyst’s independent
directors have regularly scheduled meetings at which only independent directors
are present.
Any
affiliated transactions will be on terms not less favorable to Alyst than could
be obtained from independent parties. Any affiliated transactions must be
approved by a majority of the independent and disinterested
directors.
CN
Holdings
Upon
consummation of the Business Combination, [ ] will be
independent directors of CN Holdings under Nasdaq Rules. CN Holdings’
independent directors will have regularly scheduled meetings at which only
independent directors are present.
Any
affiliated transactions will be on terms no less favorable to CN Holdings than
could be obtained from independent parties. Any affiliated transactions must be
approved by a majority of its independent and disinterested
directors.
Compensation
Committee Interlocks and Insider Participation
During
the last fiscal year, no executive officer of Alyst or CN Holdings has received
compensation, and no officer of either company, has participated in
deliberations of the respective Board of Directors concerning executive officer
compensation.
Meetings
and Committees of the Board of Directors of Alyst and CN Holdings
Although
Alyst does not have any formal policy regarding director attendance at annual
stockholder meetings. Following consummation of the Business Combination, CN
Holdings expects to schedule its annual meetings so that its directors can
attend. In addition, CN Holdings expects its directors to attend all Board and
committee meetings and to spend the time needed and meet as frequently as
necessary to properly discharge their responsibilities.
129
Audit
Committee
Alyst
Alyst
has established an audit committee of the board of directors, which consists of
Matthew Botwin, as chairman and Robert A. Schriesheim. It has determined that
each of these individuals is an independent director under the NYSE
Alternext’s
listing standards. The audit committee’s duties, which are specified in Alyst’s
Audit Committee Charter, include, but are not limited to:
|
|
·
|
reviewing
and discussing with management and the independent auditor the annual
audited financial statements, and recommending to the board whether the
audited financial statements should be included in our Form
10-K;
|
|
|
·
|
discussing
with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of
our financial statements;
|
|
|
·
|
discussing
with management major risk assessment and risk management
policies;
|
|
|
·
|
monitoring
the independence of the independent
auditor;
|
|
|
·
|
verifying
the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for
reviewing the audit as required by
law;
|
|
|
·
|
reviewing
and approving all related-party
transactions;
|
|
|
·
|
inquiring
and discussing with management our compliance with applicable laws and
regulations;
|
|
|
·
|
pre-approving
all audit services and permitted non-audit services to be performed by our
independent auditor, including the fees and terms of the services to be
performed;
|
|
|
·
|
appointing
or replacing the independent
auditor;
|
|
|
·
|
determining
the compensation and oversight of the work of the independent auditor
(including resolution of disagreements between management and the
independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work;
and
|
|
|
·
|
establishing
procedures for the receipt, retention and treatment of complaints received
by Alyst regarding accounting, internal accounting controls or reports
which raise material issues regarding our financial statements or
accounting policies.
|
CN
Holdings
Upon
consummation of the Business Combination, the Audit Committee of CN Holdings
will be comprised of ·, each of which is
an independent director. The Audit Committee’s duties will be
specified in its charter and such duties are expected to be equivalent to those
of Alyst’s Audit Committee.
Financial
Experts on Audit Committee
The
audit committee is at all times be composed exclusively of “independent
directors” who are “financially literate” as defined under the NYSE Alternext
listing standards. The NYSE Alternext listing standards define “financially
literate” as being able to read and understand fundamental financial statements,
including a company’s balance sheet, income statement and cash flow
statement.
In
addition, Alyst and, post-combination, CN Holdings must certify to the NYSE
Alternext, and Nasdaq in the case of CN Holdings, that the committee has, and
will continue to have, at least one member who has past employment experience in
finance or accounting, requisite professional certification in accounting, or
other comparable experience or background that results in the individual’s
financial sophistication. The Alyst board of directors has determined that
Robert A. Schriesheim satisfies the NYSE Alternext’s definition of
financial sophistication and also qualifies as an “audit committee financial
expert,” as defined under rules and regulations of the SEC.
Alyst’s
Principal Accountant
The firm
of Marcum & Kliegman LLP (‘‘Marcum & Kliegman”) has served as Alyst’s
principal accountant since its formation on August 16, 2006. The following is a
summary of fees paid or to be paid to Marcum & Kliegman for services
rendered to Alyst for the last two fiscal years.
130
Audit
Fees
During
the year ended June 30, 2008, Alyst paid its principal accountants $39,000 for
the services they performed in connection with Alyst’s Registration Statement on
Form S-1 related to its IPO, including the financial statements included in the
Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 6, 2007, and $47,000 in connection with its June 30, 2007 Annual Audit on
Form 10-KSB and the review of its Quarterly Reports on Form 10-QSB. The fee for
the audit of the financial statements included in the Annual Report on Form
10-KSB for the fiscal year ended June 30, 2008 was $30,000. The aggregate of
such fees is $116,000.
Audit-Related
Fees
Alyst did
not receive audit-related services that are not reported as Audit Fees for the
year ended June 30, 2008.
Tax
Fees
During
fiscal 2008, Alyst’s principal accountant rendered services to it for tax
compliance, tax advice and tax planning in the amount of $3,600.
All Other
Fees
During
fiscal 2008, there were no fees billed for products and services provided by the
principal accountant other than those set forth above.
Audit
Committee Approval
Since
Alyst’s Audit Committee was not formed until July 2007, it did not pre-approve
all of the foregoing services. Services rendered prior to the
formation of the Audit Committee were approved by Alyst’s board of
directors. However, in accordance with Section 10A(i) of the Exchange
Act, before Alyst or CN Holdings engages an independent accountant to render
audit or non-audit services on a going-forward basis, the engagement will be
approved by the respective audit committee.
Nominating
Committee Information
Alyst
Alyst
established a nominating committee of the board of directors,
which consists of Stephen J. DeGroat, and Matthew Botwin, each of
whom is an independent director under the NYSE Alternext’s listing
standards. The nominating committee is responsible for overseeing the selection
of persons to be nominated to serve on our board of directors. The nominating
committee considers persons identified by its members, management, shareholders,
investment bankers and others.
Guidelines
for Selecting Director Nominees
The
guidelines for selecting nominees, which are specified in the Nominating
Committee Charter, generally provide that persons to be nominated:
|
|
·
|
should
have demonstrated notable or significant achievements in business,
education or public service;
|
|
|
·
|
should
possess the requisite intelligence, education and experience to make a
significant contribution to the board of directors and bring a range of
skills, diverse perspectives and backgrounds to its deliberations;
and
|
|
|
·
|
should
have the highest ethical standards, a strong sense of professionalism and
intense dedication to serving the interests of the
stockholders.
|
131
The
Nominating Committee will consider a number of qualifications relating to
management and leadership experience, background and integrity and
professionalism in evaluating a person’s candidacy for membership on the board
of directors. The Nominating Committee may require certain skills or attributes,
such as financial or accounting experience, to meet specific board needs that
arise from time to time. The Nominating Committee does not distinguish among
nominees recommended by shareholders and other persons and will consider persons
identified by its members, management, stockholders, investment bankers and
others. Other than the timing requirements of its by-laws described under
‘‘Description of the Combined Company’s Securities Following the Business
Combination,’’ Alyst does not have any restrictions on stockholder nominations
under its amended and restated certificate of incorporation or by-laws. The only
restrictions are those applicable generally under Delaware corporate law and the
federal proxy rules. Currently, the board will consider suggestions from
individual stockholders, subject to evaluation of the person’s merits.
Stockholders may communicate nominee suggestions directly to the board,
accompanied by biographical details and a statement of support for the nominees.
The suggested nominee must also provide a statement of consent to being
considered for nomination. Although there are no formal criteria for nominees,
Alyst’s Board believes that persons should be actively engaged in business
endeavors, have a financial background, and be familiar with acquisition
strategies and money management.
CN
Holdings
CN
Holdings will establish a Nominating Committee following consummation of the
Business Combination in accordance with the rules of Nasdaq. CN
Holdings expects that the Nominating Committee will be equivalent to that
currently in effect at Alyst.
Director
Compensation
Alyst
Alyst’s
directors do not receive and have not received any compensation for their
services.
CN
Holdings
CN
Holdings will compensate its Board of Directors based on policies put into place
after the Business Combination and Redomestication Merger. CN Holdings expects
that such policies will include a per diem for each board meeting attended, an
annual fee and reimbursement of expenses incurred in attending meetings. The
amounts of compensation, numbers of shares subject to awards and other terms of
director compensation have not been determined.
Executive
Compensation
Alyst
Alyst has
not entered into employment agreements with any of its executive officers. No
executive officer has received any cash compensation for services rendered to
it. No compensation of any kind, including finders, consulting or other similar
fees, will be paid to any of its existing stockholders, including its directors,
or any of their respective affiliates, prior to, or for any services they render
in order to effectuate, the consummation of a business combination. However,
such individuals will be reimbursed for any out-of-pocket expenses incurred in
connection with activities on our behalf such as identifying potential target
businesses and performing due diligence on suitable business combinations. There
is no limit on the amount of these out-of-pocket expenses and there will be no
review of the reasonableness of the expenses by anyone other than our board of
directors, which includes persons who may seek reimbursement, or a court of
competent jurisdiction if such reimbursement is challenged. Because of the
foregoing, Alyst will generally not have the benefit of independent directors
examining the propriety of expenses incurred on our behalf and subject to
reimbursement.
CN
Holdings
It is
contemplated that, after the consummation of the Business Combination and
Redomestication Merger, CN Holdings’ board of directors will conduct reviews
informally, and that compensation will not be typically changed on a regimented
time-frame. It is contemplated that the board of directors of CN
Holdings will base the salaries of its executive officers on the amounts
similarly-situated companies pay their executive officers for similar
performance. In general, if an executive performs exceptionally well,
the performance and, if applicable, the increase in responsibilities would also
merit a salary increase.
Employment agreement with
Michael Weksel
China
Networks Media has entered into an employment agreement with Michael Weksel to
serve as its chief financial officer, effective as of January 12, 2009. Mr.
Weksel is expected to continue to serve as the chief financial officer of
CN Holdings after the Business Combination pursuant to the terms of the
employment agreement. Under the terms of the employment agreement, Mr. Weksel
will receive a base salary at an annual rate of (1) $180,000 for the period
commencing on January 12, 2009 and ending upon the earlier to occur of (A) the
closing of the Business Combination, or (B) June 29, 2009 (the “Initial Term”)
and (2) $360,000 following the Initial Term. Mr. Weksel will receive a cash
bonus in the amount of $360,000 if China Networks Media achieves certain net
income targets for 2009 and 2010 as set forth in the Merger Agreement, provided
that Mr. Weksel is still employed by China Networks Media during the calendar
year during which it achieved its net income targets. Mr. Weksel will be
entitled to reimbursement by China Networks Media for certain expenses incurred
by him in the performance of his employment.
In
addition, pursuant to the terms of the employment agreement, immediately
following the closing of the Business Combination (the “Merger Option Grant
Date”), China Networks Media will grant to Mr. Weksel a non-qualified stock
option (the “Merger Option”) pursuant to the CN Holdings 2008 Omnibus Share and
Incentive Plan for the purchase of 500,000 ordinary share of CN Holdings. The
per share exercise price under the Merger Option will be equal to the “fair
market value” of an ordinary share of CN Holdings determined as of the Merger
Option Grant Date. 50,000 of the shares subject to the Merger Option will be
fully vested and exercisable upon the grant of the Merger Option. The remaining
450,000 shares will vest over a 36-month period commencing on the Merger Option
Grant Date, at the rate of 1/36 per completed month of employment by Mr. Weksel
with China Networks Media. The Merger Option will have a seven-year term,
although Mr. Weksel’s entitlement to exercise the vested portion of the Merger
Option will terminate upon the second anniversary of the termination of his
employment with China Networks Media. In the event that Mr. Weksel is terminated
by China Networks Media without cause or by Mr. Weksel for good reason, any then
unvested portion of the Merger Option will immediately become fully vested
and exercisable upon such termination. To the extent that the total
capitalization of CN Holdings immediately following the Business Combination is
higher or lower than the amount assumed under the terms of the employment
agreement, the Merger Option share amounts will be proportionately increased or
decreased. The
employment agreement provides that, if China Networks Media terminates Mr.
Weksel’s employment without cause or if Mr. Weksel terminates his employment for
good reason, subject to certain exceptions, China Networks Media will pay Mr.
Weksel an amount equal to 50% of his annual base salary in effect as of his date
of termination in monthly installments over a period of 12 months (or
earlier if he violates any of the restrictive covenants contained in the
agreement). Mr. Weksel is also subject to certain non-compete and
non-solicitation covenants, during and after his employment with China Networks
Media, with certain exceptions.
Service Agreement with Mr. Li
Shuangqing
ANT
has entered into a services agreement with Mr. Li Shuangqing to provide
consulting services to ANT and its affiliates. The service agreement will be
effective for an initial period of two years and may be extended upon the
mutual written consent of both parties. Under the terms of the services
agreement, ANT will pay Mr. Shuangqing a quarterly service fee equivalent to
US$15,000 during the term of this agreement, subject to certain adjustments and
exceptions. Mr. Shuangqing will also be entitled to reimbursement by ANT for
certain expenses in the course of provision of his
services.
132
Post-Combination
Executive Employment Agreements
CN
Holdings is in the process of finalizing executive employment agreements with
certain executives, which such executives will be subject to following the
consummation of the Business Combination.
Employee
Compensation
Since
Alyst does not currently have an operating business, it has no
employees. Alyst does not have any compensation policies, procedures,
objectives or programs in place. Upon consummation of the Business
Combination, CN Holdings expects to adopt employee compensation policies,
procedures and programs consistent with prevailing market practice for
similarly-situated companies.
133
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Alyst
Alyst has
and will reimburse its officers and directors for any reasonable out-of-pocket
business expenses incurred by them in connection with certain activities on
Alyst’s behalf such as identifying and investigating possible target businesses
and business combinations. There is no limit on the amount of accountable
out-of-pocket expenses reimbursable by Alyst, which will be reviewed only by
Alyst’s board of directors or a court of competent jurisdiction if such
reimbursement is challenged.
Other
than reimbursable out-of-pocket expenses payable to Alyst’s officers and
directors, no compensation or fees of any kind, including finders and consulting
fees has or will be paid by Alyst to any of its initial stockholders, officers
or directors who owned Alyst’s common stock prior to its IPO, or to any of their
respective affiliates for services rendered to Alyst prior to or with respect to
the Business Combination other than as otherwise disclosed elsewhere in this
proxy statement/prospectus.
In
connection with the vote required for any Business Combination, all of Alyst’s
initial stockholders, including all of Alyst’s officers and directors, have
agreed to vote their respective shares of common stock which were owned prior to
Alyst’s IPO as well as those included in the units purchased in the private
placement in accordance with the vote of the public stockholders owning a
majority of the shares of Alyst’s common stock sold in the IPO. In addition,
they have agreed to waive their respective rights to participate in any
liquidation distribution with respect to those shares of common stock acquired
by them prior to the IPO. Any common stock acquired by initial stockholders in
the IPO or aftermarket will be considered part of the holdings of the public
stockholders. Except with respect to the conversion rights afforded to public
stockholders, these initial stockholders will have the same rights as other
public stockholders with respect to such shares, including voting rights in
connection with the Business Combination. Accordingly, they may vote such shares
on a proposed business combination any way they choose.
To
further minimize potential conflicts of interest, Alyst has agreed not to
consummate a business combination with an entity which is affiliated with any of
our initial stockholders unless it obtains an opinion from an independent
investment banking firm that the business combination is fair to our
unaffiliated stockholders from a financial point of view. None of the initial
stockholders is a stockholder in China Networks Media nor any of its affiliates
or subsidiaries.
In
August 2006, Alyst issued 1,750,000 shares of its common stock to its
initial stockholders set forth below for an aggregate of $25,000 in cash, at a
purchase price of approximately $0.014 per share, as follows:
|
Name
|
Number of
Shares |
Purchase
Price |
Relationship to Alyst
|
||||||
|
Robert
A. Schriesheim
|
362,500 | $ | 5,178.57 |
Chairman
of the Board
|
|||||
|
Dr.
William Weksel(1)
|
362,500 | $ | 5,178.57 |
Chief
Executive Officer and Director
|
|||||
|
Robert
H. Davies(2)
|
362,500 | $ | 5,178.57 |
Chief
Strategist
|
|||||
|
Michael
E. Weksel(3)
|
362,500 | $ | 5,178.57 |
Chief
Financial Officer
|
|||||
|
Paul
Levy
|
90,000 | $ | 1,285.71 |
Director
|
|||||
|
Ira
Hollenberg IRA
|
60,000 | $ | 857.14 |
Stockholder
|
|||||
|
Silverman
Realty Group, Inc.
Profit
Sharing Plan (LCPSP)
|
60,000 | $ | 857.14 |
Stockholder
|
|||||
|
Matthew
Botwin
|
30,000 | $ | 428.57 |
Director
|
|||||
|
Norbert
W. Strauss
|
20,000 | $ | 285.72 |
Stockholder
|
|||||
|
David
Strauss
|
20,000 | $ | 285.72 |
Stockholder
|
|||||
|
Jonathan
Strauss
|
20,000 | $ | 285.72 |
Stockholder
|
|||||
|
(1)
|
Dr.
William Weksel is the father of Michael E.
Weksel.
|
134
|
(2)
|
In
June 2007, Robert H. Davies transferred 10,000 shares of common stock to
the 2006 Robert H. Davies Delaware Trust f/b/o Alexander B. Davies, a
trust established for the benefit of Mr. Davies’ son, for approximately
$0.14 per share.
|
|
(3)
|
In
January 2007, Michael E. Weksel transferred 12,500 shares of common stock
to the Carina Heart Weksel Irrevocable Trust, a trust established for the
benefit of Mr. Weksel’s daughter, for approximately $0.014 per
share.
|
The
warrants issued in Alyst’s private placement were purchased by Robert A.
Schriesheim, Alyst’s Non-Executive Chairman of the Board, Dr. William Weksel,
Alyst’s Chief Executive Officer, Robert H. Davies, Alyst’s Chief Strategist,
Michael E. Weksel, one of Alyst’s Directors, Paul Levy, one of Alyst’s former
Directors, and Ira Hollenberg IRA, Silverman Realty Group, Inc. Profit Sharing
Plan (LCPSP), Norbert W. Strauss, David Strauss and Jonathan Strauss, each a
stockholder of Alyst. The warrants are identical to the warrants included in the
Units sold in Alyst’s IPO except that they are exercisable on a cashless basis
if Alyst calls the warrants for redemption so long as they are held by these
purchasers or their affiliates. The purchasers of the warrants issued in the
private placement have agreed that the warrants issued in the private placement
will not be sold or transferred by them until 90 days after Alyst has completed
a business combination.
From
August 2006 through October 2006, Robert A. Schriesheim, Robert H. Davies,
Michael E. Weksel and Dr. William Weksel have advanced to Alyst an
aggregate of $150,000. The loan was repaid on July 9, 2007.
No
compensation or fees of any kind, including finder’s fees, consulting fees or
other similar compensation, will be paid to any of our existing stockholders,
officers or directors who owned our common stock prior to this offering, or to
any of their respective affiliates, prior to or with respect to the business
combination (regardless of the type of transaction that it is).
All
ongoing and future transactions between Alyst and any of its officers and
directors or their respective affiliates, including loans by our officers and
directors, will be on terms believed by it to be no less favorable to it than
are available from unaffiliated third parties. Such transactions or loans,
including any forgiveness of loans, will require prior approval by a majority of
our uninterested “independent” directors or the members of our board who do not
have an interest in the transaction, in either case who had access, at our
expense, to our attorneys or independent legal counsel. Alyst will not enter
into any such transaction unless its disinterested “independent” directors
determines that the terms of such transaction are no less favorable to it than
those that would be available to it with respect to such a transaction from
unaffiliated third parties.
135
BENEFICIAL
OWNERSHIP OF SECURITIES
The
following table sets forth, as of January 22, 2009, certain information
regarding beneficial ownership of Alyst’s common stock by each person who is
known by Alyst to beneficially own more than 5% of Alyst’s common stock. The
table also identifies the stock ownership of each of Alyst’s directors, each of
Alyst’s officers, and all directors and officers as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
The
beneficial ownership in the following table is based on 9,794,400 shares of
common stock issued and outstanding as of January 22, 2009. Shares of
common stock which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
|
Name
and Address of Beneficial Holder (1)
|
Amount of Beneficial
Ownership
|
Percentage of
Outstanding
Common Stock
|
||||||
|
QVT
Financial LP (2)
|
822,300 | 8.4 | % | |||||
|
HBK
Investments L.P. (3)
|
805,902 | 8.2 | % | |||||
|
Polar
Securities Inc. (4)
|
678,100 | 6.9 | % | |||||
|
Millenco
LLC (5)
|
515,250 | 5.3 | % | |||||
|
Deutsche
Bank AG(6)
|
511,083 | 5.2 | % | |||||
|
Azimuth
Opportunity, Ltd. (7)
|
498,300 | 5.1 | % | |||||
|
Pacific
Assets Management, LLC (8)
|
495,500 | 5.1 | % | |||||
|
Robert
A. Schriesheim (9)
|
362,500 | 3.7 | % | |||||
|
Robert
H. Davies (9)(10)
|
362,500 | 3.7 | % | |||||
|
Michael
E. Weksel (9)(11)
|
362,500 | 3.7 | % | |||||
|
Dr.
William Weksel (9)
|
362,500 | 3.7 | % | |||||
|
Paul
Levy (9)
|
90,000 | * | ||||||
|
Matthew
Botwin
|
30,000 | * | ||||||
|
All
directors and executive officers as a group (six individuals)
(12)
|
1,570,000 | 16.0 | % | |||||
*Less
than 1%
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is
233 East 69th Street, #6J, New York, New York
10021.
|
|
(2)
|
Represents
657,323 shares of common stock held by QVT Fund LP (the “Fund”), 73,694
shares of common stock held by Quintessence Fund L.P. (“Quintessence) and
91,283 shares of common stock held in a separate discretionary account
managed for Deutsche Bank AG (the “Separate Account”). This amount
excludes shares issuable upon the exercise of warrants that are not
currently exercisable and will not become exercisable within 60 days. QVT
Financial LP has voting and dispositive power with respect to all such
shares and QVT Financial GP LLC is the general partner of QVT Financial
LP. The business address of QVT Financial LP, QVT Financial GP LLC and QVT
Associates GP LLC is 1177 Avenue of the Americas, 9th Floor, New York, New
York 10036. The business address of QVT Fund LP is Walkers SPV, Walkers
House, Mary Street, George Town, Grand Cayman, KY1 9001 Cayman Islands.
The foregoing information is derived from a Schedule 13G filed with the
Securities and Exchange Commission on December 31,
2007.
|
136
|
(3)
|
Represents
805,902 shares of common stock over which HBK Investments L.P., HBK
Services LLC (“Services”), HBK Partners 11 L.P., HBK Management LLC and
HBK Master Fund L.P. each have shared voting and dispositive power. HBK
Investments L.P. has delegated discretion to vote and dispose of the
securities to Services. Services may, from time to time, delegate
discretion to vote and dispose of certain of the securities to HBK New
York LLC, HBK Virginia LLC, HBK Europe Management LLP and/or HBK Hong Kong
Ltd. (collectively, the “Subadvisors”). Each of Services and the
Subadvisors is under common control with HBK Investments L.P. The business
address for each entity is 300 Crescent Court, Suite 700, Dallas, Texas
75201. The foregoing information was derived from a Schedule 13G filed
with the SEC on December 31,
2007.
|
|
(4)
|
Represents
(i) 509,100 shares of common stock held by North Pole Capital Master Fund
(“North Pole”) and (ii) 169,000 shares of common stock held in certain
discretionary accounts (“Accounts”). Polar Securities Inc. (“Polar
Securities”) serves as the investment manager for North Pole and the
Accounts. The business address for North Pole and Polar Securities is 372
Bay Street, 21st Floor, Toronto, Ontario M5H 2W9, Canada. The foregoing
information is derived from a Schedule 13G filed with the Securities and
Exchange Commission on December 31,
2007.
|
|
(5)
|
Represents
515,250 units held by Millenco LLC. Each unit consists of one share of
common stock and one warrant to purchase one share of common stock. The
warrants are not exercisable and will not become exercisable until the
completion of a business combination. Millennium Management LLC is the
manager of Millenco LLC and Israel A. Englander is the managing member of
Millennium Management LLC. Each may be deemed to have shared voting
control and investment discretion over the securities. The business
address of Mr. Englander and each of the entities is 666 Fifth Avenue, New
York, New York 10103. The foregoing information is derived from a Schedule
13G filed with the Securities and Exchange Commission on December 17,
2007.
|
|
(6)
|
Represents
the 511,083 shares of common stock beneficially owned by the Corporate and
Investment Banking business group and the Corporate Investments business
group (collectively, “CIB”) of Deutsche Bank AG and its subsidiaries and
affiliates (collectively, “DBAG”). The principal business address of
Deutsche Bank AG is Theodor-Heuss-Allee 70, 60468 Frankfurt am Main,
Federal Republic of Germany. The foregoing information is derived from a
Schedule 13G filed with the Securities and Exchange Commission on December
31, 2007.
|
|
(7)
|
Represents
498,300 shares of common stock held by Azimuth Opportunity, Ltd.
(“Azimuth”). The business address for Azimuth is c/o Ogier, Qwomar
Complex, 4th Floor, P.O. Box 3170, Road Town, Tortola, British Virgin
Islands. The foregoing information was derived from a Schedule 13G filed
with the Securities and Exchange Commission on September 20,
2007.
|
|
(8)
|
Represents
495,500 shares of common stock over which Pacific Assets Management, LLC
(“PAM”) has shared voting power. PAM is an investment adviser whose
clients have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the stock. PAM is the
investment adviser to the JMG Triton Offshore Fund, Ltd. (“JMG Fund”).
Pacific Capital Management, Inc. (“PCM”) is a member of PAM. Jonathan M.
Glaser, Daniel Albert David and Roger Richter are control persons of PAM
and PCM. The business address for PAM, PCM and Mr. David is 100 Drakes
Landing, Suite 207, Greenbrae, California 94904. The principal business
office of the JMG Fund is Ogier Fiduciary Services (BVI) Ltd., Nemours
Chambers, P.O. Box 3170, Road Town, Tortola, British Virgin Islands
VG1110. The business address of Mr. Glaser is 11601 Wilshire Boulevard,
Suite 2180, Los Angeles, California 90025. The principal business office
of Mr. Richter is One Sansome Street, 39th Floor, San Francisco,
California 94104. The foregoing information was derived from a Schedule
13G filed with the Securities and Exchange Commission on June 29,
2007.
|
137
|
(9)
|
Does
not include 227,500 shares of common stock issuable upon exercise of
insider warrants that are not exercisable and will not become exercisable
within 60 days.
|
|
(10)
|
Includes
10,000 shares of common stock held by the 2006 Robert H. Davies Delaware
Trust, a trust established for the benefit of Mr. Davies’
son.
|
|
(11)
|
Includes
12,500 shares of common stock held by the Carina Heart Weksel Irrevocable
Trust, a trust established for the benefit of Mr. Weksel’s daughter, of
which Mr. Weksel and his wife are the sole
trustees.
|
|
(12)
|
Does
not include 1,137,500 shares of common stock issuable upon exercise of
insider warrants that are not exercisable within 60
days.
|
Alyst’s
initial stockholders, which include all of our officers and directors,
collectively, beneficially own approximately 18% of the issued and outstanding
shares of the common stock. Because of the ownership block held by
the initial stockholders, such individuals may be able to effectively exercise
control over all matters requiring approval by Alyst’s stockholders, including
the election of directors and approval of significant corporate transactions
other than approval of the Business Combination and Redomestication Merger.
All of
the shares of Alyst’s outstanding common stock owned by its initial stockholders
prior to the IPO have been placed in escrow with Continental Stock Transfer
& Trust Company, as escrow agent, until the earliest of:
|
|
·
|
one
year after the consummation of a business
combination;
|
|
|
·
|
Alyst’s
liquidation; and
|
|
|
·
|
the
consummation of a liquidation, merger, stock exchange or other similar
transaction which results in all of our stockholders having the right to
exchange their shares of common stock for cash, securities or other
property subsequent to our consummating a business combination with a
target business.
|
During
the escrow period, the holders of these shares will not be able to sell their
securities, but will retain all other rights as our stockholders, including,
without limitation, the right to vote their shares of common stock and the right
to receive cash dividends, if declared. If dividends are declared and payable in
shares of common stock, such dividends will also be placed in escrow. If Alyst
is unable to effect a business combination and liquidate, none of our initial
stockholders will receive any portion of the liquidation proceeds with respect
to common stock owned by them prior to Alyst’s IPO.
As all
legal rights, benefits, duties and obligations enjoyed, owned or owed by Alyst
will, by means of the merger statutes in effect in Delaware and the British
Virgin Islands, be enjoyed, owned or owed, as the case may be, by CN Holdings
following the Redomestication Merger, all of the restrictions applicable to
Alyst’s initial security holders (including the holding of their securities
pursuant to escrow arrangements) will continue to apply until the consummation
of the Business Combination, which will take place immediately following the
consummation of the Redomestication Merger. Similarly, all agreements to which
Alyst is currently a party, including the warrants originally issued by Alyst,
will be assumed by CN Holdings.
Robert A.
Schriesheim, Dr. William Weksel, Robert H. Davies and Michael Weksel are our
‘‘promoters,’’ as that term is defined under the Federal securities
laws.
138
Security
Ownership of China Networks Media
The
following persons are the current shareholders of China Networks Media and their
respective beneficial ownership percentages are shown:
|
Owner
|
Number of
Ordinary
Shares
|
Number of
Class A
Preferred
Shares
|
Beneficial
Ownership
Percentage
of Ordinary
Shares
|
Beneficial
Ownership
Percentage Assuming
Exercise of all
Outstanding
Derivative
Securities
|
||||||||||||
|
Kerry
Propper
|
475,000 | 0 | 25 | % | 16.49 | % | ||||||||||
|
MediaInv
Ltd.
|
1,425,000 | 0 | 75 | % | 49.48 | % | ||||||||||
|
South
Ferry #2 LP
|
0 | 176,750 | 0 | % | 6.14 | % | ||||||||||
|
Aaron
Wolfson
|
0 | 17,500 | 0 | % | 0.61 | % | ||||||||||
|
Eliezer
Levitin
|
0 | 12,250 | 0 | % | 0.43 | % | ||||||||||
|
Globis
Capital Partners, L.P.
|
0 | 52,500 | 0 | % | 1.82 | % | ||||||||||
|
Globis
Overseas Fund Ltd.
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Globis
International Investments LLC
|
0 | 17,500 | 0 | % | 0.61 | % | ||||||||||
|
Atlas
Master Fund, Ltd.
|
0 | 105,000 | 0 | % | 3.65 | % | ||||||||||
|
BDS
Capital Fund I, LLC
|
0 | 43,750 | 0 | % | 1.52 | % | ||||||||||
|
Platinum
Partners Value Arbitrage, LP
|
0 | 175,000 | 0 | % | 6.08 | % | ||||||||||
|
Nicole
Kubin
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Alpha
Capital Anstalt
|
0 | 35,000 | 0 | % | 1.22 | % | ||||||||||
|
AME
Capital Group
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Camel
Company
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
JLF
Partners I, LP
|
0 | 40,250 | 0 | % | 1.40 | % | ||||||||||
|
JLF
Partners II, LP
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
JLF
Offshore Fund, Ltd.
|
0 | 56,000 | 0 | % | 1.94 | % | ||||||||||
|
MLR
Capital Offshore Master Fund Ltd.
|
0 | 35,000 | 0 | % | 1.22 | % | ||||||||||
|
KATA,
Ltd.
|
0 | 35,000 | 0 | % | 1.22 | % | ||||||||||
|
Chardan
SPAC Asset Management LLC
|
0 | 52,500 | 0 | % | 1.82 | % | ||||||||||
|
XEL
Inc.
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Brio
Capital L.P.
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Beechwood
Capital Group L.L.C.
|
0 | 26,250 | 0 | % | 0.91 | % | ||||||||||
|
Diamond
Street Equities LLC
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Ezra
Birnbaum
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
China
Private Equity Partners Co. Ltd.
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Bantry
Bay Ventures, LLC
|
0 | 8,750 | 0 | % | 0.30 | % | ||||||||||
|
Moshe
Rosenfeld
|
0 | 3,500 | 0 | % | 0.12 | % | ||||||||||
Security
Ownership of the Combined Company after the Redomestication Merger and the
Business Combination
The
following table sets forth information with respect to the beneficial ownership
of the CN Holdings’ ordinary shares immediately after the consummation of the
Redomestication Merger and Business Combination by each person who is expected
to beneficially own more than 5% of CN Holdings’ ordinary shares and each
officer, each director and all officers and directors as a group. Immediately
after the consummation of the Redomestication Merger and the Business
Combination, CN Holdings will have 12,674,400 ordinary shares issued and
outstanding, which includes the ordinary shares issued upon the conversion of
each class A preferred share of China Networks Media.
139
Ordinary
shares which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table. For purposes of this table, CN
Holdings has assumed that no stockholders of Alyst exercise their conversion
rights.
|
Name
and Address of Beneficial Owner(1)
|
Amount and
Nature of
Beneficial
Ownership
|
Approximate
Percentage of
Outstanding
Ordinary Shares
|
||||||
|
MediaInv
Ltd.
|
2,160,000 | 17.0 | % | |||||
|
QVT
Financial LP (2)
|
822,300 | 8.4 | % | |||||
|
HBK
Investments L.P. (3)
|
805,902 | 8.2 | % | |||||
|
Polar
Securities Inc. (4)
|
678,100 | 6.9 | % | |||||
|
Millenco
LLC (5)
|
515,250 | 5.3 | % | |||||
|
Deutsche
Bank AG(6)
|
511,083 | 5.2 | % | |||||
|
Azimuth
Opportunity, Ltd. (7)
|
498,300 | 5.1 | % | |||||
|
Pacific
Assets Management, LLC (8)
|
495,500 | 5.1 | % | |||||
|
Li
Shuangqing
|
- | - | ||||||
|
Kerry
Propper
|
720,000 | 6.0 | % | |||||
|
Michael
E. Weksel (9)(10)
|
362,500 | 3.7 | % | |||||
|
All
directors and executive officers as a group (3 individuals)
(11)
|
1,082,500 | 9.7 | % | |||||
|
*
|
Less
than 1%
|
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is
233 East 69th Street, #6J, New York, New York
10021.
|
|
(2)
|
Represents
657,323 shares of common stock held by QVT Fund LP, 73,694 shares of
common stock held by Quintessence Fund L.P. and 91,283 shares of common
stock held in a separate discretionary account managed for Deutsche Bank
AG. This amount excludes shares issuable upon the exercise of warrants
that are not currently exercisable and will not become exercisable within
60 days. QVT Financial LP has voting and dispositive power with respect to
all such shares and QVT Financial GP LLC is the general partner of QVT
Financial LP. The business address of QVT Financial LP, QVT Financial GP
LLC and QVT Associates GP LLC is 1177 Avenue of the Americas, 9th Floor,
New York, New York 10036. The business address of QVT Fund LP is Walkers
SPV, Walkers House, Mary Street, George Town, Grand Cayman, KY1 9001
Cayman Islands. The foregoing information is derived from a Schedule 13G
filed with the Securities and Exchange Commission on December 31,
2007.
|
|
(3)
|
Represents
805,902 shares of common stock over which HBK Investments L.P., HBK
Services LLC (“Services”), HBK Partners 11 L.P., HBK Management LLC and
HBK Master Fund L.P. each have shared voting and dispositive power. HBK
Investments L.P. has delegated discretion to vote and dispose of the
securities to Services. Services may, from time to time, delegate
discretion to vote and dispose of certain of the securities to HBK New
York LLC, HBK Virginia LLC, HBK Europe Management LLP and/or HBK Hong Kong
Ltd. (collectively, the “Subadvisors”). Each of Services and the
Subadvisors is under common control with HBK Investments L.P. The business
address for each entity is 300 Crescent Court, Suite 700, Dallas, Texas
75201. The foregoing information was derived from a Schedule 13G filed
with the SEC on December 31,
2007.
|
140
|
(4)
|
Represents
(i) 509,100 shares of common stock held by North Pole Capital Master Fund
(“North Pole”) and (ii) 169,000 shares of common stock held in certain
discretionary accounts (“Accounts”). Polar Securities Inc. serves as the
investment manager for North Pole and the Accounts. The business address
for North Pole and Polar Securities is 372 Bay Street, 21st Floor,
Toronto, Ontario M5H 2W9, Canada. The foregoing information is derived
from a Schedule 13G filed with the Securities and Exchange Commission on
December 31, 2007.
|
|
(5)
|
Represents
515,250 units held by Millenco LLC. Each unit consists of one share of
common stock and one warrant to purchase one share of common stock. The
warrants are not exercisable and will not become exercisable until the
completion of a business combination. Millennium Management LLC is the
manager of Millenco LLC and Israel A. Englander is the managing member of
Millennium Management LLC. Each may be deemed to have shared voting
control and investment discretion over the securities. The business
address of Mr. Englander and each of the entities is 666 Fifth Avenue, New
York, New York 10103. The foregoing information is derived from a Schedule
13G filed with the Securities and Exchange Commission on December 17,
2007.
|
|
(6)
|
Represents
the 511,083 shares of common stock beneficially owned by the Corporate and
Investment Banking business group and the Corporate Investments business
group of Deutsche Bank AG and its subsidiaries and affiliates. The
principal business address of Deutsche Bank AG is Theodor-Heuss-Allee 70,
60468 Frankfurt am Main, Federal Republic of Germany. The foregoing
information is derived from a Schedule 13G filed with the Securities and
Exchange Commission on December 31,
2007.
|
|
(7)
|
Represents
498,300 shares of common stock held by Azimuth Opportunity, Ltd.
(“Azimuth”). The business address for Azimuth is c/o Ogier, Qwomar
Complex, 4th Floor, P.O. Box 3170, Road Town, Tortola, British Virgin
Islands. The foregoing information was derived from a Schedule 13G filed
with the Securities and Exchange Commission on September 20,
2007.
|
|
(8)
|
Represents
495,500 shares of common stock over which Pacific Assets Management, LLC
(“PAM”) has shared voting power. PAM is an investment adviser whose
clients have the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the stock. PAM is the
investment adviser to the JMG Triton Offshore Fund, Ltd. (“JMG Fund”).
Pacific Capital Management, Inc. (“PCM”) is a member of PAM. Jonathan M.
Glaser, Daniel Albert David and Roger Richter are control persons of PAM
and PCM. The business address for PAM, PCM and Mr. David is 100 Drakes
Landing, Suite 207, Greenbrae, California 94904. The principal business
office of the JMG Fund is Ogier Fiduciary Services (BVI) Ltd., Nemours
Chambers, P.O. Box 3170, Road Town, Tortola, British Virgin Islands
VG1110. The business address of Mr. Glaser is 11601 Wilshire Boulevard,
Suite 2180, Los Angeles, California 90025. The principal business office
of Mr. Richter is One Sansome Street, 39th Floor, San Francisco,
California 94104. The foregoing information was derived from a Schedule
13G filed with the Securities and Exchange Commission on June 29,
2007.
|
141
|
(9)
|
Does
not include 227,500 shares of common stock issuable upon exercise of
insider warrants that are not exercisable and will not become exercisable
within 60 days.
|
|
(10)
|
Includes
12,500 shares of common stock held by the Carina Heart Weksel Irrevocable
Trust, a trust established for the benefit of Mr. Weksel’s daughter, of
which Mr. Weksel and his wife are the sole
trustees.
|
|
(11)
|
Does
not include 1,820,000 shares of common stock issuable upon exercise
of insider warrants.
|
142
SHARES
ELIGIBLE FOR FUTURE SALE
After
the Redomestication Merger and the Business Combination, there will be
12,674,400 ordinary shares of CN Holdings outstanding, of which all but
4,630,000 shares (1,750,000 shares owned by Alyst’s current officers and
directors and their respective affiliates and 2,880,000 shares to be issued to
the current security holders of China Networks Media ) will be registered and
freely tradable without securities law restriction. In addition, there will be
outstanding warrants to purchase 9,864,400 ordinary shares of CN Holdings, each
to purchase one ordinary share, 8,044,400 of which are freely tradable. The
ordinary shares issuable upon exercise of the freely tradable warrants will
also be freely tradable, provided that there is a registration statement in
effect at the time of their exercise. CN Holdings intends to use its best
efforts to cause such a registration statement to be in effect at such time as
the warrants become exercisable. In addition, in connection with Alyst’s IPO,
Alyst issued a unit purchase option to the representative of the underwriters
which is exercisable for 300,000 units, consisting of one share of common stock
and one warrant to purchase one share of common stock at an exercise price of
$10.00 per unit. The securities underlying the representative’s unit purchase
option and underlying securities have registration rights and may be sold
pursuant to Rule 144. Therefore, there are an aggregate of 10,564,000 ordinary
shares that may be issued in the future upon exercise of outstanding warrants
and options.
The
warrants to purchase 1,820,000 shares of Alyst’s common stock owned by its
officers and directors and their respective affiliates are being held in escrow
with Continental Stock Transfer & Trust Company, and, subject to certain
limited exceptions, such as transfers to family members and trusts for estate
planning purposes and upon death, these shares will not be transferable until 90
days after consummation of the Business Combination. These shares
will not be released from escrow until such date, unless (i) Alyst is being
liquidated, in which case Continental will destroy the certificates representing
these warrants, or (ii) CN Holdings were to consummate a transaction after the
Business Combination which results in all of the shareholders of CN Holdings
having the right to exchange their ordinary shares for cash, securities or other
property.
In
general, under Rule 144, a person who has beneficially owned restricted shares
of an Exchange Act reporting company for at least six months is entitled to
sell, such shares without volume or manner of sale restrictions, but subject to
the availability of current public information on the company. After
one year, such a person may sell such shares without limitation. A
person who is an affiliate of the issuer may sell restricted shares after six
months, provided that within any three-month period, the number of shares that
does not exceed the greater of the then-average preceding four weeks’ average
weekly trading volume or one percent of the total number of shares outstanding.
Sales by affiliates under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about the company.
No
prediction can be made about the effect that market sales of ordinary shares of
CN Holdings or the availability for sale of ordinary shares of CN Holdings will
have on its market price. Sales of substantial amounts of ordinary shares in the
public market could adversely affect the market price for CN Holdings’
securities and could impair CN Holdings’ future ability to raise capital through
the sale of ordinary shares or securities linked to the ordinary
shares.
143
DESCRIPTION
OF ALYST’S SECURITIES
General
Alyst
is authorized to issue 30,000,000 shares of common stock, par value $.0001,
and 1,000,000 shares of preferred stock, par value $.0001. As of December 31,
2008, 9,794,400 shares of common stock are outstanding, held by 15
stockholders of record. No shares of preferred stock are currently
outstanding.
Common
Stock
Holders
of Alyst’s common stock are currently entitled to one vote for each share on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights, with the result that the holders of more than 50% of the shares eligible
to vote for the election of directors can elect all of the
directors.
Subject
to the preferences and rights, if any, applicable to preferred stock, holders of
common stock of the combined company are entitled to receive dividends if and
when declared by the board of directors. Subject to the prior rights of the
holders, if any, of preferred shares, holders of common stock are entitled to
share ratably in any distribution of the assets of the combined company upon
liquidation, dissolution or winding-up, after satisfaction of all debts and
other liabilities.
Alyst
will proceed with the Business Combination only if a majority of the shares of
common stock voted by the public stockholders are voted in favor of the Business
Combination and public stockholders owning less than 30% of the shares sold in
Alyst’s IPO both exercise their conversion rights discussed below and vote
against the Business Combination.
Pursuant
to its amended and restated certificate of incorporation, if Alyst does not
consummate a business combination by June 29, 2009, its corporate existence will
cease except for the purposes of winding up its affairs and liquidating. If it
is forced to liquidate prior to a business combination, its public stockholders
are entitled to share ratably in the trust fund, including any interest other
than that which was previously released to it to fund working capital
requirements, and any net assets remaining available for distribution to them
after payment of liabilities. Alyst stockholders who acquired their shares prior
to Alyst’s IPO (representing 1,750,000 shares) have waived their rights to
participate in any liquidation distribution with respect to their initial
shares.
Alyst’s
stockholders have no conversion, preemptive or other subscription rights and
there are no sinking fund or redemption provisions applicable to the common
stock, except that public stockholders have the right to have their shares of
common stock converted to cash equal to their pro rata share of the trust
account if they vote against the business combination and the business
combination is approved and completed. Public stockholders who convert their
stock into their share of the trust account still have the right to exercise the
warrants that they received as part of the units.
Preferred
Stock
Alyst is
authorized to issue 1,000,000 shares of blank check preferred stock with such
designation, rights and preferences as may be determined from time to time by
Alyst’s board of directors. No shares of preferred stock are presently
outstanding. Accordingly, Alyst’s board of directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of common stock.
Warrants
Alyst
has 8,044,400 publicly-held warrants currently outstanding, entitling the
registered holder to purchase one share of common stock at $5.00 per
share. Alyst also has 1,820,000 “insider warrants” currently
outstanding entitling the registered holder of each warrant to purchase one
share of common stock at $1.00 per share. Alyst also has one unit
purchase option outstanding, entitling the holder to purchase 300,000 units,
consisting of one share of common stock and one warrant to purchase one share of
common stock at an exercise price of $10.00 per unit. The warrants are each
subject to adjustment as discussed below, and (except for the “insider
warrants”) are exercisable at any time commencing on the completion of the
Business Combination. The warrants will expire at 5:00 p.m., New York City time
on June 29, 2011.
144
Alyst may
call the warrants for redemption (including the insider warrants and any
warrants issued upon exercise the unit purchase option issued to Ferris, Baker
Watts and Jesup & Lamont), with the prior consent of Ferris, Baker Watts and
Jesup & Lamont in whole and not in part, at a price of $0.01 per warrant, at
any time after they become exercisable, upon not less than 30 days’ prior
written notice of redemption to each warrant holder; and if, and only if, the
reported last sale price of the common stock equals or exceeds $11.50 per share
for any 20 trading days within a 30 trading day period ending on the third
business day prior to the notice of redemption to warrant holders.
The
warrants have been issued in registered form under a warrant agreement between
Continental Stock Transfer & Trust Company, as warrant agent, and
Alyst.
Since
Alyst may redeem the warrants only with the prior written consent of Ferris,
Baker Watts and Jesup & Lamont and Ferris, Baker Watts and Jesup &
Lamont may hold warrants subject to redemption, they may have a conflict of
interest in determining whether or not to consent to such redemption. Alyst
cannot assure you that Ferris, Baker Watts and Jesup & Lamont will consent
to such redemption if it is not in Ferris, Baker Watts’s and Jesup &
Lamont’s best interest even if it is in Alyst’s best interest.
If Alyst
calls the warrants for redemption as described above, Alyst has agreed to allow
Robert A. Schriesheim, Dr. William Weksel, Robert H. Davies,
Michael E. Weksel, Paul Levy, Ira Hollenberg IRA, Silverman Realty Group,
Inc. Profit Sharing Plan (LCPSP), Norbert W. Strauss, David Strauss and
Jonathan Strauss and their affiliates to exercise the insider warrants, and
Alyst’s initial stockholders to exercise their warrants included in the initial
shares, on a “cashless basis.” If the holders take advantage of this option,
they would pay the exercise price by surrendering their insider warrants for
that number of shares of common stock equal to the quotient obtained by dividing
(x) the product of the number of shares of common stock underlying the
insider warrants, multiplied by the difference between the exercise price of the
warrants and the “fair market value” (defined below) by (y) the fair market
value. The “fair market value” shall mean the average reported last sale price
of Alyst’s common stock for the 10 trading days ending on the third trading day
prior to the date on which the notice of redemption is sent to holders of
warrants. The reason that Alyst has agreed that the insider warrants will be
exercisable on a cashless basis so long as they are held by the purchasers or
their affiliates is because it is not known at this time whether they will be
affiliated with Alyst following a business combination. If they are, their
ability to sell their securities in the open market will be significantly
limited. If they remain insiders, Alyst will have policies in place that
prohibit insiders from selling its securities except during specific periods of
time. Even during such periods of time, an insider cannot trade in Alyst’s
securities if he is in possession of material non-public information.
Accordingly, unlike public stockholders who could exercise their warrants and
sell the shares of common stock received upon such exercise freely in the open
market in order to recoup the cost of such exercise, the insiders could be
significantly restricted from selling such securities. As a result, Alyst
believes that allowing the holders to exercise such warrants on a cashless basis
is appropriate.
The
exercise price and number of shares of common stock issuable on exercise of the
warrants may be adjusted in certain circumstances including in the event of a
stock dividend, or our recapitalization, reorganization, merger or
consolidation. However, the warrants will not be adjusted for issuances of
common stock at a price below their respective exercise prices.
The
warrant holders do not have the rights or privileges of holders of common stock
and any voting rights until they exercise their warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
No
warrants will be exercisable and Alyst will not be obligated to issue ordinary
shares unless at the time a holder seeks to exercise such warrant, a prospectus
relating to the common stock issuable upon exercise of the warrants is current
and the ordinary shares has been registered or qualified or deemed to be exempt
under the securities laws of the state of residence of the holder of the
warrants. Pursuant to a warrant agreement, Alyst has agreed to use its best
efforts to meet these conditions and to maintain a current prospectus relating
to the ordinary shares issuable upon exercise of the warrants until the
expiration of the warrants.
145
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, Alyst will, upon exercise, round up or down to the nearest
whole number the number of shares of common stock to be issued to the warrant
holder.
The
warrants may be deprived of any value and the market for the warrants may be
limited if the prospectus relating to the ordinary shares issuable upon their
exercise of the warrants is not current or if the common stock is not qualified
or exempt from qualification in the jurisdictions in which the holders of the
warrants reside. No fractional shares will be issued upon exercise of the
warrants. However, if a warrant holder exercises all warrants then owned of
record by him,
Change
of Control Provisions
A number
of provisions in Alyst’s charter and bylaws and under Delaware law may make it
more difficult to acquire control of Alyst. These provisions may have the effect
of delaying, deferring, discouraging, preventing or rendering more difficult a
future takeover attempt which is not approved by Alyst’s Board, but which
individual stockholders may deem to be in their best interests or in which they
may receive a substantial premium over then-current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. These provisions may also adversely affect the
prevailing market price of the common stock. These provisions, which are
described below, are intended to:
|
|
·
|
Enhance
the likelihood of continuity and stability in the Board of
Directors;
|
|
|
·
|
Discourage
some types of transactions that may involve an actual or threatened change
in control;
|
|
|
·
|
Discourage
certain tactics that may be used in proxy
fights;
|
|
|
·
|
Ensure
that the Board of Directors will have sufficient time to act in what it
believes to be in the best interests of the company and its stockholders;
and
|
|
|
·
|
Encourage
persons seeking to acquire control to consult first with the Board to
negotiate the terms of any proposed business combination or
offer.
|
Unissued
Shares of Capital Stock
Common Stock. After the Business Combination,
Alyst will have approximately 12,674,400 shares of common stock outstanding,
assuming that no stockholders elect to exercise their conversion rights. The
remaining authorized and unissued common stock will be available for future
issuance without additional stockholder approval. While the additional shares
are not designed to deter or prevent a change of control, under some
circumstances Alyst could use them to create voting impediments or to frustrate
persons seeking to effect a takeover or otherwise gain control, by, for example,
issuing shares in private placements to purchasers who might side with the board
of directors in opposing a hostile takeover bid.
Preferred Stock. Alyst’s amended and restated
certificate of incorporation grants the Board of Directors the authority,
without any further vote or action by stockholders, to issue preferred stock in
one or more series, fix the number of shares constituting the series and
establish the preferences, limitations and relative rights, including dividend
rights, dividend rate, voting rights, terms of redemption, redemption price or
prices, redemption rights and liquidation preferences of the shares of the
series. The existence of authorized but unissued preferred stock could reduce
the company’s attractiveness as a target for an unsolicited takeover bid, since
the company could, for example, issue preferred stock to parties who might
oppose such a takeover bid, or issue shares with terms the potential acquirer
may find unattractive. This may have the effect of delaying or preventing a
change in control, discourage bids for the common stock at a premium over the
market price, and adversely affect the market price, and voting and other rights
of holders of common stock.
146
DESCRIPTION
OF CN HOLDINGS SECURITIES FOLLOWING THE
BUSINESS
COMBINATION
The
Memorandum and Articles of Association of CN Holdings will be amended prior to
the Special Meeting to include protective provisions substantially identical to
those contained in Alyst’s amended and restated certificate of incorporation at
the time of its IPO. Since CN Holdings’ charter will be the charter
of the corporation surviving the Redomestication Merger, there is no conflict
with the anti-amendment provisions of Alyst’s current amended and restated
certificate of incorporation or the disclosure contained in Alyst’s IPO
prospectus.
The
following description of the material terms of CN Holdings’ shares and warrants
following the Business Combination includes a summary of specified provisions of
the Amended and Restated Memorandum and Articles of Association of CN Holdings
that will be in effect upon completion of the Business Combination and the
Redomestication Merger. This description is subject to the relevant provisions
of British Virgin Islands law and qualified by reference to CN Holdings’ Amended
and Restated Memorandum and Articles of Association, copies of which are
attached to this proxy statement/prospectus and incorporated herein by
reference.
General. CN
Holdings is authorized to issue 75,000,000 ordinary shares par value
$.0001.
Ordinary
Shares. Holders of CN Holdings’ ordinary shares are entitled
to one vote for each share on all matters submitted to a vote of shareholders
and do not have cumulative voting rights. Subject to the preferences and rights,
if any, applicable to preferred shares, the holders of the ordinary shares are
entitled to receive dividends if and when declared by the board of directors.
Subject to the prior rights of the holders, if any, of the preferred shares, the
holders of the ordinary shares are entitled to share ratably in any distribution
of CN Holdings’ assets upon liquidation, dissolution or winding-up, after
satisfaction of all debts and other liabilities.
Anti-Takeover
Effect of Unissued Shares.
Ordinary
shares. After the Redomestication Merger and Business
Combination, CN Holdings will have outstanding approximately 12,674,400 ordinary
shares, assuming that none of the public shareholders elects to exercise
conversion rights. The remaining shares of authorized and unissued ordinary
shares will be available for future issuance without additional shareholder
approval. While the additional shares are not designed to deter or prevent a
change of control, under some circumstances CN Holdings could use the additional
shares to create voting impediments or to frustrate persons seeking to effect a
takeover or otherwise gain control by, for example, issuing shares in private
placements to purchasers who might side with CN Holdings’ board of directors in
opposing a hostile takeover bid.
Warrants. After the
Redomestication Merger and Business Combination, CN Holdings will have 9,864,400
warrants outstanding. Each warrant entitles the registered holder to purchase
one share of our ordinary shares at a price of $5.00 per share, subject to
adjustment as discussed below, at any time commencing on the completion of the
business combination. The warrants will expire at 5:00 p.m., New York City time
on July 29, 2011. CN Holdings may call the warrants for redemption (including
the insider warrants and any warrants issued upon exercise the unit purchase
option issued to Ferris, Baker Watts and Jesup & Lamont), with the prior
consent of Ferris, Baker Watts and Jesup & Lamont: (a) in whole and not in
part, (b) at a price of $.01 per warrant at any time after the warrants become
exercisable, (c) upon not less than 30 days’ prior written notice of redemption
to each warrantholder and (d) if, and only if, the reported last sale price of
the ordinary shares equals or exceeds $11.50 per share, for any 20 trading days
within a 30 trading day period ending on the third business day prior to the
notice of redemption to warrantholders. Those warrants originally issued to
insiders of Alyst are identical to those held by the public warrant holders,
except they also contain a cashless exercise feature.
The
warrants have been issued in registered form under a warrant agreement between
Continental Stock Transfer & Trust Company, as warrant agent, and
Alyst.
Since CN
Holdings may convert the warrants only with the prior written consent of Ferris,
Baker Watts and Jesup & Lamont and Ferris, Baker Watts and Jesup &
Lamont may hold warrants subject to redemption, they may have a conflict of
interest in determining whether or not to consent to such redemption. CN
Holdings cannot assure you that Ferris, Baker Watts and Jesup & Lamont will
consent to such redemption if it is not in Ferris, Baker Watts’s and Jesup &
Lamont’s best interest even if it is in CN Holdings’ best
interest.
147
If CN
Holdings calls the warrants for redemption as described above, CN Holdings has
agreed to allow Robert A. Schriesheim, Dr. William Weksel, Robert H.
Davies, Michael E. Weksel, Paul Levy, Ira Hollenberg IRA, Silverman Realty
Group, Inc. Profit Sharing Plan (LCPSP), Norbert W. Strauss, David Strauss
and Jonathan Strauss and their affiliates to exercise the insider warrants, and
CN Holdings’ initial stockholders to exercise their warrants included in the
initial shares, on a “cashless basis.” If the holders take advantage of this
option, they would pay the exercise price by surrendering their insider warrants
for that number of shares of common stock equal to the quotient obtained by
dividing (x) the product of the number of shares of common stock underlying
the insider warrants, multiplied by the difference between the exercise price of
the warrants and the “fair market value” (defined below) by (y) the fair
market value. The “fair market value” shall mean the average reported last sale
price of CN Holdings’ common stock for the 10 trading days ending on the third
trading day prior to the date on which the notice of redemption is sent to
holders of warrants. The reason that CN Holdings has agreed that the insider
warrants will be exercisable on a cashless basis so long as they are held by the
purchasers or their affiliates is because it is not known at this time whether
they will be affiliated with CN Holdings following a business combination. If
they are, their ability to sell their securities in the open market will be
significantly limited. If they remain insiders, CN Holdings will have policies
in place that prohibit insiders from selling its securities except during
specific periods of time. Even during such periods of time, an insider cannot
trade in CN Holdings’ securities if he is in possession of material non-public
information. Accordingly, unlike public stockholders who could exercise their
warrants and sell the shares of common stock received upon such exercise freely
in the open market in order to recoup the cost of such exercise, the insiders
could be significantly restricted from selling such securities. As a result, CN
Holdings believes that allowing the holders to exercise such warrants on a
cashless basis is appropriate.
The
exercise price and number of shares of common stock issuable on exercise of the
warrants may be adjusted in certain circumstances including in the event of a
stock dividend, or our recapitalization, reorganization, merger or
consolidation. However, the warrants will not be adjusted for issuances of
common stock at a price below their respective exercise prices.
The
warrant holders do not have the rights or privileges of holders of common stock
and any voting rights until they exercise their warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the
warrants, each holder will be entitled to one vote for each share held of record
on all matters to be voted on by stockholders.
No
warrants will be exercisable and CN Holdings will not be obligated to issue
shares of common stock unless at the time a holder seeks to exercise such
warrant, a prospectus relating to the common stock issuable upon exercise of the
warrants is current and the common stock has been registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the
holder of the warrants. Pursuant to a warrant agreement, CN Holdings has agreed
to use its best efforts to meet these conditions and to maintain a current
prospectus relating to the common stock issuable upon exercise of the warrants
until the expiration of the warrants.
No
fractional shares will be issued upon exercise of the warrants. If, upon
exercise of the warrants, a holder would be entitled to receive a fractional
interest in a share, CN Holdings will, upon exercise, round up or down to the
nearest whole number the number of shares of common stock to be issued to the
warrant holder.
The
warrants may be deprived of any value and the market for the warrants may be
limited if the prospectus relating to the ordinary shares issuable upon the
exercise of the warrants is not current or if the ordinary shares are not
qualified or exempt from qualification in the jurisdictions in which the holders
of the warrants reside. No fractional shares will be issued upon exercise of the
warrants. However, if a warrantholder exercises all warrants then owned of
record by him, her or it, CN Holdings will pay to the warrantholder, in lieu of
the issuance of any fractional share which is otherwise issuable to the
warrantholder, an amount for such fractional share in cash based on the market
value of the ordinary shares on the last trading day prior to the exercise
date.
148
Purchase
Option.
In
connection with Alyst’s IPO, an option to purchase up to a total of 300,000
units was issued to Ferris, Baker & Watts, as representatives of the
underwriters, for $100. The units issuable upon exercise of the
option are identical to the units issued to the public in the IPO, except that
the exercise price of the underlying warrants will be $10.00 per
share. The fair value of the option at the date of issuance was
estimated by Alyst to be approximately $930,000 (or $3.10 per unit) using a
Black-Scholes option-pricing model. Alyst has no obligation to net
cash settle the exercise of the unit purchase option of the warrants underlying
such option. Ferris, Baker & Watts is not entitled to exercise
the option or the underlying warrants unless a registration statement covering
the securities underlying the option is effective or an exemption from
registration under the Securities Act is available. If Ferris, Baker
& Watts is unable to exercise the option or the underlying warrants, the
securities will expire as worthless.
Registration Rights
Agreements In the Merger Agreement, Alyst and CN Holdings
agreed to enter into a registration rights agreement providing for the
registration of the ordinary shares issuable by CN Holdings upon the conversion
of Class A Preferred Shares of China Networks Media.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for Alyst’s common stock, warrants and units is
Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New
York 10004, (212) 509-4000. Continental Stock Transfer & Trust Company is
also the transfer agent and registrar for CN Holdings’ ordinary shares, units
and warrants.
STOCKHOLDER
PROPOSALS
If the
Business Combination is consummated, CN Holdings’ annual meeting of shareholders
will be held on or about [ ], 2009 unless the date
is changed by the Board of Directors. If you are a shareholder and you want to
include a proposal in the Proxy Statement for that annual meeting, you need to
provide it to CN Holdings by no later than [ ]. You
should direct any proposals to CN Holdings secretary at CN Holdings principal
office.
LEGAL
MATTERS
Maples
and Calder, British Virgin Islands, will pass upon the validity of the CN
Holdings securities to be issued in the Redomestication Merger and certain other
legal matters related to this proxy statement/prospectus. McDermott Will &
Emery LLP, New York, New York, special U.S. counsel to the registrant and Alyst,
will has provided its advice as to certain matters of U.S. law. Copies of the
respective legal opinions are included as exhibits to the Registration Statement
of which this proxy/prospectus form a part.
EXPERTS
The
financial statements of Alyst as at and for the periods from August 16, 2006
(inception) through June 30, 2007 and June 30, 2008 included in this
proxy/prospectus have been audited by Marcum & Kliegman LLP, an independent
registered public accounting firm, as stated in their report dated September 23,
2008 which includes an explanatory paragraph related to the Company's ability to
continue as a going concern, appearing herein and are included in reliance upon
the report of such firm given upon their authority as experts in auditing and
accounting.
The
financial statements of China Networks Media, Ltd. (formerly known as China
Networks Limited) (a development stage enterprise) as at December 31, 2007 and
for the period from March 30, 2007 (inception) to December 31, 2007 included in
this proxy/prospectus have been audited by UHY LLP, independent registered
public accounting firm, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The
financial statement of PRC TV Stations as at and for the periods ended December
31, 2007, December 31, 2006 and December 31, 2005 included in this
proxy/prospectus have been audited by UHY Vocation HK CPA Limited, independent
registered accountants, as stated in their reports appearing herein and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
149
DELIVERY
OF DOCUMENTS TO STOCKHOLDERS
Pursuant
to the rules of the SEC, Alyst and services that it employs to deliver
communications to its stockholders are permitted to deliver to two or more
stockholders sharing the same address a single copy of each of Alyst’s annual
report to stockholders and proxy statement. Upon written or oral request, Alyst
will deliver a separate copy of the annual report to stockholders and/or proxy
statement to any stockholder at a shared address who wishes to receive separate
copies of such documents in the future. Stockholders receiving multiple copies
of such documents may likewise request that Alyst deliver single copies of such
documents in the future. Stockholders may notify Alyst of their requests by
calling or writing Alyst at Alyst’s principal executive offices at 233 E. 69th
Street, #6J, New York, NY 10021.
150
WHERE
YOU CAN FIND MORE INFORMATION
Alyst
files reports, proxy statements and other information with the SEC as required
by the Securities Exchange Act of 1934, as amended.
You may
read and copy reports, proxy statements and other information filed by Alyst
with the SEC at its public reference room located at 100 F Street, N.E.,
Washington, D.C. 20549-1004 on official business days during the hours of 10:00
am to 3:00 pm.
You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. You may also obtain copies of the materials described
above at prescribed rates by writing to the SEC, Public Reference Section, 100 F
Street, N.E., Washington, D.C. 20549-1004.
Alyst
files its reports, proxy statements and other information electronically with
the SEC. You may access information on Alyst at the SEC web site containing
reports, proxy statements and other information at
http://www.sec.gov.
This
Proxy describes the material elements of relevant contracts, exhibits and other
information described in this Proxy. Information and statements contained in
this Proxy are qualified in all respects by reference to the copy of the
relevant contract or other document included as an annex to this
document.
All
information contained or incorporated by reference in this Proxy relating to
Alyst has been supplied by Alyst, and all such information relating to China
Networks Media has been supplied by China Networks Media. Information provided
by either of us does not constitute any representation, estimate or projection
of the other. If you
would like additional copies of this proxy statement/prospectus, or if you have
questions about the Redomestication Merger or the Business Combination, you
should contact:
William
Weksel
Chairman
and Chief Executive Officer
Alyst
Acquisition Corp.
This
proxy statement/prospectus incorporates important business and financial
information about Alyst, China Networks Media and their respective subsidiaries
that is not included in or delivered with the document. This information is
available without charge to security holders upon written or oral request. The
request should be sent to:
William
Weksel
Alyst
Acquisition Corp.
233
E. 69th Street, #6J
New
York, NY 10021
(646)
290-6104
To obtain
timely delivery of requested materials, security holders must request the
information no later than five business days before the date they submit their
proxies or attend the Special Meeting. The latest date to request the
information to be received timely is [ ],
2008.
151
ALYST
ACQUISITION CORP.
(a
development stage company)
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Pages
|
|
|
Condensed
Balance Sheets at September 30, 2008 (Unaudited) and June 30,
2008
|
F-2 |
|
Condensed
Statements of Income (Unaudited) for the three months ended September 30,
2008 and 2007, and for the period from August 16, 2006 (inception) through
September 30, 2008
|
F-3 |
|
Condensed
Statements of Changes in Stockholders’ Equity (Unaudited) for the period
from August 16, 2006 (inception) through September 30,
2008
|
F-4 |
|
Condensed
Statements of Cash Flows (Unaudited) for the three months ended September
30, 2008 and 2007, and for the period from August 16, 2006 (inception)
through September 30, 2008
|
F-5 |
|
Notes
to Unaudited Condensed Financial Statements
|
F-6 |
F-1
ALYST
ACQUISITION CORP.
(a
development stage company)
CONDENSED
BALANCE SHEETS
|
September
30, 2008
|
June 30,
2008
|
|||||||
|
Unaudited
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 722,578 | $ | 419,058 | ||||
|
Cash
held in trust account, interest and dividends available for working
capital and taxes (including prepaid income taxes of $173,995 and $256,481
as of September 30, 2008 and June 30, 2008,
respectively)
|
521,011 | 749,337 | ||||||
|
Prepaid
expenses
|
21,656 | 43,476 | ||||||
|
Total
current assets
|
1,265,245 | 1,211,871 | ||||||
|
Trust
account, restricted
|
||||||||
|
Cash
held in trust account, restricted
|
63,154,286 | 63,154,286 | ||||||
|
Other
assets
|
||||||||
|
Deferred
acquisition costs
|
683,330 | 472,752 | ||||||
|
Total
assets
|
$ | 65,102,861 | $ | 64,838,909 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 607,031 | $ | 459,025 | ||||
|
Common
stock subject to possible conversion, 2,413,319 shares at conversion
value
|
18,946,276 | 18,946,276 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity
|
||||||||
|
Preferred
stock, $.0001 par value, authorized 1,000,000 shares; none issued or
outstanding
|
— | — | ||||||
|
Common
stock, $.0001 par value, authorized 30,000,000 shares; issued and
outstanding 9,794,400 shares (less 2,413,319 shares subject to possible
conversion)
|
738 | 738 | ||||||
|
Additional
paid-in capital
|
44,280,250 | 44,280,250 | ||||||
|
Income
accumulated during the development stage
|
1,268,566 | 1,152,620 | ||||||
|
Total
stockholders’ equity
|
45,549,554 | 45,433,608 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 65,102,861 | $ | 64,838,909 | ||||
The
accompanying notes are an integral part of these condensed financial
statements
F-2
ALYST
ACQUISITION CORP.
(a
development stage company)
CONDENSED
STATEMENTS OF INCOME
(Unaudited)
|
For the
three months
ended
September
30,
2008
|
For the
three months
ended
September
30,
2007
|
For the
period
from
August 16,
2006
(inception)
through
September
30,
2008
|
||||||||||
|
Revenue
|
$ | — | $ | — | $ | — | ||||||
|
Formation
and operating costs
|
135,553 | 40,814 | 459,404 | |||||||||
|
Loss
from operations
|
(135,553 | ) | (40,814 | ) | (459,404 | ) | ||||||
|
Interest
and dividend income, net
|
347,520 | 761,888 | 2,775,989 | |||||||||
|
Income
before provision for income taxes
|
211,967 | 721,074 | 2,316,585 | |||||||||
|
Provision
for income taxes
|
96,021 | 260,875 | 1,048,019 | |||||||||
|
Net
income
|
$ | 115,946 | $ | 460,199 | $ | 1,268,566 | ||||||
|
Weighted
average number of common shares outstanding excluding
shares subject to possible conversion-basic and
diluted
|
7,381,081 | 7,137,020 | ||||||||||
|
Basic
and diluted net income per share
|
$ | 0.02 | $ | 0.06 | ||||||||
The
accompanying notes are an integral part of these condensed financial
statements
F-3
ALYST
ACQUISITION CORP.
(a
development stage company)
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the period from August 16, 2006 (inception) through September 30,
2008
(Unaudited)
|
Common Stock
|
Additional
paid-
|
(Deficit)
income
accumulated
during the
development
|
Total
stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
in capital
|
stage
|
equity
|
||||||||||||||||
|
Balance
at August 16, 2006 (inception)
|
— | $ | — | $ | — | $ | — | $ | — | |||||||||||
|
Common
shares issued at inception at $0.014 per share
|
1,750,000 | 175 | 24,825 | — | 25,000 | |||||||||||||||
|
Net
loss from August 16, 2006 (inception) through June 30,
2007
|
— | — | — | (3,916 | ) | (3,916 | ) | |||||||||||||
|
Balance
at June 30, 2007
|
1,750,000 | 175 | 24,825 | (3,916 | ) | 21,084 | ||||||||||||||
|
Sale
of 8,044,400 units, net of underwriters’ discount and offering expenses of
$2,973,036 (includes 2,413,319 shares subject to possible
conversion)
|
8,044,400 | 804 | 61,381,360 | — | 61,382,164 | |||||||||||||||
|
Proceeds
subject to possible conversion of 2,413,319 shares
|
— | (241 | ) | (18,946,035 | ) | — | (18,946,276 | ) | ||||||||||||
|
Proceeds
from issuance of insiders’ warrants
|
— | — | 1,820,000 | — | 1,820,000 | |||||||||||||||
|
Proceeds
from issuance of underwriters’ purchase option
|
— | — | 100 | — | 100 | |||||||||||||||
|
Net
income for the year ended June 30, 2008
|
— | — | — | 1,156,536 | 1,156,536 | |||||||||||||||
|
Balance
at June 30, 2008
|
9,794,400 | 738 | 44,280,250 | 1,152,620 | 45,433,608 | |||||||||||||||
|
Net
income for the three months ended September 30, 2008
|
— | — | — | 115,946 | 115,946 | |||||||||||||||
|
Balance
at September 30, 2008 (unaudited)
|
9,794,400 | $ | 738 | $ | 44,280,250 | $ | 1,268,566 | $ | 45,549,554 | |||||||||||
The
accompanying notes are an integral part of these condensed financial
statements
F-4
ALYST
ACQUISITION CORP.
(a
development stage company)
CONDENSED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
For the three
months
ended
September
30, 2008
|
For the three
months
ended
September 30,
2007
|
For the period
from
August 16,
2006
(inception)
through
September 30,
2008
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
income
|
$ | 115,946 | $ | 460,199 | $ | 1,268,566 | ||||||
|
Adjustment
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Change
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses
|
21,820 | (76,946 | ) | (21,656 | ) | |||||||
|
Accounts
payable and accrued expenses
|
148,006 | 15,396 | 607,031 | |||||||||
|
Income
taxes payable
|
— | 260,000 | — | |||||||||
|
Net
cash provided by operating activities
|
285,772 | 658,649 | 1,853,941 | |||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Cash
held in trust
account, restricted
|
— | (63,154,286 | ) | (63,154,286 | ) | |||||||
|
Cash
held in trust account, interest and dividends available for working
capital and taxes
|
228,326 | (228,884 | ) | (521,011 | ) | |||||||
|
Deferred
acquisition costs
|
(210,578 | ) | — | (683,330 | ) | |||||||
|
Net
cash provided by (used in) investing activities
|
17,748 | (63,383,170 | ) | (64,358,627 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from issuance of common stock to initial stockholders
|
— | — | 25,000 | |||||||||
|
Proceeds
from notes payable to stockholders
|
— | — | 150,000 | |||||||||
|
Gross
proceeds from initial public offering
|
— | 64,355,200 | 64,355,200 | |||||||||
|
Proceeds
from issuance of insiders’ warrants
|
— | 1,820,000 | 1,820,000 | |||||||||
|
Proceeds
from issuance of underwriters’ purchase option
|
— | 100 | 100 | |||||||||
|
Payment
of notes payable to stockholders
|
— | (150,000 | ) | (150,000 | ) | |||||||
|
Payment
of offering costs
|
— | (2,865,438 | ) | (2,973,036 | ) | |||||||
|
Net
cash provided by financing activities
|
— | 63,159,862 | 63,227,264 | |||||||||
|
Net
increase in cash
|
303,520 | 435,341 | 722,578 | |||||||||
|
Cash
at beginning of period
|
419,058 | 65,487 | — | |||||||||
|
Cash
at end of period
|
$ | 722,578 | $ | 500,828 | $ | 722,578 | ||||||
|
Cash
paid during period for:
|
||||||||||||
|
Interest
|
$ | — | $ | 951 | $ | 951 | ||||||
|
Income
taxes
|
$ | 13,355 | $ | 875 | $ | 1,222,014 | ||||||
The
accompanying notes are an integral part of these condensed financial
statements
F-5
ALYST
ACQUISITION CORP.
(a
development stage company)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
NOTE
1.
|
INTERIM
FINANCIAL INFORMATION, ORGANIZATION, BUSINESS OPERATIONS, SIGNIFICANT
ACCOUNTING POLICIES AND GOING
CONCERN
|
Alyst
Acquisition Corp.’s (the “Company”) unaudited, condensed interim financial
statements as of September 30, 2008, and for the three months ended September
30, 2008, and 2007, and for the period from August 16, 2006 (inception) through
September 30, 2008, have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. In addition, the June 30, 2008 balance sheet was
derived from the audited financial statements, but does not include all
disclosures required by GAAP in these unaudited condensed financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results to be expected for any other interim period or for the
full year.
These
unaudited condensed interim financial statements should be read in conjunction
with the audited financial statements and notes thereto for the fiscal year
ended June 30, 2008 included in the Company’s Form 10-KSB filed on September 25,
2008. The accounting policies used in preparing these unaudited condensed
interim financial statements are consistent with those described in the June 30,
2008 financial statements.
The
Company was incorporated in Delaware on August 16, 2006 as a blank check company
to serve as a vehicle to effect a merger, capital stock exchange, asset
acquisition or other similar business combination with an operating business
(“Business Combination”).
All
activity from August 16, 2006 (inception) through July 5, 2007 relates to the
Company’s formation and the public offering, described below. Since July 6,
2007, the Company has been searching for a target business to acquire. The
Company has selected June 30 as its fiscal year end.
Going
Concern and Management’s Plan and Intentions:
As of
September 30, 2008, the Company had working capital of $658,214. Other than
interest and dividend income of up to $1.68 million from the trust account, the
Company’s only source of income, to enable it to continue to fund its search for
an acquisition candidate, is the interest and dividends it earns on its cash not
held in the Trust Account. These funds may not be sufficient to maintain the
Company until a business combination is consummated. In addition, there can be
no assurance that the Company will enter into a Business Combination prior to
June 29, 2009. Pursuant to its Certificate of Incorporation, the Company would
have to liquidate pursuant to a dissolution plan and return the funds held in
the Trust Account to the holders of shares issued in the Offering as previously
described. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. These financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
F-6
ALYST
ACQUISITION CORP.
(a
development stage company)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
NOTE
1.
|
INTERIM
FINANCIAL INFORMATION, ORGANIZATION, BUSINESS OPERATIONS, SIGNIFICANT
ACCOUNTING POLICIES AND GOING CONCERN
(CONTINUED)
|
Concentration
of Credit Risk:
Statement
of Financial Accounting Standards (“SFAS”) No. 105, “Disclosure of Information
about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentration of Credit Risk”, requires disclosure of
significant concentrations of credit risk regardless of the degree of risk. At
September 30, 2008, financial instruments that potentially expose the Company to
credit risk consist of cash. The Company maintains its cash balances in U.S.
Treasury only money market funds at various financial institutions. As of
September 30, 2008 the Federal Deposit Insurance Corporation insured balances in
bank accounts up to $100,000 ($250,000 effective October 3, 2008) and the
Securities Investor Protection Corporation insured balances up to $500,000 in
brokerage accounts. At September 30, 2008, the uninsured balances amounted to
approximately $63.6 million.
Earnings
Per Share:
The
Company follows the provisions of SFAS No. 128, “Earnings per Share”. In
accordance with SFAS No. 128, earnings per common share amounts (“Basic EPS”)
are computed by dividing earnings by the weighted average number of common
shares outstanding for the period. Common shares subject to possible conversion
of 2,413,319 have been excluded from the calculation of basic earnings per share
since such shares, if redeemed, only participate in their pro rata shares of the
trust earnings. Earnings per common share amounts, assuming dilution (“Diluted
EPS”), gives effect to dilutive options, warrants, and other potential common
stock outstanding during the period. SFAS No. 128 requires the presentation of
both Basic EPS and Diluted EPS on the face of the statements of operations. The
effect of the 9,864,400 outstanding Warrants issued in connection with the
Public Offering and the Insiders’ Warrants have not been considered in the
diluted earnings per share calculation since the Warrants are contingent upon
the occurrence of future events, and therefore, are not includable in the
calculation of diluted earnings per share in accordance with SFAS
128.
|
NOTE
2.
|
POTENTIAL
ACQUISITION
|
On
August 13, 2008, the Company signed an agreement and plan of merger to acquire
all of the issued and outstanding shares of China Networks Media Ltd., a British
Virgin Islands Company (“China Networks”) which owns and is in the process of
acquiring television station operating assets in the People’s Republic of China
(PRC). As part of the transaction, the Company will redomesticate to the British
Virgin Islands by means of merging with its wholly owned subsidiary China
Networks Holdings immediately prior to consummating its transaction with China
Networks.
Pursuant
to the transaction, China Networks will become a wholly owned subsidiary of the
Company and the holders of the capital stock of China Networks will receive,
upon the effectiveness of the merger, an aggregate of (i) 2,880,000 shares and
(ii) $17,000,000 in cash. The holders of ordinary shares of China Networks will
also be entitled to receive up to $6,000,000 of additional cash and 9,000,000
additional shares upon attaining certain performance
milestones.
F-7
ALYST
ACQUISITION CORP.
(a
development stage company)
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
NOTE
2.
|
POTENTIAL
ACQUISITION (CONTINUED)
|
Additionally,
the holders of the capital stock of China Networks will be entitled to receive
up to $24,910,000 of the cash received by the Company from the exercise of
outstanding warrants. There remain a number of conditions to the Company’s
completing the acquisition of China Networks, including review by the U.S.
Securities and Exchange Commission (the “SEC”) of the Company’s forthcoming
proxy and the related registration statement and approval by the Company’s
stockholders of the merger between the Company and China
Networks.
|
NOTE
3.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company entered into an agreement with the underwriters of the Offering (the
“Underwriting Agreement”). Under the terms of the Underwriting Agreement, the
Company paid an underwriting discount of 3.723% ($2,395,914) of the gross
proceeds in connection with the consummation of the Offering and has placed
3.277% ($2,108,950) of the gross proceeds in the Trust Account which will be
paid to the underwriters only upon consummation of a Business Combination.
Additionally, the Company has placed $560,000 in the Trust Account representing
the non-accountable expense allowance due from the Offering which will be paid
to the underwriters only upon consummation of a Business Combination. The
Company did not pay any discount related to the insiders’ warrants. The
Underwriters have waived their rights to receive payments from the Trust Account
of $2,108,950 of underwriting discounts and $560,000 of expense reimbursements,
which are due under the Underwriting Agreement if the Company is unable to
consummate a Business Combination prior to June 29, 2009.
F-8
ALYST
ACQUISITION CORP.
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
F-10
|
|
|
Balance
Sheet at June 30, 2008
|
F-11
|
|
|
Statements
of Operations for the fiscal year ended June 30, 2008, and for the periods
from August 16, 2006 (inception) through June 30, 2007 and June 30,
2008
|
F-12
|
|
|
Statements
of Changes in Stockholders’ Equity for the period from August 16, 2006
(inception) through June 30, 2008
|
F-13
|
|
|
Statements
of Cash Flows for the fiscal year ended June 30, 2008, and for the periods
from August 16, 2006 (inception) through June 30, 2007 and June 30,
2008
|
F-14
|
|
|
Notes
to Financial Statements
|
|
F-15
|
F-9
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the Board of Directors and Stockholders of
Alyst
Acquisition Corp.
We have
audited the accompanying balance sheet of Alyst Acquisition Corp. (a development
stage company) (the “Company”) as of June 30, 2008, and the related statements
of operations, changes in stockholders’ equity and cash flows for the year then
ended and for the periods from August 16, 2006 (inception) through June 30, 2007
and June 30, 2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company’s certificate of incorporation provides for mandatory
liquidation of the Company in the event that the Company does not consummate a
business combination (as defined) prior to June 29, 2009. These factors raise
substantial doubt about its ability to continue as a going concern. Management’s
plans regarding those matters are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Alyst Acquisition Corp. (a
development stage company) as of June 30, 2008, and the results of its
operations and its cash flows for the year then ended, and for the periods from
August 16, 2006 (inception) through June 30, 2007 and June 30, 2008, in
conformity with United States generally accepted accounting
principles.
/s/
Marcum & Kliegman LLP
Marcum & Kliegman LLP
Melville,
New York
September
23, 2008
F-10
ALYST
ACQUISITION CORP.
(a
development stage company)
BALANCE
SHEET
|
June
30,
|
||||
|
2008
|
||||
|
ASSETS
|
||||
|
Current
Assets:
|
||||
|
Cash
and cash equivalents
|
$ | 419,058 | ||
|
Cash
held in trust account, interest available for working capital and taxes
(totaling $749,337):
|
||||
|
Cash
held in trust account
|
492,856 | |||
|
Income
taxes refund receivable
|
256,481 | |||
|
Prepaid
expenses
|
43,476 | |||
|
Deferred
target acquisition costs
|
472,752 | |||
|
Total
current assets
|
1,684,623 | |||
|
Cash
held in trust account, restricted
|
63,154,286 | |||
|
Total
assets
|
$ | 64,838,909 | ||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
|
Current
Liabilities -accrued expenses
|
$ | 459,025 | ||
|
Common
stock subject to possible conversion, 2,413,319 shares at conversion
value
|
18,946,276 | |||
|
Commitments
and contingencies
|
||||
|
Stockholders’
equity
|
||||
|
Preferred
stock, $.0001 par value, authorized 1,000,000 shares; none issued or
outstanding
|
— | |||
|
Common
stock, $.0001 par value, authorized 30,000,000 shares; issued and
outstanding 9,794,400 shares (less 2,413,319 shares subject to possible
conversion)
|
738 | |||
|
Additional
paid-in capital
|
44,280,250 | |||
|
Earnings
accumulated during the development stage
|
1,152,620 | |||
|
Total
stockholders’ equity
|
45,433,608 | |||
|
Total
liabilities and stockholders’ equity
|
$ | 64,838,909 | ||
The
accompanying notes are an integral part of these financial
statements.
F-11
ALYST
ACQUISITION CORP.
(a
development stage company)
STATEMENTS
OF OPERATIONS
|
For the year
ended
June 30, 2008
|
For the period
from
August 16, 2006
(inception)
through
June 30,2007
|
For the period
from
August 16, 2006
(inception)
through
June 30,2008
|
||||||||||
|
Revenue
|
$ | — | $ | — | $ | — | ||||||
|
Formation
and operating costs
|
319,003 | 4,848 | 323,851 | |||||||||
|
Loss
from operations
|
(319,003 | ) | (4,848 | ) | (323,851 | ) | ||||||
|
Interest
income, net
|
2,426,933 | 1,536 | 2,428,469 | |||||||||
|
Income
(loss) before provision for income taxes
|
2,107,930 | (3,312 | ) | 2,104,618 | ||||||||
|
Provision
for income taxes
|
951,394 | 604 | 951,998 | |||||||||
|
Net
income (loss)
|
$ | 1,156,536 | $ | (3,916 | ) | $ | 1,152,620 | |||||
|
Weighted
average number of common shares outstanding excluding shares subject to
possible conversion- basic and diluted
|
7,319,371 | 1,750,000 | ||||||||||
|
Basic
and diluted net income (loss) per share
|
$ | 0.16 | $ | (0.00 | ) | |||||||
The
accompanying notes are an integral part of these financial
statements.
F-12
ALYST
ACQUISITION CORP.
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
For the
period from August 16, 2006 (inception) through June 30, 2008
|
Common Stock
|
Additional
|
(Deficit)
earnings
accumulated
during the
development
|
Total
stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
paid-in capital
|
Stage
|
equity
|
||||||||||||||||
|
Balance
at August 16, 2006 (inception)
|
— | $ | — | $ | — | $ | — | $ | — | |||||||||||
|
Common
shares issued at inception at $0.014 per share
|
1,750,000 | 175 | 24,825 | — | 25,000 | |||||||||||||||
|
Net
loss from August 16, 2006 (inception) through June 30,
2007
|
— | — | — | (3,916 | ) | (3,916 | ) | |||||||||||||
|
Balance
at June 30, 2007
|
1,750,000 | 175 | 24,825 | (3,916 | ) | 21,084 | ||||||||||||||
|
Sale
of 8,044,400 units, net of underwriters’ discount and offering expenses
of $2,973,036 (includes 2,413,319 shares subject to
possible conversion)
|
8,044,400 | 804 | 61,381,360 | — | 61,382,164 | |||||||||||||||
|
Proceeds
subject to possible conversion of 2,413,319
shares
|
— | (241 | ) | (18,946,035 | ) | — | (18,946,276 | ) | ||||||||||||
|
Proceeds
from issuance of insiders’ warrants
|
— | — | 1,820,000 | — |
1,820,000
|
|||||||||||||||
|
Proceeds
from issuance of underwriters’ purchase option
|
— | — | 100 | — | 100 | |||||||||||||||
|
Net
income for year ended June 30, 2008
|
— | — | — | 1,156,536 | 1,156,536 | |||||||||||||||
|
Balance
at June 30, 2008
|
9,794,400 | $ | 738 | $ | 44,280,250 | $ | 1,152,620 | $ | 45,433,608 | |||||||||||
The
accompanying notes are an integral part of these financial
statements.
F-13
ALYST
ACQUISITION CORP.
(a
development stage company)
STATEMENTS
OF CASH FLOWS
|
For the year
ended
June 30, 2008
|
For the period
from
August 16, 2006
(inception)
through
June 30, 2007
|
For the period
from
August 16, 2006
(inception)
through
June 30, 2008
|
||||||||||
|
Cash
flows from operating activities
|
$ | 1,156,536 | $ | (3,916 | ) | $ | 1,152,620 | |||||
|
Net
income (loss)
|
||||||||||||
|
Adjustment
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Change
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses
|
(43,476 | ) | — | (43,476 | ) | |||||||
|
Accrued
expenses
|
457,025 | 2,000 | 459,025 | |||||||||
|
Net
cash provided by (used in) operating activities
|
1,570,085 | (1,916 | ) | 1,568,169 | ||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Cash
held in trust account restricted
|
(63,154,286 | ) | — | (63,154,286 | ) | |||||||
|
Cash
held in trust account, interest available for working capital and
taxes
|
(749,337 | ) | — | (749,337 | ) | |||||||
|
Deferred
target acquisition costs
|
(472,752 | ) | — | (472,752 | ) | |||||||
|
Net
cash used in investing activities
|
(64,376,375 | ) | — | (64,376,375 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds
from issuance of common stock to initial stockholders
|
— | 25,000 | 25,000 | |||||||||
|
Proceeds
from notes payable to stockholders
|
— | 150,000 | 150,000 | |||||||||
|
Gross
proceeds from IPO
|
64,355,200 | — | 64,355,200 | |||||||||
|
Proceeds
from issuance of insiders’ warrants
|
1,820,000 | — | 1,820,000 | |||||||||
|
Proceeds
from issuance of underwriters’ purchase option
|
100 | — | 100 | |||||||||
|
Payment
of notes payable to stockholders
|
(150,000 | ) | — | (150,000 | ) | |||||||
|
Payment
of offering costs
|
(2,865,439 | ) | (107,597 | ) | (2,973,036 | ) | ||||||
|
Net
cash provided by financing activities
|
63,159,861 | 67,403 | 63,227,264 | |||||||||
|
Net
increase in cash
|
353,571 | 65,487 | 419,058 | |||||||||
|
Cash
at beginning of period
|
65,487 | — | — | |||||||||
|
Cash
at end of period
|
$ | 419,058 | $ | 65,487 | $ | 419,058 | ||||||
|
Supplemental
disclosures of non-cash transactions:
|
||||||||||||
|
Cash
paid during period for:
|
||||||||||||
|
Interest
|
$ | 951 | $ | — | $ | 951 | ||||||
|
Taxes
|
$ | 1,207,875 | $ | 604 | $ | 1,208,479 | ||||||
|
Accrual
for deferred offering costs:
|
||||||||||||
|
Deferred
offering costs
|
$ | — | $ | 20,123 | $ | — | ||||||
|
Accrued
offering costs
|
$ | — | $ | (20,123 | ) | $ | — | |||||
The
accompanying notes are an integral part of these financial
statements.
F-14
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 1.
Organization and Business Operations
Alyst
Acquisition Corp. (the “Company”) was incorporated in Delaware on August 16,
2006 as a blank check company to serve as a vehicle to effect a merger, capital
stock exchange, asset acquisition or other similar business combination with an
operating business (“Business Combination”).
All
activity from August 16, 2006 through July 5, 2007 relates to the Company’s
formation and the public offering described below. Since July 6, 2007, the
Company has been searching for a target business to acquire. The Company has
selected June 30 as its fiscal year end.
The
registration statement for the Company’s IPO (“Offering”) was declared effective
June 29, 2007 (“Effective Date”). The Company consummated the Offering on July
5, 2007 and received net proceeds of $61,382,164 and $1,820,000 from the sale of
insider warrants on a private placement basis (see Note 3). The Company’s
management has broad discretion with respect to the specific application of the
net proceeds of this Offering, although substantially all of the net proceeds of
the Offering are intended to be generally applied toward consummating a Business
Combination. There is no assurance that the Company will be able to successfully
effect a Business Combination.
An amount
of $63,154,286 (or approximately $7.85 per share) of the net proceeds of the
Offering and the sale of the insiders’ warrants (see Note 3) was placed in a
trust account (“Trust Account”) upon the consummation of the Offering. The
proceeds held in the Trust Account may be invested in United States “government
securities” within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940 having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act
of 1940 until the earlier of (i) the consummation of the Company’s initial
Business Combination or (ii) liquidation of the Company. As of June 30, 2008,
the balance in the Trust Account was $63,647,142, which includes $492,856 which
is available for working capital purposes and $256,481 of prepaid income taxes
included in total cash held in trust account, interest available for working
capital and taxes. The balance of $63,154,286 has been classified on the June
30, 2008 balance sheet as cash held in trust account, restricted. Since the
inception of the Trust Account through June 30, 2008, $2,411,857 has been earned
in cumulative interest, of which $1,919,000 has been transferred out of the
Trust Account to the operating account of the Company for working capital and
tax purposes. During the year ended June 30, 2008 all of the funds in the Trust
Account were invested in Western Asset Institutional Government Money Market
Fund Class A. The placing of funds in the Trust Account may not protect those
funds from third party claims against the Company. Although the Company will
seek to have all vendors, prospective target businesses or other entities it
engages, execute agreements with the Company waiving any right, title, interest
or claim of any kind in or to any monies held in the Trust Account, there is no
guarantee that they will execute such agreements.
The
Company’s officers have agreed that they will be personally liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced
by the claims of target businesses or vendors or other entities that are owed
money by the Company for services rendered, contracted for or products sold to
the Company. However, there can be no assurance that they will be able to
satisfy those obligations. The remaining net proceeds (not held in the Trust
Account) may be used to pay for business, legal and accounting due diligence on
prospective acquisitions and continuing general and administrative expenses.
Except with respect to interest income that may be released to the Company of
(i) up to $1,680,000 to fund expenses related to investigating and selecting a
target business and other working capital requirements and (ii) any additional
amounts needed to pay income or other tax obligations, the proceeds held in
trust will not be released from the Trust Account until the earlier of the
completion of a Business Combination or the Company’s liquidation.
F-15
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 1.
Organization and Business Operations (Continued)
The
Company, after signing a definitive agreement for a Business Combination with a
target business or businesses, is required to submit such transaction for
stockholder approval. In the event that the stockholders owning 30% or more of
the shares sold in the Offering vote against the Business Combination and
exercise their conversion rights described below, the Business Combination will
not be consummated. All of the Company’s stockholders prior to the Offering,
including all of the officers and directors of the Company (“Initial
Stockholders”) have agreed to vote all of their Founders’ Common Stock in
accordance with the vote of the majority in interest of all other stockholders
of the Company (“Public Stockholders”) with respect to any Business Combination.
After consummation of a Business Combination, these voting restrictions will no
longer apply.
With
respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares into cash from the Trust Account. The per
share conversion price will equal the amount in the Trust Account, calculated as
of two business days prior to the consummation of the proposed Business
Combination, divided by the number of shares of common stock held by Public
Stockholders at the consummation of the Offering. Accordingly, Public
Stockholders holding 30% (minus 1 share) of the aggregate number of shares owned
by all Public Stockholders may seek conversion of their shares in the event of a
Business Combination. Such Public Stockholders are entitled to receive their per
share interest in the Trust Account computed without regard to the shares held
by Initial Stockholders.
The
Company’s Certificate of Incorporation was amended on June 29, 2007 (“Effective
Date”) to provide that the Company will continue in existence only until 24
months from the Effective date of the registration statement relating to the
Offering, or June 29, 2009. If the Company has not completed a Business
Combination by such date, its corporate existence will cease except for the
purposes of liquidating and winding up its affairs. In the event of liquidation,
it is possible that the per share value of the residual assets remaining
available for distribution (including Trust Account assets) will be less than
the IPO price per Unit in the Offering.
The
Initial Stockholders have waived their rights to participate in any liquidation
distribution, but only with respect to the 1,750,000 shares issued at inception
at $0.014 per share (the “Founders’ Common Stock”); they will participate in any
liquidation distribution with respect to any shares of common stock acquired in
connection with or following the Offering.
NOTE 2.
Summary of Significant Accounting Policies
Going
Concern and Management’s Plan and Intentions:
As of
June 30, 2008, excluding Cash held in the Trust Account - restricted of
$63,154,286, the Company had working capital of $1,225,598. The Company’s only
source of income, to enable it to continue to fund its search for an acquisition
candidate, is the interest it earns on its money not held in the Trust Account.
These funds may not be sufficient to maintain the Company until a business
combination is consummated. In addition, there can be no assurance that the
Company will enter into a Business Combination prior to June 29, 2009. Pursuant
to its Amended and Restated Certificate of Incorporation, the Company would have
to liquidate pursuant to a dissolution plan and return the funds held in the
Trust Account to the holders of shares issued in the Offering as previously
described. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. These audited financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
Cash and
Cash Equivalents:
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates fair value.
F-16
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 2.
Summary of Significant Accounting Policies (Continued)
Concentration
of Credit Risk:
SFAS No.
105, “Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentration of Credit Risk”,
requires disclosure of significant concentrations of credit risk regardless of
the degree of risk. At June 30, 2008, financial instruments that potentially
expose the Company to credit risk consist of cash. The Company maintains its
cash balances in various financial institutions. The Federal Deposit Insurance
Corporation insures balances in bank accounts up to $100,000 and the Securities
Investor Protection Corporation insures balances up to $500,000 in brokerage
accounts. At June 30, 2008, the uninsured balances amounted to approximately
$63,400,000. Management believes the risk of loss to be minimal.
Cash held
in Trust Account—restricted:
The
Company considers the restricted portion of the funds held in the Trust Account
as being a non-current asset. A current asset is one that is reasonably expected
to be used to pay current liabilities, such as accounts payable or short-term
debt or to pay current operating expenses, or will be used to acquire other
current assets. Since the acquisition of a business is principally considered to
be a long-term purpose, with long-term assets such as property and intangibles,
typically being a major part of the acquired assets, the Company has reported
the funds anticipated to be used in the acquisition as a non-current
asset.
Accretion
of Trust Account relating to common stock subject to possible
conversion:
The
Company records accretion, if any, of the income earned in the trust account
relating to the common stock subject to possible conversion based on the excess
of the earnings for the period over the amount which is available to be used for
working capital and taxes. Since 30% (less one share) of the shares issued in
the Offering are subject to possible conversion, the portion of the excess
earnings related to those shares will be reflected on the balance sheet as part
of “Common stock subject to possible conversion” and is deducted from
“Additional paid-in capital”. The portion of the excess earnings will also be
presented as a deduction from the net income on the Statements of Operations to
appropriately reflect the amount of net income which would remain available to
the common stockholders who did not elect to convert their shares to cash. At
June 30, 2008 there was no accretion of income due to stockholders.
Earnings
Per Share:
The
Company follows the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 128, “Earnings per Share”. In accordance with SFAS No. 128,
earnings per common share amounts (“Basic EPS”) are computed by dividing
earnings by the weighted average number of common shares outstanding for the
period. Common shares subject to possible conversion of 2,413,319 have been
excluded from the calculation of basic earnings per share since such shares, if
redeemed, only participate in their pro rata shares of the trust earnings.
Earnings per common share amounts, assuming dilution (“Diluted EPS”), gives
effect to dilutive options, warrants, and other potential common stock
outstanding during the period. SFAS No. 128 requires the presentation of both
Basic EPS and Diluted EPS on the face of the statements of operations. The
effect of the 9,864,400 outstanding Warrants issued in connection with the
Public Offering and the Insiders’ Warrants described in Note 3 have not been
considered in the diluted earnings per share calculation since the Warrants are
contingent upon the occurrence of future events, and therefore, are not
includable in the calculation of diluted earnings per share in accordance with
SFAS 128.
F-17
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 2.
Summary of Significant Accounting Policies (Continued)
Stock
Based Compensation:
The
Company accounts for stock options and warrants using the fair value recognition
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123
(Revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). SFAS 123(R) addresses
all forms of share based compensation awards including shares issued under
employment stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS 123(R), share based payment awards will be
measured at fair value on the awards grant date, based on the estimated number
of awards that are expected to vest and will be reflected as compensation
expense in the financial statements.
Fair
Value of Financial Instruments:
The
carrying value of cash, investments held in the Trust Account, and accrued
expenses are reasonable estimates of the fair values due to their short-term
maturity.
Use of
Estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Reclassifications:
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
Recently
Issued and Adopted Accounting Pronouncements:
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Accounting Standards (“SFAS”) No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115” (SFAS No. 159”), which permits entities to choose to measure
many financial instruments and certain other items at fair value. The fair value
option established by this Statement permits all entities to choose to measure
eligible items at fair value at specified election dates. A business entity
shall report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. Adoption
is required for fiscal years beginning after November 15, 2007. Early adoption
was permitted as of the beginning of a fiscal year that begins on or before
November 15, 2007 provided the entity also elects to apply the provisions of
SFAS No. 157. The Company does not expect that the adoption will have a material
impact on its financial position and results of operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R changes accounting for
acquisitions that close beginning in 2009 in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs,
IPR&D and restructuring costs. More transactions and events will
qualify as business combinations and will be accounted for at fair value under
the new standard. SFAS 141R promotes greater use of fair values in
financial reporting. In addition, under SFAS 141R, changes in deferred tax asset
valuation allowances and acquired income tax uncertainties in a business
combination after the measurement period will impact income tax expense. Some of
the changes will introduce more volatility into earnings. SFAS 141R
is effective for fiscal years beginning on or after December 15,
2008. SFAS 141R will have an impact on accounting for any business
acquired after the effective date of this pronouncement.
F-18
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 2.
Summary of Significant Accounting Policies (Continued)
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS
160 will change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests (NCI) and classified as a
component of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest
Recently
Issued and Adopted Accounting Pronouncements (Continued):
holders.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. SFAS
160 would have an impact on the presentation and disclosure of the
noncontrolling interests of any non-wholly owned business acquired in the
future.
In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110 (‘‘SAB 110’’). SAB 110 amends and replaces Question 6 of
Section D.2 of Topic 14, Share-Based Payment of the Staff Accounting Bulletin
series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff
regarding the use of the ‘‘simplified’’ method in developing an estimate of the
expected term of ‘‘plain vanilla’’ share options and allows usage of that method
for option grants prior to December 31, 2007. SAB 110 allows public companies
which do not have sufficient historical experience to provide a reasonable
estimate to continue the use of this method for estimating the expected term of
‘‘plain vanilla’’ share option grants after December 31, 2007. The adoption of
this pronouncement by the Company in fiscal 2008 has not had an effect on its
financial statements
In
February 2008, the FASB issued Staff Position No. FAS 140-3, “Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions,” which
provides guidance on accounting for a transfer of a financial asset and a
repurchase financing. This accounting guidance presumes that an initial transfer
of a financial asset and a repurchase financing are considered part of the same
arrangement (linked transaction) under SFAS No. 140. However, if certain
criteria are met, the initial transfer and repurchase financing shall be
evaluated separately under SFAS No. 140. Staff Position No. FAS 140-3 will be
effective for financial statements issued for fiscal years beginning after
November 15, 2008, and for interim periods within those fiscal years. Early
adoption is prohibited. Management is evaluating the potential effect this
guidance may have on our financial condition and results of
operations.
In
February 2008, the FASB issued FASB Staff Positions (“FSP”) No. 157-1 and No.
157-2, which respectively, remove leasing transactions from the scope of SFAS
No. 157 and defer its effective date for one year relative to certain
nonfinancial assets and liabilities. As a result, the application of the
definition of fair value and related disclosures of SFAS No. 157 (as impacted by
these two FSP’s) was effective for the Company beginning January 1, 2008 on a
prospective basis with respect to fair value measurements of (a) nonfinancial
assets and liabilities that are recognized or disclosed at fair value in the
Company’s financial statements on a recurring basis (at least annually) and (b)
all financial assets and liabilities. This adoption did not have a material
impact on the Company’s results of operations or financial condition. The
remaining aspects of SFAS No. 157 for which the effective date was deferred
under FSP No. 157-2 are currently being evaluated by the company. Areas impacted
by the deferral relate to nonfinancial assets and liabilities that are measured
at fair value, but are recognized or disclosed at fair value on a nonrecurring
basis. This deferral applies to such items as nonfinancial assets and
liabilities initially measured at fair value in a business combination (but not
measured at fair value in subsequent periods) or nonfinancial long-lived asset
groups measured at fair value for an impairment assessment. The effects of these
remaining aspects of SFAS No. 157 are to be applied to fair value measurements
prospectively beginning January 1, 2009. The Company does not expect them to
have a material impact on the Company’s results of operations or financial
condition.
F-19
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 2.
Summary of Significant Accounting Policies (Continued)
Recently
Issued and Adopted Accounting Pronouncements (Continued):
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”)
as amended and interpreted, which requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting. Disclosing the fair values of derivative instruments and
their gains and losses in a tabular format provides a more complete picture of
the location in an entity’s financial statements of both the derivative
positions existing at period end and the effect of using derivatives during the
reporting period. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. Early adoption is
permitted, but not expected. Management is evaluating the potential effect this
guidance may have on the Company’s financial condition and results of
operations.
In April
2008, the FASB issued FSP FAS No. 142-3, which amends the factors that must be
considered in developing renewal or extension assumptions used to determine the
useful life over which to amortize the cost of a recognized intangible asset
under FAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an
entity to consider its own assumptions about renewal or extension of the term of
the arrangement, consistent with its expected use of the asset, and is an
attempt to improve consistency between the useful life of a recognized
intangible asset under FAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under FAS No. 141, “Business Combinations.”
The FSP is effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The FSP is not expected to have a significant impact on the Company’s results of
operations, financial condition or liquidity.
In May
2008, the FASB issued Financial Accounting Standard (FAS) No. 162, “The
Hierarchy of Generally Accepted Accounting Principles.” The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial statements
that are prepared in conformance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (SAS) No. 69, “The Meaning of Present
Fairly in Conformity With GAAP,” FAS No. 162 is directed to the entity rather
than the auditor. The statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board (PCAOB) amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity with GAAP,” and is
not expected to have any impact on the Company’s results of operations,
financial condition or liquidity.
In June
2008, FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” Under the FSP, unvested share-based payment awards
that contain rights to receive nonforfeitable dividends (whether paid or unpaid)
are participating securities, and should be included in the two- class method of
computing EPS. The FSP is effective for fiscal years beginning after December
15, 2008, and interim periods within those years, and is not expected to have a
significant impact on the Company’s results of operations, financial condition
or liquidity.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
F-20
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE
3. Initial Public Offering
On July
5, 2007, the Company sold 8,044,400 Units, including 1,044,400 units from the
exercise of the underwriters’ over-allotment option, at a Offering price of
$8.00 per unit. Each unit (“Unit”) consists of one share of the Company’s common
stock, $.0001 par value, and one Redeemable Common Stock Purchase Warrant
(“Warrant”). Each Warrant will entitle the holder to purchase from the Company
one share of common stock at an exercise price of $5.00 commencing the later of
the completion of a Business Combination or June 29, 2008 and expiring June 28,
2011. The Company may redeem the Warrants, with prior consent of Ferris, Baker
Watts Incorporated and Jesup & Lamont Securities Corporation, the
representatives (“Representatives”) of the underwriters of the Offering, at a
price of $0.01 per Warrant upon 30 days’ notice after the Warrants become
exercisable, only in the event that the last sale price of the common stock is
at least $11.50 per share for any 20 trading days within a 30 trading day period
ending on the third day prior to the date on which the notice of redemption is
given. In accordance with the warrant agreement relating to the Warrants sold
and issued in the Offering, the Company is only required to use its best efforts
to maintain the effectiveness of the registration statement covering the
Warrants. The Company will not be obligated to deliver securities, and there are
no contractual penalties for failure to deliver securities, if a registration
statement is not effective at the time of exercise. Additionally, in the event
that a registration statement is not effective at the time of exercise, the
holder of such Warrant shall not be entitled to exercise such Warrant and in no
event (whether in the case of a registration statement not being effective or
otherwise) will the Company be required to settle the warrant exercise, whether
by net cash settlement or otherwise. Consequently, the Warrants may expire
unexercised and unredeemed and an investor in the Offering may effectively pay
the full unit price solely for the shares of common stock included in the units
(since the Warrants may expire worthless).
On July
5, 2007, pursuant to Subscription Agreements, dated as of October 12, 2006,
certain of the Initial Stockholders purchased from the Company, in the
aggregate, 1,820,000 warrants for $1,820,000 (the “Insiders’ Warrants”). All of
the proceeds the Company received from these purchases were placed in the Trust
Account. The Insiders’ Warrants are identical to the Warrants underlying the
Units sold in the Offering except that if the Company calls the Warrants for
redemption, the Insiders’ Warrants may be exercised on a “cashless basis”. The
purchasers of the Insiders’ Warrants have agreed that the Insiders’ Warrants
will not be sold or transferred by them until 90 days after the date the Company
has completed a Business Combination.
The
Initial Stockholders and holders of the Insiders’ Warrants (or underlying
securities) are entitled to registration rights with respect to their founding
shares or Insiders’ Warrants (or underlying securities), as the case may be,
pursuant to an agreement dated June 29, 2007. The holders of the majority of the
founding shares are entitled to demand that the Company register these shares at
any time commencing nine months after the consummation of a Business
Combination. The holders of the Insiders’ Warrants (or underlying securities)
are entitled to demand that the Company register such securities at any time
after the Company consummates a Business Combination. In addition, the Initial
Stockholders and holders of the Insiders’ Warrants (or underlying securities)
have certain “piggy-back” registration rights on registration statements filed
after the Company’s consummation of a Business Combination.
NOTE 4.
Income Taxes
On July
1, 2007, the Company adopted the provisions of Financial Accounting Standards
Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes,” and prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by taxing
authorities. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.
The
Company has identified its federal, New York State and New York City returns as
“major” tax jurisdictions. Based on the Company’s evaluation, it has concluded
that there are no significant uncertain tax positions requiring recognition in
the Company’s financial statements. Since the Company was incorporated on August
16, 2006, the evaluation was performed for the tax years ending in 2007 and
2008, which are the only periods subject to examination.
F-21
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 4.
Income Taxes (Continued)
The
Company believes that its income tax positions and deductions would be sustained
on audit and does not anticipate any adjustments that would result in a material
change to its financial position. In addition, the Company did not record a
cumulative effect adjustment related to the adoption of FIN 48.
The
Company’s policy for recording interest and penalties associated with audits is
to record such items as a component of income tax expense. There were no amounts
accrued for penalties or interest as of or during the period from August 16,
2006 (inception) through June 30, 2008. The Company does not expect its
unrecognized tax benefit position to change during the next twelve months.
Management is currently unaware of any issues under review that could result in
significant payments, accruals or material deviations from its position. The
adoption of the provisions of FIN 48 did not have a material impact on the
Company’s financial position, results of operations and cash flows.
The
provision for income tax consists of the following:
|
For the year
ended
June 30,2008
|
For the period
from
August 16, 2006
(inception)
through
June 30, 2007
|
For the period
from
August 16, 2006
(inception)
through
June 30, 2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 597,899 | $ | — | $ | 597,899 | ||||||
|
State
and Local
|
353,495 | 604 | 354,099 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
— | — | — | |||||||||
|
State
and Local
|
— | — | — | |||||||||
|
Total
provision for income taxes
|
$ | 951,394 | $ | 604 | $ | 951,998 | ||||||
Deferred
income taxes, if applicable, are provided for the differences between the basis
of assets and liabilities for financial reporting and income tax purposes. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized. There are no deferred tax assets or
liabilities as of June 30 2008.
A
reconciliation between the effective rate for income taxes and the amount
computed by applying the statutory Federal income tax rate to income (loss) from
continuing operations before provision for income taxes is as
follows:
|
For the year
ended
June 30, 2008
|
For the period
from
august 16, 2006
(inception)
through
June 30, 2007
|
For the period
from
august 16, 2006
(inception)
through
June 30, 2008
|
||||||||||
|
Tax
provision at statutory rate
|
34 | % | 34 | % | 34 | % | ||||||
|
State
and local taxes (net of federal tax
benefit)
|
11 | — | 11 | |||||||||
|
Losses
not providing benefits
|
— | (34 | ) | — | ||||||||
| 45 | % | 0 | % | 45 | % | |||||||
F-22
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 5.
Commitments and Contingencies
The
Company entered into an agreement with the underwriters of the Offering (the
“Underwriting Agreement”). Under the terms of the Underwriting Agreement, the
Company paid an underwriting discount of 3.723% ($2,395,914) of the gross
proceeds in connection with the consummation of the Offering and has placed
3.277% ($2,108,950) of the gross proceeds in the Trust Account which will be
paid to the underwriters only upon consummation of a Business Combination.
Additionally, the Company has placed $560,000 in the Trust Account representing
the non-accountable expense allowance due from the Offering which will be paid
to the underwriters only upon consummation of a Business Combination. The
Company did not pay any discount related to the insiders’ warrants. The
Underwriters have waived their rights to receive payments from the Trust Account
of $2,108,950 of underwriting discounts and $560,000 of expense reimbursements,
which are due under the Underwriting Agreement if the Company is unable to
consummate a Business Combination prior to June 29, 2009.
The
Company also issued a unit purchase option, for $100, to the Representatives, on
the Effective Date to purchase 300,000 Units at an exercise price of $10.00 per
Unit. The Units issuable upon exercise of the unit purchase option are identical
to those sold by the Company during the Offering, except that the exercise price
of the underlying warrants will be $7.50 per share. The Company accounted for
the fair value of the unit purchase option, inclusive of the receipt of the $100
cash payment, as an expense of the Offering resulting in a charge directly to
stockholders’ equity. The Company estimated that the fair value of this unit
purchase option was approximately $930,000 ($3.10 per Unit underlying the unit
purchase option) using a Black-Scholes option-pricing model. The fair value of
the unit purchase option granted to the Representatives is estimated as of the
date of grant using the following assumptions: (1) expected volatility of 45%,
(2) risk-free rate of 4.65% and (3) expected life of 5 years. The unit purchase
option may be exercised for cash or on a “cashless” basis, at the holder’s
option, such that the holder may use the appreciated value of the Units
underlying the unit purchase option (the difference between the market price of
the Units and the exercise price of the unit purchase option) to exercise the
unit purchase option without the payment of any cash. The Company will have no
obligation to net cash settle the exercise of the unit purchase option or the
Warrants underlying the unit purchase option. The holder of the unit purchase
option will not be entitled to exercise the unit purchase option or the Warrants
underlying the unit purchase option unless a registration statement covering the
securities underlying the unit purchase option is effective or an exemption from
registration is available. If the holder is unable to exercise the unit purchase
option or underlying Warrants, the unit purchase option or Warrants, as
applicable, will expire worthless.
The
Initial Stockholders have waived their right to receive distribution with
respect to the Founders’ Common stock upon the Company’s
liquidation.
The
Company engaged SMH Capital, on April 13, 2008 to perform consulting services in
connection with a prospective transaction regarding the Company. The agreement
requires SMH Capital to analyze an acquisition candidate (the “Target”)
including their financial condition, market valuation and future business and
financial prospects. Additionally evaluate the potential business synergies,
cost savings and potential proforma financial and strategic impact on the
Company and its stockholders. Finally to render a fairness opinion evaluating
the fairness of the transaction from a financial point of view to the
stockholders of the Company and opine on whether the fair market value of the
Target is at least equal to 80% if the net assets of the Company. The cost to
the Company will be $150,000.
The
Company engaged Skillnet, on April 13, 2008 to provide a qualified due diligence
on the Target, focusing on market potential, competitive situations, business
concepts, marketing, and financial projections. The cost to the Company will be
$100,000.
F-23
ALYST
ACQUISITION CORP.
(a
development stage company)
Notes to
Financial Statements
NOTE 6.
Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.
The
agreement with the underwriters prohibits the Company, prior to a Business
Combination, from issuing preferred stock which participates in the proceeds of
the Trust Account or which votes as a class with the Common Stock on a Business
Combination.
NOTE 7.
Common Stock
The
Company is authorized to issue 30,000,000 shares of common stock with a par
value of $.0001 per share.
On August
16, 2006, the Company issued 1,750,000 shares of common stock to its initial
stockholders for $25,000 in cash, at a purchase price of approximately $0.014
per share.
On July
5, 2007, the Company issued 8,044,400 Units, including 1,044,400 Units pursuant
to the underwriters’ over-allotment option, at the offering price of $8.00 per
Unit. Each Unit consists of one share of the Company’s common stock and one
Redeemable Common Stock Purchase Warrant. (See Note 3).
At June
30, 2008 and 2007, there were 10,464,400, and 0 shares, respectively of common
stock reserved for issuance upon exercise of Warrants and the Insiders’
Warrants.
NOTE 8.
Subsequent Event
On August
13, 2008, the Company signed an agreement and plan of merger to acquire all of
the issued and outstanding shares of China Networks Media Ltd., a British Virgin
Islands company (“China Networks”) which owns and is in the process of acquiring
broadcast television advertising rights in the People’s Republic of China. As
part of the transaction, the Company proposes to redomesticate to the British
Virgin Islands by means of merging with its wholly-owned subsidiary, China
Networks International Holdings, Ltd., a British Virgin Islands company,
immediately prior to consummating its transaction with China
Networks.
Pursuant
to the transaction, China Networks will become a wholly-owned subsidiary of the
Company and the holders of the capital stock of China Networks will receive,
upon the effectiveness of the merger, an aggregate of (i) 2,880,000 shares and
(ii) $17,000,000 in cash. The holders of ordinary shares of China Networks will
also be entitled to receive up to $6,000,000 of additional cash and 9,000,000
additional shares upon attaining certain performance milestones.
Additionally,
the holders of the capital stock of China Networks will be entitled to receive
up to $24,910,000 of the cash received by the Company from the exercise of
outstanding warrants. There remain a number of conditions to the Company’s
completing the acquisition of China Networks, including approval by Alyst’s
stockholders of the redomestication and the business combination and approval by
the shareholders of China Networks of the merger agreement.
F-24
|
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER
30, 2008 AND 2007
|
F-25
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Consolidated
Balance Sheets
|
F-27
|
|
Consolidated
Statements of Operations
|
F-28
|
|
Consolidated
Statements of Shareholders’ Equity (Deficit)
|
F-29
|
|
Consolidated
Statements of Cash Flows
|
F-30
|
|
Notes
to Consolidated Financial Statements
|
F-31
|
F-26
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
BALANCE SHEETS
|
September
30,
2008
|
December
31, 2007
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 22,603,740 | $ | 28,670 | ||||
|
Deferred
transaction
costs
|
- | 8,061 | ||||||
|
Other
receivables and prepaid
expense
|
4,527 | - | ||||||
|
Loan
receivable from related
parties
|
111,111 | - | ||||||
|
Total
current
assets
|
22,719,378 | 36,731 | ||||||
| DEFERRED FINANCING COSTS | 1,953,954 | - | ||||||
|
PROGRAM
RIGHTS
|
31,161,900 | - | ||||||
|
TOTAL
ASSETS
|
$ | 55,835,232 | $ | 36,731 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
||||||||
| CURRENT LIABILITIES | ||||||||
|
Accrued
liabilities
|
$ | 1,953,973 | $ | - | ||||
|
Due
to related
parties
|
185,877 | 66,951 | ||||||
|
Notes
payable,
net
|
24,139,475 | - | ||||||
|
Total
current
liabilities
|
26,279,325 | 66,951 | ||||||
|
TOTAL
LIABILITIES
|
26,279,325 | 66,951 | ||||||
|
NON-CONTROLLING
INTEREST
|
28,582,799 | - | ||||||
| SHAREHOLDERS' EQUITY (DEFICIT) | ||||||||
|
Class
A Convertible Preferred Shares, net of issuance costs ($0.0005 par value;
1,050,000
shares authorized, 980,000 shares issued and outstanding at September
30, 2008; liquidation preference of
$9,800)
|
490 | - | ||||||
|
Common
stock at $0.0005 par value; 1,900,000 shares authorized, issued and
outstanding
at September 30,
2008
|
950 | 1,000 | ||||||
|
Additional
paid-in
capital
|
3,951,599 | - | ||||||
|
Deficit
accumulated in the development
stage
|
(2,967,474 | ) | (31,220 | ) | ||||
|
Accumulated
other comprehensive
income
|
(12,457 | ) | - | |||||
|
TOTAL
SHAREHOLDERS' EQUITY
(DEFICIT)
|
973,108 | (30,220 | ) | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 55,835,232 | $ | 36,731 | ||||
See
accompanying notes to consolidated financial statements.
F-27
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For the three months
ended
|
For the
nine
|
Period from
March 30,
2007
|
Period from
March 30,
2007
|
|||||||||||||||||
|
September
30,
|
months
ended
|
(Inception)
to
|
(Inception)
to
|
|||||||||||||||||
|
2008
|
2007
|
September 30,
2008
|
September 30,
2007
|
September 30,
2008
|
||||||||||||||||
|
NET
REVENUE
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
OPERATING
EXPENSES
|
||||||||||||||||||||
|
General and administrative
expenses
|
1,614,995 | 8,189 | 1,711,927 | 16,189 | 1,743,147 | |||||||||||||||
| 1,614,995 | 8,189 | 1,711,927 | 16,189 | 1,743,147 | ||||||||||||||||
|
LOSS FROM
OPERATIONS
|
(1,614,995 | ) | (8,189 | ) | (1,711,927 | ) | (16,189 | ) | (1,743,147 | ) | ||||||||||
|
OTHER INCOME
(EXPENSE)
|
||||||||||||||||||||
|
Other
income
|
7,352 | - | 7,352 | - | 7,352 | |||||||||||||||
|
Interest
expense
|
(1,303,354 | ) | - | (1,303,354 | ) | - | (1,303,354 | ) | ||||||||||||
|
Interest
income
|
83,510 | - | 83,510 | - | 83,510 | |||||||||||||||
| (1,212,492 | ) | - | (1,212,492 | ) | - | (1,212,492 | ) | |||||||||||||
|
NET
LOSS BEFORE NON-CONTROLLING
INTEREST
|
(2,827,487 | ) | (8,189 | ) | (2,924,419 | ) | (16,189 | ) | (2,955,639 | ) | ||||||||||
|
NON-CONTROLLING
INTEREST
|
(11,835 | ) | - | (11,835 | ) | - | (11,835 | ) | ||||||||||||
|
NET
LOSS
|
$ | (2,839,322 | ) | $ | (8,189 | ) | $ | (2,936,254 | ) | $ | (16,189 | ) | $ | (2,967,474 | ) | |||||
See
accompanying notes to consolidated financial statements.
F-28
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
|
Deficit Accumulated in the
Development
|
Accumulated Other Comprehensive
Income
|
Other
Comprehensive
Income
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
Stage
|
(loss)
|
Total
|
(Loss)
|
||||||||||||||||||||||||||||
|
BALACE AT MARCH 30, 2007
(INCEPTION)
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
|
Issuance of common
stock
|
- | - | 1,000 | 1,000 | - | - | - | 1,000 | - | |||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (31,220 | ) | - | (31,220 | ) | (31,220 | ) | ||||||||||||||||||||||||
|
Total comprehensive
loss
|
$ | (31,220 | ) | |||||||||||||||||||||||||||||||||
|
BALANCE AT DECEMBER 31,
2007
|
- | $ | - | 1,000 | $ | 1,000 | $ | - | $ | (31,220 | ) | $ | - | $ | (30,220 | ) | ||||||||||||||||||||
|
Cancellation of shares due to
change of share capital structure
|
- | - | (1,000 | ) | (1,000 | ) | 1,000 | - | - | - | ||||||||||||||||||||||||||
|
Issuance of shares due to
change of share capital structure
|
- | - | 1,900,000 | 950 | (950 | ) | - | - | - | |||||||||||||||||||||||||||
|
Issuance of preferred stock in
debt and equity bridge financing, net of issuance cost of $406,902 (Note
8)
|
980,000 | 490 | - | - | 3,951,549 | - | - | 3,952,039 | ||||||||||||||||||||||||||||
|
Foreign currency translation
adjustment
|
- | - | - | - | - | - | (12,457 | ) | (12,457 | ) | (12,457 | ) | ||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (2,936,254 | ) | - | (2,936,254 | ) | (2,936,254 | ) | ||||||||||||||||||||||||
|
Total
comprehensive loss
|
$ | (2,948,711 | ) | |||||||||||||||||||||||||||||||||
|
(unaudited)
|
980,000 | $ | 490 | 1,900,000 | $ | 950 | $ | 3,951,599 | $ | (2,967,474 | ) | $ | (12,457 | ) | $ | 973,108 | ||||||||||||||||||||
See
accompanying notes to consolidated financial statements.
F-29
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For
the nine months
September
30, 2008
|
For
the nine
months
September
30,
2007
|
For
the period from March
30, 2007
(Inception)
to
September
30, 2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
loss
|
$ | (2,936,254 | ) $ | (16,189 | ) $ | (2,967,474 | ) | |||||
| Adjustments to reconcile net loss from operations to net cash used in operating activities | ||||||||||||
|
Amortization
of debt discount and deferred financing cost
|
751,325 | - | 751,325 | |||||||||
|
Net
income attributable to non-controlling interest
|
11,836 | - | 11,836 | |||||||||
| Increase (decrease) in assets and liabilities | ||||||||||||
|
Accrued
liabilities
|
993,973 | - | 993,973 | |||||||||
|
Deferred
transaction costs
|
8,061 | - | - | |||||||||
|
Other
receivable and prepaid expenses
|
(4,437 | ) | - | (4,437 | ) | |||||||
|
Net
cash used in operating activities
|
(1,175,496 | ) | (16,189 | ) | (1,214,777 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
|
Loan
receivable from related parties
|
(111,111 | ) | - | (111,111 | ) | |||||||
|
Purchase
of intangible assets
|
(2,628,620 | ) | - | (2,628,620 | ) | |||||||
|
Net
cash used in investing activities
|
(2,739,731 | ) | - | (2,739,731 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
|
Gross
proceeds from bridge loan financing
|
28,000,000 | - | 28,000,000 | |||||||||
|
Direct
issuance costs for bridge debt and equity offering
|
(1,653,765 | ) | - | (1,653,765 | ) | |||||||
|
Capital
contribution from non-controlling interest
|
35,615 | - | 35,615 | |||||||||
|
Proceeds
from issuance of common stock
|
- | 1,000 | 1,000 | |||||||||
|
Due
to related parties
|
117,737 | 15,189 | 184,688 | |||||||||
|
Net
cash provided by financing activities
|
26,499,587 | 16,189 | 26,567,538 | |||||||||
|
EXCHANGE
RATE EFFECT ON CASH
|
(9,290 | ) | - | (9,290 | ) | |||||||
|
NET
INCREASE IN CASH
|
22,575,070 | - | 22,603,740 | |||||||||
|
CASH
- BEGINNING OF PERIOD
|
28,670 | - | - | |||||||||
|
CASH
- END OF
PERIOD
|
$ | 22,603,740 | $ | - | $ | 22,603,740 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
Income
taxes
|
- | - | - | |||||||||
| NON-CASH FINANCING INFORMATION | ||||||||||||
|
Intangible
assets contributed by non-controlling
interest
|
$ | 28,546,844 | $ | - | $ | 28,546,844 | ||||||
|
Deferred
financing costs included in accrued
liabilities
|
$ | 960,000 | $ | - | $ | 960,000 | ||||||
See
accompanying notes to consolidated financial statements.
F-30
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
1 – ORGANIZATION
China
Networks Media, Ltd. (formerly known as China Networks Limited) was first
incorporated in the Cayman Islands and registered with the Cayman Islands
Registrar of Companies on March 30, 2007. China Networks Media, Ltd. (“China
Networks” or “the Company”) was continued in the British Virgin Islands as a BVI
Business Company incorporated under the “BVI Business Companies Act” on June 2,
2008 in anticipation of a business combination with a U.S. reporting
company.
The
Company is a development stage enterprise formed to provide broadcast television
advertising services in the People’s Republic of China (PRC) operating via joint
venture partnerships with PRC state-owned television broadcasters (PRC TV
Stations). At September 30, 2008, the Company had not yet commenced any
operations nor generated revenue. Activity through September 30, 2008 relates to
the Company’s formation, private placement offering, establishment of joint
ventures and contractual relationships in the PRC, and potential business
combination with Alyst Acquistion Corp. as described below. The Company has
selected December 31 as its fiscal year end.
The
accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with accounting principles generally accepted in
the United States of America for interim financial reporting. These
interim financial statements are unaudited and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments and
accruals, necessary for a fair presentation of the balance sheet, statements of
operations, shareholders’ equity (deficit) and cash flows for the periods
presented. The results of operations for the interim period are not
necessarily indicative of the results that may be expected for the full year or
for any future period.
The
unaudited consolidated financial statements include the accounts of China
Networks and its wholly owned subsidiary Advertising Networks Ltd. (“ANT”).
ANT’s accounts include the accounts of its joint-ventures with the PRC TV
Stations, Kunming Taishi Information Cartoon Co., Ltd (“Kunming JV”) and Shanxi
Yellow River and Advertising Networks Cartoon Technology Co., Ltd (“Taiyuan
JV”), as a result of ANT’s effective control of these entities through the
composition of the board of directors. As a result of several
contractual arrangements with Beijing Guangwang Hetong Advertising and Media
Co., Ltd. (“Hetong”) and its shareholders, the Company (through ANT) controls
and is considered the primary beneficiary of Hetong, and, accordingly,
consolidates the accounts of Hetong in its financial statements. All significant
intercompany accounts, transactions and cash flows are eliminated on
consolidation.
Hetong is a variable
interest entity (VIE) as defined by Financial Accounting Standards Board
Interpretation No. 46(R): Consolidation of Variable Interest
Entities, an interpretation of ARB 51 (‘‘FIN 46R’’).
Kunming
JV, Taiyuan JV and Hetong have been consolidated in these financial statements
as of the date of their formation as described below. The operations
of these entities and activity under the arrangements described below commenced
on October 1, 2008.
Establishment
of Joint Ventures between
ANT and the PRC
TV Stations
Establishment of
Joint Ventures. In 2008, China Networks established certain
equity joint ventures with the state owned PRC TV Stations through its Hong Kong
wholly-owned subsidiary, ANT. ANT established the equity
joint venture Taiyuan
JV with China Yellow River
TV Station in Shanxin Province in June 2008; and established an equity joint
venture Kunming
JV with Kunming TV Station
in Yunnan Province in July 2008 (Taiyuan JV and Kunming JV are collectively
referred to as the
“JV Tech Cos”, and China Yellow River TV
Station and Kunming TV Station are collectively referred to as the
“PRC TV
Stations”). ANT holds 50% equity interest in the
Kunming JV and Taiyuan JV, respectively, and Kunming TV Station and China Yellow
River TV Station own the
remaining 50% of the respective JV Tech Cos. Under the terms of the
Kunming JV agreement, Kunming TV Station will contribute certain assets with a
fair value of RMB150 million (approximately $21,900,000) and ANT will contribute
an equal amount in cash. Kunming TV Station and ANT have contributed
100% and 50%, respectively, of their obligations under this agreement
at September 30, 2008. Under the terms of the Taiyaun JV
agreement, China Yellow River TV Station will contribute certain assets with a
fair value of RMB45 million (approximately $6,600,000) and ANT will contribute
an equal amount in cash. China Yellow River TV Station and ANT have
contributed 100% and 40%, respectively, of their obligations under this
agreement at September 30, 2008.
F-31
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
1 – ORGANIZATION (CONTINUED)
Exclusive Cooperation
Agreement. Pursuant to the Exclusive Cooperation
Agreement between the JV Tech Cos and the PRC TV Stations, the PRC TV Stations
have exclusively and irrevocably granted to the JV Tech Cos the right to carry
out advertising operations on its channels, and to provide to the JV Tech Cos
all necessary and relevant support, as well as most-favored terms for the
conduct of the advertising business. The JV Tech Cos share their resources with the PRC TV Stations,
including, but not limited to, all client information (e.g. databases). Under
the terms of this agreement, the PRC TV Stations will not engage any other party
in any similar agreements. As such, the JV Tech Cos have the exclusive right to carry out advertising
business on PRC TV Stations’ channels.
Kunming JV and Kunming TV Station
entered into such Exclusive Cooperation Agreement on August 6, 2008, while
Taiyuan JV and China Yellow
River TV Station entered such Exclusive Cooperation agreement on
July 17, 2008.
Establishment of
Trustee Company. In August 2008, Hetong, the trustee company, established two
domestic advertising companies with Kunming TV Station and China Yellow River TV
Station, under the respective name of Kunming Kaishi Advertising Co., Ltd.
(“Kunming Ad
Co.”) and Taiyuan Guangwang
Hetong Advertising Co., Ltd. (“Taiyuan Ad Co.”) (Kunming Ad Co. and Taiyuan Ad Co. are
collectively referred to as the “JV Ad Cos”). Hetong is 100% owned by two PRC
nationals, who are the trustees.
In order to comply with current PRC laws
limiting foreign ownership in the television advertising industry, China
Networks’ operations are conducted through direct
ownership of ANT and through contractual arrangements with Hetong. China Networks does not have an equity
interest in Hetong, but instead derives indirect economic benefits from Hetong
through a series of contractual arrangements. Through these
arrangements, ANT controls Hetong, which in turn owns 50% of Kunming Ad Cos, and 50% of Taiyuan Ad Co. established
with PRC TV Stations. The JV Tech Cos collect the television advertising revenue
earned by the JV Ad Cos
pursuant to an Exclusive Services Agreement, using assets transferred from PRC TV
Stations to the JV Tech Cos pursuant to an Asset Transfer Agreement.
Asset Transfer
Agreements. Kunming TV Station and Kunming JV entered
into such Asset Transfer Agreement on August 11, 2008, under which Kunming TV
Station will transfer certain of its assets to Kunming JV, valued at RMB150
million, and Kunming JV will pay the same to Kunming TV Station. China Yellow
River TV Station and Shanxi Yellow River and Advertising Networks Cartoon
Technology Co., Ltd. (“Taiyuan JV”) also entered into such Asset Transfer
Agreement on July 17, 2008, under which China Yellow River TV Station will
transfer certain of its assets, valued at RMB45 million, to Taiyuan JV, and the
same consideration will be paid by Taiyuan JV. All governmental, statutory and
other approvals required for the transfer of these assets were obtained as of
the date of the first transfer in August 2008. At September 30, 2008,
Taiyuan JV paid China Yellow River TV Station RMB18 million (approximately
$2,600,000) for certain assets under this agreement. No assets were
purchased under the Kunming Asset Transfer Agreement as of September 30,
2008.
Exclusive Services
Agreement. Pursuant to the Exclusive Services
Agreement between the JV Tech Cos and the JV Ad Cos, the JV Tech Cos will be the
sole and exclusive provider
of services to JV Ad Cos relating to technical support for the production of
advertising and advertising consulting. In addition, the JV Ad Cos will be the
sole and exclusive advertising agent to the JV Tech Cos and will grant to the
JV Ad Cos agency rights for all advertising under
the exclusive right to carry out advertising operations, granted by the
corresponding PRC TV Stations to the JV Tech Cos in accordance with the
Exclusive Cooperation Agreement. Under the terms of the Exclusive
Services Agreement, the
JV Ad Cos will pay the service fee to the JV Tech
Cos as accrued, in accordance with the JV Tech Cos’ regular invoices. As such, all of
the JV Ad Cos’ pre-tax revenue (less the relevant
business tax) generated during the term of this agreement and relating to the marketing
of advertising and other operations will be transferred to the JV Tech Cos as
the service fee.
Kunming JV and Kunming Ad Co. entered
into an Exclusive Services Agreement on August 6, 2008, while Taiyuan
JV and Taiyuan Ad Co. entered into an Exclusive Services
Agreement on July 17, 2008.
F-32
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
1 – ORGANIZATION (CONTINUED)
Business
Combination
On
August 13, 2008, the Company, Alyst Acquisition Corp. (“Alyst”), a Delaware
corporation, and specified other persons, executed an Agreement and Plan of
Merger (the “Merger Agreement”), providing for, among other things, the
redomestication of Alyst from the State of Delaware to the British Virgin
Islands (the “Redomestication Merger”) and the merger of a wholly-owned
subsidiary of Alyst into China Networks (the "Business Combination"). China
Networks is expected to be the surviving corporation in the Business Combination
and is expected to become a wholly-owned subsidiary of China Networks
International Holding, Ltd. (“China Networks Holdings).
The
Business Combination is expected to be accomplished by the merger of China
Networks Holdings’ wholly-owned subsidiary, China Networks Merger Co., with and
into China Networks, resulting in China Networks becoming a wholly-owned
subsidiary of China Networks Holdings. Pursuant to the Merger Agreement, (i)
each ordinary share of China Networks will be converted automatically into (A) a
number of ordinary shares of China Networks Holdings determined as follows: (x)
1,900,000 divided by
(y) the total number of ordinary shares of China Networks issued and
outstanding immediately prior to the Business Combination, plus (B) the right to
receive a cash amount determined as follows: (x) U.S. $10,000,000 divided by (y) the total
number of ordinary shares of China Networks issued and outstanding immediately
prior to the Business Combination, plus (C) the additional common share
consideration as set forth in the merger agreement, and (ii) each preferred
share of China Networks will be converted automatically into (A) a number of
ordinary shares of China Networks Holdings determined as follows: (x) 980,000
divided by (y) the
total number of preferred shares of China Networks issued and outstanding
immediately prior to the Business Combination, plus (B) the right to receive
$7.143 per share in cash, plus (C) the Additional Preferred Share Consideration,
as defined in the agreement.
Holders
of a majority of shares of Alyst’s common stock must vote in favor of the
redomestication and the Business Combination in order for these transactions to
be consummated.
Going
Concern and Management’s
Plans
The
accompanying financial statements have been prepared assuming the company will
continue as a going concern. The Company’s independent registered public
accounting firm’s report on the Company’s financial statements as of December
31, 2007 contained an explanatory paragraph regarding the Company’s ability to
continue as a going concern. At September 30, 2008, the Company incurred a net
loss since inception of approximately $2,967,000. Through September 30, 2008 the
Company had not engaged in any operations, had no revenues and was dependent
upon borrowings from related parties and fund raising activities. The
Company’s business plan is dependent upon financings and the proposed business
combination with Alyst described above.
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation - The
accompanying unaudited consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”), using the accrual basis of accounting.
Valuation of long-lived
assets-The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Losses on long-lived assets
to be disposed of are determined in a similar manner, except that fair market
values are reduced for the cost to dispose.
F-33
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income taxes- The Company was
originally incorporated in the Cayman Islands and subsequently reincorporated in
the British Virgin Islands (“BVI”). The Company is not subject to
income taxes under the current laws of the Cayman Islands or BVI. PRC
entities will be subject to the PRC Enterprise Income tax at the applicable
rates on taxable income at the commencement of operations.
Use of estimates- The
preparation of the Company’s financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign Currency- The
functional currency of each foreign operation is the local currency. The JV Tech
Cos and JV Ad Cos translate their assets and liabilities into U.S. dollars at
the current exchange rate at the end of the reporting period. Revenues and
expenses of are translated into U.S. dollars using the average exchange rate
during the period. Gains and losses that result from the translation are
included in other comprehensive loss. Gains and losses on foreign
currency transactions (if any) are included in the statement of
operations.
Recently Issued Accounting
Pronouncements
During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115 (“SFAS 159”), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The Company adopted SFAS 159 on January 1, 2008 and has elected not
to measure any additional financial assets, liabilities or other items at fair
value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for the Company beginning January 1, 2009 and will change the
accounting for business combinations on a prospective basis. The
potential Business Combination described above will be accounted for in
accordance with SFAS 141R.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. This statement is
effective for the Company beginning January 1, 2009. The Company is
currently assessing the potential effect of SFAS 160 on its financial
statements.
In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which is effective January 1,
2009. SFAS 161 requires enhanced disclosures about derivative instruments and
hedging activities to allow for a better understanding of their effects on an
entity’s financial position, financial performance, and cash flows. Among other
things, SFAS 161 requires disclosures of the fair values of derivative
instruments and associated gains and losses in a tabular
formant. SFAS 161 is not currently applicable to the Company since
the Company does not have derivative instruments or hedging
activity.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting
Principles (“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS
162
F-34
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
directs
the hierarchy to
the entity, rather than the independent auditors, as the entity is responsible
for selecting accounting principles for financial statements that are presented
in conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements.
In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. This Staff Position is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. This FSP is not currently
applicable to the Company.
In
June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities.
This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The Company does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on the Company's financial reporting.
In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
("FSP 14-1"). FSP 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008. The FSP includes guidance
that convertible debt instruments that may be settled in cash upon conversion
should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest costs are recognized in
subsequent periods. FSP 14-1 is not currently applicable to the Company since
the Company does not have convertible debt.
NOTE
3 – DEFERRED TRANSACTION COSTS
Deferred
transaction costs consist of direct costs associated with activities related to
the proposed merger with Alyst Acquisition
Corporation (“Alyst”). As the Company expects to expense these
deferred transaction costs upon the adoption of SFAS 141R effective January 1,
2009 (Note 2), the Company has expensed all previously capitalized transaction
costs related to the potential business combination as of September 30,
2008. Transaction costs associated with the potential business
combination totaled $221,745 for the period ended September 30,
2008.
NOTE
4 – PROGRAM RIGHTS
Program
rights represent (1) programs that were contributed by the PRC TV Stations to
the JV Tech Cos as capital, and (2) programs purchased by the JV Tech Cos from
the PRC TV Stations in accordance with the joint venture and asset transfer
agreements, respectively. Program rights are carried at cost and are amortized
over there expected useful lives. Program rights are evaluated
periodically to determine if expected revenues are sufficient to cover the
unamortized portion of the programs. To the extent that expected revenues are
insufficient, the program rights are written down to their net realizable value
by way of recording an additional amortization charge. Program rights are
expected to be amortized on a systematic basis over their expected useful lives
of 20 years. Expected amortization totals approximately $390,000 in
2008, approximately $1,558,000 in 2009 through 2013, and approximately
$22,982,000 in the years thereafter.
F-35
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
5 – ACCRUED LIABILITIES
Accrued
liabilities consist of the following:
|
September
30, 2008
|
December
31, 2007
|
|||||||
|
Placement
fee payable
|
$ | 960,000 | $ | - | ||||
|
Accrued
expenses
|
441,944 | |||||||
|
Accrued
interest
|
552,029 | - | ||||||
| $ | 1,953,973 | $ | - | |||||
Pursuant
to the purchase agreement of the bridge loan financing, the Company is obligated
to pay to the placement agent a percentage of the gross proceeds, totaling
$1,960,000, as placement fees for securing the investment and in non-accountable
expenses. $1,000,000 of the fee was paid from the proceeds received
from the bridge loan financing. The remaining $960,000 will be paid
by the Company upon the earlier of the consummation of the Business Combination
(Note 1) or 24 months anniversary of the closing of the bridge
loan.
The
notes payable (Note 6) accrues interest at 10% per annum on the unpaid principal
amount. Interest on the note is payable annually in
arrears. Accrued interest as of September 30, 2008 is
$552,029.
NOTE
6 – NOTES PAYABLE, NET
|
September
30, 2008
|
December
31, 2007
|
|||||||
|
Notes
payable
|
$ | 27,990,200 | $ | - | ||||
|
Less:
Unamortized discount
|
(3,850,725 | ) | - | |||||
|
Notes
payable, net
|
$ | 24,139,475 | $ | - | ||||
Discount
on the notes payable (Note 8) is amortized over 18 months, the estimated life of
the notes payable and recorded as interest expense. Interest expense
resulted from the amortization of debt discount totaled $498,416 for the three
and nine months ended September 30, 2008.
NOTE
7 – RELATED PARTY TRANSACTIONS
Due to related
parties
Amounts
due to related parties consist of advances made to the Company to finance
development stage activities and other costs. At September 30, 2008 the amounts
due to related parties were non-interest bearing and had no stated repayment
terms. Amounts due to related parties totaled $204,119 and $66,951 at September
30, 2008 and December 31, 2007.
Loan
receivable from related parties
Loan
receivable from related parties represent amount extended to the trustees for
the purpose of contributing 100% of the registered capital of Hetong, as
discussed in Note 1 under Establishment of Trustee Company. The loan receivable
is non-interest bearing and due on demand.
NOTE
8 – DEBT AND EQUITY BRIDGE FINANCING
On
July 21, 2008, the Company issued an aggregate of promissory notes in the face
value of $27,990,200 bearing interest at the rate of 10% per annum and
980,000 shares of Class A Preferred Stock with a par value of $0.0005 in
exchange for proceeds of $28,000,000. Each share of preferred stock is
convertible into one share of the Company’s common stock. The promissory notes
are secured by a pledge of 50.1% of the outstanding common stock of the
Company.
F-36
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
NOTE
8 – DEBT AND EQUITY BRIDGE FINANCING (CONTINUED)
Assuming
the merger between the Company and Alyst is consummated, all principal
outstanding plus accrued interest is due 10 days following the consummation of
the business combination. If the merger between the Company and Alyst
is not consummated by March 31, 2009, one-half of the principal outstanding plus
accrued interest is due eighteen months from the issuance of the promissory
notes and the remaining one-half of the principal outstanding plus accrued
interest is due thirty-six months from the issuance of the promissory
notes.
Management
has determined that the fair value of the 980,000 Class A Preferred Stock on the
issuance date is $5.27 per share, calculated using the Black-Scholes valuation
model and the following assumptions: expected life of 30 years; volatility of
25%; risk free interest rate of 0%; common stock price of the Company of $5.28
per share on grant date. Using the relative fair value method, the Company
allocated $23,641,059 of the gross proceeds to the promissory notes and
$4,358,941 to Class A Preferred Stock. Each share of Class A
Preferred Stock has the right to receive a cash amount equal to $7.143 plus
deferred cash payments contingent upon the achievement of future net
income. The face amount of the promissory notes of $27,990,200 was
reduced by debt discount of $4,358,941, resulting in an initial carrying value
of $23,641,059. The Company estimated that the life of these
promissory notes will be approximately 18 months with the expectation that
the contemplated merger between the Company and Alyst will be approved by the
stockholders of Alyst before January, 2010. With such estimated life of the
bridge loan, the Company adopted the effective interest rate method to amortize
the debt discount over the 18 month period and an effective monthly rate of
1.49%.
In
connection with the bridge loan financing, the Company incurred placement fee of
6% of the gross proceeds and issuance costs of 1% of gross proceeds to the
placement agent, totaling $1,960,000, of which $1,000,000 has been paid from the
proceeds received from the bridge loan in July 2008. The Company also
incurred other direct issuance costs of which $653,765 was also paid with
proceeds from the bridge loan. Of the total issuance costs of
$2,613,765, $2,206,863 was allocated to debt issuance costs and recorded as
deferred financing cost. The remaining $406,902 was allocated to the
preferred shares and netted with proceeds in additional paid in capital. For the
three and nine months ended September 30, 2008, amortization expense from
accretion of issuance costs totaled $252,909.
NOTE
9 – SHAREHOLDERS’ EQUITY
The
Company was initially organized as a Cayman Islands company under the name of
China Networks Limited on March 30, 2007, with 50,000 shares of common stock
authorized at $1 par value.
On
June 2, 2008, the Company changed its registered office to the British Virgin
Islands and continued under the name China Networks Media, Ltd. The
Company is authorized to issue 1,900,000 share of common stocks and 1,050,000
shares of Class A Preferred Stock, each with a par value of $0.0005 per
share. On the same day, the Company cancelled the 1,000 shares of
common stock that were previously issued while it was a Cayman Islands company
and issued 1,900,000 shares of common stock.
Each
Class A Preferred Share has one voting right, a right to an equal share in any
dividend paid by the Company, a liquidation preference of $0.01 per share, and
is convertible into common stock without payment of any further
consideration. The number of common stock that Class A Preferred
Shares may be converted into initially is determined by dividing the original
purchase price of Class A Preferred Shares by the conversion price of Class A
Preferred Shares; provided that the initial conversion price shall be the
original purchase price, subject to adjustment upon occurrence of certain events
as stated in the Company’s Memorandum and Articles of
Association.
F-37
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL
STATEMENTS
FOR
THE PERIOD FROM MARCH 30, 2007 (INCEPTION)
TO
DECEMBER 31, 2007
F-38
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-40
|
|
Balance
Sheet
|
F-41
|
|
Statement
of Operations
|
F-42
|
|
Statement
of Shareholders’ Equity (Deficit)
|
F-43
|
|
Statement
of Cash Flows
|
F-44
|
|
Notes
to Financial Statements
|
F-45
|
F-39
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders of
China
Networks Media, Ltd.
We have
audited the accompanying balance sheet of China Networks Media, Ltd. (a
development stage enterprise) (the “Company”) as of December 31, 2007, and the
related statements of operations, shareholders’ equity (deficit) and cash flows
for the period from March 30, 2007 (inception) to December 31, 2007. The
Company’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2007, and the results of its operations and its cash flows for the period from
March 30, 2007 (inception) to December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has not engaged in any operations to date, has no
revenue, and its liabilities at December 31, 2007 exceed its
assets. Further, the Company’s business plan is dependant on
completion of a business combination. These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans regarding these matters are also
described in Note 6 to the financial statements. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ UHY
llp
Albany,
New York
November
6, 2008
UHY llp
is an independent member of Urbach Hacker Young International
Limited
F-40
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
BALANCE
SHEET
|
|
December 31,
2007 |
|||
|
ASSETS
|
||||
|
CURRENT
ASSETS
|
||||
|
Cash
|
$ | 28,670 | ||
|
Deferred
transaction costs
|
8,061 | |||
|
TOTAL
ASSETS
|
$ | 36,731 | ||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
||||
|
CURRENT
LIABILITIES
|
||||
|
Due
to related parties
|
$ | 66,951 | ||
|
TOTAL
LIABILITIES
|
66,951 | |||
|
SHAREHOLDERS'
EQUITY (DEFICIT)
|
||||
|
Common
stock at $1 par value; 50,000 shares authorized, 1,000 shares issued and
outstanding
|
1,000 | |||
|
Accumulated
deficit
|
(31,220 | ) | ||
|
TOTAL
SHAREHOLDERS' EQUITY (DEFICIT)
|
(30,220 | ) | ||
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
|
$ | 36,731 | ||
See
accompanying notes to financial statements.
F-41
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF OPERATIONS
|
Period from
|
||||
|
March 30, 2007
|
||||
|
(Inception) to
|
||||
|
December 31, 2007
|
||||
|
NET
REVENUE
|
$ | - | ||
|
OPERATING
EXPENSES
|
||||
|
General
and administrative expenses
|
31,220 | |||
| 31,220 | ||||
|
LOSS
FROM OPERATIONS
|
(31,220 | ) | ||
|
NET
LOSS
|
$ | (31,220 | ) | |
See
accompanying notes to financial statements.
F-42
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF SHAREHOLDERS' EQUITY (DEFICIT)
|
Common Stock
|
Additional
|
Accumulated
|
||||||||||||||||||
|
Shares
|
Amount
|
Paid-in capital
|
Deficit
|
Total
|
||||||||||||||||
|
BALANCE
AT MARCH 30, 2007
|
||||||||||||||||||||
|
(inception)
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
|
Issuance
of common stock for cash
|
1,000 | 1,000 | - | - | 1,000 | |||||||||||||||
|
Net
loss
|
- | - | - | (31,220 | ) | (31,220 | ) | |||||||||||||
|
BALANCE
AT DECEMBER 31, 2007
|
1,000 | $ | 1,000 | $ | - | $ | (31,220 | ) | $ | (30,220 | ) | |||||||||
See
accompanying notes to financial statements.
F-43
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
STATEMENT
OF CASH FLOWS
|
Period from
March 30, 2007 (Inception) to December 31, 2007 |
||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||
|
Net
loss
|
$ | (31,220 | ) | |
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||
|
Due
to related parties
|
66,951 | |||
|
Deferred
transaction costs
|
(8,061 | ) | ||
|
Proceeds
from issuance of common stock
|
1,000 | |||
|
Net
cash provided by financing activities
|
59,890 | |||
|
NET
INCREASE IN CASH
|
28,670 | |||
|
CASH
- BEGINNING OF PERIOD
|
- | |||
|
CASH
- END OF PERIOD
|
$ | 28,670 | ||
See
accompanying notes to financial statements.
F-44
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE PERIOD MARCH 30, 2007 (INCEPTION) TO DECEMBER 31, 2007
NOTE
1 – ORGANIZATION
China
Networks Media, Ltd. (formerly known as China Networks Limited) was first
incorporated in the Cayman Islands and registered with the Cayman Islands
Registrar of Companies on March 30, 2007. China Networks Media, Ltd. (“China
Networks” or “the Company”) was continued in British Virgin Islands as a BVI
Business Company incorporated under the “BVI Business Companies Act” on June 2,
2008 in anticipation of a business combination with a U.S. reporting
company.
The
Company is a development stage enterprise. At
December 31, 2007, the Company had not yet commenced any operations
nor generated revenue. Activity through December 31, 2007 relates to
the Company’s formation, private placement offering and potential business
combinations as described below. The Company has selected December 31 as
its fiscal year end.
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation - The
financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America (“US GAAP”) using the
accrual basis of accounting.
Valuation of long-lived
assets-The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a
review. The carrying value of a long-lived assets is considered
impaired when the anticipated undiscounted cash flow from such assets are
separately identifiable and is less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Losses on long-lived assets
to be disposed of are determined in a similar manner, except that fair market
values are reduced for the cost to dispose.
Income taxes- The Company was
originally incorporated in the Cayman Islands and subsequently reincorporated in
the British Virgin Islands (“BVI”). The company is not subject to
income taxes under the current laws of the Cayman Islands or BVI.
Use of estimates- The
preparation of the Company’s financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Recently Issued Accounting
Pronouncements
During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115 (“SFAS 159”), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The Company adopted SFAS 159 on January 1, 2008 and has elected not
to measure any additional financial assets, liabilities or other items at fair
value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for the Company beginning January 1, 2009 and will change the
accounting for business combinations on a prospective basis.
F-45
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE PERIOD MARCH 30, 2007 (INCEPTION) TO DECEMBER 31, 2007
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting
Pronouncements (Continued)
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. This statement is
effective for the Company beginning January 1, 2009. The Company is
currently assessing the potential effect of SFAS 160 on its financial
statements.
In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which is effective January 1,
2009. SFAS 161 requires enhanced disclosures about derivative instruments and
hedging activities to allow for a better understanding of their effects on an
entity’s financial position, financial performance, and cash flows. Among other
things, SFAS 161 requires disclosures of the fair values of derivative
instruments and associated gains and losses in a tabular
formant. SFAS 161 is not currently applicable to the Company since
the Company does not have derivative instruments or hedging
activity.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“FAS 162"). This Standard
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity that is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements.
In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets. This Staff Position is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited.
This FSP is not currently applicable to the Company.
In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities. This FSP
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The Company does not currently have
any share-based awards that would qualify as participating securities.
Therefore, application of this FSP is not expected to have an effect on the
Company's financial reporting.
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP
14-1"). FSP 14-1 will be effective for financial statements issued for fiscal
years beginning after December 15, 2008. The FSP includes guidance that
convertible debt instruments that may be settled in cash upon conversion should
be separated between the liability and equity components, with each component
being accounted for in a manner that will reflect the entity's nonconvertible
debt borrowing rate when interest costs are recognized in subsequent periods.
FSP 14-1 is not currently applicable to the Company since the Company does not
have convertible debt.
F-46
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE PERIOD MARCH 30, 2007 (INCEPTION) TO DECEMBER 31, 2007
NOTE
3 – DEFERRED TRANSACTION COSTS
Deferred
transaction costs consist of direct costs associated with activities related to
the proposed merger with Alyst Acquisition Corporation (Note 6). The
deferred transaction costs will be included as part of the total cost of the
business combination upon closing.
NOTE
4 – RELATED PARTY TRANSACTIONS
Amounts
due to related parties consist of advances made to the Company to finance
development stage activities, transaction and other costs. At
December 31, 2007 the amounts due to related parties were non-interest
bearing and had no stated repayment terms. Amounts due to related parties
totaled $66,951 at December 31, 2007.
NOTE
5 – SHAREHOLDERS’ EQUITY
The
Company was initially organized as a Cayman Islands company under the name of
China Networks Limited on March 30, 2007, with 50,000 shares of common stock
authorized at $1 par value. As of December 31, 2007, 1,000 shares were
issued and outstanding.
On June
2, 2008, the Company changed its registered office to the British Virgin Islands
and continued under the name China Networks Media, Ltd. As of June
2008, the Company is authorized to issue 1,900,000 shares of common stock and
1,050,000 shares of Class A Preferred Stock, each with a par value of $0.0005
per share. Also on June 2, 2008, the Company cancelled the 1,000
shares of common stock that were previously issued while it was a Cayman Islands
company and issued 1,900,000 shares of common stock.
Each
Class A Preferred Share has one voting right, a right to an equal share in any
dividend paid by the Company, a liquidation preference of $0.01 per share, and
is convertible into common stock without payment of any further
consideration. The number of common stock shares that Class A
Preferred Shares may be converted into initially is determined by dividing the
original purchase price of Class A Preferred Shares by the conversion price of
Class A Preferred Shares; provided that the initial conversion price shall be
the original purchase price, subject to adjustment upon occurrence of certain
events as stated in the Company’s Memorandum and Articles of
Association.
NOTE
6 – SUBSEQUENT
EVENTS
Going Concern and
Management’s Plan
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. At December 31, 2007 the Company’s
liabilities exceeded its assets by approximately $30,000. Through
December 31, 2007 the Company had not engaged in any operations, had no revenues
and was dependent upon borrowings from related parties. The Company’s
business plan is dependent upon financings and a proposed business combination
described below.
Debt and Equity Bridge
Financing
On July
21, 2008, the Company issued an aggregate of promissory notes in the face value
of $27,990,200 bearing interest at the rate of 10% per annum and 980,000 shares
of Class A Preferred Stock in exchange for proceeds of $28,000,000. Each share
of preferred stock is convertible into one share of the Company’s common stock.
The promissory notes are secured by a pledge of 50.1% of the outstanding common
stock of the Company.
Assuming
the merger between the Company and Alyst is consummated, all principal
outstanding plus accrued interest is due 10 days following the consummation of
the business combination. If the merger between the Company and Alyst
is not consummated by March 31, 2009, one-half of the principal outstanding plus
accrued interest is due eighteen months from the issuance of the promissory
notes and the remaining one-half of the principal outstanding plus accrued
interest is due thirty-six months from the issuance of the promissory
notes.
F-47
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE PERIOD MARCH 30, 2007 (INCEPTION) TO DECEMBER 31, 2007
NOTE
6 – SUBSEQUENT EVENTS
(CONTINUED)
Business
Combination
On August
13, 2008, the Company, Alyst Acquisition Corp. (“Alyst”), a Delaware
corporation, and specified other persons, executed an Agreement and Plan of
Merger (the “Merger Agreement”), providing for, among other things, the
redomestication of Alyst from the State of Delaware to the British Virgin
Islands (the “Redomestication Merger”) and the merger of a wholly-owned
subsidiary of Alyst into China Networks (the "Business Combination"). China
Networks will be the surviving corporation in the Business Combination and will
become a wholly-owned subsidiary of China Networks International Holdings, Ltd.
(“China Networks Holdings”).
The
Business Combination will be accomplished by the merger of China Networks
Holdings’ wholly-owned subsidiary, China Networks Merger Co., with and into
China Networks, resulting in China Networks becoming a wholly-owned subsidiary
of China Networks Holdings. Pursuant to the Merger Agreement, (i) each ordinary
share of China Networks will be converted automatically into (A) a number of
ordinary shares of China Networks Holdings determined as follows: (x) 1,900,000
divided by (y) the
total number of ordinary shares of China Networks issued and outstanding
immediately prior to the Business Combination, plus (B) the right to receive a
cash amount determined as follows: (x) U.S. $10,000,000 divided by (y) the total
number of ordinary shares of China Networks issued and outstanding immediately
prior to the Business Combination, plus (C) the additional common share
consideration as set forth in the merger agreement, and (ii) each preferred
share of China Networks will be converted automatically into (A) a number of
ordinary shares of China Networks Holdings determined as follows: (x) 980,000
divided by (y) the
total number of preferred shares of China Networks issued and outstanding
immediately prior to the Business Combination, plus (B) the right to receive
$7.143 per share in cash, plus (C) the additional preferred share consideration,
as set forth in the merger agreement.
Establishment of Joint
Ventures between Advertising Networks Ltd. (“ANT”) and the PRC TV
Stations
Establishment of Joint
Ventures. During 2008, China Networks established certain
equity joint ventures with the state owned PRC TV Stations through its Hong Kong
wholly-owned subsidiary, ANT (formed subsequent to December 31,
2007). ANT established the equity joint venture under the name of
Shanxi Yellow River and Advertising Networks Cartoon Technology Co., Ltd.
(“Taiyuan JV”) with China Yellow River TV Station in Shanxin Province in June
2008; and established an equity joint venture under the name Kunming Taishi
Information Cartoon Co., Ltd. (“Kunming JV”) with Kunming TV Station in Yunnan
Province in July 2008 (Taiyuan JV and Kunming JV are collectively referred to as
the “JV Tech Cos”). ANT holds 50% equity interest in the Kunming JV
and Taiyuan JV, respectively, and Kunming TV Station and China Yellow River TV
Station own the remaining 50% of the respective JV Tech Cos.
Exclusive Cooperation
Agreement. Pursuant to an Exclusive Cooperation
Agreement between the JV Tech Cos and the PRC TV Stations, the PRC TV Stations
have exclusively and irrevocably granted to the JV Tech Cos the right to carry
out advertising operations on its channels, and to provide to the JV Tech Cos
all necessary and relevant support, as well as most-favored terms for the
conduct of the advertising business. The JV Tech Cos share their resources with
the PRC TV Stations, including, but not limited to, all client information (e.g.
databases). Under the terms of this agreement, the PRC TV Stations will not
engage any other party in any similar agreements. As such, the JV Tech Cos have
the exclusive right to carry out advertising business on PRC TV Stations’
channels.
Kunming
JV and Kunming TV Station entered into such Exclusive Cooperation Agreement on
August 6, 2008, while Taiyuan JV and China Yellow River TV Station entered into
such Exclusive Cooperation agreement on July 17, 2008.
Establishment of Trustee
Company. In August 2008, Beijing Guangwang Hetong
Advertising and Media Co., Ltd., (“Hetong”) the trustee company, established two
domestic advertising companies with Kunming TV Station and China Yellow River TV
Station, under the respective name of Kunming Kaishi Advertising Co., Ltd.
(“Kunming Ad Co.”) and Taiyuan Guangwang Hetong Advertising Co., Ltd. (“Taiyuan
Ad Co.”) (Kunming Ad Co. and Taiyuan Ad Co. are collectively referred to as the
“JV Ad Cos”). Beijing Guangwang Hetong Advertising and Media Co., Ltd., is 100%
owned by two PRC nationals, who are the trustees.
F-48
CHINA
NETWORKS MEDIA, LTD.
(FORMERLY
KNOWN AS CHINA NETWORKS LIMITED)
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO FINANCIAL STATEMENTS
FOR
THE PERIOD MARCH 30, 2007 (INCEPTION) TO DECEMBER 31, 2007
NOTE
6 – SUBSEQUENT EVENTS
(CONTINUED)
In order
to comply with current PRC laws limiting foreign ownership in the television
advertising industry, China Networks’ operations are conducted through direct
ownership of ANT and through contractual arrangements with Hetong. China
Networks does not have an equity interest in Hetong but instead derives indirect
economic benefits from Hetong through a series of contractual
arrangements. Through these arrangements, ANT controls Hetong, which
in turn owns 50% of Kunming Ad Cos, and 50% of Taiyuan Ad Co. established with
PRC TV Stations. The JV Tech Cos collect the television advertising revenue
earned by the JV Ad Cos pursuant to an Exclusive Services Agreement, using
assets transferred from PRC TV Stations to the JV Tech Cos pursuant to an Asset
Transfer Agreement.
Asset Transfer
Agreements. Kunming TV Station and Kunming JV entered
into such Asset Transfer Agreement on August 11, 2008, under which Kunming TV
Station will transfer its assets to Kunming JV, valued at RMB150 million, and
Kunming JV will pay the same to Kunming TV Station. China Yellow River TV
Station and Shanxi Yellow River and Advertising Networks Cartoon Technology Co.,
Ltd. (“Taiyuan JV”) also entered into such Asset Transfer Agreement on July 17,
2008, under which China Yellow River TV Station will transfer its assets, valued
at RMB45 million, to Taiyuan JV, and the same consideration will be paid by
Taiyuan JV. All governmental, statutory and other approvals required for the
transfer of these assets were obtained as of the date of the first transfer in
August 2008.
Exclusive Services
Agreement. Pursuant to the Exclusive Services
Agreement between the JV Tech Cos and the JV Ad Cos, the JV Tech Cos will be the
sole and exclusive provider of services to JV Ad Cos relating
to technical support for the production of advertising and
advertising consulting. In addition, the JV Ad Cos will be the sole and
exclusive advertising agent to the JV Tech Cos and will grant to the JV Ad Cos
agency rights for all advertising under the exclusive right to carry out
advertising operations, granted by the corresponding PRC TV Stations to the JV
Tech Cos in accordance with the Exclusive Cooperation Agreement. Under the terms
of the Exclusive Services Agreement, the JV Ad Cos will pay the service fee to
the JV Tech Cos as accrued, in accordance with the JV Tech Cos’ regular
invoices. As such, all of the JV Ad Cos’ pre-tax revenue (less the relevant
business tax) generated during the term of this agreement and relating to the
marketing of advertising and other operations will be transferred to the JV Tech
Cos as the service fee.
Kunming
JV and Kunming Ad Co. entered into an Exclusive Services Agreement on August 6,
2008, while Taiyuan JV and Taiyuan Ad Co. entered into an Exclusive Services
Agreement on July 17, 2008.
F-49
CHINA NETWORKS MEDIA,
LTD.
SPECIAL PURPOSE COMBINED CARVE-OUT
FINANCIAL STATEMENTS
SEPTEMBER 30,
2008
F-50
CHINA NETWORKS MEDIA, LTD.
SPECIAL PURPOSE CARVE-OUT FINANCIAL
STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2008 AND 2007
|
CONTENT
|
|
|
Pages
|
|
|
Combined Balance
Sheets
|
F-52
|
|
Combined Statements of
Operations
|
F-53
|
|
Combined Statements of
Equity
|
F-54
|
|
Combined Statements of Cash
Flows
|
F-55
|
|
Notes to Combined Financial
Statements
|
F-56
|
F-51
|
CHINA NETWORKS MEDIA,
LTD.
|
||||||||
|
COMBINED
BALANCE SHEETS
|
||||||||
|
AS AT SEPTEMBER 30, 2008 AND
DECEMBER 31, 2007
|
||||||||
|
|
||||||||
| September 30, 2008 |
December 31,
2007
|
|||||||
|
USD
|
USD
|
|||||||
|
(Unaudited)
|
(Restated)
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
-
|
||||||||
|
Cash
|
$ | 79,660 | $ | 116,055 | ||||
|
Accounts Receivable,
net
|
2,628,092 | 1,677,703 | ||||||
|
Receivable from Television
Stations
|
1,886,874 | 1,858,956 | ||||||
|
Other
Receivables
|
389,153 | 17,684 | ||||||
|
Total Current
Assets
|
4,983,779 | 3,670,398 | ||||||
|
TOTAL
ASSETS
|
$ | 4,983,779 | $ | 3,670,398 | ||||
|
LIABILITIES AND
EQUITY
|
||||||||
|
Current Liabilities:
-
|
||||||||
|
Accrued
Expenses
|
$ | 583,146 | $ | 410,376 | ||||
|
Due to Television
Stations
|
1,408,901 | - | ||||||
|
Customer
Deposits
|
1,914,740 | 2,584,941 | ||||||
|
TOTAL
LIABILITIES
|
3,906,787 | 2,995,317 | ||||||
|
TOTAL
EQUITY
|
1,076,992 | 675,081 | ||||||
|
TOTAL LIABILITIES AND
EQUITY
|
$ | 4,983,779 | $ | 3,670,398 | ||||
See accompanying notes to combined
financial statements
F-52
|
CHINA NETWORKS MEDIA,
LTD.
|
||||||||
|
COMBINED STATEMENTS OF
OPERATIONS
|
||||||||
|
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND 2007
|
||||||||
|
For the nine months
ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
USD
|
USD
|
|||||||
|
(Uuaudited)
|
(Uuaudited)
|
|||||||
|
Revenue
|
$ | 13,994,827 | $ | 15,318,025 | ||||
|
Sales
Tax
|
(1,129,634 | ) | (1,255,188 | ) | ||||
|
Cost of
Revenue
|
(4,584,533 | ) | (3,653,174 | ) | ||||
|
Gross
Profit
|
8,280,660 | 10,409,663 | ||||||
|
Selling, General
and
|
||||||||
|
Administrative
Expenses
|
(1,811,244 | ) | (1,228,008 | ) | ||||
|
Income before Income
Taxes
|
6,469,416 | 9,181,655 | ||||||
|
Income
Taxes
|
- | - | ||||||
|
Net
Income
|
$ | 6,469,416 | $ | 9,181,655 | ||||
See accompanying notes to combined
financial statements
F-53
|
CHINA NETWORKS MEDIA,
LTD.
|
||||||||||||
|
COMBINED STATEMENTS OF
EQUITY
|
||||||||||||
|
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND 2007
|
||||||||||||
|
(UNAUDITED)
|
||||||||||||
|
Unit equity excluding
accumulated other comprehensive income
|
Accumulated other comprehensive
income
|
Total
equity
|
||||||||||
|
USD
|
USD
|
USD
|
||||||||||
|
Balance, December 31, 2006
(Restated)
|
$ | - | $ | 251,539 | $ | 251,539 | ||||||
|
Net
income
|
12,458,479 | - | 12,458,479 | |||||||||
|
Distribution to Television
Stations
|
(12,458,479 | ) | (12,458,479 | ) | ||||||||
|
Foreign Currency Translation
Adjustment
|
- | 423,542 | 423,542 | |||||||||
|
Balance, December 31, 2007
(Restated)
|
- | 675,081 | 675,081 | |||||||||
|
Net
income
|
6,469,416 | - | 6,469,416 | |||||||||
|
Distribution to Television
Stations
|
(6,469,416 | ) | - | (6,469,416 | ) | |||||||
|
Foreign Currency Translation
Adjustment
|
- | 401,911 | 401,911 | |||||||||
|
Balance, September 30,
2008
|
- | 1,076,992 | 1,076,992 | |||||||||
See accompanying notes to combined
financial statements
F-54
|
CHINA NETWORKS MEDIA,
LTD.
|
||||||||
|
COMBINED STATEMENTS OF CASH
FLOWS
|
||||||||
|
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND 2007
|
||||||||
|
For the nine months
ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
USD
|
USD
|
|||||||
|
(UNAUDITED)
|
(UNAUDITED)
|
|||||||
|
Cash flows from operating
activities:
|
||||||||
|
Net
income
|
$ | 6,469,416 | $ | 9,181,655 | ||||
|
Changes in assets and
liabilities:
|
||||||||
|
Accounts Receivable,
net
|
(841,715 | ) | 345,618 | |||||
|
Receivable from Television
Stations
|
1,855,867 | (446,405 | ) | |||||
|
Other
Receivables
|
(369,778 | ) | - | |||||
|
Accrued Expenses and Accounts
Payable
|
146,278 | 85,840 | ||||||
|
Customer
Deposits
|
(834,411 | ) | 26,985 | |||||
|
Net cash provided by operating
activities
|
||||||||
| 6,425,658 | 9,193,693 | |||||||
|
Cash flows from financing
activities:
|
||||||||
|
Distribution to Television
Stations
|
(6,469,416 | ) | (9,181,655 | ) | ||||
|
Net cash used in financing
activities
|
(6,469,416 | ) | (9,181,655 | ) | ||||
|
Effect of foreign exchange rate
changes
|
7,363 | 17,615 | ||||||
|
Net (decrease)/increase in
cash
|
(36,395 | ) | 29,653 | |||||
|
Cash, beginning of
period
|
116,055 | 450,502 | ||||||
|
Cash, end of
period
|
$ | 79,660 | $ | 480,155 | ||||
|
Supplemental disclosures of
cash flow and non-cash information:
|
||||||||
|
Interest
paid
|
$ | - | $ | - | ||||
|
Income tax
paid
|
$ | - | $ | - | ||||
See accompanying notes to combined
financial statements
F-55
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
1 - NATURE OF
BUSINESS
These
special purpose financial statements for China Network Media Ltd represent the
combined carved out historical operations of Kunming TV Station - Advertising
Center and Yellow River TV Station - Advertising Center for the nine months
ended September 30, 2008 and 2007. China Networks Media Ltd intends
to consolidate the operations of the Centers into its consolidated financial
statements commencing on October 1,
2008.
Kunming TV Station - Advertising
Center (a business unit of Kunming Television Station) and Yellow River TV
Station - Advertising Center (a business unit of Yellow River TV Station)
(collectively the "Centers") consist of advertising revenue of the Kunming
Television Station and Yellow River Television Station along with direct costs
necessary to generate that revenue. Direct costs include purchased TV
program costs and rental fees for equipment used in generating advertising
revenue. The Centers earn substantially all of their revenues from advertising
income, which includes sale of advertising time-slots and sale of
program-related advertising.
Sale
of advertising time-slots
The Centers currently derives a
substantial majority of their revenue from selling advertising time slots to
advertising agencies and advertisers.
Sale of
program-related advertising services
A small portion of revenues are
generated from advertising opportunities relating to programs produced by the TV
station themselves – these include program sponsorship ‘sting’ slots, in-program
product placements and other ‘soft’ advertising opportunities as well as revenue
from value-added services such as SMS messages relating to program
content.
The Centers do not currently have
assets or liabilities. Kunming Television Station and Yellow River Television
Station (the "Stations") intend to separate the Centers from their operations.
At that time, the advertising business will be transferred from Kunming
Television Station and Yellow River Television Station to the Centers. These
financial statements were prepared in contemplation of the separation and
transfer of the advertising business to the Centers.
NOTE
2 – BASIS OF PREPARATION
The accompanying
combined financial statements have been prepared for the Centers and consist of
historical financial information of the business unit to be transferred to the
Centers by the Stations as if the transfer occurred prior to the periods
presented. The Stations have not historically accounted for the Centers as a
stand-alone company. The Centers' historical financial information has been
"carved-out" from the Stations' financial statements and reflects assumptions
and allocations made by the management. These statements include all adjustments
(consisting only of their normal recurring adjustments) which management
believes necessary for a fair presentation of the statements and have been
prepared on a consistent basis using the accounting policies described in Note
3.
F-56
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
2 – BASIS OF PREPARATION
(……/CONT'D)
These financial
statements are prepared for the interest of prospective investor only. The
Centers are an integral business unit of the Kunming Television Station and
Yellow River Television Station that operates in a single business segment and
is not a stand-alone entity. The financial statements of the Centers reflects
the assets, liabilities, revenues and expenses directly attributable to the
Centers, as well as allocations deemed reasonable by management, to present the
financial position and results of operations on a stand-alone basis. The
financial statements included herein may not necessarily reflect the financial
position, results of operations of the Centers in the future or what they would
have been had the Centers been a separate, stand-alone entity during the years
presented.
The accompanying
unaudited financial statements as of September 30, 2008 have been prepared by
the Centers in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting. These
interim financial statements are unaudited and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments and
accruals, necessary for a fair presentation of the balance sheets, statements of
operations, equity and cash flows for the periods presented. The
results of operations for the interim period are not necessarily indicative of
the results that may be expected for the full year or for any future
period.
All significant
intercompany accounts and transactions have been eliminated in
combination.
NOTE 3
- PRIOR PERIOD
ADJUSTMENTS
The audited financial
statements as of December 31, 2007 referred to herein, have been restated from
our previously issued report dated April 15, 2008. During 2008, management of
the Centers determined that certain commissions paid to advertising agents
during the years ended December 31, 2007 and 2006. These commissions paid were
omitted from the previously issued financial statements. As a result, the
financial statements were restated and the net income of the Centers decreased
by $289,607 and $900,229 as of December 31, 2006 and 2007,
respectively.
In addition, management
of the Centers determined that there is suspended broadcasting time that has not
been recorded in the previously issued financial statements for the years ended
December 31, 2007 and 2006. As a result, the financial statements were restated
and the net income of the Centers decreased by $730,882 and $395,398 in 2006 and
2007, respectively.
Furthermore, management
of the Centers determined that certain sales taxes have not been accrued in the
previously issued financial statements for the year ended December 31, 2007. As
a result, the financial statements were restated and the net income of the
Centers was further decreased by $339,884 in
2007.
F-57
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
NOTE
3 - PRIOR PERIOD ADJUSTMENTS
(……/CONT'D)
Further,
management of the Center determined that certain cost contributing to the
advertising income were omitted from previously issued financial statements. As
a result, the financial statements were restated and the net income of the
Center was further decreased by $648,331 in
2007.
The
above prior period adjustments have decreased the previously reported Receivable
from the Stations by the same amount as the total decrease in net income in 2006
and
2007.
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of
significant accounting policies is presented to assist in understanding the
combined financial statements. These accounting policies conform to
accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of
combined financial statements.
(a)
Cash
Cash consists of
cash at bank. There are no cash equivalents at September 30, 2008 and December
31, 2007.
(b)
Use
of Estimates
The preparation of
the combined financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
These estimates are based on management's best knowledge of current events and
actions that the Centers may take in the future. Actual results could differ
from these estimates.
(c)
Concentrations
of Credit Risk
Financial
instruments of the Centers that potentially expose to concentrations of credit
risk consist principally of accounts and others
receivables.
(d)
Receivables
Accounts
receivable
Accounts receivable
is stated net of trade discounts and allowance for doubtful accounts. The
Centers provide an allowance for doubtful accounts based upon prior experience
and management's assessment of the collectibility of specific accounts. As of
September 30, 2008 and December 31, 2007 the Centers considered all accounts
receivable collectable and therefore did not record an allowance for doubtful
accounts.
F-58
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (……/CONT'D)
(d)
Receivables
(……/Cont'd)
Receivable
from Television Stations
The Centers are an
integral business unit of the Stations. This amount represents the expenses paid
by the Stations net of advertising income received by the Stations on behalf of
the Centers.
(e)
Other
receivable
Other
receivables consist cash advances to employees.
(f)
Income
Tax
During the periods
presented, the Centers were an integral part of a state owned enterprise in the
Peoples Republic of China (PRC); as such they were exempt from all income
taxes. If the Centers are treated as a stand-alone entity and subject
to income taxes in all periods, a provision for income tax of $1,439,694 and
$2,689,042 would have been recorded for the nine months ended September 30, 2008
and 2007 respectively.
No deferred taxation
has been provided as there are no estimated future tax implications from
temporary differences between the tax basis of assets and liabilities and the
amounts reported in the balance sheets.
PRC entities are
subject to the PRC Enterprise Income Tax at the applicable tax rates on the
taxable income. Effective from January 1, 2008, the Enterprise Income
Tax rate of 33% was reduced to 25%.
(g) Revenue
Recognition
The Centers
typically sign standard advertising contracts with advertising clients, which
require the Centers to run the advertiser’s advertisements on the Stations'
network for a specified period. The Centers' advertising customers typically pay
a deposit before the relevant advertisements are broadcast, and the balance is
paid after broadcast. Customer deposits received prior to the
broadcast of advertisements are initially deferred and recorded as revenue upon
the broadcast of advertisements.
Advertising service
revenues are recognized when all four of the following criteria are met: (i)
persuasive evidence of agreement exists; (ii) delivery of service has occurred;
(iii) the price is both fixed and determinable; and (iv) collection of the
resulting receivable is reasonably assured. Revenues are recognized when
advertisements are broadcast. Provision for discounts and estimated
returns and allowances are provided for in the same period the related revenue
is recorded.
No discount has been
provided for the periods ended September 30, 2008 and
2007.
F-59
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (……/CONT'D)
(h)
Cost
of Revenue
Cost of revenue is
primarily comprised of purchased TV program costs, rental fees for equipment
used in generating advertising revenue and commissions paid to advertising
agents.
(i)
Selling,
General and Administrative Expenses
Selling, general and
administrative expense is primarily comprised of selling expenses,
administrative expenses and other indirect overhead costs. Historical allocation
of all the expenses related to the business unit being carved-out are based on
the actual expenses attributable to the Centers by the
Stations.
(j)
Foreign
Currency Translation
The Centers’
functional currency is Renminbi (“RMB”); however, the reporting currency is the
United States dollar (“USD”). Reported assets and liabilities of the
Centers have been translated using the exchange rate at the balance sheet date.
The average exchange rate for the period has been used to translate revenues and
expenses. Foreign currency translation differences are included as a
component of Accumulated Other Comprehensive Income.
(k)
Sales
Tax
Revenues from
services provided by the centers are subject to the PRC business tax of 5%,
cultural levies of 3% and some surcharges. Business tax, cultural levies and
surcharges are paid on gross revenues generated from advertising services. In
addition, under the PRC regulations, the Centers are required to pay the city
construction tax (7%), education surcharges (3%), price governing fund (2%) and
river management fee (1%) based on the calculated business tax payments. The
Centers had complied with EITF 06-3 and reports their revenues net of PRC’s
business tax and surcharges for all the periods presented in the statements of
operations.
F-60
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (……/CONT'D)
(l)
Recent
Accounting Pronouncements
During September
2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,
Fair Value Measurements (“SFAS 157”), which is effective for fiscal years
beginning after November 15, 2007 with earlier adoption encouraged. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. In February 2008, the FASB issued FASB Staff Position FAS
157-2, Effective Date of FASB Statement No. 157 which delayed the effective date
of SFAS 157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until January 1, 2009. The Center adopted SFAS 157 on
January 1, 2008 for all financial assets and liabilities, but the implementation
did not have a significant impact on the Center's financial position or results
of operations. The Center has not yet determined the impact the
implementation of SFAS 157
will have on the Center’s non-financial assets and liabilities which are not
recognized or disclosed on a recurring basis. However, the Center
does not anticipate that the full adoption of SFAS 157 will significantly impact
its combined financial statements.
During February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities—including an amendment of FASB Statement No. 115
(“SFAS 159”), which permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective of SFAS 159 is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The Center adopted SFAS 159 on January 1, 2008 and has elected not
to measure any additional financial assets, liabilities or other items at fair
value.
In March 2008, the
FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS 161”), which is effective January 1, 2009. SFAS 161
requires enhanced disclosures about derivative instruments and hedging
activities to allow for a better understanding of their effects on an entity’s
financial position, financial performance, and cash flows. Among other things,
SFAS 161 requires disclosures of the fair values of derivative instruments and
associated gains and losses in a tabular formant. SFAS 161 is not
currently applicable to the Center since the Center does not have derivative
instruments or hedging activity.
F-61
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (……/CONT'D)
(l)
Recent
Accounting Pronouncements (……/Cont'd)
In May 2008, the
FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy
of Generally Accepted Accounting Principles (“FAS 162"). This Standard
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. The Standard is effective 60 days
following SEC approval of the Public Center Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to have an impact on the
financial statements.
In April 2008, the
FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful
Life of Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other
Intangible Assets. This Staff Position is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. This FSP is not
currently applicable to the Center.
In June 2008, the
FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities. This FSP provides
that unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per share
pursuant to the two-class method. The Center does not currently have any
share-based awards that would qualify as participating securities. Therefore,
application of this FSP is not expected to have an effect on the Center's
financial reporting.
In May 2008, the
FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
("FSP 14-1"). FSP 14-1 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008. The FSP includes guidance that
convertible debt instruments that may be settled in cash upon conversion should
be separated between the liability and equity components, with each component
being accounted for in a manner that will reflect the entity's nonconvertible
debt borrowing rate when interest costs are recognized in subsequent periods.
FSP 14-1 is not currently applicable to the Center since the Center does not
have convertible debt.
F-62
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (……/CONT'D)
(m) Reclassification
Certain amount in
the prior year financial statements have been reclassified to conform with
current year presentation.
NOTE
5 - ACCRUED EXPENSES
Accrued expenses
mainly consist of business tax payable totaled $583,146 and $410,376 as of
September 30, 2008 and December 31, 2007, respectively.
NOTE
6 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Pursuant to the
relevant laws and regulation in the PRC, the Centers participate in defined
contribution retirement plans for their employees arranged by a governmental
organization. The Centers makes contributions to the retirement scheme at the
applicable rate based on the employees' salaries. The required contributions
under the retirement plans are charged to the statements of operations on an
accrual basis.
The Centers have no
other obligation to make payments in respect of retirement benefits of its
employees.
NOTE
7 - RELATED PARTY TRANSACTIONS
The Centers are an
integral business unit of the Stations and all expenses are paid by the
Stations. These statements reflect allocated expenses from the Stations
including purchased TV program costs, payroll and overhead costs. Allocations
are based on the actual expenses attributable to the Centers by the
Stations.
All net income
earned by the Centers are treated as funding to the Centers and have been
accounted for as capital contributions from the Stations. All cash remittances
from the Centers to the Stations have been accounted for as distributions to the
Stations. Accordingly, no retained earnings are reflected in these financial
statements. For all periods presented, the Centers had significant net positive
cash flow, which have been accounted for as distributions to the
Stations.
F-63
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
8 - SEGMENT REPORTING
Management considers
the Centers to have one business segment, consisting of the advertising
services. The information presented in the carve-out statement of operations
reflects the revenues and costs associated with this business segment that
management uses to make operating decisions and assess
performance.
NOTE
9 - CUSTOMER CONCENTRATION
During the nine
months ended September 30, 2008, sales to two customers totaled $5,460,189, or
approximately 39% of total combined revenue. This concentration makes the
Centers vulnerable to a near term severe impact, should the relationships be
terminated. At September 30, 2008, accounts receivables from these customers
totaled $136,278. In addition, there were $789,489 deposits received from
customers.
During the nine
months ended September 30, 2007, sales to two customers totaled $4,523,615, or
approximately 29.5% of total combined revenue. At September 30, 2007, accounts
receivables from these customers totaled $367,019. In addition, there were
$726,608 deposits received from customers.
NOTE
10 - OTHER
Establishment
of Joint Ventures between Advertising Networks Ltd. (“ANT”) and the PRC TV
Stations
Establishment
of Joint Ventures
China Networks Media
Limited is a company registered in British Virgin Island. It acquiries broadcast
television advertising rights in the People's Republic of China. In 2008, China
Networks established certain equity joint ventures with the state owned PRC TV
Stations through its Hong Kong wholly-owned subsidiary, ANT. ANT
established the equity joint venture under the name of Shanxi Yellow River and
Advertising Networks Cartoon Technology Co., Ltd. (“Taiyuan JV”) with China
Yellow River TV Station in Shanxin Province in June 2008; and established an
equity joint venture under the name Kunming Taishi Information Cartoon Co., Ltd.
(“Kunming JV”) with Kunming TV Station in Yunnan Province in July 2008 (Taiyuan
JV and Kunming JV are collectively referred to as the “JV Tech
Cos”). ANT holds 50% equity interest in the Kunming JV and Taiyuan
JV, respectively, and Kunming TV Station and China Yellow River TV Station own
the remaining 50% of the respective JV Tech Cos.
F-64
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
10 - OTHER (……CONT'D)
Exclusive
Cooperation Agreement.
Pursuant to the
Exclusive Cooperation Agreement between the JV Tech Cos and the PRC TV Stations,
the PRC TV Stations have exclusively and irrevocably granted to the JV Tech Cos
the right to carry out advertising operations on its channels, and to provide to
the JV Tech Cos all necessary and relevant support, as well as most-favored
terms for the conduct of the advertising business. The JV Tech Cos share their
resources with the PRC TV Stations, including, but not limited to, all client
information (e.g. databases). Under the terms of this agreement, the PRC TV
Stations will not engage any other party in any similar agreements. As such, the
JV Tech Cos have the exclusive right to carry out advertising business on PRC TV
Stations’ channels.
Kunming JV and
Kunming TV Station entered into such Exclusive Cooperation Agreement on August
6, 2008, while Taiyuan JV and China Yellow River TV Station entered into such
Exclusive Cooperation agreement on July 17, 2008.
Establishment
of Trustee Company
In August 2008,
Beijing Guangwang Hetong Advertising & Media Co., Ltd. ("Hetong"), the
trustee company, established two domestic advertising companies with Kunming TV
Station and China Yellow River TV Station, under the respective name of Kunming
Kaishi Advertising Co., Ltd. (“Kunming Ad Co.”) and Taiyuan Guangwang Hetong
Advertising Co., Ltd. (“Taiyuan Ad Co.”) (Kunming Ad Co. and Taiyuan Ad Co. are
collectively referred to as the “JV Ad Cos”). Hetong is 100% owned by two PRC
nationals, who are the trustees).
In order to comply
with current PRC laws limiting foreign ownership in the television advertising
industry, China Networks’ operations are conducted through direct ownership of
ANT and through contractual arrangements with Hetong. China Networks does not
have an equity interest in Hetong, but instead derives indirect economic
benefits from Hetong through a series of contractual
arrangements. Through these arrangements, ANT controls Hetong, which
in turn owns 50% of Kunming Ad Cos, and 50% of Taiyuan Ad Co. established with
PRC TV Stations. The JV Tech Cos collect the television advertising revenue
earned by the JV Ad Cos pursuant to an Exclusive Services Agreement, using
assets transferred from PRC TV Stations to the JV Tech Cos pursuant to an Asset
Transfer Agreement.
F-65
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE
10 - OTHER (……/CONT'D)
Asset
Transfer Agreements.
Kunming TV Station
and Kunming JV entered into such Asset Transfer Agreement on August 11, 2008,
under which Kunming TV Station will transfer its assets to Kunming JV, valued at
RMB150 million, and Kunming JV will pay the same to Kunming TV Station. China
Yellow River TV Station and Shanxi Yellow River and Advertising Networks Cartoon
Technology Co., Ltd. (“Taiyuan JV”) also entered into such Asset Transfer
Agreement on July 17, 2008, under which China Yellow River TV Station will
transfer its assets, valued at RMB45 million, to Taiyuan JV, and the same
consideration will be paid by Taiyuan JV. All governmental, statutory and other
approvals required for the transfer of these assets were obtained as of the date
of the first transfer in August 2008.
Exclusive
Services Agreement.
Pursuant to the
Exclusive Services Agreement between the JV Tech Cos and the JV Ad Cos, the JV
Tech Cos will be the sole and exclusive provider of services to JV Ad Cos
relating to technical support for the production of advertising and
advertising consulting. In addition, the JV Ad Cos will be the sole and
exclusive advertising agent to the JV Tech Cos and will grant to the JV Ad Cos
agency rights for all advertising under the exclusive right to carry out
advertising operations, granted by the corresponding PRC TV Stations to the JV
Tech Cos in accordance with the Exclusive Cooperation Agreement. Under the terms
of the Exclusive Services Agreement, the JV Ad Cos will pay the service fee to
the JV Tech Cos as accrued, in accordance with the JV Tech Cos’ regular
invoices. As such, all of the JV Ad Cos’ pre-tax revenue (less the relevant
business tax) generated during the term of this agreement and relating to the
marketing of advertising and other operations will be transferred to the JV Tech
Cos as the service fee.
Kunming JV and
Kunming Ad Co. entered into an Exclusive Services Agreement on August 6, 2008,
while Taiyuan JV and Taiyuan Ad Co. entered into an Exclusive Services Agreement
on July 17, 2008.
F-66
CHINA
NETWORKS MEDIA, LTD.
SPECIAL
PURPOSE CARVE-OUT FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
F-67
CHINA
NETWORKS MEDIA, LTD.
SPECIAL
PURPOSE CARVE-OUT FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
CONTENT
|
Pages
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-69
|
|
Combined
Balance Sheets
|
F-70
|
|
Combined
Statements of Operations
|
F-71
|
|
Combined
Statements of Equity
|
F-72
|
|
Combined
Statements of Cash Flows
|
F-73
|
|
Notes
to Combined Financial Statements
|
F-74
|
F-68
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Management of
CHINA
NETWORKS MEDIA LTD.
We
have audited the accompanying combined balance sheets of Kunming Television
Station - Advertising Center (a business unit of Kunming Television Station) and
Yellow River Television Station - Advertising Center (a business unit of Yellow
River Television Station) (the "Centers") as of December 31, 2007, 2006 and 2005
and the related combined statements of operations, combined statements of equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Centers' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform our audit to obtain reasonable assurance about whether the financial
statements are free from material mistatement. The Centers are not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal controls over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Centers' internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
As
described in Note 3 to the combined financial statements, the Centers are a
business unit of Kunming Television Station and Yellow River Television Station
respectively and are not a stand-alone entity. The accompanying combined
financial statements were prepared for the interest of prospective investors
only and have been carved-out from the Kunming Television Station and Yellow
River Television Station financial statements to present the historical
financial position, results of operations and cash flows attributable to the
Centers. These combined financial statements include cost allocations deemed
reasonable by management to present the historical financial position and
results of operations of the Centers on a stand-alone basis. However, these
costs may not be reflective of the actual level of costs which would have been
incurred had the Centers operated as a separate entity apart from Kunming
Television Station and Yellow River Television Station.
In our
opinion, such combined financial statements present fairly, in all material
aspects, the financial position of the Centers as of December 31, 2007, 2006 and
2005, and the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
 |
|
UHY
Vocation HK CPA Limited
|
|
Certified
Public Accountants
|
|
Hong
Kong, 22 JAN
2009
|
|
THE
PEOPLE'S REPUBLIC OF
CHINA
|
F-69
CHINA
NETWORKS MEDIA, LTD.
COMBINED
BALANCE SHEETS
AS
AT DECEMBER 31, 2007, 2006 AND 2005
|
December 31,
2007
|
December 31,
2006
|
December 31,
2005
|
||||||||||
|
USD
|
USD
|
USD
|
||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||
|
ASSETS
|
||||||||||||
|
Current
Assets: -
|
||||||||||||
|
Cash
|
$ | 116,055 | $ | 450,501 | $ | 493,544 | ||||||
|
Accounts
Receivable, net
|
1,677,703 | 1,978,314 | 1,788,481 | |||||||||
|
Receivable
from Television Stations
|
1,858,956 | - | - | |||||||||
|
Other
Receivables
|
17,684 | - | - | |||||||||
|
Total
Current Assets
|
3,670,398 | 2,428,815 | 2,282,025 | |||||||||
|
TOTAL
ASSETS
|
$ | 3,670,398 | $ | 2,428,815 | $ | 2,282,025 | ||||||
|
LIABILITIES
AND EQUITY
|
||||||||||||
|
Current
Liabilities: -
|
||||||||||||
|
Accounts
Payable
|
$ | - | $ | 24,257 | $ | 23,691 | ||||||
|
Accrued
Expenses
|
410,376 | 54,147 | 60,524 | |||||||||
|
Due
to Television Stations
|
- | 27,089 | 1,165,403 | |||||||||
|
Customer
Deposits
|
2,584,941 | 2,071,783 | 892,332 | |||||||||
|
TOTAL
LIABILITIES
|
2,995,317 | 2,177,276 | 2,141,950 | |||||||||
|
TOTAL
EQUITY
|
675,081 | 251,539 | 140,075 | |||||||||
|
TOTAL
LIABILITIES AND EQUITY
|
$ | 3,670,398 | $ | 2,428,815 | $ | 2,282,025 | ||||||
See
accompanying notes to combined financial statements
F-70
CHINA
NETWORKS MEDIA, LTD.
COMBINED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
Year ended
December 31,
2007
|
Year ended
December 31,
2006
|
Year ended
December 31,
2005
|
||||||||||
|
USD
|
USD
|
USD
|
||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||
|
Revenue
|
$ | 20,684,055 | $ | 16,350,638 | $ | 15,528,457 | ||||||
|
Sales
Tax
|
(1,696,906 | ) | (1,199,132 | ) | (1,122,206 | ) | ||||||
|
Cost
of Revenue
|
(4,844,541 | ) | (3,757,422 | ) | (1,925,034 | ) | ||||||
|
Gross
Profit
|
14,142,608 | 11,394,084 | 12,481,217 | |||||||||
|
Other
Income
|
28,802 | 102,261 | 10,337 | |||||||||
|
Selling,
General and Administrative Expenses
|
(1,712,931 | ) | (1,607,264 | ) | (1,376,299 | ) | ||||||
|
Income
before Income Taxes
|
12,458,479 | 9,889,081 | 11,115,255 | |||||||||
|
Income
Taxes
|
- | - | - | |||||||||
|
Net
Income
|
$ | 12,458,479 | $ | 9,889,081 | $ | 11,115,255 | ||||||
See
accompanying notes to combined financial statements
F-71
CHINA
NETWORKS MEDIA, LTD.
COMBINED
STATEMENTS OF EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
Unit equity
excluding
accumulated
other
comprehensive
income
|
Accumulated
other
comprehensive
income
|
Total equity
|
||||||||||
|
USD
|
USD
|
USD
|
||||||||||
|
Balance,
December 31, 2004
|
-
|
-
|
-
|
|||||||||
|
Net
income
|
11,115,255 |
-
|
11,115,255 | |||||||||
|
Distribution
to Television Stations
|
(11,115,255 | ) | - | (11,115,255 | ) | |||||||
|
Foreign
Currency Translation Adjustment
|
- | 140,075 | 140,075 | |||||||||
|
Balance,
December 31, 2005
|
- | 140,075 | 140,075 | |||||||||
|
Net
income
|
9,889,081 | - | 9,889,081 | |||||||||
|
Distribution
to Television Stations
|
(9,889,081 | ) | (9,889,081 | ) | ||||||||
|
Foreign
Currency Translation Adjustment
|
- | 111,464 | 111,464 | |||||||||
|
Balance,
December 31, 2006 (Restated)
|
- | 251,539 | 251,539 | |||||||||
|
Net
income
|
12,458,479 | - | 12,458,479 | |||||||||
|
Distribution
to Television Stations
|
(12,458,479 | ) | (12,458,479 | ) | ||||||||
|
Foreign
Currency Translation Adjustment
|
- | 423,542 | 423,542 | |||||||||
|
Balance,
December 31, 2007 (Restated)
|
- | 675,081 | 675,081 | |||||||||
See
accompanying notes to combined financial statements
F-72
CHINA
NETWORKS MEDIA, LTD.
COMBINED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
Year ended
December 31,
2007
|
Year ended
December 31,
2006
|
Year ended
December 31,
2005
|
||||||||||
|
USD
|
USD
|
USD
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 12,458,479 | $ | 9,889,081 | $ | 11,115,255 | ||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivable, net
|
300,611 | (189,833 | ) | (1,743,722 | ) | |||||||
|
Receivable
from Television Station
|
(1,858,956 | ) | - | - | ||||||||
|
Other
Receivables
|
(17,684 | ) | - | - | ||||||||
|
Accounts
payable
|
(24,257 | ) | 566 | 690,459 | ||||||||
|
Accrued
expenses
|
356,229 | (6,377 | ) | 59,883 | ||||||||
|
Due
to Television Station
|
(27,089 | ) | (1,138,314 | ) | 751,765 | |||||||
|
Customer
Deposits
|
513,158 | 1,179,451 | 542,571 | |||||||||
|
Net
cash provided by operating activities
|
11,700,491 | 9,734,574 | 11,416,211 | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Distribution
to Television Stations
|
(12,458,479 | ) | (9,889,081 | ) | (11,115,255 | ) | ||||||
|
Net
cash used in financing activities
|
(12,458,479 | ) | (9,889,081 | ) | (11,115,255 | ) | ||||||
|
Effect
of foreign exchange rate changes
|
423,542 | 111,464 | 140,075 | |||||||||
|
Net
(decrease)/increase in cash
|
(334,446 | ) | (43,043 | ) | 441,031 | |||||||
|
Cash,
beginning of period
|
450,501 | 493,544 | 52,513 | |||||||||
|
Cash,
end of period
|
$ | 116,055 | $ | 450,501 | $ | 493,544 | ||||||
|
Supplemental
disclosures of cash flow and non-cash information:
|
||||||||||||
|
Interest
paid
|
$ | - | $ | - | $ | - | ||||||
|
Income
tax paid
|
$ | - | $ | - | $ | - | ||||||
See
accompanying notes to combined financial statements
F-73
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
1 - NATURE OF BUSINESS
These
special purpose financial statements for China Network Media Ltd represent the
combined carved out historical operations of Kunming TV Station - Advertising
Center and Yellow River TV Station - Advertising Center for the years ended
December 31,2007, 2006 and 2005. China Networks Media Ltd intends to consolidate
the operations of the Centers into its consolidated financial statements
commencing on October 1, 2008.
Kunming
TV Station - Advertising Center (a business unit of Kunming Television Station)
and Yellow River TV Station - Advertising Center (a business unit of Yellow
River TV Station) (collectively the "Centers") consist of advertising revenue of
the Kunming Television Station and Yellow River Television Station along with
direct costs necessary to generate that revenue. Direct costs include purchased
TV program costs and rental fees for equipment used in generating advertising
revenue. The Centers earn substantially all of their revenues from advertising
income, which includes sale of advertising time-slots and sale of
program-related advertising.
Sale
of advertising time-slots
The
Centers currently derives a substantial majority of their revenue from selling
advertising time slots to advertising agencies and
advertisers.
Sale
of program-related advertising services
A small
portion of revenues are generated from advertising opportunities relating to
programs produced by the TV station themselves – these include program
sponsorship ‘
sting ’
slots, in-program product placements and other ‘soft’
advertising opportunities as well as revenue from value-added services such as
SMS messages relating to program content.
The
Centers do not currently have assets or liabilities and do not have any
operations. Kunming Television Station and Yellow River Television Station (the
"Stations") intends to separate the Centers from their operations. At that time,
the advertising business will be transferred from Kunming Television Station and
Yellow River Television Station to the Centers. These financial statements were
prepared in contemplation of the separation and transfer of the advertising
business to the Centers.
NOTE
2 - PRIOR PERIOD ADJUSTMENT
These
financial statements have been restated from our previously issued report dated
April 15, 2008. During 2008, management of the Centers determined that certain
commissions paid to advertising agents during the years ended December 31, 2007
and 2006. These commissions paid were omitted from the previously issued
financial statements. As a result, the financial statements were restated and
the net income of the Centers decreased by $289,607 and $900,229 in 2006 and
2007, respectively.
In
addition, management of the Centers determined that there are suspended
braodcasting time during the years ended December 31, 2007 and 2006. These
suspended broadcasting time have not been recorded in the previously issued
financial statements. As a result, the financial statements were restated and
the net income of the Centers decreased by $730,882 and $395,398 in 2006 and
2007, respectively.
F-74
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
2 -
PRIOR PERIOD ADJUSTMENT (....../CONT'D)
Furthermore,
management of the Centers determined that certain sales tax have not been
accrued in the previously issued financial statements for the year ended
December 31, 2007. As a result, the financial statements were restated and the
net income of the Centers was further decreased by $339,884 in
2007.
The
above prior period adjustments have decreased the previously reported Receivable
from the Stations by the same amount as the decrease in net income in 2006 and
2007.
All
significant intercompany accounts and transactions have been eliminated in
combination.
NOTE
3 – BASIS OF PREPARATION
The
accompanying combined financial statements have been prepared for the Centers
and consist of historical financial information of the business unit to be
transferred to the Centers by the Stations as if the transfer occurred prior to
the periods presented. The Stations have not historically accounted for the
Centers as a stand-alone company. The Centers' historical financial information
has been "carved-out" from the Stations' financial statements and reflects
assumptions and allocations made by the management. These statements include all
adjustments (consisting only of their normal recurring adjustments) which
management believes necessary for a fair presentation of the statements and have
been prepared on a consistent basis using the accounting policies described in
Note 4.
These
combined financial statements are prepared for the interest of prospective
investor only. The Centers are an integral business unit of the Kunming
Television Station and Yellow River Television Station that operate in a single
business segment and are not a stand-alone entity. The financial statements of
the Centers reflects the assets, liabilities, revenues and expenses directly
attributable to the Centers, as well as allocations deemed reasonable by
management, to present the financial position and results of operations on a
stand-alone basis.
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the combined financial statements. These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of combined
financial statements.
(a) Cash
Cash
consist of cash at bank. There are no cash equivalents at December 31, 2007,
2006 and 2005.
(b) Use
of Estimates
The
preparation of the combined financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. These estimates are based on management's best
knowledge of current events and actions that the Centers may take in the future.
Actual results could differ from these estimates.
F-75
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (....../CONT'D)
(c) Concentrations
of Credit Risk
Financial instruments
of the Centers that potentially expose to concentrations of credit risk consist
principally of accounts and others receivables.
(d) Receivables
Accounts
receivable
Accounts
receivable is stated net of trade discounts and allowance for doubtful accounts.
The Centers provide an allowance for doubtful accounts based upon prior
experience and management's assessment of the collectibility of specific
accounts. As of December 31, 2007, 2006 and 2005 the Centers considered all
accounts receivable collectable and therefore did not record an allowance for
doubtful accounts.
Receivable from Television
Stations
The
Centers are an integral business unit of the Stations. This amount represents
the expenses paid by the Stations net of advertising income received by the
Stations on behalf of the Centers.
(e) Income
Tax
During
the periods presented, the Centers were an integral part of a state owned
enterprise in the Peoples Republic of China (PRC); as such they were exempt from
all income taxes. If the Centers are treated as a stand-alone entity and subject
to income taxes in all periods, a provision for income tax of $4,402,957,
$3,263,397 and $3,668,034 would have been recorded for the years ended December
31, 2007, 2006 and 2005.
No
deferred taxation has been provided as there are no estimated future tax
implications from temporary differences between the tax basis of assets and
liabilities and the amounts reported in the balance sheets.
PRC
entities are subject to the PRC Enterprise Income Tax at the applicable tax
rates on the taxable income. Effective from January 1, 2008, the Enterprise
Income Tax rate of 33% was reduced to 25%.
(f)
Revenue Recognition
The
Centers typically signs standard advertising contracts with advertising clients,
which require the Centers to run the advertiser’s
advertisements on the Stations' network for a specified period. The Centers'
advertising customers typically pay a deposit before the relevant advertisements
are broadcast, and the balance is paid after broadcast. Customer deposits
received prior to the broadcast of advertisements are initially deferred and
recorded as revenue upon the broadcast of advertisements.
F-76
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (....../CONT'D)
(f) Revenue
Recognition (....../Cont'd)
Advertising
service revenues are recognized when all four of the following criteria are met:
(i) persuasive evidence of agreement exists; (ii) delivery of service has
occurred; (iii) the price is both fixed and determinable; and (iv) collection of
the resulting receivable is reasonably assured. Revenues are recognized when
advertisements are broadcasted. Provision for discounts to customers and
estimated returns and allowances are provided for in the same period the related
revenue is recorded.
No
discount has been provided for the years ended December 31, 2007, 2006,
2005.
(g) Cost
of Revenue
Cost
of revenue is primarily comprised of purchased TV program costs, rental fees for
equipment used in generating advertising revenue and commissions paid to
advertising agents.
(h) Selling,
General and Administrative Expenses
Selling,
general and administrative expense is primarily comprised of selling expenses,
administrative expenses and other indirect overhead costs. Historical allocation
of all the expenses related to the business unit being carved-out are based on
the actual expenses attributable to the Centers by the
Stations.
(i) Foreign
Currency Translation
The
Centers' functional currency is Renminbi ("RMB"); however, the reporting
currency is the United States dollar ("USD"). Reported assets and liabilities of
the Centers have been translated using the exchange rate at the balance sheet
date. The average exchange rate for the period has been used to translate
revenues and expenses. Foreign currency translation differences are included as
a component of Accumulated Other Comprehensive Income.
(j)
Sales Tax
Revenues
from services provided by the centers are subject to the PRC business tax of 5%,
cultural levies of 3% and some surcharges. Business tax, cultural levies and
surcharges are paid on gross revenues generated from advertising services. In
addition, under the PRC regulations, the Centers are required to pay the city
construction tax (7%), education surcharges (3%), price governing fund (2%) and
river management fee (1%) based on the calculated business tax payments. The
Centers had complied with EITF 06-3 and reports their revenues net of PRC’s
business tax and surcharges for all the periods presented in the statements of
operations.
F-77
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (....../CONT'D)
(k)
Recent Accounting Pronouncements
During
September 2006, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 157, Fair Value Measurements (“SFAS
157”),
which is effective for fiscal years beginning after November 15, 2007 with
earlier adoption encouraged. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. In February 2008, the
FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No.
157 which delayed the effective date of SFAS 157 for all non-financial assets
and liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis, until January 1, 2009. The Center
adopted SFAS 157 on January 1, 2008 for all financial assets and liabilities,
but the implementation did not have a significant impact on the Center's
financial position or results of operations. The Center has not yet determined
the impact the implementation of SFAS 157 will have on the Center's
non-financial assets and liabilities which are not recognized or disclosed on a
recurring basis. However, the Center does not anticipate that the full adoption
of SFAS 157 will significantly impact its combined financial
statements.
During
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115 (“SFAS
159”),
which permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective of SFAS 159 is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. The Center adopted SFAS 159 on January 1, 2008 and has elected not
to measure any additional financial assets, liabilities or other items at fair
value.
In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS
161”),
which is effective January 1, 2009. SFAS 161 requires enhanced disclosures about
derivative instruments and hedging activities to allow for a better
understanding of their effects on an entity’s
financial position, financial performance, and cash flows. Among other things,
SFAS 161 requires disclosures of the fair values of derivative instruments and
associated gains and losses in a tabular formant. SFAS 161 is not currently
applicable to the Center since the Center does not have derivative instruments
or hedging activity.
F-78
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (....../CONT'D)
(k)
Recent Accounting Pronouncements (....../Cont'd)
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles ("FAS 162"). This Standard
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. The Standard is effective 60 days
following SEC approval of the Public Center Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to have an impact on the
financial statements.
In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination
of the Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets. This Staff Position is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited.
This FSP is not currently applicable to the Center.
In
June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities. This
FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The Center does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on the Center's financial reporting.
In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) ("FSP 14-1"). FSP 14-1 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The FSP
includes guidance that convertible debt instruments that may be settled in cash
upon conversion should be separated between the liability and equity components,
with each component being accounted for in a manner that will reflect the
entity's nonconvertible debt borrowing rate when interest costs are recognized
in subsequent periods. FSP 14-1 is not currently applicable to the Center since
the Center does not have convertible debt.
F-79
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (....../CONT'D)
(l)
Reclassification
Certain
amount in the prior year financial statements have been reclassified to conform
with current year presentation.
NOTE
5 - ACCRUED EXPENSES
Accrued
expenses mainly consist of business tax payable totaled $410,376, $54,147 and
$54,328 as of December 31, 2007, 2006 and 2005, respectively.
NOTE
6 - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Pursuant
to the relevant laws and regulation in the PRC, the Centers participate in
defined contribution retirement plans for their employees arranged by a
governmental organization. The Centers makes contributions to the retirement
scheme at the applicable rate based on the employees' salaries. The required
contributions under the retirement plans are charged to the statements of
operations on an accrual basis.
The
Centers have no other obligation to make payments in respect of retirement
benefits of its employees.
NOTE
7 - RELATED PARTY TRANSACTIONS
The
Centers are an integral business unit of the Stations and all expenses are paid
by the Stations. These statements reflect allocated expenses from the Stations
including purchased TV program costs, payroll and overhead costs. Allocations
are based on the actual expenses attributable to the Centers by the
Stations.
All
net income earned by the Centers are treated as funding to the Centers and have
been accounted for as capital contributions from the Stations. All cash
remittances from the Centers to the Stations have been accounted for as
distributions to the Stations. Accordingly, no retained earnings are reflected
in these financial statements. For all periods presented, the Centers had
significant net positive cash flow, which have been accounted for as
distributions to the Stations.
NOTE
8 - SEGMENT REPORTING
Management
considers the Centers to have one business segment, consisting of the
advertising services. The information presented in the carve-out statement of
operations reflects the revenues and costs associated with this business segment
that management uses to make operating decisions and assess
performance.
F-80
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
9 -
CUSTOMER CONCENTRATION
During
the year ended December 31, 2007, sales to two customers totaled $4,268,687, or
approximately 21% of total revenue. At December 31, 2007, accounts receivable
from these customers totaled $319,332.
NOTE
10 - SUBSEQUENT EVENTS
Establishment
of Joint Ventures between Advertising Networks Ltd. (“ANT”)
and the PRC TV Stations
Establishment
of Joint Ventures
In
2008, China Networks established certain equity joint ventures with the state
owned PRC TV Stations through its Hong Kong wholly-owned subsidiary, ANT. ANT
established the equity joint venture under the name of Shanxi Yellow River and
Advertising Networks Cartoon Technology Co., Ltd. (“Taiyuan
JV”)
with China Yellow River TV Station in Shanxin Province in June 2008; and
established an equity joint venture under the name Kunming Taishi Information
Cartoon Co., Ltd. (“Kunming
JV”)
with Kunming TV Station in Yunnan Province in July 2008 (Taiyuan JV and Kunming
JV are collectively referred to as the “JV
Tech Cos”).
ANT holds 50% equity interest in the Kunming JV and Taiyuan JV by the
contribution of cash, respectively, and Kunming TV Station and China Yellow
River TV Station own the remaining 50% of the respective JV Tech Cos by the
contribution of the Centers (a business unit of each stations).
Exclusive
Cooperation Agreement.
Pursuant
to the Exclusive Cooperation Agreement between the JV Tech Cos and the PRC TV
Stations, the PRC TV Stations have exclusively and irrevocably granted to the JV
Tech Cos the right to carry out advertising operations on its channels, and to
provide to the JV Tech Cos all necessary and relevant support, as well as
most-favored terms for the conduct of the advertising business. The JV Tech Cos
share their resources with the PRC TV Stations, including, but not limited to,
all client information (e.g. databases). Under the terms of this agreement, the
PRC TV Stations will not engage any other party in any similar agreements. As
such, the JV Tech Cos have the exclusive right to carry out advertising business
on PRC TV Stations’
channels.
Kunming
JV and Kunming TV Station entered into such Exclusive Cooperation Agreement on
August 6, 2008, while Taiyuan JV and China Yellow River TV Station entered into
such Exclusive Cooperation agreement on July 17, 2008.
F-81
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
10 - SUBSEQUENT EVENTS (....../CONT'D)
Establishment
of Trustee Company
In
August 2008, Beijing Guangwang Hetong Advertising & Media Co., Ltd.
("Hetong"), the trustee company, established two domestic advertising companies
with Kunming TV Station and China Yellow River TV Station, under the respective
name of Kunming Kaishi Advertising Co., Ltd. (“Kunming
Ad Co.”)
and Taiyuan Guangwang Hetong Advertising Co., Ltd. (“Taiyuan
Ad Co.”)
(Kunming Ad Co. and Taiyuan Ad Co. are collectively referred to as the “JV
Ad Cos”).
Hetong is 100% owned by two PRC nationals, who are the
trustees).
In
order to comply with current PRC laws limiting foreign ownership in the
television advertising industry, China Networks’
operations are conducted through direct ownership of ANT and through contractual
arrangements with Hetong. China Networks does not have an equity interest in
Hetong, but instead derives indirect economic benefits from Hetong through a
series of contractual arrangements. Through these arrangements, ANT controls
Hetong, which in turn owns 50% of Kunming Ad Cos, and 50% of Taiyuan Ad Co.
established with PRC TV Stations. The JV Tech Cos collect the television
advertising revenue earned by the JV Ad Cos pursuant to an Exclusive Services
Agreement, using assets transferred from PRC TV Stations to the JV Tech Cos
pursuant to an Asset Transfer Agreement.
Asset
Transfer Agreements.
Kunming
TV Station and Kunming JV entered into such Asset Transfer Agreement on August
11, 2008, under which Kunming TV Station will transfer its assets to Kunming JV,
valued at RMB150 million, and Kunming JV will pay the same to Kunming TV
Station. China Yellow River TV Station and Shanxi Yellow River and Advertising
Networks Cartoon Technology Co., Ltd. (“Taiyuan
JV”)
also entered into such Asset Transfer Agreement on July 17, 2008, under which
China Yellow River TV Station will transfer its assets, valued at RMB45 million,
to Taiyuan JV, and the same consideration will be paid by Taiyuan JV. All
governmental, statutory and other approvals required for the transfer of these
assets were obtained as of the date of the first transfer in August
2008.
Pursuant
to the Exclusive Services Agreement between the JV Tech Cos and the JV Ad Cos,
the JV Tech Cos will be the sole and exclusive provider of services to JV Ad Cos
relating to technical support for the production of advertising and advertising
consulting. In addition, the JV Ad Cos will be the sole and exclusive
advertising agent to the JV Tech Cos and will grant to the JV Ad Cos agency
rights for all advertising under the exclusive right to carry out advertising
operations, granted by the corresponding PRC TV Stations to the JV Tech Cos in
accordance with the Exclusive Cooperation Agreement. Under the terms of the
Exclusive Services Agreement, the JV Ad Cos will pay the service fee to the JV
Tech Cos as accrued, in accordance with the JV Tech Cos’
regular invoices. As such, all of the JV Ad Cos’
pre-tax revenue (less the relevant business tax) generated during the term of
this agreement and relating to the marketing of advertising and other operations
will be transferred to the JV Tech Cos as the service fee.
F-82
CHINA
NETWORKS MEDIA, LTD.
NOTES
TO COMBINED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
NOTE
10 - SUBSEQUENT EVENTS (....../CONT'D)
Exclusive
Services Agreement.
Kunming
JV and Kunming Ad Co. entered into an Exclusive Services Agreement on August 6,
2008, while Taiyuan JV and Taiyuan Ad Co. entered into an Exclusive Services
Agreement on July 17, 2008.
F-83
Annex A
AGREEMENT
AND PLAN OF MERGER
by
and among
ALYST
ACQUISITION CORP.,
CHINA
NETWORKS MEDIA LIMITED,
MEDIAINV
LTD.,
KERRY
PROPPER
AND
THE OTHER PERSONS SIGNATORY HERETO
Dated
as of August 13, 2008
TABLE
OF CONTENTS
|
Page
|
||
|
THE
REDOMESTICATION MERGER
|
2
|
|
|
1.1
|
The
Redomestication Merger
|
2
|
|
1.2
|
Effective
Time
|
2
|
|
1.3
|
Effect
of the Redomestication Merger
|
2
|
|
1.4
|
Memorandum
and Articles of Association
|
2
|
|
1.5
|
Directors
and Officers of the China Networks Surviving
Corporation
|
3
|
|
1.6
|
Effect
on Capital Stock
|
3
|
|
1.7
|
Surrender
of Certificates
|
4
|
|
1.8
|
Lost,
Stolen or Destroyed Certificates
|
4
|
|
1.9
|
Status
of Redomestication Merger for Tax Purposes
|
5
|
|
1.10
|
Taking
of Necessary Action; Further Action
|
5
|
|
ARTICLE II
|
THE
BUSINESS COMBINATION
|
5
|
|
2.1
|
Business
Combination
|
5
|
|
2.2
|
Closing;
Effective Time
|
5
|
|
2.3
|
Effect
of the Business Combination
|
6
|
|
2.4
|
[Intentionally
Omitted]
|
6
|
|
2.5
|
Memorandum
and Articles of Association
|
6
|
|
2.6
|
Directors
of China Networks II Surviving Corporation
|
6
|
|
2.7
|
Effect
on Capital Stock
|
6
|
|
2.8
|
Surrender
of Certificates
|
10
|
|
2.9
|
Lost,
Stolen or Destroyed Certificates
|
11
|
|
2.10
|
Status
of Business Combination for Tax Purposes
|
11
|
|
2.11
|
Taking
of Necessary Action; Further Action
|
11
|
|
2.12
|
Withholding
Rights
|
11
|
|
2.13
|
Shares
Subject to Appraisal Rights
|
11
|
|
2.14
|
Restriction
on Disposal of Shares
|
12
|
|
2.15
|
Payment
Procedures
|
13
|
|
ARTICLE III
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
14
|
|
3.1
|
Organization,
Standing and Power; Framework Agreements
|
14
|
|
3.2
|
Subsidiaries
|
15
|
|
3.3
|
Capital
Structure
|
15
|
|
3.4
|
Authority
|
16
|
|
3.5
|
No
Conflict
|
16
|
|
3.6
|
Consents
and Approvals
|
16
|
|
3.7
|
Financial
Statements
|
17
|
|
3.8
|
Absence
of Certain Changes
|
17
|
|
3.9
|
Absence
of Undisclosed Liabilities
|
17
|
-i-
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
3.10
|
Litigation
|
17
|
|
3.11
|
Restrictions
on Business Activities
|
18
|
|
3.12
|
Governmental
Authorization
|
18
|
|
3.13
|
Title
to Property
|
18
|
|
3.14
|
Intellectual
Property
|
18
|
|
3.15
|
Taxes
|
19
|
|
3.16
|
Employee
Benefit Plans
|
20
|
|
3.17
|
Labor
Matters
|
20
|
|
3.18
|
Interested
Party Transactions
|
20
|
|
3.19
|
Insurance
|
20
|
|
3.20
|
Material
Company Contracts
|
20
|
|
3.21
|
Compliance
With Laws
|
22
|
|
3.22
|
Foreign
Corrupt Practices Act
|
22
|
|
3.23
|
Money
Laundering Laws
|
23
|
|
3.24
|
Governmental
Inquiry
|
23
|
|
3.25
|
Minute
Books
|
23
|
|
3.26
|
Real
Property
|
23
|
|
3.27
|
Brokers’
and Finders’ Fees
|
23
|
|
3.28
|
Vote
Required
|
23
|
|
3.29
|
Board
Approval
|
23
|
|
3.30
|
Representations
Complete
|
23
|
|
ARTICLE IV
|
REPRESENTATIONS
AND WARRANTIES OF PARENT, MERGER SUB I AND MERGER
SUB II
|
24
|
|
4.1
|
Organization,
Standing and Power
|
24
|
|
4.2
|
Capital
Structure
|
25
|
|
4.3
|
Authority
|
26
|
|
4.4
|
No
Conflict
|
27
|
|
4.5
|
Consents
and Approval
|
27
|
|
4.6
|
SEC
Documents; Financial Statements
|
28
|
|
4.7
|
Sarbanes-Oxley
Act of 2002
|
28
|
|
4.8
|
Absence
of Certain Changes
|
29
|
|
4.9
|
Absence
of Undisclosed Liabilities
|
29
|
|
4.10
|
Litigation
|
30
|
|
4.11
|
Restrictions
on Business Activities
|
30
|
|
4.12
|
No
Interest in Property
|
30
|
|
4.13
|
Employee
Benefit Plans
|
30
|
|
4.14
|
Labor
Matters
|
30
|
|
4.15
|
Interested
Party Transactions
|
30
|
|
4.16
|
Insurance
|
30
|
|
4.17
|
Compliance
With Laws
|
30
|
|
4.18
|
Brokers’
and Finders’ Fees
|
31
|
-ii-
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
4.19
|
Minute
Books
|
31
|
|
4.20
|
Vote
Required
|
31
|
|
4.21
|
Board
Approval
|
31
|
|
4.22
|
ASE
Quotation
|
31
|
|
4.23
|
Trust
Account Funds
|
31
|
|
4.24
|
Representations
Complete
|
32
|
|
ARTICLE V
|
CONDUCT
PRIOR TO THE BUSINESS COMBINATION EFFECTIVE TIME
|
32
|
|
5.1
|
Conduct
of Business
|
32
|
|
5.2
|
Restrictions
on Conduct of Business
|
32
|
|
5.3
|
Joint
Ventures and Framework Agreements
|
34
|
|
ARTICLE VI
|
COVENANTS
|
35
|
|
6.1
|
Merger
Proxy/Prospectus; Special Meeting
|
35
|
|
6.2
|
Form
8-K
|
36
|
|
6.3
|
Action
of Company’s Shareholders
|
36
|
|
6.4
|
Employment
Agreements
|
36
|
|
6.5
|
Registration
Rights Agreement
|
37
|
|
6.6
|
Fiscal
Year
|
37
|
|
ARTICLE VII
|
ADDITIONAL
AGREEMENTS
|
37
|
|
7.1
|
No
Claim Against Trust Account
|
37
|
|
7.2
|
Access
to Information
|
37
|
|
7.3
|
Confidential
Information; Non-Solicitation or Negotiation
|
38
|
|
7.4
|
Public
Disclosure
|
40
|
|
7.5
|
Consents;
Cooperation
|
40
|
|
7.6
|
Legal
Requirements
|
41
|
|
7.7
|
Blue
Sky Laws
|
41
|
|
7.8
|
Indemnification
|
41
|
|
7.9
|
Best
Efforts and Further Assurances
|
42
|
|
ARTICLE VIII
|
CONDITIONS
TO THE BUSINESS COMBINATION
|
42
|
|
8.1
|
Conditions
Precedent to the Obligation of the Parent to Consummate the Business
Combination
|
42
|
|
8.2
|
Conditions
Precedent to the Obligation of the Company to Consummate the Business
Combination
|
46
|
-iii-
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
ARTICLE IX
|
POST-CLOSING
COVENANTS
|
49
|
|
9.1
|
Mandatory
Registration of Closing Shares
|
49
|
|
9.2
|
Registration
of Performance Shares
|
49
|
|
9.3
|
D&O
Insurance
|
49
|
|
ARTICLE X
|
INDEMNIFICATION;
REMEDIES
|
50
|
|
10.1
|
Survival
|
50
|
|
10.2
|
Indemnification
by the Principal Shareholders
|
50
|
|
10.3
|
Limitations
on Amount
|
51
|
|
10.4
|
Determining
Damages
|
51
|
|
ARTICLE XI
|
TERMINATION,
AMENDMENT AND WAIVER
|
51
|
|
11.1
|
Termination
|
51
|
|
11.2
|
Effect
of Termination
|
53
|
|
11.3
|
Expenses
and Termination Fees
|
53
|
|
11.4
|
Amendment
|
54
|
|
11.5
|
Extension;
Waiver
|
54
|
|
ARTICLE XII
|
GENERAL
PROVISIONS
|
54
|
|
12.1
|
Notices
|
54
|
|
12.2
|
Interpretation/Definitions
|
56
|
|
12.3
|
Counterparts
|
56
|
|
12.4
|
Entire
Agreement; Nonassignability; Parties in Interest
|
56
|
|
12.5
|
Severability
|
57
|
|
12.6
|
Remedies
Cumulative; Specific Performance
|
57
|
|
Governing
Law
|
57
|
|
|
12.8
|
Rules
of Construction
|
57
|
-iv-
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made
and entered into as of August 13, 2008, by and among Alyst Acquisition Corp., a
Delaware corporation (including its successors and assigns, the “Parent”), China
Networks Media Limited, a British Virgin Islands corporation (including its
successors and assigns, the “Company”), MediaInv
Ltd., a British Virgin Islands corporation and Kerry Propper (each a “Principal
Shareholder,” and together with their successors and assigns from the
date hereof until the Business Combination Effective time (as defined below),
collectively the “Principal
Shareholders”) and each of the other persons signatories
hereto.
RECITALS
WHEREAS,
Parent has formed a wholly-owned subsidiary in the British Virgin Islands
(“Merger Sub
I”), solely for the purpose of a merger of Parent with and into Merger
Sub I, in which Merger Sub I will be the surviving corporation (the “Redomestication
Merger”). The name of Merger Sub I is or is in the process of
being changed to China Networks International Holdings, Ltd.;
WHEREAS,
immediately after the formation of Merger Sub I, Merger Sub I formed a
wholly-owned subsidiary in the British Virgin Islands (“Merger Sub II”),
solely for the purpose of a merger of Merger Sub II with and into the Company in
which the Company will be the surviving corporation (the “Business
Combination”). The name of Merger Sub II is China Network
Merger Co., Ltd.;
WHEREAS,
pursuant to and in connection with the Business Combination, and as part of the
same integrated transaction (such that neither the Business Combination nor the
Redomestication Merger shall occur without the other), Parent and Merger Sub I
shall consummate the Redomestication Merger, pursuant to which, among other
things, (i) the outstanding shares of common stock of the Parent, U.S. $0.0001
par value (the “Parent
Common Stock”) shall be converted into shares in Merger Sub I, U.S.
$0.0001 par value (the “Surviving Corporation
Shares”) and (ii) all warrants and other rights to purchase Parent Common
Stock then outstanding (the “Parent Stock Rights”)
shall be exchanged for substantially equivalent securities of Merger Sub I at
the rate set forth herein (“Surviving Corporation Stock
Rights”); and
WHEREAS,
as part of the same integrated transaction (such that neither the Business
Combination nor the Redomestication Merger shall occur without the other) Merger
Sub II and the Company shall consummate the Business Combination, pursuant to
which, among other things, (i) the outstanding common shares of the Company,
U.S. $.0005 par value (“Company Shares”),
shall be converted into Surviving Corporation Shares and the right to receive
the other consideration referred to herein and (ii) the Class A Preferred Shares
of the Company, U.S. $.0005 par value issued in the Financing referred to herein
(“Preferred
Shares”, and together with the Company Shares, the “Company Securities”)
shall be converted into Surviving Corporation Shares, in each case at the rate
set forth herein.
1
NOW,
THEREFORE, in consideration of the foregoing premises, and the mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE
I
THE
REDOMESTICATION MERGER
1.1 The
Redomestication Merger. At the Effective Time (as defined
below) and subject to and upon the terms and conditions of this Agreement and
the Redomestication Plan of Merger and Articles and Plan of Merger to be
prepared by the Parent, and in accordance with the applicable provisions of the
Delaware General Corporation Law (“Delaware Law”) and
the BVI Business Companies Act, 2004 (“BVI Law”),
respectively, Parent shall be merged with and into Merger Sub I, the separate
corporate existence of Parent shall cease and Merger Sub I shall continue as the
surviving corporation. Merger Sub I as the surviving corporation
after the Redomestication Merger is hereinafter sometimes referred to as the
“China Networks
Surviving Corporation.”
1.2 Effective
Time. The parties hereto shall cause the Redomestication
Merger to be consummated by filing the Certificate of Merger with the Secretary
of State of the State of Delaware, in accordance with the relevant provisions of
Delaware Law, and the Articles and Plan of Merger with the British Virgin
Islands Registrar of Corporate Affairs, in accordance with the relevant
provisions of BVI Law (the time of such filings, or such later time as specified
in the Certificate of Merger and the Articles and Plan of Merger, being the
“Effective
Time”).
1.3 Effect of
the Redomestication Merger. At the Effective Time, the effect
of the Redomestication Merger shall be as provided in this Agreement, the
Certificate of Merger, the Articles and Plan of Merger and the applicable
provisions of Delaware Law and BVI Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, agreements, powers and franchises, debts,
liabilities, duties and obligations of the Parent and Merger Sub I shall become
the property, rights, privileges, agreements, powers and franchises, debts,
liabilities, duties and obligations of the China Networks Surviving Corporation,
which shall include the assumption by China Networks Surviving Corporation of
any and all agreements, covenants, duties and obligations of the Parent set
forth in this Agreement to be performed after the Closing, and all Surviving
Corporation Shares issued and outstanding as a result of the conversion under
Section 1.6(a)
hereof shall be listed on the American Stock Exchange (“ASE”), or such other
public trading market on which the Surviving Corporation Shares may be trading
at such time.
1.4 Memorandum
and Articles of Association. At the Effective Time, the
Certificate of Incorporation and By-Laws of the Parent, as in effect immediately
prior to the Effective Time, shall cease and the Memorandum and Articles of
Association (“MOA”) of Merger Sub
I, as in effect immediately prior to the Effective Time, shall be the MOA of the
China Networks Surviving Corporation.
2
1.5 Directors
and Officers of the China Networks Surviving
Corporation. Immediately after the Effective Time, the board
of directors of the China Networks Surviving Corporation, shall, unless
otherwise mutually agreed by the Parent and the Company, consist of three
designees of the Parent (the “Parent Designees”)
and four designees of the Company (the “Company
Designees”) and the officers of the China Networks Surviving
Corporation shall be Li Shuangqing as Chief Executive Officer and Co-Chairman,
Sean Hinton as Co-Chairman and Zhou Chuansheng as Vice President of Sales and
Marketing.
1.6 Effect on
Capital Stock. By virtue of the Redomestication Merger and
without any action on the part of Merger Sub I, the Parent or the holders of any
of the following securities:
(a) Conversion
of Parent Common Stock. At the Effective Time, each share of
the Parent Common Stock issued and outstanding immediately prior to the
Effective Time (other than those described in Section 1.6(c) below)
shall be converted automatically into one Surviving Corporation Share (the
“Conversion
Ratio”), subject to any adjustments made pursuant to Section
1.6(d). At the Effective Time, all shares of Parent Common
Stock shall cease to be outstanding and shall automatically be canceled and
retired and shall cease to exist. The holders of certificates
previously evidencing shares of Parent Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Parent Common Stock, except as provided herein or by
law. Each certificate previously evidencing Parent Common Stock shall
be exchanged for a certificate representing such number of Surviving Corporation
Shares calculated by multiplying the Conversion Ratio then in effect by the
number of shares of Parent Common Stock previously evidenced by the canceled
certificates upon the surrender of such certificate in accordance with Section
1.7.
(b) Parent
Stock Rights. At the Effective Time, each Parent Stock Right
shall be converted into one substantially equivalent option, warrant or other
Surviving Corporation Stock Right. At the Effective Time, the Parent
Stock Rights shall cease to be outstanding and shall automatically be canceled
and retired and shall cease to exist. Each of the Surviving
Corporation Stock Rights shall have, and be subject to, the same terms and
conditions set forth in the applicable agreements governing the Parent Stock
Rights (the “Parent
Stock Rights Agreements”) which are outstanding immediately prior to the
Effective Time, except that in the event of an adjustment made pursuant to Section 1.6(d), (i)
each of the Surviving Corporation Stock Rights will be exercisable for that
number of whole Surviving Corporation Shares equal to the product of the number
of shares of Parent Common Stock that were issuable upon exercise of such option
or warrant immediately prior to the Effective Time multiplied by the Conversion
Ratio then in effect and rounded down to the nearest whole number of Surviving
Corporation Shares, and (ii) the per share exercise price for the Surviving
Corporation Shares issuable upon exercise of such Surviving Corporation Stock
Rights will be equal to the quotient determined by dividing the exercise price
per share of Parent Common Stock at which each such option or warrant was
exercisable immediately prior to the Effective Time by the Conversion Ratio then
in effect, rounded down to the nearest whole cent. At or prior to the
Effective Time, Merger Sub I shall take all corporate action necessary to
reserve for future issuance, and shall maintain such reservation for so long as
any of the Surviving Corporation Stock Rights remain outstanding, a sufficient
number of Surviving Corporation Shares for delivery upon the exercise of such
Surviving Corporation Stock Rights.
3
(c) Cancellation
of Parent Common Stock Owned by Parent. At the Effective Time,
if there are any shares of Parent Common Stock that are owned by the Parent as
treasury stock or any shares of Parent Common Stock owned by any direct or
indirect wholly owned subsidiary of the Parent immediately prior to the
Effective Time, such shares shall be canceled and extinguished without any
conversion thereof or payment therefor.
(d) Adjustments
to Conversion Ratio. The Conversion Ratio shall be adjusted to
reflect fully the effect of any share sub-division or combination, stock
dividend (including any dividend or distribution of securities convertible into
Merger Sub I Common Stock or Parent Common Stock), reorganization,
recapitalization or other like change with respect to Merger Sub I Common Stock
or Parent Common Stock occurring after the date hereof and prior to the
Effective Time, so as to provide holders of Parent Common Stock and Merger Sub I
Common Stock the same economic effect as contemplated by this Agreement prior to
such share sub-division or combination, stock dividend, reorganization,
recapitalization or like change.
(e) Transfers
of Ownership. If any certificate for Surviving Corporation
Shares is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and accompanied by a duly executed instrument of transfer and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to China Networks Surviving Corporation or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate for
Surviving Corporation Shares in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction of
China Networks Surviving Corporation or any agent designated by it that such tax
has been paid or is not payable.
(f) No
Liability. Notwithstanding anything to the contrary in this
Section 1.6,
none of the China Networks Surviving Corporation, or any party hereto shall be
liable to any person for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.7 Surrender
of Certificates. All Surviving Corporation Shares issued upon
the surrender of shares of Parent Common Stock in accordance with the terms
hereof, and all Surviving Corporation Stock Rights issued upon surrender of
Parent Stock Rights in accordance with the terms hereof, shall be deemed to have
been issued in full satisfaction of all rights pertaining to such securities,
provided that any restrictions on the sale and transfer of Parent Common Stock
shall also apply to the Surviving Corporation Shares so issued in
exchange.
1.8 Lost,
Stolen or Destroyed Certificates. In the event any
certificates or Parent Stock Rights Agreements shall have been lost, stolen or
destroyed, China Networks Surviving Corporation shall issue in exchange for such
lost, stolen or destroyed certificates or Parent Stock Rights Agreements, as the
case may be, upon the making of an affidavit of that fact by the holder thereof,
such Surviving Corporation Shares or Surviving Corporation Stock Rights, as may
be required pursuant to Section 1.7;
provided, however, that China Networks Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates or Parent Stock Rights
Agreement to deliver a bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against China Networks Surviving Corporation
with respect to the certificates or Parent Stock Rights Agreements alleged to
have been lost, stolen or destroyed.
4
1.9
Status of
Redomestication Merger for Tax Purposes. For U.S. federal
income tax purposes, the Redomestication Merger is intended to constitute a
“reorganization” within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the “Code”) and the
parties thereto do hereby (i) adopt this Agreement as a “plan of reorganization”
within the meaning of Section 1.368-2(g) of the United States Treasury
Regulations and (ii) agree to take all such actions incident thereto as shall be
necessary or appropriate. Notwithstanding the foregoing or anything
else to the contrary contained in this Agreement, the parties acknowledge and
agree that no party is making any representation or warranty as to the
qualification of the Redomestication Merger as a reorganization under Section
368 of the Code, as to the effect, if any, that any transaction consummated on,
after or prior to the Effective Time has or may have on any such reorganization
status or the Tax (as defined below) implications of qualification of the
Redomestication Merger as a reorganization. Each of the parties
acknowledge and agree that each (i) has had the opportunity to obtain
independent legal and tax advice with respect to the transactions contemplated
by this Agreement, and (ii) is responsible for paying its own
Taxes.
1.10 Taking of
Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the China Networks Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Parent and Merger Sub I, the officers
and directors of Parent and Merger Sub I are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action, so long as such action is not inconsistent with
this Agreement.
ARTICLE
II
THE
BUSINESS COMBINATION
2.1 Business
Combination. Immediately after the consummation of the
Redomestication Merger, and subject to the terms of this Agreement and the
Business Combination Plan of Merger and Articles and Plan of Merger to be
prepared by the Company (the “Business Combination
Articles and Plan of Merger”), and in accordance with BVI Law, Merger Sub
II shall be merged with and into the Company, the separate corporate existence
of Merger Sub II shall cease and the Company shall continue as the surviving
corporation. The Company as the surviving corporation after the
Business Combination is hereinafter sometimes referred to as the “China Networks II Surviving
Corporation.”
2.2 Closing;
Effective Time. The closing of the Business Combination (the
“Closing”)
shall take place immediately after the consummation of the Redomestication
Merger, which shall take place as soon as practicable after the satisfaction or
waiver of each of the conditions set forth in Article VIII hereof
or at such other time as the parties hereto agree (the “Closing
Date”). The Closing shall take place at the offices of Loeb
& Loeb LLP, 345 Park Avenue, New York, New York 10154, or at such other
location as the parties hereto agree. On the Closing
Date:
5
(a) Merger
Sub I and Parent shall cause the Redomestication Merger to be immediately
consummated by filing the Certificate of Merger with the Secretary of State of
the State of Delaware, in accordance with the relevant provisions of Delaware
Law, and the Articles and Plan of Merger with the British Virgin Islands
Registrar of Corporate Affairs, in accordance with the relevant provisions of
BVI Law; and
(b) Upon the
completion of the Redomestication Merger, Merger Sub II and the Company shall
cause the Business Combination to be immediately consummated by filing the
Business Combination Articles and Plan of Merger with the British Virgin Islands
Registrar of Corporate Affairs, in accordance with the relevant provisions of
BVI Law (the “Business
Combination Effective Time”).
2.3 Effect of
the Business Combination. At the Business Combination
Effective Time, the effect of the Business Combination shall be as provided in
this Agreement, the Business Combination Articles and Plan of Merger and the
applicable provisions of BVI Law. Without limiting the generality of
the foregoing, and subject thereto, at the Business Combination Effective Time,
all the property, rights, privileges, agreements, powers and franchises of the
Company and Merger Sub II shall vest in the China Networks II Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
II shall become the debts, liabilities and duties of the China Networks II
Surviving Corporation, and all Surviving Corporation Shares issued in exchange
for Company Securities upon conversion in accordance with Section 2.7(a) shall,
subject to the restrictions contained in Section 2.14 and
applicable securities laws, be eligible for quotation on the ASE, or such other
public trading market on which the Surviving Corporation Shares may be trading
at such time.
2.4 [Intentionally
Omitted]
2.5 Memorandum
and Articles of Association. At the Business Combination
Effective Time, the MOA of Merger Sub II, as in effect immediately prior to the
Closing Date, shall cease and the MOA of the Company, as in effect immediately
prior to the Business Combination Effective Time, shall be the MOA of China
Networks II Surviving Corporation.
2.6 Directors
of China Networks II Surviving Corporation. Immediately after
the Business Combination Effective Time, the board of directors of China
Networks II Surviving Corporation, shall consist of the same individuals
designated as directors of China Networks Surviving Corporation pursuant to
Section 1.5
hereof.
2.7 Effect on
Capital Stock. By virtue of the Business Combination and
without any action on the part of Merger Sub II, the Company or the holders of
any of the following securities:
6
(a) Conversion
of Company Securities. At the Business Combination Effective
Time, (i) each Company Share issued and outstanding immediately prior to the
Business Combination Effective Time (other than those described in Section 2.123 below)
shall be converted automatically into (A) a number of Surviving Corporation
Shares determined as follows: (x) 1,900,000 divided by (y) the total
number of Company Shares issued and outstanding immediately prior to the
Business Combination Effective Time, plus (B) the right to
receive a cash amount determined as follows: (x) U.S. $10,000,000 divided by (y) the total
number of Company Shares issued and outstanding immediately prior to the
Business Combination Effective Time, plus (C) the
additional consideration described in Sections 2.7(f), (g) and (h), (the “CS Per Share
Amount”), and (ii) each Preferred Share issued and outstanding
immediately prior to the Business Combination Effective Time shall be converted
automatically into (A) a number of Surviving Corporation Shares determined as
follows: (x) the number of Preferred Shares issued in the Financing to the
bridge investors divided
by (y) the total number of Preferred Shares issued and outstanding
immediately prior to the Business Combination Effective Time (collectively, the
“Business Combination
Conversion Ratio”), subject to any adjustments made pursuant to Section 2.7(c), plus (B) the right to
receive a cash amount equal to $7.143, plus (C) the
additional consideration described in Section 2.7(f) and (h), (the “PS Per Share
Amount”). At the Business Combination Effective Time, all
Company Securities shall cease to be outstanding and shall automatically be
canceled and retired and shall cease to exist. The holders of
certificates previously evidencing the Company Securities outstanding
immediately prior to the Business Combination Effective Time shall cease to have
any rights with respect to such Company Securities, except as provided herein or
by law. Each certificate previously evidencing Company Securities
shall be exchanged for such number of Surviving Corporation Shares calculated by
multiplying the applicable Business Combination Conversion Ratio by the number
of Company Securities previously evidenced by the canceled certificates and cash
in an amount equal to the CS Per Share Amount or the PS Per Share Amount, as the
case may be, upon the surrender of such certificate in accordance with the terms
hereof.
(b) Cancellation
of Merger Sub II Common Stock Owned by Merger Sub II. At the
Business Combination Effective Time, if any shares of Merger Sub II Common Stock
are held by Merger Sub II as treasury shares or any shares of Merger Sub II
Common Stock are owned by any direct or indirect wholly owned subsidiary of
Merger Sub II immediately prior to the Business Combination Effective Time, such
shares shall be canceled and extinguished without any conversion thereof or
payment therefor.
(c) Adjustments
to Business Combination Conversion Ratio. Each Business
Combination Conversion Ratio shall be adjusted to reflect fully the effect of
any share sub-division or combination, stock dividend (including any dividend or
distribution of securities convertible into Surviving Corporation Shares or
Company Securities), reorganization, recapitalization or other like change with
respect to Surviving Corporation Shares and Company Securities occurring after
the date hereof and prior to the Business Combination Effective Time, so as to
provide holders of Company Securities the same economic effect as contemplated
by this Agreement prior to such share sub-division or combination, stock
dividend, reorganization, recapitalization or like change.
(d) Transfers
of Ownership. If any certificate for Surviving Corporation
Shares is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and accompanied by a duly executed instrument of transfer and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to China Networks II Surviving Corporation or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for Surviving Corporation Shares in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
China Networks II Surviving Corporation or any agent designated by it that such
tax has been paid or is not payable.
7
(e) No
Liability. Notwithstanding anything to the contrary in this
Section 2.7,
none of China Networks II Surviving Corporation or any party hereto shall be
liable to any person for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(f) Deferred
Cash Payments.
(i) In
accordance with Section 2.7(a), each
holder of Company Shares as of the Business Combination Effective Time (each, a
“Closing
Holder”) shall be entitled to receive from China Networks Surviving
Corporation deferred cash payments contingent upon the achievement by China
Networks Surviving Corporation of the amounts of Net Income (as defined below)
set forth below in this Section 2.7(f) (the
“Deferred Cash
Payments”).
(ii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall be
entitled to receive from China Networks Surviving Corporation cash payments on
or prior to December 31, 2009 equal to an aggregate amount of U.S. $3,000,000,
solely and exclusively upon China Networks Surviving Corporation earning Net
Income of at least U.S. $15,000,000 during the four fiscal quarters immediately
preceding such payment, to be allocated among such holders based on their
percentage ownership of the Company Shares immediately prior to the Business
Combination Effective Time (the “Percentage
Allocations”).
(iii) China
Networks Surviving Corporation hereby agrees that Closing Holders shall be
entitled to receive from China Networks Surviving Corporation additional cash
payments on or prior to December 31, 2010 equal to an aggregate amount of U.S.
$3,000,000, solely and exclusively upon China Networks Surviving Corporation
earning Net Income of at least U.S. $25,000,000 during the four fiscal quarters
immediately preceding such payments, to be allocated among the holders of
Company Shares in accordance with their respective Percentage
Allocations.
(iv) As used
herein, “Net
Income” means the net income of China Networks Surviving Corporation and
its subsidiaries as determined in accordance with U.S. generally accepted
accounting principles (“GAAP”) excluding
equity-based compensation charges, extraordinary one-time charges and charges
related to the Business Combination or impairment of goodwill; provided that, with respect to
any acquisitions of businesses or persons after the Business Combination
Effective Time, in order for the net income generated by such acquired
businesses or persons to be included in the foregoing definition of Net Income,
such acquisitions must be accretive on a Net Income per share basis. In
calculating Net Income per share, China Networks Surviving Corporation shall use
China Networks Surviving Corporation’s audited or reviewed financial statements
for the fiscal period in question. For the acquisition to be accretive, the pro
forma Net Income per share on a post-acquisition basis must be greater than the
pro forma Net Income per share immediately prior to the
acquisition.
(v) Any
Deferred Cash Payments due and payable pursuant to the foregoing shall be paid
to Closing Holders on the later of (i) the date 30 days after preparation and
completion of China Networks Surviving Corporation’s audited or reviewed
financial statements for the fiscal period in question and (ii) the tenth
business day after the determination of Net Income for purposes of this
Agreement with respect to the fiscal period in question.
8
(g) Deferred
Stock Payment.
(i) In
accordance with Section 2.7(a), each
Closing Holder shall be entitled to receive deferred stock payments contingent
upon the achievement by China Networks Surviving Corporation of the amounts of
Net Income set forth below in this Section 2.7(g) (the
“Deferred Stock
Payments”).
(ii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall be
entitled to receive from China Networks Surviving Corporation an additional
2,850,000 newly issued Surviving Corporation Shares solely and exclusively upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$20,000,000 during the fiscal year ending December 31, 2009, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(iii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall be
entitled to receive from China Networks Surviving Corporation an additional
3,075,000 newly issued Surviving Corporation Shares solely and exclusively upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$30,000,000 during the fiscal year ending December 31, 2010, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(iv) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall be
entitled to receive from China Networks Surviving Corporation an additional
3,075,000 newly issued Surviving Corporation Shares solely and exclusively upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$40,000,000 during the fiscal year ending December 31, 2011, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(v) Any
Deferred Stock Payments due and payable pursuant to the foregoing shall be
issued to the Closing Holders on the later of the (i) 30 days after preparation
and completion of China Networks Surviving Corporation’s audited year-end
financial statements for the fiscal period in question and (ii) tenth business
day after the determination of Net Income for purposes of this Agreement with
respect to the fiscal period in question.
(vi) In the
event that the Net Income target for any fiscal year is achieved during a fiscal
year that is prior to the year corresponding to such Net Income target, the
Closing Holders shall be entitled to receive, in addition to the Deferred Stock
Payment for the then current fiscal year, the Deferred Stock Payment for any
additional future fiscal year with respect to which the Net Income target has
also been achieved.
(vii) All
Surviving Corporation Shares issued hereunder shall be duly authorized, fully
paid and nonassessable and issued in compliance with all applicable foreign,
federal and state securities laws.
9
(viii) All
Surviving Corporation Shares issued hereunder shall be subject to any lock-up,
voting or similar agreement, including the Lock-Up Agreement, including the
restrictions on transfer therein set forth, that each Closing Holder may be a
party to at the time of its receipt of any Surviving Corporation Shares
hereunder.
(ix) The
number of Surviving Corporation Shares set forth in this Section 2.7(g) shall
be adjusted for any stock split, reverse stock split, stock dividend,
reclassification, recapitalization, merger or consolidation or like capital
adjustment affecting the Surviving Corporation Shares
(h) Warrant
Exercise Proceeds. In accordance with Section 2.7(a), China
Networks Surviving Corporation hereby agrees that the Closing Holders and
holders of Preferred Shares as of the Closing (“Preferred Share Closing
Holders”) shall be entitled to receive from the Company, cash payments
(the “Warrant
Payments”) equal to a maximum aggregate amount of U.S. $22,110,000 plus
10% of the aggregate gross proceeds received in the Financing from the bridge
investors, solely and exclusively upon China Networks Surviving Corporation’s
receipt of cash proceeds from the exercise of the Parent Warrants and the
Insider Warrants (collectively, the “Warrants”), payable
in accordance with this Section
2.7(h). The Warrant Payments shall be allocated among such
holders of Closing Holders and Preferred Share Closing Holders based on their
percentage ownership of the sum of (a) the Company Shares, and (b) the Preferred
Shares immediately prior to the Business Combination Effective Time (the “WEP
Percentage
Allocations”). Upon exercise of any Warrants, as soon as
practicable after receipt of the actual cash proceeds received therefrom by
China Networks Surviving Corporation (but in any event within 10 days) (the
“Cash
Proceeds”), China Networks Surviving Corporation shall make a cash
payment to each Closing Holder and Preferred Share Closing Holder equal to 66%
of the Cash Proceeds then available for distribution pursuant to the foregoing
sentence multiplied by the WEP Percentage Allocation of such
holder. The Company shall retain and apply to its general corporate
purposes 34% of the Cash Proceeds. In no event shall the maximum
aggregate amount payable pursuant to this Section 2.7(h) to any
such holder exceed (x) U.S. $22,110,000 plus 10% of the aggregate gross proceeds
received in the Financing from the bridge investors multiplied by (y) the WEP
Percentage Allocation of such holder.
(i) Stock
Option Plan. Subject to the approval of the Incentive Plan
Proposal (as defined below), Parent shall implement an incentive stock option
plan (the “Incentive Stock Option Plan”) pursuant to which directors, officers
and employees of China Networks Surviving Corporation or its subsidiaries may be
granted options to purchase up to 2,500,000 Surviving Corporation
Shares.
2.8 Surrender
of Certificates. All Surviving
Corporation Shares issued upon the surrender of shares of Company Securities in
accordance with the terms hereof, shall be deemed to have been issued in full
satisfaction of all rights pertaining to such securities, other than any
additional rights pursuant to this Agreement, provided that any restrictions on
the sale and transfer of Company Securities shall also apply to the Surviving
Corporation Shares so issued in exchange.
10
2.9
Lost,
Stolen or Destroyed Certificates. In the event any
certificates shall have been lost, stolen or destroyed, China Networks II
Surviving Corporation shall cause to be issued in exchange for such lost, stolen
or destroyed certificates upon the making of an affidavit of that fact by the
holder thereof, such Surviving Corporation Shares as may be required pursuant to
Section 2.7(a);
provided, however, that China Networks II Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against China Networks II Surviving Corporation with respect to the certificates
alleged to have been lost, stolen or destroyed.
2.10 Status of
Business Combination for Tax Purposes. For U.S. federal
income tax purposes, the Business Combination is intended to constitute a
taxable transaction and the parties to this Agreement shall act accordingly in
respect of their Tax return filings and otherwise. Each of the
parties acknowledge and agree that each (i) has had the opportunity to obtain
independent legal and tax advice with respect to the transactions contemplated
by this Agreement, and (ii) is responsible for paying its own
Taxes.
2.11 Taking of
Necessary Action; Further Action. If, at any time after the
Business Combination Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest China Networks
II Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub II, the officers and directors of Company and Merger Sub II are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
2.12 Withholding
Rights. China Networks Surviving Corporation shall be entitled
to deduct and withhold from the cash and Surviving Corporation Shares otherwise
deliverable under any and all provisions of this Agreement, such amounts as
China Networks Surviving Corporation reasonably determines it is required to
deduct and withhold with respect to such delivery and payment under the Code or
any provision of state, local, provincial or foreign tax law. To the
extent that any amounts are so withheld all appropriate evidence of such
deduction and withholding, including any receipts or forms required in order for
the person with respect to whom such deduction and withholding occurred to
establish the deduction and withholding and payment to the appropriate authority
as being for its account with the appropriate authorities shall be delivered to
the person with respect to whom such deduction and withholding has occurred, and
such withheld amounts shall be treated for all purposes as having been delivered
and paid to the person otherwise entitled to the cash and/or Surviving
Corporation Shares in respect of which such deduction and withholding was made
by China Networks Surviving Corporation.
2.13 Shares
Subject to Appraisal Rights.
(a) Notwithstanding
Section 2.7(a),
BVI Dissenting Shares (as defined below) shall not be converted into a right to
receive Surviving Corporation Shares and the holders thereof shall be entitled
only to such rights as are granted by BVI Law. Each holder of BVI
Dissenting Shares who becomes entitled to payment for such shares pursuant to
BVI Law shall receive payment therefor from China Networks II Surviving
Corporation in accordance with the BVI Law, provided, however, that, subject to
BVI Law, (i) if any shareholder who asserts appraisal rights in connection with
the Business Combination (a “BVI Dissenter”) has
failed to establish his entitlement to such rights as provided in BVI Law, or
(ii) if any such BVI Dissenter has effectively withdrawn his demand for payment
for such shares or waived or lost his right to payment for his shares under the
appraisal rights process under BVI Law the shares of Company Securities held by
such BVI Dissenter shall be treated as if they had been converted, as of the
Business Combination Effective Time, into a right to receive Surviving
Corporation Shares and as provided in Section
2.7. The Company shall give Parent and Chardan Capital Markets
LLC prompt notice of any demands for payment received by the Company from a
person asserting appraisal rights, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent
of Parent, make any payment with respect to, or settlement or offer to settle,
any such demands.
11
(b) As used
herein, “BVI
Dissenting Shares” means any shares of Company Securities held by
shareholders who are entitled to appraisal rights under BVI Law, and who have
properly exercised, perfected and not subsequently withdrawn or lost or waived
their rights to demand payment with respect to their shares in accordance with
BVI Law.
2.14 Restriction
on Disposal of Shares. As a condition to the closing of the
transactions contemplated by this Agreement, each Principal Shareholder shall
execute a lock-up agreement (the “Lock-Up Agreement”),
in a form reasonably agreed to by the Parent and the Principal
Shareholders, whereby each shall agree that until the six month anniversary of
the Business Combination Effective Time (the “Trade Commencement
Date”), each Principal Shareholder shall not directly or indirectly
offer, sell, contract to sell, gift, exchange, assign, pledge or otherwise
encumber or dispose of any Surviving Corporation Shares received by such
Principal Shareholder in connection with this Agreement on the Closing Date (or
enter into any transaction which is designed to, or might reasonably be expected
to, result in the disposition, (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the Principal
Shareholders or any affiliate of Principal Shareholders, or any person in
privity with Principal Shareholders or any affiliate of Principal Shareholders,
directly or indirectly, including the establishment or increase in a put
equivalent position or liquidation or decrease in a call equivalent position
within the meaning of Section 16 of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder (each of the foregoing referred to
as a “Disposition”). Thereafter,
until the six month anniversary of the Trade Commencement Date, each Principal
Shareholder shall not engage in a Disposition of more than fifty percent (50%)
of the Surviving Corporation Shares received by such Principal Shareholder in
connection with this Agreement on the Closing Date. Thereafter, until
the twelve month anniversary of the Trade Commencement Date, each Principal
Shareholder shall not engage in a Disposition of more than twenty five percent
(25%) of the Surviving Corporation Shares received by such Principal Shareholder
in connection with this Agreement on the Closing Date. Additional
terms and conditions relating to the Disposition of the Surviving Corporation
Shares received by the Principal Shareholders pursuant to this Agreement are set
forth in the Lock-Up Agreement. The foregoing restriction is intended
to preclude the Principal Shareholders from engaging in any hedging transaction,
which is designed to or is reasonably expected to lead to or result in such a
Disposition during such periods even if the relevant Surviving Corporation
Shares would be disposed of by someone other than the Principal
Shareholders.
12
2.15 Payment
Procedures.
(a) Merger Stock
Consideration. Upon surrender of a certificate that,
immediately prior to the Business Combination Effective Time, evidenced the
outstanding Company Shares, for cancellation to China Networks Surviving
Corporation, together with such other customary documents as may be required by
China Networks Surviving Corporation, the holder of such certificate of Company
Shares shall be entitled to receive in exchange therefor the Per Share Amount
and a certificate evidencing their respective Surviving Corporation
Shares, in accordance with Section 2.7 (the
“Merger Stock
Consideration”), and the certificate evidencing the Company Shares so
surrendered shall forthwith be cancelled. Until surrendered as
contemplated by this Section 2.15, each
certificate of Company Shares shall be deemed at anytime after the Business
Combination Effective Time to evidence only the right to receive upon such
surrender the Merger Stock Consideration.
(b) Paying
Agent. As of the Business Combination Effective Time, the
Parent shall deposit, or shall cause to be deposited, with a bank theretofore
designated by the Company and the Parent (the “Paying Agent”), for
the benefit of the holders of shares of Company Securities, for payment in
accordance with this Article II, through the Paying Agent, cash and Surviving
Corporation Shares in amounts equal to the consideration payable to the holders
of Company Securities pursuant to Section 2.7(a) (such
cash being hereinafter referred to as the “Payment
Fund”). The Paying Agent shall, pursuant to irrevocable
instructions, deliver the cash and Surviving Corporation Shares contemplated to
be paid and transferred to the holder of Company Securities pursuant to this
Article II out of the Payment Fund. The Payment Fund shall not be used for any
other purpose.
(c) Payment
Procedures. Upon surrender of a certificate that, immediately
prior to the Business Combination Effective Time, evidenced outstanding Company
Securities (other than shares described in Section 2.7(b) and
BVI Dissenting Shares) (a “Certificate”) for
cancellation to the Paying Agent, together with such other customary documents
as may be required by the Paying Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor the applicable Business Combination
Conversion Ratio multiplied by the number of Company Securities represented by
such Certificate, and the Certificate so surrendered shall forthwith be
canceled. Until surrendered as contemplated by this Section 2.8, each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the consideration described in
Section
2.7(a).
(d) Termination of Payment
Fund. Any portion of the Payment Fund that remains
undistributed to the holders of Company Securities for 30 days after the
Effective Time shall be delivered to China Networks Surviving Corporation, upon
demand, and any holders of Company Securities that have not theretofore complied
with this Article II shall thereafter look only to China Networks Surviving
Corporation for the consideration described in Section 2.7(a) to
which they are entitled.
13
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
In
this Agreement, any reference to a “Material Adverse
Effect” with respect to any person means any event, change or effect that
is materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations or results of operations of such
person and its subsidiaries, taken as a whole. Notwithstanding the
foregoing, the definition of Material Adverse Effect shall not include events
caused by general economic conditions (and solely with respect to this Article
III, shall include economic conditions solely or principally applicable to the
television and advertising industries, or to locations in which the Company and
its Subsidiaries operate.)
In
this Agreement, any reference to the Company’s “knowledge” means the
actual knowledge after reasonable inquiry of Li Shuangqing, the Company’s Chief
Executive Officer, (the “Knowledge Person”)
..
Except
as set forth in the disclosure schedule delivered by the Company to Parent
concurrently with the execution of this Agreement (the “Company Disclosure
Schedule”), which shall identify exceptions by specific section
references, the Knowledge Person and the Company, hereby, jointly and severally,
represent and warrant to the Parent, as follows:
3.1 Organization,
Standing and Power; Framework Agreements.
(a) The
Company and each of the entities listed on Schedule 3.1(a) (the “Subsidiaries”), is a
corporation duly organized, validly existing and in good standing, and no
certificates of dissolution have been filed under the laws of their respective
jurisdictions of organization. Each of the Company and its
Subsidiaries has all requisite authority and power (corporate and other),
governmental licenses, authorizations, consents and approvals to carry on their
respective businesses as presently conducted and to own, hold and operate their
respective properties and assets as now owned, held and operated, except where
the failure to be so organized, existing and in good standing or to have such
authority and power, governmental licenses, authorizations, consents or
approvals would not have a Material Adverse Effect. The Company has
delivered or made available to Parent a true and correct copy of the MOA of the
Company and the organizational documents of each of the Subsidiaries, each as
amended to date. Neither the Company nor any of the Subsidiaries is
in violation of any of the provisions of its respective MOA, bylaws or
equivalent organizational documents.
(b) Attached
hereto on Schedule 3.1 are true and correct copies of each of the framework
agreements to which Advertising Network Limited, a subsidiary of the Company, is
a party with each of Kunming Television Station, a People’s Republic
of China (“PRC”) television
station (“Kunming”) and China
Yellow River Television Station, a PRC television station (“Yellow River”)
setting forth the terms and conditions for the formation of two joint ventures
(each a “Framework
Agreement”). Each Framework Agreement is a legal, valid and
binding agreement, enforceable against each of the parties thereto in accordance
with its terms, and is in full force and effect. None of the parties
to any Framework Agreement is in breach or default thereunder. To the
Company’s knowledge, no event has occurred or circumstance exists that (with or
without notice or lapse of time), would (i) contravene, conflict with or result
in a violation or breach of, or become a default or event of default under, any
provision of any Framework Agreement or (ii) permit the Company, Advertising
Network Ltd. or any other party to any Framework Agreement the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any Framework
Agreement. Neither the Company nor Advertising Network Ltd. has
received notice of the pending or threatened cancellation, revocation or
termination of any Framework Agreement; and (d) there are no renegotiations of,
or attempts to renegotiate, or outstanding rights to renegotiate any material
terms of any Framework Agreement.
14
3.2 Subsidiaries. Except
for the Subsidiaries, and those entities set forth on Schedule 3.2, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity. The Company is the direct or indirect
owner of all outstanding shares of capital stock of each of its subsidiaries and
all such shares are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of capital stock of each
such subsidiary are owned by the Company free and clear of all liens, charges,
claims or encumbrances or rights of others. Except as set forth in
Schedule 3.2,
there are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating the Company or any such
subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any
such securities.
3.3 Capital
Structure.
(a) The
authorized capital stock of the Company consists of (i) 2,950,000 shares, $.0005
par value, of which there are issued and outstanding, 1,900,000 ordinary shares
and an amount of Preferred Shares equal to (x) the aggregate gross proceeds
received in the Financing from the bridge investors multiplied by
..035. Except as set forth on Schedule 3.3(a) of
the Company Disclosure Schedule, there are no other outstanding shares or voting
securities and no outstanding commitments to issue any shares or voting
securities after the date hereof. All outstanding Company Securities
are duly authorized, validly issued, fully paid and non-assessable and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the MOA of the Company or any
agreement to which the Company is a party or by which it is
bound. Except as set forth on Schedule 3.3(a) and
in connection with the Financing (as defined below), there are no options,
warrants, calls, rights, commitments or agreements of any character to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the Company or obligating the Company to
grant, extend, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except as set
forth on Schedule
3.3(a) and in connection with the Financing, there are no contracts,
commitments or agreements relating to voting, purchase or sale of the Company’s
shares (x) between or among the Company and any of its shareholders, and (y) to
the best of the Company’s knowledge, between or among any of the Company’s
shareholders.
15
(b) Set forth
on Schedule
3.3(b) is the following: (i) the name and address of each person owning
any capital stock or other equity interest in the Company; (ii) the certificate
number of each certificate evidencing shares of capital stock or any other
equity interest issued by the Company, (iii) the number of shares of capital
stock or any other equity interest evidenced by each such
certificate, (iv) the date of issuance thereof and, in the case of cancellation,
the date of cancellation. Each Principal Shareholder represents and
warrants that such person has good, valid and marketable title to, all the
equity interests of the Company designated on Schedule 3.3(b) as
owned by such Principal Shareholder.
3.4 Authority. (a) The
Company has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, subject only
to the adoption of this Agreement by the Company’s shareholders holding a
majority of the outstanding shares of Company Shares, as contemplated by Section
8.1(d). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the adoption of this Agreement by the Company’s shareholders holding a majority
of the outstanding shares of Company Shares, as contemplated by Section
8.1(d). This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of
equity.
(b) Each
Principal Shareholder and Li Shuangqing has all legal capacity and authority to
execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by
each such person and constitutes the legal, valid and binding obligation of each
such person, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity.
3.5 No
Conflict. The execution, delivery and performance of this
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby do not and will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (a) any provision of the MOA or
bylaws of the Company or any of the organizational documents of its
Subsidiaries, as amended, (b) any Law or Governmental Order applicable to the
Company, its Subsidiaries or any Principal Shareholder or (c) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, any of its Subsidiaries or any Principal
Shareholder or any of their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect to
the foregoing provisions of (c) would not have had and would not reasonably be
expected to have a Material Adverse Effect on the Company.
3.6 Consents
and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality (“Governmental Entity”)
is required by or with respect to any Principal Shareholder, the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement, or the consummation of the transactions contemplated hereby and
thereby, except for (a) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any country other than the
United States set forth on Schedule 3.6; and (c)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on the Company
and would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
16
3.7 Financial
Statements. Attached hereto at Schedule 3.7 are the
copies of the financial statements received by the Company from each of Kunming
and Yellow River in connection with the Framework Agreements.
3.8
Absence
of Certain Changes. Except for the Framework Agreements, and
the transactions and arrangements contemplated thereby, since December 31, 2007
(the “Company Balance
Sheet Date”), the Company and each of its Subsidiaries, has conducted its
business in the ordinary course consistent with past practice and there has not
occurred: (i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or is reasonably likely to result in, a
Material Adverse Effect to the Company; (ii) any acquisition, sale or transfer
of any material asset of the Company or any of its Subsidiaries other than in
the ordinary course of business and consistent with past practice; (iii) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by the Company or any revaluation by the
Company of any of its or any of its Subsidiaries’ assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of any of its shares of capital stock; (v) any
material contract entered into by the Company or any of its Subsidiaries, other
than in the ordinary course of business and as provided or made available to
Parent, or any amendment or termination of, or default under, any material
contract to which the Company or any of its Subsidiaries is a party or by which
it is bound; (vi) any amendment or change to the MOA or bylaws of the Company or
any Subsidiary; or (vii) any increase in or modification of the compensation or
benefits payable, or to become payable, by the Company or its Subsidiaries to
any of its directors or employees, other than pursuant to scheduled annual
performance reviews, provided that any resulting modifications are in the
ordinary course of business and consistent with the Company’s and its
Subsidiaries past practices. Neither the Company nor its Subsidiaries
has agreed since December 31, 2007 to take any of the actions described in the
preceding clauses (i) through (vii) and are not currently involved in any
negotiations to do any of the things described in the preceding clauses (i)
through (vii) (other than the Framework Agreements, the Financing and
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
3.9
Absence
of Undisclosed Liabilities. The Company and the Subsidiaries
have no material obligations or liabilities of any nature (matured or unmatured,
known or unknown, fixed or contingent) other than (i) obligations or liabilities
not in excess of $250,000 in the aggregate; (ii) those incurred pursuant to the
terms of this Agreement, (iii) those incurred in connection with the Financing,
and (iv) those incurred pursuant to the terms of any Framework
Agreement.
3.10 Litigation. There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation (“Proceeding”) pending
before any agency, court, arbitrator or tribunal, foreign or domestic by or
against the Company or any of its Subsidiaries, or any of their respective
properties or any of their respective shareholders, officers or directors (in
their capacities as such) nor, to the knowledge of the Company, is any such
Proceeding threatened against any Principal Shareholder, the Company or its
Subsidiaries.
17
3.11 Restrictions
on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon the Company or any of its Subsidiaries
which has or reasonably would be expected to have the effect of prohibiting or
materially impairing any business practices of the Company or any of its
Subsidiaries, any acquisition of property by the Company or any of its
Subsidiaries or the conduct of business by the Company or any of its
Subsidiaries.
3.12 Governmental
Authorization. The Company and each of its Subsidiaries have
obtained as of the date hereof each governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Company or any of its Subsidiaries currently operates or holds any interest in
any of its properties or (ii) that is required for the operation of Company’s or
any of its Subsidiaries’ business or the holding of any such interest, ((i) and
(ii) herein collectively called “Company
Authorizations”), and all of such Company Authorizations are in full
force and effect, except where the failure to obtain or have any of such Company
Authorizations or where failure of such Company Authorizations to be in full
force and effect would not reasonably be expected to have a Material Adverse
Effect on the Company.
3.13 Title to
Property. The Company and its Subsidiaries have good and valid
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the Company Balance Sheet or acquired after the
Company Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the Company Balance Sheet Date in the
ordinary course of business), or in the case of leased properties and assets,
valid leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii) liens
securing debt which is reflected on the Company Balance Sheet, and (iv) liens
that in the aggregate would not have a Material Adverse Effect on the
Company. The property and equipment of Company and its Subsidiaries
that are used in the operations of their businesses are in good operating
condition and repair, except where the failure to be in good operating condition
or repair would not have a Material Adverse Effect. All properties
used in the operations of Company and its Subsidiaries are reflected in the
Company Balance Sheet to the extent generally accepted accounting principles
require the same to be reflected. Schedule 3.13 of the
Company Disclosure Schedule identifies each parcel of real property owned or
leased by Company or any of its Subsidiaries.
3.14 Intellectual
Property. Except as set forth on Schedule 3.14 of the
Company Disclosure Schedule, the Company and its Subsidiaries own, or have a
license to use or otherwise possess legally enforceable and unencumbered rights
to use, any patents, trademarks, trade names, service marks, domain names,
copyrights, and any applications therefor, trade secrets, computer software
programs, and tangible or intangible proprietary information or material that
are used in the business of the Company and its Subsidiaries (“Company Intellectual
Property”).
18
3.15 Taxes.
(a) For
purposes of this Agreement, the following terms have the following meanings:
“Tax” (and,
with correlative meaning, “Taxes” and “Taxable”) means (i)
any levy, impost, net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a “Tax authority”)
responsible for the imposition of any such tax (domestic or foreign); (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period; and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of being a transferee
of or successor to any person, as a result of any express or implied obligation
to indemnify any other person, including pursuant to any Tax sharing or Tax
allocation agreement, as a result of being a responsible person, or
otherwise. “Tax Return” means any
return, declaration, election, statement, report or form (including, without
limitation, claims for refunds or credits, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns) filed
or required to be filed with respect to Taxes.
(b) (i) All
Tax Returns required to be filed by or on behalf of the Company or its
Subsidiaries have been timely filed and all Tax Returns filed by or on behalf of
the Company or its Subsidiaries were (at the time they were filed) and are true,
correct and complete in all material respects; (ii) all Taxes of Company and its
Subsidiaries (whether or not reflected on any Tax Return) have been fully and
timely paid, (iii) no waivers or extensions of statutes of limitation have been
given or requested with respect to Company or its Subsidiaries in connection
with any Tax Returns or with respect to any Taxes payable by it; (iv) no
Governmental Entity in a jurisdiction where Company or its Subsidiaries do not
file Tax Returns has made a claim, assertion or threat to Company or its
Subsidiaries that it is or may be subject to taxation by such jurisdiction; (v)
each of the Company and its Subsidiaries has duly and timely collected or
withheld, and paid over and reported to the appropriate Governmental Entity all
amounts required to be so collected or withheld and paid over for all periods
under all applicable laws; (vi) there are no liens with respect to Taxes on the
Company or its Subsidiaries or any of their property or assets; (vii) there are
no Tax rulings, requests for rulings, or closing agreements relating to the
Company or its Subsidiaries for any period (or portion of a period) that would
affect any period after the date hereof; and (viii) any adjustment of Taxes of
the Company or its Subsidiaries made by a Governmental Entity in any examination
that the Company or its Subsidiaries is required to report to the appropriate
Tax Authority has been reported, and any additional Taxes due with respect
thereto have been paid.
(c) There is
no pending Proceeding with respect to any Taxes of the Company or its
Subsidiaries, nor, to the knowledge of the Company, is any such Proceeding
threatened. The Company has made available to the Parent prior to the
date of this Agreement, true, correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed or asserted against
or agreed to by the Company or its Subsidiaries since their inception and any
and all correspondence with respect to the foregoing.
19
(d) Except as
disclosed on Schedule
3.15(e), neither the Company nor its Subsidiaries is a party to any Tax
allocation or sharing agreement.
(e) The
Company is treated as a foreign corporation for U.S. federal income tax
purposes.
3.16 Employee
Benefit Plans. The Company does not maintain and has not
maintained any employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document) covering any active or former employee, director or
consultant of Company, or any trade or business (whether or not incorporated)
which is under common control with Company, with respect to which the Company
has or would reasonably be expected to have liability. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any shareholder, director or employee of the
Company.
3.17 Labor
Matters. Except as set forth in Schedule 3.17, (a)
neither the Company nor any Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or any Subsidiary; (b) the Company and each Subsidiary are currently in
compliance in all material respects will all applicable Laws relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by the appropriate governmental authority; (c) there is no claim with respect to
payment of wages, salary or overtime pay that has been asserted or is now
pending or threatened before any Governmental Authority with respect to any
Person currently or formerly employed by the Company or any Subsidiary; and (d)
neither the Company nor any Subsidiary is a party to, or otherwise bound by, any
consent decree with, or citation by, and Governmental Authority relating to
employees or employment practices.
3.18 Interested
Party Transactions. Except as disclosed in Schedule 3.18 of the
Company Disclosure Schedule, none of the Company nor any of its Subsidiaries is
indebted to any director or officer of the Company or any of its Subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to the Company or any of its
Subsidiaries and there are no other transactions of the type required to be
disclosed pursuant to Items 402 or 404 of Regulation S-K under the Securities
Act and the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
3.19 Insurance. Neither
the Company nor its Subsidiaries maintain any insurance policies on their
respective properties or assets.
3.20 Material
Company Contracts.
(a) The
Company has made available to the Parent, prior to the date of this Agreement,
true, correct and complete copies of each written agreement, contract,
arrangement, lease, commitment or otherwise of the type set forth below (each, a
“Material Company
Contract”), including each amendment, supplement and modification
relating thereto to which the Company or any Subsidiary is a
party.
20
(i) each
contract, agreement, invoice, and other arrangement, for the furnishing of
services to, or the sale of property to, the Company or any Subsidiary under the
terms of which the Company or any Subsidiary: (A) is likely to pay or otherwise
give consideration of more than $750,000 in the aggregate during the calendar
year ended December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $750,000 in the aggregate over the remaining term of
such contract, or (C) cannot be cancelled by the Company or any Subsidiary
without penalty or further payment and without more than 30 days’
notice;
(ii) each
contract, agreement, invoice, and other arrangement for the furnishing of
services by the Company or any Subsidiary that: (A) is likely to involve
consideration of more than $750,000 in the aggregate during the calendar year
ending December 31, 2008, (B) is likely to involve consideration of more than
$750,000 in the aggregate over the remaining term of the contract, or (C) cannot
be cancelled by the Company or any Subsidiary without penalty or further payment
and without more than 30 days’ notice;
(iii) all
agreements or letters of intent relating to the acquisition of any business
enterprise whether by acquisition of stock, acquisition of assets, joint venture
or merger or other form of business combination;
(iv) all
broker, distributor, dealer, manufacturer’s representative, franchise, agency,
sales promotion, market research, marketing, consulting and advertising
contracts and agreements to which the Company or any Subsidiary is a
party;
(v) all
management contracts and contracts with independent contractors or consultants
(or similar arrangements) to which the Company or any Subsidiary is a party and
which cannot be cancelled by the Company or any Subsidiary without penalty or
further payment and without more than 30 days’ notice;
(vi) all
contracts and agreements relating to indebtedness of the Company or any
Subsidiary in an amount in excess of $150,000 individually or $500,000 in the
aggregate;
(vii) all
contracts and agreements with any Governmental Authority to which the Company or
any Subsidiary is a party;
(viii) all
contracts and agreements that limit or purport to limit the ability of any
Principal Shareholder, the Company or any Subsidiary to compete in any line of
business or with any Person or in any geographic area or during any period of
time;
(ix) all
contracts and agreements between or among the Company or any Subsidiary, on the
one hand, and the Principal Shareholders or any affiliate thereof, on the other
hand;
(x) any
material lease pursuant to which the Company or any Subsidiary leases any
material real property;
21
(xi) any
shareholder agreement, registration rights agreement, voting agreement or other
agreement governing the rights of the holders of any equity security issued by
the Company or any Subsidiary; and
(xii) all other
contracts and agreements, whether or not made in the ordinary course of
business, which are material to the Company or any Subsidiary or the conduct of
their business, or the absence of which would have a Material Adverse
Effect.
(b) Each
Material Company Contract is a legal, valid and binding agreement, and is in
full force and effect, and (a) none of the Company nor its Subsidiaries is in
breach or default of any Material Company Contract to which it is a party in any
material respect; (b) no event has occurred or circumstance has existed that
(with or without notice or lapse of time), would (i) contravene, conflict with
or result in a violation or breach of, or become a default or event of default
under, any provision of any Material Company Contract or (ii) permit the
Company, any Subsidiary or any other person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate or modify any Material Company Contract; (c) neither the
Company nor its Subsidiaries have received notice of the pending or threatened
cancellation, revocation or termination of any Material Company Contract to
which it is a party; and (d) there are no renegotiations of, or attempts to
renegotiate, or outstanding rights to renegotiate any material terms of any
Material Company Contract.
3.21 Compliance
With Laws.
(a) To the
Company’s knowledge, each of the Company and each of its Subsidiaries has
complied in all respects with, is not in violation of, and has not received any
notices of violation with respect to, any Law applicable thereto or to the
conduct, ownership or operation of their respective businesses, except for such
violations or failures to comply as would not be reasonably expected to have a
Material Adverse Effect on the Company.
(b) The
Framework Agreements and the other contractual agreements described in Section 3.20(a)(i)
through (xii), were validly entered into by the parties and are in compliance
with relevant PRC Laws and regulations and all necessary approvals in connection
with such contractual arrangements have been obtained.
3.22 Foreign
Corrupt Practices Act. Neither the Company, nor its
Subsidiaries, nor any director, officer, key employee, or other person
associated with or acting on behalf of the Company or its Subsidiaries, has used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or indirect
unlawful payment to any Governmental Entity from corporate funds; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment in
connection with the operations of the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries, nor any
director, officer, key employee, or other person associated with or acting on
behalf of the Company or its Subsidiaries has committed any acts or omissions
which would constitute a breach of relevant BVI or PRC criminal Laws, including
but not limited to corruption Laws.
22
3.23 Money
Laundering Laws. The operations of the Company and the
Subsidiaries are and have been conducted at all times in compliance with money
laundering statutes in all applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any Governmental Entity (collectively, the “Money Laundering
Laws”) and no proceeding involving the Company or any of its Subsidiaries
with respect to the Money Laundering Laws is pending or, to the knowledge of the
Company, threatened.
3.24 Governmental
Inquiry. Neither the Company nor its Subsidiaries has received
any material written inspection report, questionnaire, inquiry, demand or
request for information from a Governmental Entity.
3.25 Minute
Books. The minute books of Company and its Subsidiaries made
available to Parent contain in all material respects a complete and accurate
summary of all meetings of directors and shareholders or actions by written
consent of Company and its Subsidiaries through the date of this Agreement, and
reflect all transactions referred to in such minutes accurately in all material
respects.
3.26 Real
Property. None of the Company nor any Subsidiary owns any real
property.
3.27 Brokers’
and Finders’ Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except in
connection with the Financing.
3.28 Vote
Required. The affirmative vote of the Company’s shareholders
holding a majority of the outstanding shares of Company Shares (subject to any
provision in the Company’s MOA requiring a higher voting threshold) is the only
vote of the holders of any of Company’s capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
3.29 Board
Approval. The Board of Directors of the Company has (a)
approved this Agreement and the Business Combination, (b) determined that this
Agreement and the Business Combination are advisable and in the best interests
of the stockholders of Company and are on terms that are fair to the
shareholders and (c) recommends that the shareholders of Company approve this
Agreement and consummation of the Business Combination.
3.30 Representations
Complete. None of the representations or warranties made by
Company herein or in any Company Disclosure Schedule, or certificate furnished
by Company pursuant to this Agreement, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
23
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT,
MERGER
SUB I AND MERGER SUB II
In
this Agreement, any reference to Parent’s knowledge means the actual knowledge,
after reasonable inquiry, of Michael E. Weksel. The
defined term “Material Adverse Effect” shall have the same meaning as in Article
III.
Except
as set forth in the disclosure schedule delivered by Parent to the Company
concurrently with the execution of this Agreement (the “Parent Disclosure
Schedule”), which shall identify exceptions by specific section
references, Parent, hereby represents and warrants to the Company, on behalf of
itself, and on behalf of Merger Sub I and Merger Sub II as
follows:
4.1 Organization,
Standing and Power.
(a) Each of
Parent, Merger Sub I and Merger Sub II is, a corporation duly organized, validly
existing and in good standing, and no certificates of dissolutions have been
filed under the laws of its jurisdiction of organization. Each of
Parent, Merger Sub I and Merger Sub II has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Parent, Merger Sub I or Merger Sub II,
as the case may be. Merger Sub I was formed for the sole purpose of
effecting the Redomestication Merger and the Business
Combination. Accordingly prior to the Effective Time, Merger Sub I
had no material business, operations, property or assets. Merger Sub
II was formed for the sole purpose of effecting the Business
Combination. Accordingly, prior to the Business Combination Effective
Time, Merger Sub II will have had no business, operations, property or
assets. Each of Parent, Merger Sub I, and Merger Sub II has made
available to the Company, a true and correct copy of the Certificate of
Incorporation and the By-Laws, or other organizational documents thereof, as
applicable, each as amended to date. As of the date hereof and as of
the Effective Time, none of Parent, Merger Sub I or Merger Sub II is in
violation of any of the provisions of its Certificate of Incorporation or
bylaws, or organizational documents, as applicable. Except for Merger
Sub I and Merger Sub II, Parent does not directly or indirectly own any equity
or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or
entity.
(b) Parent is
the owner of all outstanding shares of capital stock of Merger Sub I and all
such shares are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of capital stock of
Merger Sub I are owned by Parent free and clear of all liens, charges, claims or
encumbrances or rights of others. At the Effective Time, there will
be no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued shares or other securities of
Merger Sub I, or otherwise obligating Parent or Merger Sub I to issue, transfer,
sell, purchase, redeem or otherwise acquire any such
securities.
24
(c) Merger
Sub I is the owner of all outstanding shares of capital stock of Merger Sub II
and such shares are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of Merger Sub II are
owned by Merger Sub I free and clear of all liens, charges, claims or
encumbrances or rights of others. At the Business Combination
Effective Time, there will be no outstanding subscriptions, options, warrants,
puts, calls, rights, exchangeable or convertible securities or other commitments
or agreements of any character relating to the issued or unissued capital stock
or other securities of Merger Sub II, or otherwise obligating Merger Sub I or
Merger Sub II to issue, transfer, sell, purchase, redeem or otherwise acquire
any such securities.
4.2 Capital
Structure.
(a) The
authorized capital stock of Parent consists of 30,000,000 shares of common
stock, $.0001, par value, and 1,000,000 shares of preferred stock, $.0001 par
value, of which, as of the date hereof, there were issued and outstanding,
9,794,400 shares of common stock and no shares of preferred
stock. There are no other outstanding shares or voting securities of
the Parent and no outstanding commitments to issue any shares of capital stock
or voting securities of the Parent after the date hereof, other than (i)
pursuant to this Agreement, (ii) 8,044,400 shares of Parent Common Stock
issuable upon the exercise of the Parent’s Redeemable Common Stock Purchase
Warrants (“Parent
Warrants”) issued in Parent’s initial public offering (“IPO”), (iii)
1,820,000 shares of Parent Common Stock issuable upon the exercise of warrants
issued to initial stockholders of Parent (the “Insider Warrants”)
and (iv) 600,000 shares of Parent Common Stock issuable upon the exercise of the
unit purchase option granted by Parent to certain underwriters of its initial
public offering and the Parent Warrants issuable thereunder (the “Underwriter
Option”). All outstanding shares of Parent Common Stock are
duly authorized, validly issued, fully paid and non-assessable and are free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Certificate of Incorporation or
bylaws of Parent or any agreement to which Parent is a party or by which it is
bound. Parent has reserved 10,464,400 shares of common stock for
issuance upon exercise of Parent Warrants and the Insider
Warrants. Except for (i) the rights created pursuant to this
Agreement, (ii) the Parent Warrants, (iii) the Insider Warrants, and (iv) the
Underwriter Option, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Parent is a party or by
which it is bound obligating Parent to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Parent or obligating Parent to grant, extend,
accelerate the vesting and/or repurchase rights of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except for the obligation of Parent’s initial
stockholders to vote in accordance with the majority of the Parent’s
stockholders with respect to the Business Combination, there are no contracts,
commitments or agreements relating to voting, purchase or sale of Parent’s
capital stock (i) between or among Parent and any of its stockholders and (ii)
to the best of Parent’s knowledge, between or among any of Parent’s
stockholders.
(b) The
authorized shares of Merger Sub I consist of 75,000,000
shares, U.S. $0.0001 par value, of which there are issued and
outstanding 100 shares, owned by Parent. There
are no other issued and outstanding shares or voting securities and
no outstanding commitments to issue any shares or voting securities of Merger
Sub I, other than pursuant to this Agreement. The shares of China
Networks Surviving Corporation to be issued in connection with the
Redomestication Merger and the Business Combination, when issued, will be duly
authorized, validly issued, fully paid and non-assessable, free of any liens or
encumbrances.
25
(c) The
authorized shares of Merger Sub II consist of 50,000
shares, U.S. $0.0001 par value, of which there are issued
and outstanding one share owned by Merger Sub
I. There are no other issued and outstanding
shares or voting securities and no outstanding commitments to issue any shares
of or voting securities of Merger Sub II.
4.3 Authority.
(a) Parent
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby, subject only to the adoption
of this Agreement and approval of the Business Combination by Parent’s
stockholders, as contemplated by Section
8.1. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent, subject only to the
adoption of this Agreement, approval of the Merger and the Business Combination
by Parent’s stockholders, as contemplated by Section
8.1. This Agreement has been duly executed and delivered by
Parent and constitutes the legal, valid and binding obligation of Parent,
subject only to the adoption of this Agreement, approval of the Merger and the
Business Combination by Parent’s stockholders, as contemplated by Section 8.1,
enforceable against Parent in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of
equity.
(b) Merger
Sub I has the requisite corporate power and authority to enter into this
Agreement and the other agreements necessary and required to consummate the
Redomestication Merger and the Business Combination, and has been duly
authorized by all necessary corporate power on the part of Merger Sub I to
consummate the Redomestication Merger and the Business
Combination. The execution and delivery of this Agreement and the
consummation of the Redomestication Merger and the Business Combination
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub I, subject only to the adoption of
this Agreement, approval of the Merger and the Business Combination by Parent’s
stockholders, as contemplated by Section
8.1. This Agreement has been duly executed and delivered by
Merger Sub I and constitutes the legal, valid and binding obligation of Merger
Sub I and is enforceable against Merger Sub I in accordance with its terms,
except as enforceability may be limited by bankruptcy and other laws affecting
the rights and remedies of creditors generally and general principles of
equity.
(c) Merger
Sub II has the requisite corporate power and authority to enter into this
Agreement and the other agreements necessary and required to consummate the
Business Combination, and has been duly authorized by all necessary corporate
power on the part of Merger Sub II to consummate the Business
Combination. The execution and delivery of this Agreement and the
consummation of the Business Combination transactions contemplated hereby has
been duly authorized by all necessary corporate action on the part of Merger Sub
II, subject only to the adoption of this Agreement, approval of the Merger and
the Business Combination by Parent’s stockholders, as contemplated by Section
8.1. This Agreement has been duly executed and delivered by
Merger Sub II and constitutes the legal, valid and binding obligation of Merger
Sub II and is enforceable against Merger Sub II in accordance with its terms,
except as enforceability may be limited by bankruptcy and other laws affecting
the rights and remedies of creditors generally and general principles of
equity.
26
4.4 No
Conflict. The execution and delivery of this Agreement by
Parent does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (a) any provision of the Certificate of Incorporation or bylaws of
Parent, or any of its subsidiaries, as amended, or the organizational documents
of Merger Sub I or Merger Sub II (b) any Law or Governmental Order or (c) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent, Merger Sub I or Merger Sub
II, or any of its subsidiaries or their properties or assets, except where such
conflict, violation, default, termination, cancellation or acceleration with
respect to the foregoing provisions of (c) would not have had and would not
reasonably be expected to have a Material Adverse Effect on Parent, Merger Sub I
or Merger Sub II.
4.5 Consents
and Approval. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Parent, Merger Sub I or Merger Sub II, or any of
their respective subsidiaries in connection with the execution and delivery of
this Agreement by Parent, the consummation by Parent and Merger Sub I of the
Redomestication Merger, or the consummation by Merger Sub I and Merger Sub II of
the Business Combination, contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided in Section 1.2; (ii) the
filing of the Articles and Plan of Merger as provided in Section 1.2, (iii)
the filing of the Business Combination Articles and Plan of Merger as provided
in Section 2,
(iv) the filing with, and clearance by the SEC of a Registration Statement on
Form S-4 containing a merger proxy/prospectus (the “Merger
Proxy/Prospectus”) pursuant to which Parent’s stockholders must vote at a
special meeting of stockholders to approve, among other things this Agreement,
the Redomestication Merger and the Business Combination; (v) the filing of a
Form 8-K with the SEC within four (4) business days after each of (A) the
execution of this Agreement and (B) the Closing Date; (vi) any filings as may be
required under applicable state securities laws and the securities laws of any
foreign country; (vii) any filings required with the ASE with respect to the
shares of (A) Surviving Corporation Shares issuable upon conversion of the
Company Securities in the Business Combination and (B) Surviving Corporation
Shares issuable upon conversion of the Parent Common Stock in the
Redomestication Merger; and (viii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Parent or China Networks Surviving Corporation and
would not reasonably be expected to prevent or materially alter or delay any of
the transactions contemplated by this Agreement.
27
4.6 SEC
Documents; Financial Statements. A true and complete copy of
each statement, report, registration statement (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filings of Parent filed with the SEC by Parent since its
inception have been, and, prior to the Business Combination Effective Time will
be available to Company on the SEC’s website at www.sec.gov, and at the Parent’s
executive offices, further, complete copies of any additional documents filed
with the SEC by Parent prior to the Business Combination Effective Time will be
available at www.sec.gov and at Parent’s executive offices (collectively, the
“Parent SEC
Documents”). Parent has timely filed all forms, statements and
documents required to be filed by it with the SEC since its
inception. In addition, Parent has made available to Company all
exhibits to the Parent SEC Documents filed prior to the date hereof, and will
promptly make available to Company all exhibits to any additional Parent SEC
Documents filed prior to the Business Combination Effective Time. All
documents required to be filed as exhibits to the Parent SEC Documents have been
so filed, and all material contracts so filed as exhibits are in full force and
effect, except those that have expired in accordance with their terms, and
neither Parent nor any of its subsidiaries is in material default
thereunder. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Parent SEC
Document. None of Parent’s subsidiaries is required to file any
forms, reports or other documents with the SEC. The financial
statements of Parent, including the notes thereto, included in the Parent SEC
Documents (the “Parent
Financial Statements”) were complete and correct in all material respects
as of their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto as of their respective dates, and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-QSB, as permitted by Form 10-QSB of the SEC). The
Parent Financial Statements fairly present the consolidated financial condition
and operating results of Parent and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments).
4.7
Sarbanes-Oxley
Act of 2002. Parent is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”)
applicable to it as of the date hereof and the Business Combination Effective
Time. There has been no change in Parent’s accounting policies since
its inception except as described in the notes to the Parent Financial
Statements. Each required form, report and document containing
financial statements that has been filed with or submitted to the SEC since
inception, was accompanied by the certifications required to be filed or
submitted by Parent’s chief executive officer and chief financial officer
pursuant to the Sarbanes-Oxley Act, and at the time of filing or submission of
each such certification, such certification was true and accurate and materially
complied with the Sarbanes-Oxley Act and the rules and regulations promulgated
thereunder. Neither Parent nor, to the knowledge of the Parent, any
director, officer, employee, auditor, accountant or representative of Parent or
any of its subsidiaries has received or otherwise had or obtained knowledge of
any complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies or
methods of Parent or their respective internal accounting controls, including
any complaint, allegation, assertion or claim that Parent has engaged in
questionable accounting or auditing practices, except for (A) any complaint,
allegation, assertion or claim as has been resolved without any resulting change
to Parent’s accounting or auditing practices, procedures methodologies or
methods of Parent or its internal accounting controls and (b) questions
regarding such matters raised and resolved in the ordinary course in connection
with the preparation and review of Parent’s financial statements and periodic
reports. To the knowledge of Parent, no attorney representing Parent,
whether or not employed by Parent, has reported evidence of a material violation
of securities laws, breach of fiduciary duty or similar violation by Parent or
any of its officers, directors, employees or agents to the Board of Directors of
Parent (“Parent
Board”) or any committee thereof or to any director or officer of
Parent. To the knowledge of Parent, no employee of Parent has
provided or is providing information to any law enforcement agency regarding the
commission or possible commission of any crime or the violation or possible
violation of any applicable law.
28
4.8
Absence
of Certain Changes. Since December 31, 2007 (the “Parent Balance Sheet
Date”), Parent has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or is
reasonably likely to result in, or to the best of Parent’s knowledge any event
beyond Parent’s control that is reasonably likely to result in, a Material
Adverse Effect to Parent; (ii) any acquisition, sale or transfer of any material
asset of Parent or any of its subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by Parent or any revaluation by Parent of any of its or any
of its subsidiaries’ assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Parent, or any
direct or indirect redemption, purchase or other acquisition by Parent of any of
its shares of capital stock; (v) other than this Agreement, any material
contract entered into by Parent or any of its subsidiaries, other than in the
ordinary course of business and as provided to Company, or any amendment or
termination of, or default under, any material contract to which Parent or any
of its subsidiaries is a party or by which it is bound; (vi) any amendment or
change to Parent’s Certificate of Incorporation or bylaws; or (vii) any increase
in or modification of the compensation or benefits payable, or to become
payable, by Parent to any of its directors or employees, other than pursuant to
scheduled annual performance reviews, provided that any resulting modifications
are in the ordinary course of business and consistent with Parent’s past
practices. Parent has not agreed since December 31, 2007 to do any of
the things described in the preceding clauses (i) through (vii) and is not
currently involved in any negotiations to take any of the actions described in
the preceding clauses (i) through (vii) (other than negotiations with the
Company and its representatives regarding the transactions contemplated by this
Agreement).
4.9
Absence
of Undisclosed Liabilities. Parent has no material obligations
or liabilities of any nature (matured or unmatured, known or unknown, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Parent’s Quarterly Report on Form 10-QSB for the
period ended December 31, 2007 (the “Parent Balance Sheet”), (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Parent Balance Sheet under GAAP, (iii) those incurred in the ordinary course of
business since the Parent Balance Sheet date and not reasonably likely to have a
Material Adverse Effect on Parent and (iv) those incurred in connection with
this Agreement.
29
4.10 Litigation. There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation pending before any agency, court or tribunal, foreign or
domestic, or, to the knowledge of Parent or any of its subsidiaries, threatened
against Parent or any of its subsidiaries or any of their respective properties
or any of their respective officers or directors (in their capacities as
such). There is no injunction, judgment, decree, order or regulatory
restriction imposed upon Parent or any of its subsidiaries or any of their
respective assets or business, or, to the knowledge of Parent and its
subsidiaries, any of their respective directors or officers (in their capacities
as such).
4.11 Restrictions
on Business Activities. Except as may be contemplated by this
Agreement, there is no agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or reasonably would be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent, or its subsidiaries, any acquisition of property by Parent, or its
subsidiaries, or the conduct of business by Parent, its
subsidiaries.
4.12 No
Interest in Property. Except as set forth on Schedule 4.12,
Parent, Merger Sub I and Merger Sub II do not have any interest in any real
property, tangible personal property and/or intellectual property as an owner,
licensee, lessee or tenant (as applicable).
4.13 Employee
Benefit Plans. Parent does not maintain and has not maintained
any employee compensation, incentive, fringe or benefit plans, programs,
policies, commitments or other arrangements (whether or not set forth in a
written document) covering any active or former employee, director or consultant
of Parent, or any trade or business (whether or not incorporated) which is under
common control with Parent, with respect to which the Parent has or would
reasonably be expected to have liability. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
stockholder, director or employee of Parent.
4.14 Labor
Matters. Parent is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Parent
nor does Parent know of any activities or proceedings of any labor union to
organize any such employees.
4.15 Interested
Party Transactions. Except as disclosed in the Parent SEC
Documents, Parent is not indebted to any director or officer of Parent (except
for amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses), and no such person is indebted to Parent, and there are no other
transactions of the type required to be disclosed pursuant to Items 402 or 404
of Regulation S-K under the Securities Act and the Exchange
Act.
4.16 Insurance. Parent
maintains no insurance of any kind, other than directors and officers liability
coverage in the amount of $5,000,000.
4.17 Compliance
With Laws. Parent, Merger Sub I and Merger Sub II have
complied with, are not in violation of, and have not received any notices of
violation with respect to, any Law applicable thereto or to the conduct,
ownership or operation of their respective businesses, except for such
violations or failures to comply as would not be reasonably expected to have a
Material Adverse Effect on the Parent.
30
4.18 Brokers’
and Finders’ Fees. Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders’ fees or agents’
commissions or investment bankers’ fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby other than fees
payable to Chardan Capital Markets, LLC (“Chardan”) and SMH
Capital Inc., except as disclosed by the Parent to the Company or its
representatives or to any of the Principal Shareholders with respect to such
liability or charges prior to the date hereof and as approved by the Company or
any Principal Shareholder following the date hereof.
4.19 Minute
Books. The minute books of Parent made available to Company
contain in all material respects a complete and accurate summary of all meetings
of directors and stockholders or actions by written consent of Parent since
inception and through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material
respects.
4.20 Vote
Required. The approval of Parent’s and Merger Sub I’s Board of
Directors, the affirmative vote of the sole stockholder of Merger Sub II and the
approval of Parent’s stockholders in accordance with Section 8.1 hereof,
are the only approvals or votes necessary to approve this Agreement, the
Redomestication Merger and the Business Combination and the transactions
contemplated hereby.
4.21 Board
Approval. The Parent Board has approved this Agreement, the
Redomestication Merger and the Business Combination and determined that this
Agreement, the Redomestication Merger and the Business Combination are in the
best interests of the Parent, Merger Sub I and Merger Sub II. The
Parent Board has determined that the fair market value of the Company is equal
to at least 80% of the Parent’s assets. The Board of Directors of
Merger Sub I has approved this Agreement, the Redomestication Merger and the
Business Combination and shall have recommended to the sole stockholder of
Merger Sub I to approve this Agreement, the Redomestication Merger and the
Business Combination. The Board of Directors of Merger Sub II has
approved this Agreement and the Business Combination and shall have recommended
to Merger Sub I to approve this Agreement and the Business
Combination.
4.22 ASE
Quotation. Parent Common Stock is listed on the
ASE. There is no action or proceeding pending or, to Parent’s
knowledge, threatened against Parent by ASE to prohibit or terminate the listing
of Parent Common Stock on the ASE. The Parent Common Stock is
registered pursuant to Section 12(b) of the Exchange Act and Parent has taken no
action designed to, or which is likely to have the effect of, terminating the
registration of the Parent Common Stock under the Exchange Act nor has Parent
received any notification that the SEC is contemplating terminating such
registration.
4.23 Trust
Account Funds. As of December 31, 2007, there was $63,154,286,
including interest thereon, held in the trust account established in connection
with Parent’s IPO (the “Trust Account”) for
use by the Parent in connection with a business combination as set forth in
Parent’s Certificate of Incorporation. Amounts in the Trust Account
are invested in U.S. Government securities or in money market funds meeting
the conditions of Rule 2a-7 of the Investment Company Act of 1940, as
amended.
31
4.24 Representations
Complete. None of the representations or warranties made by
Parent herein or in any Parent Disclosure Schedule, or certificate furnished by
Parent pursuant to this Agreement, or the Parent SEC Documents, when all such
documents are read together in their entirety, contains or will contain at the
Business Combination Effective Time any untrue statement of a material fact, or
omits or will omit at the Business Combination Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not
misleading.
ARTICLE
V
CONDUCT
PRIOR TO THE BUSINESS COMBINATION EFFECTIVE TIME
5.1 Conduct
of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Business Combination Effective Time, each of Parent and the Company agree
(except to the extent expressly contemplated by this Agreement or as consented
to in writing by the other party), to carry on its and its subsidiaries’
business, in the ordinary course in substantially the same manner as heretofore
conducted, to pay and to cause its subsidiaries to pay debts and Taxes when due
subject to good faith disputes over such debts or taxes, to pay or perform other
obligations when due, and to use all reasonable efforts consistent with past
practice and policies to preserve intact its and its subsidiaries’ present
business organizations, use its reasonable best efforts consistent with past
practice to keep available the services of its, and in the case of the Company,
its subsidiaries’ present officers and key employees and use its reasonable best
efforts consistent with past practice to preserve its and its Subsidiaries’
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, and its Subsidiaries, to the end that
its and its subsidiaries’ goodwill and ongoing businesses shall be unimpaired at
the Business Combination Effective Time. Each of Parent and the
Company agrees to promptly notify the other of any material event or occurrence
not in the ordinary course of its business and the business of its subsidiaries,
and of any event that would have a Material Adverse Effect on Parent or the
Company.
5.2
Restrictions
on Conduct of Business. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Business Combination Effective Time, except as expressly
contemplated by this Agreement, none of Parent or the Company shall do, cause or
permit any of the following, or allow, cause or permit any of its subsidiaries,
to do, cause or permit any of the following, without the prior written consent
of the other:
(a) Charter
Documents. Cause or permit any amendments to its Certificate
of Incorporation, bylaws, MOA or other equivalent organizational documents,
other than pursuant to the Continuation (as defined below);
(b) Dividends; Changes in
Capital Stock. Declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital
stock;
32
(c) Material
Contracts. Enter into any new material contract, or violate,
amend or otherwise modify or waive any of the terms of any existing material
contract, other than upon prior consultation with, and prior written consent
(which shall not be unreasonably withheld) of the other parties to this
Agreement, or specifically in the event of future acquisitions of businesses by
the Company, upon prior written consent of the Parent;
(d) Issuance of
Securities. Except pursuant to the Financing or the
Continuation, issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible
securities;
(e) Intellectual
Property. Transfer or license to any person or entity any
rights to any Intellectual Property other than the license of non-exclusive
rights to Intellectual Property for use by the Company or any subsidiary in its
business in the ordinary course of business consistent with past
practice;
(f) Dispositions. Sell,
lease, license or otherwise dispose of or encumber any of its properties or
assets which are material, individually or in the aggregate, to its and its
Subsidiaries’ business, taken as a whole, except in the ordinary course of
business consistent with past practice;
(g) Indebtedness. Except
in its ordinary course of business, and pursuant to the Financing, incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others in excess of
$100,000 in the aggregate;
(h) Payment of
Obligations. Pay, discharge or satisfy in an amount in excess
of $100,000 in any one case, any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise) arising other than (i)
in the ordinary course of business, and (ii) with respect to the Parent,
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Parent Financial Statements;
(i) Capital
Expenditures. Make any capital expenditures, capital additions
or capital improvements except in the ordinary course of business and consistent
with past practice that do not exceed $100,000 individually or in the
aggregate;
(j) Acquisitions. Acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire any assets which are material, individually or in the aggregate, to its
and its Subsidiaries’ business, taken as a whole, or acquire any equity
securities of any corporation, partnership, association or business
organization, other than future acquisitions of a television station or
advertising operating business by the Company in China, upon prior written
consent of the Parent, not to be unreasonably withheld or
delayed;
33
(k) Taxes. In
the case of the Company or its Subsidiaries, change any election in respect of
Taxes, change any accounting method in respect of Taxes, file any amendment to a
Tax Return, enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(l) Accounting Policies and
Procedures. Make any change to its financial accounting
methods, principles, policies, procedures or practices, except as may be
required by GAAP, Regulation S-X promulgated by the SEC or applicable statutory
accounting principles;
(m) Other. Take
or agree in writing or otherwise to take, any of the actions described in Sections 5.2(a) through
(l) above, or any action which would make any of its representations or
warranties contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder;
provided
however , that from the date hereof until July 15, 2008,
none of the foregoing Sections 5.2(a) through
(l) shall in any way limit or restrict any action taken by the Company or
any Subsidiary to enter into any framework agreements or joint venture
agreements with television stations or advertising operating businesses located
in the PRC (the “Initial
Acquisitions”).
5.3
Joint
Ventures and Framework Agreements.
(a) From
and after the date hereof until the Closing Date, the Company shall use its
commercially reasonable efforts to consummate the joint ventures contemplated by
each Framework Agreement on substantially the terms and conditions set forth
therein.
(b) From
and after the date hereof until the Closing Date, the Company shall use its
commercially reasonable efforts to enter into additional framework agreements
and joint ventures with television stations located in the PRC on terms and
conditions comparable to those set forth in the Framework Agreements, in each
case subject to the prior written approval of Parent, not to be unreasonably
withheld or delayed.
34
ARTICLE
VI
COVENANTS
6.1
Merger
Proxy/Prospectus; Special Meeting.
(a) As
soon as is reasonably practicable after receipt by Parent from the Company of
all financial and other information required in a Registration Statement on
Form S-4, containing the Merger Proxy/ Prospectus, Parent shall prepare and
file with the Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities Act”), and
with all other applicable regulatory bodies, the Registration Statement for the
purpose of soliciting proxies from holders of Parent Common Stock to vote at a
special meeting of the stockholders of Parent (the “Special Meeting”) in
favor of (i) the adoption of this Agreement and the approval of the Business
Combination, whereby the Company will become a wholly-owned subsidiary of the
China Networks Surviving Corporation (the “Business Combination
Proposal”), (ii) the approval of the Redomestication Merger for the
purpose of redomesticating the Parent to the British Virgin Islands, and in
connection with such merger changing the Parent’s name to China Networks
International Holdings, Ltd. (the “Redomestication
Proposal”), and (iii) to adopt an equity incentive plan in the form of
the Incentive Stock Option Plan (the “Incentive Plan
Proposal”). The effectiveness of the Business Combination
shall be conditioned upon the approval of the Redomestication Proposal, and the
effectiveness of the Redomestication Merger shall be conditioned upon the
approval of the Business Combination Proposal. The approval of the
Incentive Plan Proposal shall not be a condition to the consummation of the
Redomestication Merger or the Business Combination. Such
materials shall be in the form of the Merger Proxy/Prospectus to be used for the
purpose of soliciting such proxies from holders of Parent Common Stock and
registering the Surviving Corporation Shares to be issued, upon consummation of
the Redomestication Merger, in exchange for the Parent Common Stock outstanding
immediately prior to the Redomestication Merger. The Merger
Proxy/Prospectus shall include the registration of the shares underlying the
Surviving Corporation Stock Rights to be issued in connection with the Business
Combination. The Company shall furnish to Parent all information
concerning the Company and its Subsidiaries and their business required to be
set forth in the Merger Proxy/Prospectus. The Company and its counsel
shall be given an opportunity to review and comment on the Merger
Proxy/Prospectus prior to its filing with the SEC. Parent, with the
assistance of the Company, shall promptly respond to any SEC comments on the
Merger Proxy/Prospectus and shall otherwise use commercially reasonable efforts
to complete the SEC review process as promptly as practicable. Parent
shall retain a reputable proxy solicitation firm.
(b) As
soon as practicable following the completion of the SEC review process, Parent
shall distribute the Merger Proxy/Prospectus to the holders of Parent Common
Stock and, pursuant thereto, shall call the Special Meeting in accordance with
Delaware Law and, subject to the other provisions of this Agreement, solicit
proxies from such holders to vote in favor of the adoption of this Agreement and
the approval of the Merger and the other matters presented to the stockholders
of Parent for approval or adoption at the Special Meeting.
(c) Parent
shall comply in all material respects with the applicable provisions of and
rules under the Securities Act, Exchange Act and the applicable provisions of
the Delaware Law in the preparation, filing and distribution of the Merger
Proxy/Prospectus, the solicitation of proxies thereunder, and the calling and
holding of the Special Meeting (provided that Parent shall not be responsible
for the accuracy or completeness of any information relating to the Company or
its Subsidiaries and their business or any other information specifically
furnished by the Company in writing for inclusion in the Merger
Proxy/Prospectus). Without limiting the foregoing, Parent shall
ensure that the Merger Proxy/Prospectus does not, as of the date on which it is
first distributed to stockholders of Parent, and as of the date of the Special
Meeting, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that Parent
shall not be responsible for the accuracy or completeness of any information
relating to the Company or its Subsidiaries and their business or any other
information specifically furnished by the Company in writing for inclusion in
the Merger Proxy/Prospectus). The Company represents and warrants
that the information relating to the Company and its Subsidiaries and their
business specifically supplied in writing by the Company for inclusion in the
Merger Proxy/Prospectus will not as of the date on which the Merger
Proxy/Prospectus (or any amendment or supplement thereto) is first
distributed to stockholders of Parent or at the time of the Special Meeting
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statement therein not false or
misleading. The Company shall in good faith provide Parent with a
letter, dated the date of the Merger Proxy/Prospectus and in form and substance
reasonably acceptable to Parent, attaching the Merger Proxy/Prospectus and
confirming that all the information included in the Merger Proxy/Prospectus has
been specifically furnished by the Company in writing for inclusion
therein. Any subsequent changes to such sections of the Merger
Proxy/Prospectus without the consent of the Company shall be the responsibility
of Parent.
35
6.2
Form 8-K. At
least five (5) days prior to Closing, Parent shall prepare a draft Form 8-K
announcing the Closing, together with, or incorporating by reference, the
financial statements prepared by the Company and its accountant, and such other
information that may be required to be disclosed with respect to the Merger in
any report or form to be filed with the SEC (“Merger Form 8-K”),
which shall be in a form reasonably acceptable to the Company. Prior
to Closing, Parent and the Company will prepare the press release announcing the
consummation of the Merger hereunder (“Press
Release”). Simultaneously with the Closing, Parent shall file
and distribute the Press Release. Within four (4) business days of
the Closing, Parent shall file the Merger Form 8-K with the
SEC.
6.3
Action of
Company’s Shareholders.
(a) The
Company shall within five Business Days after the date hereof, take all action
necessary in accordance with BVI Law and its MOA and by-laws and shall use its
reasonable best efforts to secure the vote or consent of shareholders required
to effect the Business Combination from and after the execution of this
Agreement.
(b) Until
the termination of this Agreement pursuant to Section 11 below, at
every meeting of the shareholders of the Company called with respect to any of
the following, and at every adjournment thereof, and on every action or approval
by written consent of the shareholders of the Company with respect to any of the
following, each Principal Shareholder shall cause the Company Securities held by
such Principal Shareholder to be voted (i) in favor of adoption and approval of
this Agreement and approval of the Business Combination and (ii) against
approval of (A) any proposal made in opposition to or in competition with
consummation of the Business Combination, (B) any merger, consolidation, sale of
assets, reorganization or recapitalization with any party other than Parent or
its affiliates, (C) any liquidation or winding up of the Company and (D) any
other proposal having the intent of hindering or delaying the consummation of
the Business Combination. Until the termination of this Agreement
pursuant to Section
11.1 below, each Principal Shareholder agrees not to transfer any Company
Securities, unless each transferee to which any of such Company Securities, or
any interest in any of such Company Securities, is or may be transferred shall
have executed an agreement in form and substance reasonably satisfactory to
Parent requiring such transferee to abide by the covenants contained in this
Section 6.3 on
the same basis as each Principal Shareholder.
6.4
Employment
Agreements. Parent and Li Shuangqing shall use reasonable
efforts to agree upon definitive terms with respect to the employment agreement
to be executed, by each of them, as a condition to the Closing.
36
6.5
Registration
Rights Agreement. The Parent and the Principal Shareholders
shall use reasonable efforts to agree upon definitive terms with respect
to the Registration Rights Agreement to be executed as a condition to
the Closing and generally reflecting the matters referred to in Section 9.1
hereof.
6.6
Fiscal
Year. Prior to the Business Combination Effective Time, or as
soon as practicable thereafter, the Parent shall change its fiscal year end to
December 31.
ARTICLE
VII
ADDITIONAL
AGREEMENTS
7.1
No
Claim Against Trust Account. The Company and each Principal
Shareholder hereby waives all rights against Parent to collect from the Trust
Account any moneys that may be owed to the Company or any Principal Shareholder
by Parent for any reason whatsoever, including but not limited to a breach of
this Agreement by Parent or any negotiations, agreements or understandings with
Parent (other than as a result of the consummation of the Business Combination,
pursuant to which the Company would have the right to collect certain of the
monies in the Trust Account), and will not seek recourse against the Trust
Account for any reason whatsoever.
7.2
Access to
Information.
(a) Except
as prohibited by applicable law, each of Parent and Company shall afford the
other and its accountants, counsel and other representatives (the “Representatives”),
reasonable access during normal business hours during the period prior to the
Business Combination Effective Time to (i) all of such party’s and its
Subsidiaries’ properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of such
party and its Subsidiaries as the other party may reasonably
request. Each of Parent and Company agrees to provide to the other
and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request.
(b) Subject
to compliance with applicable law, from the date hereof until the Effective
Time, each of Parent and Company shall confer on a regular and frequent basis
with one or more representatives of the other party to report operational
matters of materiality and the general status of ongoing
operations.
(c) No
information or knowledge obtained in any investigation pursuant to this Section 7.2 or
otherwise shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
(d) Each
of Parent and Company shall provide the other, and the Company shall cause each
of the Subsidiaries to provide Parent and its Representatives reasonable access,
during normal business hours during the period prior to the Effective Time, to
all of such party’s and its Subsidiaries’ Tax Returns and other records and
workpapers relating to Taxes, and shall also provide the following information
upon the request of the other party: (i) a schedule of the types of Tax Returns
filed by Parent or Company, as applicable, and in the case of the Company, each
of its Subsidiaries in each taxing jurisdiction, (ii) a schedule of the year of
the commencement of the filing of each such type of Tax Return, (iii) a schedule
of all closed years with respect to each such type of Tax Return filed in each
jurisdiction, (iv) a schedule of all Tax elections filed in each jurisdiction by
Parent or Company, as applicable, and each of the Subsidiaries, and (v) receipts
or other appropriate evidence for any Taxes paid to foreign Tax
authorities.
37
7.3
Confidential
Information; Non-Solicitation or Negotiation.
(a) Confidential
Information. Except in connection with any dispute between the
parties and subject to any obligation to comply with (i) any applicable law,
(ii) any rule or regulation of any Governmental Entity or securities
exchange, or (iii) any subpoena or other legal process to make information
available to the persons entitled thereto, whether or not the transactions
contemplated herein shall be concluded, all information obtained by any party
about any other, and all of the terms and conditions of this Agreement, shall be
kept in confidence by each party, and each party shall cause its stockholders,
directors, officers, managers, employees, agents and attorneys to hold such
information confidential. Such confidentiality shall be maintained to
the same degree as such party maintains its own confidential information and
shall be maintained until such time, if any, as any such data or information
either is, or becomes, published or a matter of public knowledge; provided,
however, that the foregoing shall not apply to any information obtained by a
party from a source not known by such party to be bound by a confidentiality
agreement with, or other contractual, legal or fiduciary obligation of
confidentiality to, the other party, nor to any information obtained by a party
which is generally known to others engaged in the trade or business of such
party. In the event a party to this Agreement becomes legally
compelled to disclose any such information, it shall promptly provide the others
with written notice of such requirement so that the other parties to this
Agreement may seek a protective order or other remedy. If this
Agreement shall be terminated for any reason, the parties shall return or cause
to be returned to the others all written data, information, files, records and
copies of documents, worksheets and other materials obtained by such parties in
connection with this Agreement.
(b) No
Solicitation or Negotiation by Parent. Unless and until this
Agreement is terminated, from and after July 15, 2008 Parent and Merger Sub I
shall not suffer or permit their directors, officers, stockholders, employees,
representatives, agents, investment bankers, advisors, accountants or attorneys
of Parent or Merger Sub I, to initiate or solicit, directly or indirectly, any
inquiries or the making of any offer or proposal that constitutes or would be
reasonably expected to lead to a proposal or offer (other than by the Company)
for a stock purchase, asset acquisition, merger, consolidation or other business
combination involving Parent or Merger Sub I or any proposal to acquire in any
manner a direct or indirect substantial equity interest in, or all or any
substantial part of the assets of, Parent or Merger Sub I (an “Alternative
Proposal”) from any person and/or entity, or engage in negotiations or
discussions relating thereto or accept any Alternative Proposal, or make or
authorize any statement, recommendation or solicitation in support of any
Alternative Proposal. Parent shall notify the Company orally and in
writing of the receipt of any such inquiries, offers or proposals (including the
terms and conditions of any such offer or proposal, the identity of the person
and/or entity making it and a copy of any written Alternative Proposal), as
promptly as practicable and in any event within 48 hours after the receipt
thereof, and shall keep the Company informed of the status and details of any
such inquiry, offer or proposal. Parent and Merger Sub I shall
immediately terminate any existing solicitation, activity, discussion or
negotiation with any person and/or entity hereafter conducted by them or by any
officer, employee, director, stockholder or other representative thereof with
respect to the foregoing. Notwithstanding the foregoing, if the
Parent Board determines, in its good faith judgment and based upon written
advice from its legal counsel (who may be Parent's regularly engaged legal
counsel), that it is required to make a change in its recommendation regarding
the Business Combination or the Redomestication Merger to comply with its
fiduciary obligations to the Parent and its stockholders under applicable Law,
the Parent Board may make a change in its recommendation, including recommending
that stockholders vote against the Business Combination and the Redomestication
Merger. No disclosure that Parent Board may determine in good faith
(upon written advice from its legal counsel, who may be Parent's regularly
engaged counsel) that it or Parent is required to make under applicable Law will
constitute a violation of this Agreement. Notwithstanding anything to
the contrary contained in this Agreement, the obligation of Parent to call, give
notice of, convene and hold the Special Meeting shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
to it of any Alternative Proposal, or by any change in the Parent Board
recommendation regarding the Business Combination or the Redomestication
Merger.
38
Notwithstanding the preceding
paragraph, prior to the satisfaction of the condition set forth in Section 8.1(l)(i),
the Parent or its representatives may furnish information with respect to the
Parent and its business and operations, and negotiate or otherwise engage in
discussions with, any person that has made, after the date hereof, an
unsolicited and bona fide written Alternative Proposal, if and only to the
extent that (i) such Alternative Proposal did not result from or arise from the
breach of the obligations of the Parent set forth in the first sentence of the
preceding paragraph, and (ii) the Parent Board determines in good faith, based
upon written advice received from counsel (who may be Parent’s regularly engaged
counsel), that (x) such Alternative Proposal is, or is reasonably likely to lead
to, a Superior Proposal (as defined below) and (y) the failure to do so would be
inconsistent with its fiduciary duties under applicable Law. For
purposes of the foregoing, “Superior Proposal”
means any bona fide written Alternative Proposal that did not result from a
breach of this Section
7.3(b) by the Parent and on terms that the Parent Board determines in
good faith (based upon written advice from its financial advisor), to be more
favorable to the stockholders of the Parent from a financial point of view than
the Business Combination, taking into account all the terms and conditions of
such proposal and this Agreement (including any changes to the terms of this
Agreement proposed by the Company in good faith to the Parent in response to
such proposal or otherwise).
(c)
No
Solicitation or Negotiation by Company or the Principal
Shareholders. Unless and until this Agreement is terminated,
the Company and the Principal Shareholders (which solely and exclusively for
purposes of this Section 7.3 shall be
deemed to include Li Shuangqing) shall not and shall not suffer or permit their
directors, officers, stockholders, employees, representatives, agents,
investment bankers, advisors, accountants or attorneys of the Company, to
initiate or solicit, directly or indirectly, any inquiries or the making of any
offer or proposal that constitutes or would be reasonably expected to lead to a
proposal or offer (other than by the Parent) for an stock purchase, asset
acquisition, merger, consolidation or other business combination involving the
Company or any proposal to acquire in any manner a direct or indirect
substantial equity interest in, or all or any substantial part of the assets of,
the Company (a “Company Alternative
Proposal”) from any person and/or entity, or engage in negotiations or
discussions relating thereto or accept any Company Alternative Proposal, or make
or authorize any statement, recommendation or solicitation in support of any
Company Alternative Proposal. The Company and the Principal
Shareholders shall notify the Parent of the receipt of any such inquiries,
offers or proposals (including the terms and conditions of any such offer or
proposal, the identity of the person and/or entity making it and a copy of any
written Company Alternative Proposal), as promptly as practicable, and shall
keep the Parent informed of the status and details of any such inquiry, offer or
proposal. The Company and the Principal Shareholders shall
immediately terminate any existing solicitation, activity, discussion or
negotiation with any person and/or entity hereafter conducted by them or by any
officer, employee, director, stockholder or other representative thereof with
respect to the foregoing.
39
7.4
Public
Disclosure. Unless otherwise permitted by this Agreement,
Parent and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law, in which case the
party proposing to issue such press release or make such public statement or
disclosure shall use its commercially reasonable efforts to consult with the
other party before issuing such press release or making such public statement or
disclosure.
7.5 Consents;
Cooperation.
(a) Each
of Parent and Merger Sub I shall promptly apply for or otherwise seek, and use
its reasonable best efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Redomestication
Merger.
(b) Each
of Parent, Merger Sub II and Company shall promptly apply for or otherwise seek,
and use its reasonable best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Business
Combination. Company shall use its reasonable best efforts to obtain
all necessary consents, waivers and approvals under any of its Material Company
Contracts in connection with the Business Combination for the assignment thereof
or otherwise.
(c) Notwithstanding
anything to the contrary in Section 7.5(a),
(i) neither Parent nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or agree
to take any other action or agree to any limitation on its operations that would
reasonably be expected to have a Material Adverse Effect on Parent or of Parent
combined with the China Networks II Surviving Corporation after the Business
Combination Effective Time and (ii) neither Company nor its subsidiaries shall
be required to divest any of their respective businesses, product lines or
assets, or to take or agree to take any other action or agree to any limitation
that would reasonably be expected to have a Material Adverse Effect on
Company.
40
7.6 Legal
Requirements. Each of Parent, Merger Sub I, Merger Sub II and
the Company will, and will cause their respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
7.7 Blue Sky
Laws. Parent shall use its reasonable best efforts to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of the Parent Common Stock and other securities of Parent in
connection with the Redomestication Merger and the Business
Combination. The Company shall use its reasonable best efforts to
assist Parent as may be necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in connection with the issuance
of Parent Common Stock and other securities of Parent in connection with the
Redomestication Merger and the Business Combination.
7.8 Indemnification.
(a) After
the Business Combination Effective Time, China Networks Surviving Corporation
will fulfill and honor in all respects the obligations of the Company pursuant
to the indemnification provisions of the Company’s MOA, in each case as in
effect on the date hereof; provided that such indemnification shall be subject
to any limitation imposed from time to time under applicable
law. Without limitation of the foregoing, in the event any person so
indemnified (a “Company Indemnified
Party”) is or becomes involved in any capacity in any action, proceeding
or investigation in connection with any matter relating to this Agreement or the
transactions contemplated hereby occurring on or prior to the Business
Combination Effective Time, China Networks Surviving Corporation shall, or shall
cause the China Networks II Surviving Corporation to, pay as incurred such
Company Indemnified Party’s reasonable legal and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith to
the fullest extent permitted by BVI Law. Any Company Indemnified
Party wishing to claim indemnification under this Section 7.8, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent and the China Networks II Surviving
Corporation.
41
(b) To
the extent there is any claim, action, suit, proceeding or investigation
(whether arising before or after the Business Combination Effective Time)
against a Company Indemnified Party that arises out of or pertains to any action
or omission in his or her capacity as director, officer, employee, fiduciary or
agent of the Company occurring prior to the Business Combination Effective Time,
or arises out of or pertains to the transactions contemplated by this Agreement
for a period lasting until the expiration of five years after the Business
Combination Effective Time (whether arising before or after the Business
Combination Effective Time), in each case for which such Company Indemnified
Party is indemnified under this Section 7.8, such
Company Indemnified Party shall be entitled to be represented by counsel, which
counsel shall be counsel of Parent (provided that if use of counsel of China
Networks Surviving Corporation would be expected under applicable standards of
professional conduct to give rise to a conflict between the position of the
Company Indemnified Person and of China Networks Surviving Corporation, the
Company Indemnified Party shall be entitled instead to be represented by counsel
selected by the Company Indemnified Party and reasonably acceptable to China
Networks Surviving Corporation) and, following the Business Combination
Effective Time, China Networks II Surviving Corporation and China Networks
Surviving Corporation shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received and China Networks II
Surviving Corporation and China Networks Surviving Corporation will cooperate in
the defense of any such matter; provided, however, that neither the China
Networks II Surviving Corporation nor China Networks Surviving Corporation shall
be liable for any settlement effected without its written consent; and provided,
further, that, in the event that any claim or claims for indemnification are
asserted or made prior to the expiration of such five year period, all rights to
indemnification in respect to any such claim or claims shall continue until the
disposition of any and all such claims. The Company Indemnified
Parties as a group may retain only one law firm (in addition to local counsel)
to represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the position of any two or more Company Indemnified
Parties.
(c) The
provisions of this Section 7.8 are
intended to be for the benefit of, and shall be enforceable by, each Company
Indemnified Party, his or her heirs and representatives.
7.9 Best
Efforts and Further Assurances. Each of the parties to this
Agreement shall use its commercially reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE
VIII
CONDITIONS
TO THE BUSINESS COMBINATION
8.1 Conditions
Precedent to the Obligation of the Parent to Consummate the Business
Combination
The
obligations of Parent to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Business Combination Effective Time of each of the following
conditions, (any of which may be waived, in writing, by Parent, with the
exception of the conditions set forth in Sections 8.1(a), (b), (c)and
(d) :
(a) Business
Combination Proposal. The Business Combination Proposal shall
have been duly approved and adopted by the stockholders of Parent by the
requisite vote under the Parent’s Certificate of Incorporation.
(b) Parent
Common Stock. Holders of less than thirty percent (30%) of the
shares of Parent Common Stock issued in Parent’s IPO outstanding immediately
before the Closing shall have exercised their rights to convert their shares
into a pro rata share of the Trust Account in accordance with the Parent’s
Certificate of Incorporation.
42
(c) Redomestication
Proposal. The Redomestication Proposal shall have been duly
approved and adopted by the requisite vote of the holders of Parent Common Stock
under Delaware Law and the Redomestication Merger shall have been
consummated.
(d) Company
Shareholder Approval. This Agreement and the Business
Combination shall have been approved and adopted by the Company board and the
Company shareholders holding a majority of the Company Securities in excess of
50%, voting together as one class.
(e) Documents. The
following documents to be delivered to the appropriate parties, in a form
acceptable to Parent:
(i) the
Lock-Up Agreement executed by the Principal Shareholders;
(ii)
the Incentive Stock Option Plan for China Networks
Surviving Corporation;
(iii) the registration
rights agreement, by and between China Networks Surviving Corporation, the
Principal Shareholders and certain stockholders of the Parent (the “Registration Rights
Agreement”) executed by the Principal Stockholders;
(iv) executed
Plan of Merger, by and between the Parent and Merger
Sub I;
(v) Certificate
of Merger with respect to the Redomestication Merger to be filed in accordance
with Delaware law as of the Effective Time;
(vi) executed
Articles and Plan of Merger to be filed in accordance with BVI Law as of
the Effective Time;
(vii)
executed Plan of Merger, by and between the Merger Sub
II and the Company;
(viii) executed
Business Combination Articles and Plan of Merger to be filed in accordance with
BVI Law at the Business Combination Effective Time;
(ix)
a certificate of good standing or equivalent under BVI Law of
the Company;
(x)
each of the documents to which the Company or its Subsidiaries is a
party, duly executed;
(xi) an
employment agreement between Parent and Li Shuangqing in form and substance
reasonably satisfactory to Parent, executed by Li
Shuangqing;
43
(xii) a
copy of the (i) audited consolidated financial statements (including any related
notes thereto) for the fiscal years ended December 31, 2007, 2006 and 2005,
(collectively, the “Audited Financial
Statements”) and (ii) unaudited consolidated financial statements for the
three month period ended March 31, 2008 (or if the Closing occurs more than 30
days after the completion of a fiscal period, for that period of time from
December 31, 2007 to such fiscal period) with respect to the businesses
conducted by the Company as of the Business Combination Effective Time
(collectively, the “Interim Financial
Statements, and together with the Audited Financial Statements, the
“Company Financial
Statements”); and such other financial statements of the Company or
entities controlled by the Company as shall be necessary to allow Parent to
complete the Merger Proxy/Prospectus, which (A) with respect to the Audited
Financial Statements, shall be prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto), (B) with respect to the Company Financial Statements, shall
fairly present in all material respects the financial position of the Company
and of its Subsidiaries at the respective dates thereof and the results of their
respective operations and cash flows for the periods indicated; and (C) with
respect to the Interim Financial Statements, shall show aggregate obligations or
liabilities of the Company or its Subsidiaries of less than $250,000 (other than
obligations or liabilities incurred pursuant to the terms of this Agreement, and
those incurred pursuant to the terms of any framework agreement, other joint
venture or acquisition or the Financing); and
(xiii) such
other documents as the Parent may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of the Principal
Shareholders, the Company or its Subsidiaries pursuant to Section 8.1(f), (ii)
evidencing the performance by the Company or its Subsidiaries of, or the
compliance by the Company or its Subsidiaries with, any covenant or obligation
required to be performed or complied with by the Company or its Subsidiaries,
(iii) evidencing the satisfaction of any condition referred to in this
Section 8.1, or
(iv) otherwise facilitating the consummation of any of the transactions
contemplated by this Agreement.
(f)
Representations,
Warranties and Covenants. (i) The representations and
warranties of the Principal Shareholders and the Company in this Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality,
which representations and warranties as so qualified shall be true and correct
in all respects) both when made and on and as of the Business Combination
Effective Time as though such representations and warranties were made on and as
of such time (provided that those representations and warranties which address
matters only as of a particular date shall be true and correct as of such date)
and (ii) the Company and the Principal Shareholders shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Business Combination Effective Time.
(g) Certificate
of Officer. Parent shall have been provided with a certificate
executed on behalf of Company by its Executive Chairman and Chief Executive
Officer certifying that the conditions set forth in Section 8.1(f) shall
have been fulfilled.
44
(h) Injunctions
or Restraints on Conduct of Business. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint provision limiting
or restricting Company’s or its Subsidiaries’ conduct or operation of the
business of Company and its Subsidiaries following the Redomestication Merger
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(i) No
Proceedings. Since the date of this Agreement, there must not
have been commenced or threatened against the Parent, the Merger Sub I, Merger
Sub II, the Company, Company’s Subsidiaries, the Principal Shareholders, or any
affiliate thereof, any Proceeding (which Proceeding remains unresolved as of the
Effective Time) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the transactions contemplated
hereby.
(j) No
Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on Company, or any change that has a Material Adverse
Effect on Company.
(k) Financing. The
Company shall have entered into definitive documentation for a bridge loan in an
amount of not less than U.S.$20,000,000 and not more than U.S. $40,000,000 on
terms and conditions reasonably satisfactory to Parent (the “Financing”),
including, a covenant requiring the Company to use its best efforts to
consummate the Business Combination and an event of default triggered upon the
failure of the Company to consummate the Business Combination prior to June 29,
2009.
(l) Joint
Ventures; Capital Structure. (i) The Company shall
have entered into joint ventures pursuant to the definitive agreements (each a
“Joint Venture
Agreement”) contemplated by the Framework Agreements or such other
framework agreements as may be entered into between the date hereof and Closing,
in any case containing terms and conditions that are reasonably satisfactory to
Parent and with at least two joint venture partners satisfactory to
Parent. In the event Parent does not exercise its right to terminate
this Agreement pursuant to Section 11.3 upon the Initial Acquisitions, then such
Initial Acquisitions and the terms and conditions thereof shall be deemed to be
reasonably satisfactory to Parent.
(ii) The
capital structure and corporate structure of the Company and its Subsidiaries,
and the structure of the Company’s direct and indirect interest in each Joint
Venture Agreement, shall be reasonably satisfactory to Parent.
(iii) China
Networks Surviving Corporation shall not be obligated to issue more than an
aggregate amount of 2,950,000 Surviving Corporation Shares at the Business
Combination Effective Time pursuant to this Agreement (and each of the documents
delivered hereunder) and the Financing (and each of the documents delivered
thereunder).
(m) Governmental
Approvals. Company and its Subsidiaries shall have timely
obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for consummation of or in connection with this Agreement, the
Business Combination and the Joint Venture Agreements, including such approvals,
waivers and consents as may be required under BVI Law and
PRC Law.
45
8.2
Conditions
Precedent to the Obligation of the Company to Consummate the Business
Combination. The obligations of Company to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Business Combination Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Company, with the exception of the conditions set forth in Sections 8.2(a)-(d):
(a) Business
Combination Proposal. The Business Combination Proposal shall
have been duly approved and adopted by the stockholders of Parent by the
requisite vote under the Parent’s Certificate of Incorporation.
(b) Parent
Common Stock. Holders of less than thirty percent (30%) of the
shares of Parent Common Stock issued in Parent’s IPO outstanding immediately
before the Closing shall have exercised their rights to convert their shares
into a pro rata share of the Trust Account in accordance with the Parent’s
Certificate of Incorporation.
(c) Company
Shareholder Approval. This Agreement and the Business
Combination shall have been approved and adopted by the Company board and the
Company shareholders holding a majority of the Company Securities in excess
of 50%, voting together as one class.
(d) Redomestication
Proposal. The Redomestication Proposal shall have been duly
approved and adopted by the requisite vote of the holders of Parent Common Stock
under the Delaware Law and the Redomestication Merger has been
consummated.
(e) Adoption
of Performance Share Proposal. The Performance Share Proposal
shall have been duly approved and adopted by the requisite vote of the holders
of Parent Common Stock under Delaware Law.
(f) Representations,
Warranties and Covenants. (i) The representations and
warranties of Parent, Merger Sub I and Merger Sub II in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true and correct in all
respects) both when made and on and as of the Effective Time or the Business
Combination Effective Time, as applicable, as though such representations and
warranties were made on and as of such time (provided that those representations
and warranties which address matters only as of a particular date shall be true
and correct as of such date) and (ii) Parent, Merger Sub I and Merger Sub
II shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by them as of the Effective Time or the Business Combination
Effective Time, as applicable.
(g) Certificate
of Officer. The Company shall have been provided with a
certificate executed on behalf of Parent by its Chief Executive Officer and
Chief Financial Officer certifying that the conditions set forth in Section 8.2(f) shall
have been fulfilled.
46
(h) Secretary’s
Certificate. The Company shall have been provided with a
Secretary’s Certificate, dated the Closing Date, certifying attached copies of
(A) the Certificate of Incorporation and bylaws of the Parent, Merger Sub I and
Merger Sub II, (B) the resolutions of the Board of Directors of the Parent
approving this Agreement and the transactions contemplated hereby; and (C) the
incumbency of each authorized officer of Parent, Merger Sub I and Merger Sub II
signing this Agreement and/or any other agreement or instrument contemplated
hereby to which Parent, Merger Sub I or Merger Sub II is a
party.
(i) Documents. The
following documents to be delivered to the appropriate parties, in a form
acceptable to the parties:
(i) the Lock-Up
Agreement executed by Parent;
(ii) the
incentive stock option plan for China Networks Surviving
Corporation;
(iii) an
employment agreement, by and between the Parent and Li Shuangqing, in form and
substance reasonably satisfactory to Li Shuangqing, executed by
Parent;
(iv) the
Registration Rights Agreement executed by Parent;
(v)
share certificates evidencing the
Surviving Corporation Shares to be issued to the holders of the Company
Securities in the Business Combination;
(vi) executed
Plan of Merger, by and between the Parent and Merger
Sub I;
(vii) Certificate
of Merger with respect to the Redomestication Merger to be filed in accordance
with Delaware law as of the Effective Time;
(viii) executed
Articles and Plan of Merger to be filed in accordance with BVI Law as of
the Effective Time;
(ix)
executed Plan of Merger, by and between Merger Sub
II and the Company;
(x)
executed Business Combination Articles and Plan of
Merger to be filed in accordance with BVI Law as of the Business Combination
Effective Time;
(xi) a
certificate of good standing of the Parent in the State of
Delaware;
(xii) a
certificate of good standing of Merger Sub I in the British Virgin
Islands;
(xiii) a
certificate of good standing of Merger Sub II in the British Virgin Islands;
and
47
(xiv) such
other documents as the Company may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of the Parent, Merger
Sub I and Merger Sub II pursuant to Section 8.1(e), (ii)
evidencing the performance by the Parent, Merger Sub I and Merger Sub II of, or
the compliance by the Parent, Merger Sub I and Merger Sub II with, any
covenant or obligation required to be performed or complied with by the Parent,
Merger Sub I and Merger Sub II, (iii) evidencing the satisfaction of any
condition referred to in this Section 8.2, or (iv)
otherwise facilitating the consummation of any of the transactions contemplated
by this Agreement.
(j) Injunctions
or Restraints on Conduct of Business. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint provision limiting
or restricting Parent’s conduct or operation of the business of Parent and its
Subsidiaries, following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity,
domestic or foreign, seeking the foregoing be pending.
(k) No
Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on Parent, or any change that has a Material Adverse
Effect on Parent and there shall have been no decrease in the amount of funds in
trust from that reflected in Section 4.23.
(l) No
Proceedings. Since the date of this Agreement, there must not
have been commenced or threatened against the Parent, Merger Sub I and Merger
Sub II, the Company, the Company’s Subsidiaries, any Principal Shareholder, or
against any affiliate thereof, any Proceeding (which Proceeding remains
unresolved as of the Effective Time) (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the transactions
contemplated hereby, or (b) that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with any of the transactions
contemplated hereby.
(m) Stock
Quotation. The Parent Common Stock at Closing shall be listed
on the ASE, and there will be no action or proceeding pending or threatened
against Parent by the ASE to prohibit or terminate the listing of Parent Common
Stock on the ASE.
(n) SEC Compliance. Immediately
prior to the Closing, Parent shall be in compliance with the reporting
requirements under the Exchange Act, and shall have timely filed all Exchange
Act reports for the twelve month period preceding the Closing.
(o) Accounting
for Deferred Expenses of Parent. At the time of the Closing,
the aggregate deferred business and operating expenses of Parent that will be
assumed by China Networks Surviving Corporation and paid from the proceeds of
the Trust Account disbursed to the China Networks Surviving Corporation, shall
not exceed $1,000,000 excluding legal fees payable to McDermott Will & Emery
LLP, unless Parent shall have received approval from the Company (such approval
not to be unreasonably withheld) prior to incurring expenses that would cause
such aggregate amount to exceed $1,000,000.
(p) Disbursement
of Trust Account. Parent shall have made all necessary
arrangements, including notice to Continental Stock Transfer & Trust, the
trustee of the Trust Account, prior to the Business Combination Effective Time,
for the disbursement of the proceeds of the Trust Account to be made at the
Business Combination Effective Time, subject to any amounts to be held for the
redemption of any shares of Parent Common Stock.
48
(q) Governmental
Approvals. Parent, Merger Sub I and Merger Sub II shall have
timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with this
Agreement, the Redomestication Merger and the Business Combination, including
such approvals, waivers and consents as may be required under the
BVI Law.
ARTICLE
IX
POST-CLOSING
COVENANTS
9.1 Mandatory
Registration of Closing Shares. Without limitation on the
restrictions on transfer set forth in Section 2.14 and the
Lock-Up Agreements, the Parent hereby agrees that no later than 30 days
following the consummation of the Business Combination (the “Filing Date”), it
shall prepare and file with the SEC a “resale” registration statement (the
“Registration
Statement”), providing for the resale of all of the Surviving Corporation
Shares issued pursuant to Section 2.7 upon Closing (but not including any
Returned Shares (as defined below) returned) (the “Closing Shares”) for
an offering to be made on a continuous basis pursuant to Rule 415, subject to
the terms and conditions of the Registration Rights Agreement. Such
Registration Statement shall be on Form S-3 (except if the Parent is not then
eligible to register for resale the Closing Shares on Form S-3 in which case
such registration shall be on another appropriate form in accordance herewith
and the Securities Act and the rules promulgated thereunder). The
Parent shall use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the earlier of (A) the ninetieth
(90th) day
following the Filing Date or (B) in the event the Registration Statement
receives a “full review” by the SEC, the one hundred twentieth (120th) day
following the Filing Date, or in either case any additional filing dates (as
applicable) or (C) the date which is within three (3) Business Days after the
date on which the SEC informs the Parent that (i) the SEC will not review the
Registration Statement, or (ii) Parent may request the acceleration of the
effectiveness of the Registration Statement and the Parent makes such request;
provided, that,
if such date falls on a Saturday, Sunday or any other day which shall be a legal
holiday or a day on which the SEC is authorized or required by law or other
government actions to close, the effectiveness date shall be the following
business day.
9.2 Registration
of Shares. After the consummation of the Business Combination,
China Networks Surviving Corporation shall prepare and file with the SEC a
registration statement on Form S-8, registering the shares to be issued under
Section 2.7(g)
and the Incentive Stock Option Plan.
9.3 D&O Insurance. China
Networks Surviving Corporation will take all necessary steps required to have
all of the officers and directors of the Surviving Corporation included on
Parent’s directors and officers liability coverage after the Business
Combination Effective Time.
49
ARTICLE
X
INDEMNIFICATION;
REMEDIES
10.1 Survival. All
representations, warranties, covenants, and obligations in this Agreement shall
survive the Closing and expire on the first anniversary of the Closing Date (the
“Survival
Period”). The right to indemnification, payment of damages or
other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2 Indemnification
by the Principal Shareholders.
(a) From
and after the Effective Time until the expiration of the Survival Period, the
Principal Shareholders shall, severally and not jointly, subject to the terms
hereof, indemnify and hold harmless the China Networks Surviving Corporation and
its subsidiaries, affiliates, officers, directors, employees, agents, successors
and assigns (each an “Indemnified Party”)
from and against any liabilities, losses, claims, damages, fines, penalties,
expenses (including costs of investigation and defense and reasonable attorneys’
fees incurred in connection with such matters and any action hereunder to
enforce the provisions of this Article X) or diminution of value, including
Taxes (collectively, “Damages”) arising,
directly or indirectly, from or in connection with:
(i) any
breach of any representation or warranty made by the Company or any Principal
Shareholder in this Agreement or in any certificate delivered by the Company
pursuant to this Agreement;
(ii) any
breach by the Company, or the Principal Shareholders, of its covenants or
obligations in this Agreement; or
(iii) the
operation of the business of the Company and its Subsidiaries, prior to the
Effective Time.
(b) For
a period of six months from the Business Combination Effective Time (the “First Return Shares
Indemnification Period”), the amount of any and all Damages suffered by
the China Networks Surviving Corporation shall be recoverable solely by the
return to the China Networks Surviving Corporation of any Surviving Corporation
Shares received by such Principal Shareholder in connection with this Agreement
on the Closing Date (the “First Returned
Shares”).
(c) For
a period of six months commencing from the end of the First Return Shares
Indemnification Period (the “Second Return Shares
Indemnification Period”), the amount of any and all Damages suffered by
the China Networks Surviving Corporation shall be recovered solely by the return
to the China Networks Surviving Corporation of up to fifty percent (50%) of the
Surviving Corporation Shares received by such Principal Shareholder in
connection with this Agreement on the Closing Date (the “Second Returned
Shares”);
50
(d) For
a period of six months commencing from the end of the Second Return Shares
Indemnification Period, the amount of any and all Damages suffered by the China
Networks Surviving Corporation shall be recovered solely by the return to the
China Networks Surviving Corporation of twenty five percent (25%) of the
Surviving Corporation Shares received by such Principal Shareholder in
connection with this Agreement on the Closing Date (the “Third Returned
Shares”, and collectively with the First Returned Shares and Second
Returned Shares, the “Returned
Shares”).
(e) The
number of Returned Shares to be returned by the Principal Shareholders to the
Indemnified Parties pursuant to this Section 10.2 shall be
equal to the aggregate amount of the Damages suffered by the Indemnified
Parties, divided by the market value of the Surviving Corporation Shares to be
calculated using the average of the closing bid price as quoted on the ASE (or
such other public trading market on which the Surviving Corporation Shares may
be trading at such time) for the thirty (30) trading days immediately prior to
the date that such amount of Damages is determined by a court of competent
jurisdiction or pursuant to a binding settlement agreement among the Indemnified
Parties and the Principal Shareholders.
(f) All
claims of the China Networks Surviving Corporation pursuant to this Section 10.2 shall be
brought by Michael E. Weksel or his designee on behalf of the China Networks
Surviving Corporation (or if he is no longer living, then the other Parent
Designees) and those persons who were stockholders of the Parent immediately
prior to the Closing.
10.3 Limitations
on Amount. The Indemnified Parties shall not be entitled to
indemnification pursuant to Section 10.2, unless
and until the aggregate amount of Damages to the Indemnified Parties with
respect to such matters under Section 10.2 exceeds
$500,000, at which time, subject to the Cap (as defined below), the China
Networks Surviving Corporation and the other Indemnified Parties shall be
entitled to indemnification for the amount of such excess. The
liability of all Principal Shareholders for Damages arising pursuant to Section 10.2(a) shall
not exceed 250,000 Returned Shares in the aggregate (the “Cap”).
10.4 Determining
Damages. Solely for the purposes of this Article X,
materiality qualifications to any representations and warranties shall not be
taken into account. To the extent Damages are recoverable by
insurance, Parent shall take commercially reasonable efforts to obtain maximum
recovery from such insurance.
ARTICLE
XI
TERMINATION,
AMENDMENT AND WAIVER
11.1 Termination. At
any time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Business Combination by the
stockholders of Company, this Agreement may be terminated:
51
(a) by
mutual written consent of Parent and Company;
(b) by
either Parent or Company, if, at the Special Meeting (including any adjournments
thereof), this Agreement and the Business Combination Proposal shall fail to be
approved and adopted by the affirmative vote of the holders of Parent Common
Stock required under Parent’s Certificate of Incorporation, or the holders of
30% or more of the number of shares of Parent Common Stock issued in Parent’s
IPO and outstanding as of the date of the record date of the Special Meeting
exercise their rights to convert the shares of Parent Common Stock held by them
into cash from the Trust Account, in accordance with Parent’s Certificate of
Incorporation;
(c) by
either Parent or Company, if, at the Special Meeting (including any adjournments
thereof), the Redomestication Proposal shall fail to be approved and adopted by
the affirmative vote of the holders of Parent Common Stock required to vote on
such proposal under Delaware Law;
(d) by
either Parent or Company, if, without fault of the terminating party, the
Closing shall not have occurred on or before June 29, 2009, or such later date
as may be agreed upon in writing by the parties hereto;
(e) by
Parent, if Company does not: (a) consummate the transactions contemplated by the
Framework Agreements with
respect to Kunming and Yellow River; or (b) consummate a joint venture of the
type contemplated by the Framework Agreements with at least one television
station operating in the PRC and generating positive net income (as determined
in accordance with GAAP) for the most recently completed 12 months, in each case
on or prior to August 15, 2008;
(f)
by Parent, if Company breaches any of its
representations, warranties or obligations hereunder to an extent that would
cause the condition set forth in Section 8.1(g) not to
be satisfied and such breach shall not have been cured within ten (10) business
days of receipt by Company of written notice of such breach (and Parent has not
willfully breached any of its covenants hereunder, which breach is not
cured);
(g) by
Company, if Parent breaches any of its representations, warranties or
obligations hereunder to an extent that would cause the condition set forth in
Section 8.2(f)
not to be satisfied and such breach shall not have been cured within ten (10)
business days of receipt by Parent of written notice of such breach (and Company
has not willfully breached any of its covenants hereunder, which breach is not
cured); or
(h) by
either Parent or Company if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the
Redomestication Merger or Business Combination shall have become final and
nonappealable or (ii) the required approval of the stockholders of Company shall
not have been obtained by reason of the failure to obtain the required vote upon
a vote held at a duly held meeting of stockholders or at any adjournment thereof
(provided that the right to terminate this Agreement under this subsection
(ii) shall not be available to Parent or Company where the failure to
obtain such stockholder approval shall have been caused by the action or failure
to act of Parent or Company and such action or failure constitutes a breach by
Parent or Company of this Agreement).
52
11.2 Effect of
Termination. In the event of termination of this Agreement as
provided in Section
11.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, Company, the Principal
Shareholders, or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 7.3
(Confidentiality), Section 11.3
(Expenses and Termination Fees) and this Section 11.2, and
Article XII, shall remain in full force and effect and survive any
termination of this Agreement. Nothing herein shall relieve any party
from liability in connection with a breach by such party of the representations,
warranties or covenants of such party to this Agreement.
11.3
Expenses
and Termination Fees.
(a) Subject
to subsections (b) and (c) of this Section 11.3, whether
or not the Business Combination is consummated, all costs and expenses
(including transfer and other similar Taxes) incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense.
(b) If
Parent terminates this Agreement pursuant to Section 11.1(f) then
Company shall promptly reimburse Parent for all of the out-of-pocket costs and
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
(c) If
Company terminates this Agreement pursuant to Section 11.1(g)
Parent shall promptly reimburse Company for all of the out-of-pocket costs and
expenses incurred by Company in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
(d) In
the event this Agreement is terminated by (i) the Parent pursuant to subsection
(e) or (f) of Section
11.1(f) or by (ii) the Company pursuant to 11.1(g), in each case
subsequent to August 15, 2008 and prior to June 29, 2009, then (A) in the event
the Company is the terminating party and the Parent enters into a binding
agreement to consummate, or consummates, an Alternative Proposal any time prior
to June 29, 2009, the Parent shall pay to the Company a one-time termination fee
of $1,000,000, and (B) in the event the Parent is the terminating party and the
Company enters into a binding agreement to consummate, or consummates, a Company
Alternative Proposal any time prior to June 29, 2009, the Company shall pay to
the Parent a one-time termination fee of $3,000,000 (either such payment, a
“Termination
Fee”). (Any Termination Fee shall be deemed to include the
reimbursement for all of the out-of-pocket costs and expenses incurred by the
terminating party in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, the fees and expenses of its
advisors, accountants and legal counsel.)
53
11.4 Amendment. The
Boards of Directors of the Parent and the Company and the Principal
Shareholders, may cause this Agreement to be amended at any time by execution of
an instrument in writing signed on behalf of each of the parties hereto;
provided that an amendment made subsequent to adoption of the Agreement by the
stockholders of Parent or Company shall not (i) alter or change the amount or
kind of consideration to be received on conversion of the Parent Common Stock
(except with the consent of the holders of a majority of Parent Common Stock) or
the Company Securities (except with the consent of the holders of majority of
the Company Securities), (ii) alter or change any term of the MOA of the Merger
Sub I to be effected by the Business Combination, or (iii) alter or change any
of the terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Company Securities.
11.5 Extension;
Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
11.6 Knowledge
of Parent. To the knowledge of Parent, Parent is not aware of
any facts or circumstances that would serve as the basis for a claim by Parent
against Company or any Principal Shareholder based upon a breach of any of the
representations and warranties of the Company and the Principal Shareholders
contained in this Agreement or breach of any of the Company’s or any Principal
Shareholders’ covenants or agreements to be performed by any of them at or prior
to Closing. Parent shall be deemed to have waived in full any breach of any of
the Company’s and Principal Shareholders’ representations and warranties and any
such covenants and agreements of which Parent has knowledge at the
Closing. As usual herein, “knowledge of Parent” means the actual
knowledge of the Chief Financial Officer of Parent.
ARTICLE
XII
GENERAL
PROVISIONS
12.1 Notices. All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by commercial delivery service, or
mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with confirmation of receipt) to the parties at the following address
(or at such other address for a party as shall be specified by like
notice):
54
(a) if
to Parent, to:
Alyst
Acquisition Corp.
233
East 69th Street, #6J
New
York, New York 10021
Attention: Michael
Weksel
Facsimile
No.: 212-918-1598
Telephone
No.: 646-290-6104
with a
copy (which shall not constitute notice to Parent) to:
McDermott
Will & Emery
340
Madison Ave
New
York, New York 10173
Attention:
Todd Finger
Facsimile
No.: 212-547-5444
Telephone
No.: 212-547-5400
(b) if
to the Company or the Principal Shareholders, to:
China
Networks Media, Ltd.
Suite
A-16E, Oriental Kenzo, No. 48, Dongzhimenwai Avenue,
Dongcheng
District, Beijing, China
Attention:
Li Shuangqing
Facsimile
No.: (86)-010-84477246
Telephone
No.:
(86)-010-84549851
with a
copy (which shall not constitute notice to the Company) to:
Chardan Capital Markets,
LLC
17 State Street
New York, NY 10004
Attention: George
Kaufman
Fax: +1 (646)
465-9039
and
Loeb &
Loeb LLP
345 Park
Avenue
New York,
New York 10154
Attention:
Mitchell S. Nussbaum, Esq.
Facsimile
No.: (212) 407-4000
Telephone
No.: (212) 407-4990
and
55
TransAsia
Lawyers
Suite 2218
China World Tower 1
1 Jianguomenwai
Avenue
Beijing
100004, China
Attention: Philip
Qu
Facsimile
No.: 86-10-6505-8189/98
Telephone
No.: 86-10-6505-8188
12.2 Interpretation/Definitions. When
a reference is made in this Agreement to Exhibits or Schedules, such reference
shall be to an Exhibit or Schedule to this Agreement unless otherwise
indicated. The words “include,” “includes” and “including” when used
herein shall be deemed in each case to be followed by the words “without
limitation.” The phrase “made available” in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
For the purposes of this Agreement,
the following terms shall have the following definitions:
(a)
“Governmental
Order” means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental
Entity.
(b) “Law” means any
federal, national, supranational, state, provincial, local or similar statute,
law, ordinance, regulation, rule, code, order, requirement or rule of law
(including common law).
12.3 Counterparts. This
Agreement may be executed in one or more counterparts, including by facsimile or
PDF, all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all parties
need not sign the same counterpart.
12.4 Entire
Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Company Disclosure Schedules and the Parent Disclosure Schedules (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, except for the
Non-Disclosure and Confidentiality Agreements, dated October 18, 2007 and
November 12, 2007, by and between the Parent and Chardan (each on behalf of the
Company), which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Section 2.13; and (c)
shall not be assigned, except by operation of law as a result of the
Redomestication Merger, pursuant to Section 1.3 and
the Business Combination pursuant to Section 2.3 or as
otherwise specifically provided. Notwithstanding the foregoing,
Parent shall have the right, without the consent of any other party, to assign
its rights to receive the Termination Fee hereunder to some or all of the
persons that, as of the date hereof, are holders of the Insider
Warrants. No representations, warranties, inducements, promises or
agreements, oral or written, by or among the parties not contained herein shall
be of any force of effect.
56
12.5 Severability. If
any provision of this Agreement, or the application thereof, becomes or is
declared by a court of competent jurisdiction to be illegal, void or
unenforceable, the remainder of this Agreement will continue in full force and
effect and the application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties
hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
12.6 Remedies
Cumulative; Specific Performance.
(a) Except
as otherwise provided herein, any and all remedies herein expressly conferred
upon a party will be deemed cumulative with and not exclusive of any other
remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other
remedy. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached.
(b) It
is accordingly agreed that the parties hereto shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
12.7 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the laws
that might otherwise govern under applicable principles of conflicts of
law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within the State of Delaware in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
12.8 Rules of
Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[SIGNATURE
PAGE FOLLOWS]
57
IN
WITNESS WHEREOF, each of the undersigned has caused this Agreement and Plan of
Merger to be executed and delivered by their respective officers, and
individually, as applicable, thereunto duly authorized, all as of the date first
written above.
|
ALYST
ACQUISITION CORP.
|
|
|
By:
|
/s/ Michael E.
Weksel
|
|
Name: Michael
E. Weksel
|
|
|
Title: Chief
Operating Officer and
|
|
|
Chief
Financial Officer
|
|
|
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
|
|
|
By:
|
/s/ Michael E.
Weksel
|
|
Name: Michael
E. Weksel
|
|
|
Title: Sole
Director
|
|
|
CHINA
NETWORKS MERGER CO. LTD.
|
|
|
By:
|
/s/ Michael E.
Weksel
|
|
Name: Michael
E. Weksel
|
|
|
Title: Sole
Director
|
|
58
|
CHINA
NETWORKS MEDIA, LTD..
|
|
|
By:
|
/s/ Li
Shuangqing
|
|
Name:
Li Shuangqing
|
|
|
Title: CEO
and Co-Chairman
|
|
|
MEDIAINV
LTD.
|
|
|
By:
|
/s/C.C.N. Ng
|
|
Name: C.C.N.
Ng
|
|
|
Title: Director
|
|
|
KERRY
PROPPER
|
|
|
/s/ Kerry
Propper
|
|
|
Name:
Kerry Propper
|
|
|
LI
SHUANGQING
|
|
|
/s/ Li
Shuangqing
|
|
|
Name:
Li
Shuangqing
|
|
59
Annex
B
AMENDMENT
NO. 1 TO
MERGER
AGREEMENT
This
Amendment No. 1 (this “Amendment”), dated as of January 28_, 2009, to the Merger
Agreement (as defined below) is made by and among Alyst Acquisition Corp., a
Delaware corporation (including its successors and assigns, the “Parent”), China
Networks Media Limited, a British Virgin Islands corporation (including its
successors and assigns, the “Company”), MediaInv
Ltd., a British Virgin Islands Business Company and Kerry Propper (each a “Principal
Shareholder,” and together with their successors and assigns from the
date hereof until the Business Combination Effective time (as defined below),
collectively the “Principal
Shareholders”) and each of the other signatories hereto. Any capitalized
term not defined herein shall have the meaning for such term specified in the
Merger Agreement.
WHEREAS, Parent, the Company,
the Principal Shareholders and the other signatories hereto entered into an
Agreement and Plan of Merger dated as of August 13, 2008, (the “Merger
Agreement”); and
WHEREAS, Section 2.7 of the
Merger Agreement sets forth the terms that govern Deferred Cash Payments,
Deferred Stock Payment and the payment of Warrant Exercise
Proceeds;
WHEREAS, Parent, the Company,
the Principal Shareholders and each of the other signatories to the Merger
Agreement desire to clarify the terms of the means by which the Deferred Cash
Payments, Deferred Stock Payments and Warrant Exercise Proceeds shall be made to
Closing Holders on the terms contained herein.
NOW THEREFORE, in
consideration of the foregoing and the representations, warranties, covenants
and agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Sections
2.7(f)(ii), (iii) and (iv) of the Merger Agreement are hereby amended by
deleting the existing Section 2.7(f)(ii), (iii) and (iv) in their entirety and
replacing such subparagraphs with the following:
(ii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall be
entitled to receive from China Networks Surviving Corporation cash payments on
or prior to December 31, 2009 equal to an aggregate amount of U.S. $3,000,000,
solely and exclusively upon China Networks Surviving Corporation earning Net
Income of at least U.S. $20,000,000 during the four fiscal quarters immediately
preceding such payment, to be allocated among such holders based on their
percentage ownership of the Company Shares immediately prior to the Business
Combination Effective Time (the “Percentage
Allocations”).
1
(iii) China
Networks Surviving Corporation hereby agrees that Closing Holders shall be
entitled to receive from China Networks Surviving Corporation additional cash
payments on or prior to December 31, 2010 equal to an aggregate amount of U.S.
$3,000,000, solely and exclusively upon China Networks Surviving Corporation
earning Net Income of at least U.S. $30,000,000 during the four fiscal quarters
immediately preceding such payments, to be allocated among the holders of
Company Shares in accordance with their respective Percentage
Allocations.
(iv) As
used herein, “Net
Income” means the net income of China Networks Surviving Corporation and
its subsidiaries as determined in accordance with U.S. generally accepted
accounting principles (“GAAP”) and on a pro
forma basis, but excluding equity-based compensation charges, extraordinary
one-time charges and charges related to the Business Combination or impairment
of goodwill; provided that, with respect to
any acquisitions of businesses or persons after the Business Combination
Effective Time, in order for the net income generated by such acquired
businesses or persons to be included in the foregoing definition of Net Income,
such acquisitions must be accretive on a Net Income per share basis. In
calculating Net Income per share, China Networks Surviving Corporation shall use
China Networks Surviving Corporation’s audited or reviewed financial statements
for the fiscal period in question. For the acquisition to be accretive, the pro
forma Net Income per share on a post-acquisition basis must be greater than the
pro forma Net Income per share immediately prior to the
acquisition. As used herein, “pro forma basis” means that the Net
Income will be calculated as if all such non-dilutive acquisitions completed
during the year had occurred on the first day of that year.
2. Section
2.7(h) of the Merger Agreement is hereby amended by deleting the existing
Section 2.7(h) in its entirety and replacing it with the
following:
(h) Warrant
Exercise Proceeds. In accordance with Section 2.7(a), China
Networks Surviving Corporation hereby agrees that the Closing Holders and
holders of Preferred Shares as of the Closing (“Preferred Share Closing
Holders”) shall be entitled to receive from the Company, cash payments
(the “Warrant
Payments”) equal to a maximum aggregate amount of U.S. $19,110,000 and
10% of the aggregate gross proceeds received in the Financing from the bridge
investors, respectively, solely and exclusively upon China Networks Surviving
Corporation’s receipt of cash proceeds from the exercise of the Parent Warrants
and the Insider Warrants (collectively, the “Warrants”), payable
in accordance with this Section
2.7(h). The Warrant Payments shall be allocated among such
holders of Closing Holders and Preferred Share Closing Holders based on their
percentage ownership of the sum of (a) the Company Shares, or (b) the Preferred
Shares immediately prior to the Business Combination Effective Time (the “WEP
Percentage
Allocations”), as the case may be, provided that the maximum
aggregate amount receivable by the Closing Holders is $13,440,600, and all
payments thereafter shall be allocated solely to the Preferred Share Closing
Holders. Upon exercise of any Warrants, as soon as practicable after
receipt of the actual cash proceeds received therefrom by China Networks
Surviving Corporation (but in any event within 10 days) (the “Cash Proceeds”),
China Networks Surviving Corporation shall make a cash payment to each Closing
Holder and Preferred Share Closing Holder equal to 66% of the Cash Proceeds then
available for distribution pursuant to the foregoing sentence multiplied
by the WEP Percentage Allocation of such holder. The
Company shall retain and apply to its general corporate purposes 34% of the Cash
Proceeds. In no event shall the maximum aggregate amount payable
pursuant to this Section 2.7(h) to (A)
any Closing Holder exceed (x) U.S. $19,110,000 or 10% of the aggregate gross
proceeds received in the Financing from the bridge investors, as the case may
be, multiplied by (y) the WEP Percentage Allocation of such holder, or (B) any
Preferred Share Closing Holder exceed (x) U.S. $22,110,000 or 10% of the
aggregate gross proceeds received in the Financing from the bridge investors, as
the case may be, multiplied by (y) the WEP Percentage Allocation of such
holder.
2
3. All
other provisions of the Merger Agreement shall remain unaffected by the terms
hereof.
4. This
Amendment may be signed in any number of counterparts, each of which shall be an
original and all of which shall be deemed to be one and the same instrument,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. A facsimile signature shall be deemed to be an original
signature for purposes of this Amendment.
5. This
Amendment is intended to be in full compliance with the requirements for an
Amendment to the Merger Agreement as required by Section 11.4 of the Merger
Agreement, and every defect in fulfilling such requirements for an effective
amendment to the Merger Agreement is hereby ratified, intentionally waived and
relinquished by all parties hereto.
[Remainder
of page intentionally left blank]
3
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the day and year first
above written.
|
ALYST
ACQUISITION CORP.
|
|
|
By:
|
/s/ William
Weksel
|
|
Name: William
Weksel
|
|
|
Title: Chief
Executive Officer
|
|
|
CHINA
NETWORKS HOLDINGS
INTERNATIONAL
LTD.
|
|
|
By:
|
/s/ Michael E.
Weksel
|
|
Name: Michael
E. Weksel
|
|
|
Title: Sole
Director
|
|
|
CHINA
NETWORKS MERGER CO. LTD.
|
|
|
By:
|
/s/ Michael E.
Weksel
|
|
Name: Michael
E. Weksel
|
|
|
Title: Sole
Director
|
|
4
|
CHINA
NETWORKS MEDIA, LTD..
|
|
|
By:
|
/s/ Li Shuangqing
|
|
Name:
Li Shuangqing
|
|
|
Title: CEO
and Co-Chairman
|
|
|
MEDIAINV
LTD.
|
|
|
By:
|
/s/ C.C.N. Ng
|
|
Name: C.C.N.
Ng
|
|
|
Title: Director
|
|
|
KERRY
PROPPER
|
|
|
/s/ Kerry Propper
|
|
|
Name:
Kerry Propper
|
|
|
LI
SHUANGQING
|
|
|
/s/ Li Shuangqing
|
|
|
Name:
Li
Shuangqing
|
|
5
Annex C
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE
BVI BUSINESS COMPANIES ACT, 2004
AMENDED
AND RESTATED
MEMORANDUM
OF ASSOCIATION
OF
China
Networks International Holdings Ltd.
|
1
|
Company
Name
|
|
1.1
|
The
name of the Company is China Networks International Holdings
Ltd.
|
|
1.2
|
The
directors or members may from time to time change the Company's name by
Resolution of Directors or Resolution of Members. The directors
shall give notice of such resolution to the registered agent of the
Company, for the registered agent to file an application for change of
name with the Registrar, and any such change will take effect from the
date of the certificate of change of name issued by the
Registrar.
|
|
1.3
|
A
change of name of the Company shall constitute an amendment of the
Memorandum and Articles and in the event of a resolution being passed to
change the name of the Company, the provisions below in respect of
amendments to the Memorandum and Articles must be complied
with.
|
|
2
|
Company
Limited by Shares, Liability of
Members
|
|
2.1
|
The
Company is a company limited by
shares.
|
|
2.2
|
The
liability of each member is limited to the amount from time to time unpaid
on that member's shares.
|
|
3
|
Registered
Office
|
|
3.1
|
The
first registered office of the Company will be situated at Kingston
Chambers, PO Box 173, Road Town, Tortola, British Virgin
Islands.
|
|
3.2
|
The
directors or members may from time to time change the Company's registered
office by Resolution of Directors or Resolution of Members, provided that
the Company's registered office shall at all times be the office of the
registered agent. The directors shall give notice of such
resolution to the registered agent of the Company, for the registered
agent to file with the Registrar a notice of change of registered office,
and any such change of registered office will take effect from the date of
the registration by the Registrar of such
notice.
|
|
4
|
Registered
Agent
|
|
4.1
|
The
first registered agent of the Company will be Maples Finance BVI Limited
of Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin
Islands.
|
|
4.2
|
The
directors or members may from time to time change the Company's registered
agent by Resolution of Directors or Resolution of Members. The
directors shall give notice of such resolution to the registered agent of
the Company (meaning the existing registered agent), for the registered
agent to file with the Registrar a notice of change of registered agent,
and any such change of registered agent will take effect from the date of
the registration by the Registrar of such
notice.
|
|
4.3
|
If
the existing registered agent does not file such notice on instruction by
the directors, the directors shall procure that a notice of change of
registered agent is filed with the Registrar by a legal practitioner in
the British Virgin Islands acting on behalf of the Company, and any such
change of registered agent will take effect from the date of the
registration by the Registrar of such
notice.
|
|
5
|
General
Objects and Powers
|
|
5.1
|
Subject
to the following provisions of this Memorandum, the objects for which the
Company is established are unrestricted and the Company shall have full
power and authority to carry out any object not prohibited by the Act
or any other law of the British
Virgin Islands.
|
|
5.2
|
The
Company has no power to:
|
|
|
(a)
|
carry
on banking or trust business, unless it is licensed to do so under the
Banks and Trust Companies Act,
1990;
|
|
|
(b)
|
carry
on business as an insurance or as a reinsurance company, insurance agent
or insurance broker, unless it is licensed or authorised to do so under
the Insurance Act, 1994;
|
|
|
(c)
|
carry
on the business of company management unless it is licensed to do so under
the Companies Management Act, 1990;
|
|
|
(d)
|
carry
on the business of providing the registered office or the registered agent
for companies incorporated in the British Virgin Islands unless it is
licensed to do so under the Banks and Trust Companies Act, 1990;
or
|
|
|
(e)
|
carry
on the business as a mutual fund, mutual fund manager or mutual fund
administrator unless it is licensed to do so under the Mutual Funds Act,
1996.
|
|
5.3
|
Without
limiting the foregoing, the powers of the Company include the power to do
the following:
|
|
|
(a)
|
grant
options over unissued shares in the Company and treasury
shares;
|
|
|
(b)
|
issue
securities that are convertible into
shares;
|
|
|
(c)
|
give
financial assistance to any person in connection with the acquisition of
the Company's own shares;
|
|
|
(d)
|
issue
debt obligations of every kind and grant options, warrants and rights to
acquire debt obligations;
|
|
|
(e)
|
guarantee
a liability or obligation of any person and secure any of its obligations
by mortgage, pledge or other charge, of any of its assets for that
purpose; and
|
|
|
(f)
|
protect
the assets of the Company for the benefit of the Company, its creditors
and its members and, at the discretion of the directors, for any person
having a direct or indirect interest in the
Company.
|
|
6
|
Maximum
Number of Authorised Shares
|
|
6.1
|
The
Company is authorised to issue a maximum of 75,000,000 shares of one class
with a par value of US$0.0001 each divided into the following classes of
shares:
|
|
|
(a)
|
74,000,000
ordinary shares of US$0.0001 par value each;
and
|
|
|
(b)
|
1,000,000
preferred shares of US$0.0001 par value
each.
|
|
6.2
|
The
directors or members may from time to time by Resolution of Directors or
Resolution of Members increase the maximum number of shares the Company is
authorised to issue, by amendment to the Memorandum in accordance with the
provisions below.
|
|
7
|
Rights
Conferred by Shares
|
|
7.1
|
Each
share in the Company confers on the
holder:
|
|
|
(a)
|
the
right to one vote on any Resolution of
Members;
|
|
|
(b)
|
the
right to an equal share in any dividend paid by the Company in accordance
with the Act; and
|
|
|
(c)
|
the
right to an equal share in the distribution of the surplus assets of the
Company.
|
|
7.2
|
If
at any time the Company is authorised to issue shares of more than one
class the rights attached to any class (unless otherwise provided
by the terms of issue of the shares of that class) may, whether or not the
Company is being wound up, be varied only with the consent in writing of
the holders of not less than three-fourths of the issued shares of that
class and the holders of not less than three-fourths of the issued shares
of any other class of shares which may be affected by such
variation.
|
|
7.3
|
The
rights conferred upon the holders of the shares of any class issued with
preferred or other rights shall not, unless otherwise expressly provided
by the terms of issue of the shares of that class, be deemed to be varied
by the creation or issue of further shares ranking pari passu
therewith.
|
|
7.4
|
The
directors may, subject to the Act, by amending this Memorandum and/or the
Articles, determine the designations, powers, preferences and relative,
participation, optional and other rights, if any, and the qualifications,
limitations and restrictions thereof, if any, including, without
limitation, dividend rights, conversion rights, redemption privileges,
voting powers and liquidation preferences that any Preferred Share issued
by the Company confers on the
holder.
|
|
8
|
Registered
Shares Only
|
Shares in
the Company may only be issued as registered shares and the Company is not
authorised to issue bearer shares. Registered shares may not be
exchanged for bearer shares or converted to bearer shares.
|
9
|
Amendments
to the Memorandum and Articles
|
|
9.1
|
Subject
to the provisions of the Act, the directors or members may from time to
time amend the Memorandum or Articles by Resolution of Directors or
Resolution of Members. The directors shall give notice of such
resolution to the registered agent of the Company, for the registered
agent to file with the Registrar a notice of the amendment to the
Memorandum or Articles, or a restated memorandum and articles of
association incorporating the amendment(s) made, and any such amendment to
the Memorandum or Articles will take effect from the date of the
registration by the Registrar of the notice of amendment or restated
memorandum and articles of association incorporating the amendment(s)
made.
|
|
9.2
|
The
directors shall not have the power to amend the Memorandum or
Articles:
|
|
|
(a)
|
to
restrict the rights or powers of the members to amend the Memorandum or
Articles;
|
|
|
(b)
|
to
change the percentage of members required to pass a resolution to amend
the Memorandum or Articles; or
|
|
|
(c)
|
in
circumstances where the Memorandum or Articles cannot be amended by the
members.
|
|
|
(d)
|
A
change of registered office or registered agent shall not constitute an
amendment of the Memorandum or
Articles.
|
|
|
(e)
|
An
amendment to the Memorandum or Articles which would have the effect of
varying the rights of the holders of a class of shares may only be made in
accordance with the provisions of the Memorandum and Articles relating to
the variation of class rights.
|
|
10
|
Definitions
and Interpretation
|
|
10.1
|
In
this memorandum of association and the attached articles of
association:
|
|
"Act"
|
means
the BVI Business Companies Act, 2004;
|
|
"Articles"
|
means
the Company's articles of association as attached to this
Memorandum, and "Article" shall be construed
accordingly;
|
|
"Memorandum"
|
means
this, the Company's memorandum of association;
|
|
"Registrar"
|
means
the Registrar of Corporate Affairs appointed under the
Act;
|
|
"Resolution of
Directors"
|
means
a resolution by the majority of the directors of the Company passed either
at a meeting of directors, or by way of a Written Resolution, in either
case in accordance with the provisions of the Articles;
|
|
"Resolution of
Members"
|
means
a resolution by the members holding a majority of the voting rights in
respect of such resolution passed either at a meeting of members, or by
way of a Written Resolution, in either case in accordance with the
provisions of the Articles; and
|
|
"Written
Resolution"
|
means
a resolution of members or directors (as applicable) consented to in
writing or by telex, telegram, cable or other written electronic
communication, without the need for any notice. A Written
Resolution may consist of several documents, including written electronic
communications, in like form each signed or assented to by one or more
members or directors (including directors' alternates) (as
applicable). A Written Resolution shall be passed if so
consented by a majority of those members or directors (including
directors' alternates) (as applicable) entitled to vote on the
resolution.
|
|
10.2
|
In
the Memorandum and Articles:
|
|
|
(a)
|
words
and expressions defined in the Act shall have the same meaning and, unless
otherwise required by the context, the singular shall include the plural
and vice versa, the masculine shall include the feminine and the neuter
and references to persons shall include corporations and all entities
capable of having a legal
existence;
|
|
|
(b)
|
reference
to a provision of law is a reference to that provision as extended,
applied, amended or re-enacted and includes any subordinate
legislation;
|
|
|
(c)
|
the
headings are for convenience only and shall not affect the construction of
the Memorandum or Articles;
|
|
|
(d)
|
reference
to a thing being "written" or "in writing" includes all
forms of writing, including all electronic records which satisfy the
requirements of the Electronic Transactions Act,
2001;
|
|
|
(e)
|
reference
to a thing being "signed" or to a person's
"signature" shall
include reference to an electronic signature which satisfies the
requirements of the Electronic Transactions Act, 2001, and reference to
the Company's "seal" shall include
reference to an electronic seal which satisfies the requirements of the
Electronic Transactions Act, 2001.
|
We,
Maples Finance BVI Limited of Kingston Chambers, PO Box 173, Road Town, Tortola,
British Virgin Islands in our capacity as registered agent for the Company
hereby apply to the Registrar for the incorporation of the Company this 17th day
of April 2008.
Incorporator
|
(Sgd.)
Clinton Hempel
|
|
|
|
|
Clinton
Hempel
Authorised
Signatory
Maples
Finance BVI Limited
Annex D
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE
BVI BUSINESS COMPANIES ACT, 2004
AMENDED
AND RESTATED
ARTICLES
OF ASSOCIATION
OF
China
Networks International Holdings Ltd.
|
1
|
Share
Certificates
|
|
1.1
|
Every
person whose name is entered as a member in the share register, being the
holder of registered shares, shall without payment be entitled to a share
certificate in the following
circumstances:
|
|
|
(a)
|
on
the issuance of such shares to such
member;
|
|
|
(b)
|
on
the transfer of such shares to such
member;
|
|
|
(c)
|
on
a re-designation or conversion of such shares with the effect that the
certificate previously issued no longer properly describes such shares;
and
|
|
|
(d)
|
at
the discretion of the directors (who may levy a reasonable charge), on
notice to the Company of a change of name of the
member.
|
|
1.2
|
Such
certificate shall be signed by a director or under the common seal of the
Company (which the registered agent of the Company is authorised to affix
to such certificate) with or without the signature of any director or
officer of the Company specifying the share or shares held and the par
value thereof (if the Company is authorised at the relevant time to issue
shares with a par value), provided that in respect of shares held jointly
by several persons, the Company shall not be bound to issue more than one
certificate and delivery of a certificate for a share to one of several
joint holders shall be sufficient delivery to
all
|
|
1.3
|
If
a certificate is worn out or lost it may, subject to the prior written
consent of any mortgagee or chargee whose interest has been noted on the
register of members, be renewed on production of the worn out certificate,
or on satisfactory proof of its loss together with such indemnity as the
directors may reasonably require. Any member receiving a share
certificate shall indemnify and hold the Company and its officers harmless
from any loss or liability which it or they may incur by reason of
wrongful or fraudulent use or representation made by any person by virtue
of the possession of such a
certificate.
|
|
2
|
Issue
of Shares
|
|
2.1
|
Subject
to the provisions of these Articles, the unissued shares of the Company
(whether forming part of the original or any increased authorised shares)
shall be at the disposal of the directors who may offer, allot, grant
options over or otherwise dispose of them to such persons at such times
and for such consideration, being not less than the par value (if any) of
the shares being disposed of, and upon such terms and conditions as the
directors may determine. Such consideration may take any form
acceptable to the directors, including money, a promissory note, or other
written obligation to contribute money or property, real property,
personal property (including goodwill and know-how), services rendered or
a contract for future services. Before issuing shares for a consideration
other than money, the directors shall pass a Resolution of Directors
stating:
|
|
|
(a)
|
the
amount to be credited for the issue of the
shares;
|
|
|
(b)
|
their
determination of the reasonable present cash value of the non-money
consideration for the issue; and
|
|
|
(c)
|
that,
in their opinion, the present cash value of the non-money consideration
for the issue is not less than the amount to be credited for the issue of
the shares.
|
|
2.2
|
Subject
to the provisions of the Act in this regard, shares may be issued on the
terms that they are redeemable, or at the option of the Company be liable
to be redeemed on such terms and in such manner as the directors before or
at the time of the issue of such shares may determine. At any time after the consummation
of a Business Combination (as defined in these Articles), the
directors may issue
options, warrants or convertible securities or securities of similar
nature conferring the right upon the holders thereof to subscribe for,
purchase or receive any class of shares or securities in the Company on
such terms as it may from time to time
determine. Notwithstanding the foregoing, the directors may
issue options, warrants or convertible securities in connection with the
Company’s initial public
offering.
|
|
2.3
|
The
Company may issue bonus shares, partly paid shares and nil paid
shares.
|
|
2.4
|
The
directors may redeem any share issued by the Company at a
premium.
|
|
2.5
|
Except
as otherwise expressly provided in the resolution or resolutions providing
for the establishment of any class or series of preferred shares, no vote
of the holders of preferred shares or of the holders of ordinary shares
shall be a prerequisite to the issuance of any shares of any class or
series of the preferred shares authorized by and complying with the
conditions in the Memorandum or these
Articles.
|
|
2.6
|
Except
as required by the Act, and notwithstanding that a share
certificate may refer to a member holding shares "as trustee" or similar
expression, no
person shall be recognised by the Company as holding any share upon any
trust, and the Company shall not be bound by or be compelled in any way to
recognise (even when having notice thereof) any equitable, contingent,
future or partial interest in any share or any interest in any fractional
part of a share or (except as provided by these Articles or by the Act)
any other rights in respect of any share except any absolute right to
the entirety thereof by the registered
holder.
|
2
|
3
|
Forfeiture
of Shares
|
|
3.1
|
The
Company may, at any time after the due date for payment, serve on a member
who has not paid in full for shares registered in the name of that member,
a written notice of call ("Notice of Call")
specifying a date for payment to be made. The Notice of Call
shall name a further date not earlier than the expiration of 14 days from
the date of service of the Notice of Call on or before which the payment
required by the Notice of Call is to be made and shall contain a statement
that in the event of non-payment at or before the time named in the Notice
of Call the shares, or any of them, in respect of which payment is not
made will be liable to be
forfeited.
|
|
3.2
|
Where
a written Notice of Call has been issued under the foregoing Article and
the requirements of the Notice of Call have not been complied with, the
directors may, at any time before tender of payment, forfeit and cancel
the shares to which the Notice of Call relates. The Company is
under no obligation to refund any moneys to the member whose shares have
been cancelled pursuant to this Article and that member shall be
discharged from any further obligation to the
Company.
|
|
4
|
Transfer
of Shares
|
|
4.1
|
Shares
in the Company shall be transferred by a written instrument of transfer
signed by the transferor and containing the name and address of the
transferee. The instrument of transfer shall also be signed by
the transferee if registration as a holder of the shares imposes a
liability to the Company on the transferee. The instrument of
transfer of a registered share shall be sent to the Company for
registration.
|
|
4.2
|
Subject
to the Memorandum of Association, these Articles and to Section 54(5) of
the Act, the Company shall, on receipt of an instrument of transfer, enter
the name of the transferee of the share in the register of members unless
the directors resolve to refuse or delay the registration of the transfer
for reasons that shall be specified in the resolution. Where
the directors pass such a resolution, the Company shall send to the
transferor and the transferee a notice of the refusal or
delay. Notwithstanding anything contained in the
Memorandum or Articles, the directors shall not decline to register any
transfer of shares, nor may they suspend registration thereof where such
transfer is:
|
|
|
(a)
|
to
any mortgagee or chargee whose interest has been noted on the register of
members;
|
|
|
(b)
|
by
any such mortgagee or chargee, pursuant to the power of sale under its
security; or
|
|
|
(c)
|
by
any such mortgagee or chargee in accordance with the terms of the relevant
security document.
|
|
4.3
|
The
transfer of a registered share is effective when the name of the
transferee is entered in the register of
members.
|
|
5
|
Mortgages
of Shares and Charges over Shares
|
|
5.1
|
Members
may mortgage or create a charge or other form of security over their
shares.
|
|
5.2
|
The
directors shall, at the written request of a member who has mortgaged or
created a charge over his shares, enter in the register of members of the
Company:
|
|
|
(a)
|
a
statement that such shares are mortgaged or
charged;
|
3
|
|
(b)
|
the
name of the mortgagee or chargee (where such information has been stated
by the member); and
|
|
|
(c)
|
the
date on which the statement and name are entered in the register of
members.
|
|
6
|
Transmission
of Shares
|
|
6.1
|
Subject
to Sections 52(2) and 53 of the Act, the executor or administrator of a
deceased member, the guardian of an incompetent member or the trustee of a
bankrupt member shall be the only person recognised by the Company as
having any title to his share, save that and only in the event of death,
incompetence or bankruptcy of any member or members of the Company as a
consequence of which the Company no longer has any directors or members,
then upon the production of any documentation which is reasonable evidence
of the applicant being entitled to:
|
|
|
(a)
|
a
grant of probate of the deceased's will, or grant of letters of
administration of the deceased's estate, or confirmation of the
appointment as executor or administrator (as the case may be, or analogous
position in the relevant jurisdiction), of a deceased member's
estate;
|
|
|
(b)
|
the
appointment of a guardian (or analogous position in the relevant
jurisdiction) of an incompetent
member;
|
|
|
(c)
|
the
appointment as trustee (or analogous position in the relevant
jurisdiction) of a bankrupt member;
or
|
|
|
(d)
|
upon
production of any other reasonable evidence of the applicant's beneficial
ownership of, or entitlement to the
shares,
|
|
to
the Company's registered agent in the British Virgin Islands together with
(if so requested by the registered agent) a notarised copy of the share
certificate(s) of the deceased, incompetent or bankrupt member, an
indemnity in favour of the registered agent and/or appropriate legal
advice in respect of any document issued by a foreign court, then the
administrator, executor, guardian or trustee in bankruptcy (as the case
may be) notwithstanding that their name has not been entered in the share
register of the Company, may by written resolution of the applicant,
endorsed with written approval by the registered agent, be appointed a
director of the Company and/or entered in the share register as the legal
and/or beneficial owner of the
shares.
|
|
6.2
|
Without
limiting the foregoing, the production to the Company of any document
which is reasonable evidence of:
|
|
|
(a)
|
a
grant of probate of the will, or grant of letters of administration of the
estate, or confirmation of the appointment as executor (or analogous
position in the relevant jurisdiction), of a deceased
member;
|
|
|
(b)
|
the
appointment of a guardian (or analogous position in the relevant
jurisdiction) of an incompetent
member;
|
|
|
(c)
|
the
trustee (or analogous position in the relevant jurisdiction) of a bankrupt
member; or
|
|
|
(d)
|
the
applicant's legal and/or beneficial ownership of the
shares,
|
4
shall be
accepted by the Company even if the deceased, incompetent member or bankrupt
member is resident and/or domiciled outside the British Virgin Islands if the
document is issued by a foreign court which had competent jurisdiction in the
matter. For the purposes of establishing whether or not a foreign
court had competent jurisdiction in such a matter the directors may obtain
appropriate legal advice. The directors may also require an indemnity
to be given by the executor, administrator, guardian, trustee in bankruptcy or
the applicant.
|
6.3
|
Any
person becoming entitled by operation of law or otherwise to a share or
shares in consequence of the death, incompetence or bankruptcy of any
member may be registered as a member upon such evidence being produced as
may reasonably be required by the directors. An application by
any such person to be registered as a member shall for all purposes be
deemed to be a transfer of shares of the deceased, incompetent or bankrupt
member and the directors shall treat it as
such.
|
|
6.4
|
Any
person who has become entitled to a share or shares in consequence of the
death, incompetence or bankruptcy of any member may, instead of being
registered himself, request in writing that some person to be named by him
be registered as the transferee of such share or shares and such request
shall likewise be treated as if it were a
transfer.
|
|
6.5
|
What
amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and the
circumstances of the case.
|
|
7
|
Acquisition
of Own Shares
|
|
7.1
|
Subject
to Article 27 of these Articles, the directors may, on behalf of the
Company, purchase, redeem or otherwise acquire any of the Company's own
shares for such consideration as the directors consider fit, and either
cancel or hold such shares as treasury shares. Shares may be
purchased or otherwise acquired in exchange for newly issued shares in the
Company.
|
|
7.2
|
The
directors shall not, unless permitted pursuant to the Act, purchase,
redeem or otherwise acquire any of the Company's own shares unless
immediately after such purchase, redemption or other
acquisition:
|
|
|
(a)
|
the
value of the Company's assets exceeds it liabilities;
and
|
|
|
(b)
|
the
Company is able to pay its debts as they fall
due.
|
|
7.3
|
Sections
60 and 61 of the Act shall not apply to the
Company.
|
|
8
|
Treasury
Shares
|
|
8.1
|
Shares
may only be held as treasury shares by the Company to the extent that the
number of treasury shares does not exceed 50% of the shares of that class
previously issued by the Company, excluding shares that have been
cancelled.
|
|
8.2
|
The
directors may dispose of any shares held as treasury shares on such terms
and conditions as they may from time to time
determine.
|
5
|
9
|
Notice
of Meetings of Members
|
|
9.1
|
The
directors may convene meetings of the members of the Company at such times
and in such manner and places (within or outside the British Virgin
Islands) as the directors consider necessary or desirable, and they shall
convene such a meeting upon the written request of members entitled to
exercise at least thirty (30) percent of the voting rights in respect of
the matter for which the meeting is requested. Meetings of members shall
take place at least annually (the “Annual
Meeting”).
|
|
9.2
|
Not
less than seven (7) days' notice specifying at least the place, the day
and the hour of the meeting and general nature of the business to be
conducted shall be given in the manner hereinafter mentioned to such
persons whose names on the date the notice is given appear as members in
the share register of the Company and are entitled to vote at the
meeting. Notwithstanding the foregoing, a meeting of members
held in contravention of the requirement to give notice is valid if
members holding a ninety (90) percent majority
of:
|
|
|
(a)
|
the
total voting rights on all the matters to be considered at the meeting;
or
|
|
|
(b)
|
the
votes of each class or series of shares where members are entitled to vote
thereon as a class or series together with an absolute majority of the
remaining votes,
|
have
waived notice of the meeting and, for this purpose, the presence of a member at
the meeting shall be deemed to constitute waiver on his part (unless such member
objects in writing before or at the meeting).
|
9.3
|
The
inadvertent failure of the directors to give notice of a meeting to a
member or the fact that a member has not received a notice that has been
properly given, shall not invalidate the
meeting.
|
|
10
|
Proceedings
at Meetings of Members
|
|
10.1
|
No
business shall be transacted at any meeting of members unless a quorum of
members is present at the time when the meeting proceeds to
business. A quorum shall consist of the holder or holders
present in person or by proxy entitled to exercise at least fifty (50)
percent of the voting rights of the shares of each class or series of
shares entitled to vote as a class or series thereon and the same
proportion of the votes of the remaining shares entitled to vote
thereon.
|
|
10.2
|
A
member of the Company shall be deemed to be present at a meeting of
members if:
|
|
|
(a)
|
he
or his proxy participates by telephone or other electronic means;
and
|
|
|
(b)
|
all
members and proxies participating in the meeting are able to hear each
other.
|
|
10.3
|
If,
within half an hour from the time appointed for the meeting, a quorum is
not present, the meeting shall be
dissolved.
|
|
10.4
|
A
member may attend a meeting of members personally or be represented by a
proxy who may speak and vote on behalf of the
member.
|
|
10.5
|
The
instrument appointing a proxy shall be produced at the place appointed for
the meeting before the time for holding the meeting at which the person
named in such instrument proposes to vote. An instrument
appointing a proxy shall be in such form as the Chairman of the meeting
shall accept as properly evidencing the wishes of the member appointing
the proxy, but must be in writing under the hand of the appointer unless
the appointer is a corporation or other form of legal entity (other than
one or more individuals holding as joint owner) in which case the
instrument appointing a proxy shall be in writing under the hand of an
individual duly authorised by such corporation or legal entity to execute
the same.
|
6
|
10.6
|
At
every meeting the members present shall choose someone of their number to
be the chairman (the "Chairman"). If
the members are unable to choose a Chairman for any reason, then the
person representing the greatest number of voting shares present at the
meeting shall preside as Chairman.
|
|
10.7
|
The
Chairman may, with the consent of the meeting, adjourn any meeting from
time to time, and from place to place, but no business shall be transacted
at any adjourned meeting other than the business left unfinished at the
meeting from which the adjournment took
place.
|
|
10.8
|
At
any meeting a resolution put to the vote of the meeting shall be decided
on a show of hands by a simple majority of those members (or their duly
appointed proxies) entitled to vote and voting on the resolution, unless a
poll is (before or on the declaration of the result of the show of hands)
demanded:
|
|
|
(a)
|
by
the Chairman; or
|
|
|
(b)
|
by
any member present in person or by proxy and holding not less than one
tenth of the total voting shares issued by the Company and having the
right to vote on such resolution.
|
|
10.9
|
Unless
a poll be so demanded, a declaration by the Chairman that a resolution
has, on a show of hands been carried, and an entry to that effect in the
book containing the minutes of the proceedings
of the Company, shall be sufficient evidence of the fact, without proof of
the number or proportion of the votes recorded in favour of or against
such resolution.
|
|
10.10
|
If
a poll is duly demanded it shall be taken in such manner as the Chairman
directs, and the result of the poll shall be deemed to be the resolution
of the meeting at which the poll
was demanded. The demand for a poll may be withdrawn, at the
discretion of the Chairman.
|
|
10.11
|
On
a poll, every holder of a voting share present in person or by proxy shall
have one vote for every voting share of which he is the holder which
confers the right to a vote on the
resolution.
|
|
10.12
|
In
the case of an equality of votes, whether on a show of hands or on a poll, the
Chairman of
the meeting at which the show of hands takes place, or at which the poll
is demanded, shall be entitled to a second or casting
vote.
|
|
10.13
|
Subject
to the Memorandum or these Articles, an action that may be taken by
members of the Company at a meeting of members may also be taken by
Written Resolution.
|
|
10.14
|
If
a committee is appointed for any member who is of unsound mind, that
member may vote by such committee.
|
|
11
|
Jointly
Held Shares
|
|
11.1
|
Where
shares are registered in the names of joint
owners:
|
7
|
|
(a)
|
each
registered owner may be present in person or by proxy at a meeting of
members and may speak as a member;
|
|
|
(b)
|
if
only one of them is present in person or by proxy, he may vote on behalf
of all of them; and
|
|
|
(c)
|
if
two or more are present in person or by proxy, they must vote as
one. If more than one joint owner votes in person or by proxy
at any meeting of members or by Written Resolution, the vote of the joint
owner whose name appears first among such voting joint holders in the
share register shall alone be
counted.
|
|
12
|
Corporations
Acting by Representatives at
Meetings
|
Any
corporation or other form of corporate legal entity which is a member of the
Company may by resolution of its directors or other governing body authorise
such person as it thinks fit to act as its representative at any meeting of the
members or any class of members of the Company, and the person so authorised
shall be entitled to exercise the same powers on behalf of the corporation which
he represents as that corporation could exercise if it were an individual member
of the Company.
|
13
|
Appointment
and Removal of Directors
|
|
13.1
|
The
first director or directors shall be appointed by the registered agent of
the Company. Thereafter, the directors shall be appointed as
follows:
|
|
|
(a)
|
subject
to the provisions of Article 27, any existing director(s) shall be
designated as a Class C Director for a term expiring at the Company's
third Annual Meeting of Members. The Class C director shall then appoint
additional Class A, Class B and Class C directors, as necessary. The
directors in Class A shall be elected for a term expiring at the first
Annual Meeting of Members, the directors in Class B shall be elected for a
term expiring at the second Annual Meeting of Members and the directors in
Class C shall be elected for a term expiring at the third Annual Meeting
of Members. Commencing at the first Annual Meeting of Members, and at each
annual meeting thereafter, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the
third succeeding annual meeting of members after their election. Except as
the Act may otherwise require, in the interim between annual meetings of
members or special meetings of members called for the election of
directors and/or the removal of one or more directors and the filling of
any vacancy in that connection, newly created directorships and any
vacancies in the Board of Directors, including unfilled vacancies
resulting from the removal of directors for cause, may be filled by the
vote of a majority of the remaining directors then in office, although
less than a quorum, or by the sole remaining director;
and
|
|
|
(b)
|
all
directors shall hold office until the expiration of their respective terms
of office and until their successors shall have been elected and
qualified. A director elected to fill a vacancy resulting from the death,
resignation or removal of a director shall serve for the remainder of the
full term of the director whose death, resignation or removal shall have
created such vacancy and until his successor shall have been elected and
qualified.
|
Sections
114(2) and 114(3) of the Act shall not apply to the Company.
8
|
13.2
|
A
person shall not be appointed as a director of the Company unless he has
consented in writing to be a
director.
|
|
13.3
|
Each
director holds office until:
|
|
|
(a)
|
his
disqualification to act as a director under Section 111 of the Act (on
which his office as director shall be automatically terminated if he has
not resigned in accordance with section 115(2) of the
Act);
|
|
|
(b)
|
his
death;
|
|
|
(c)
|
his
resignation; or
|
|
|
(d)
|
the
effective date of his removal by Resolution of Directors or Resolution of
Members.
|
|
13.4
|
The
following are disqualified for appointment as the director of the
Company:
|
|
|
(a)
|
an
individual who is under 18 years of
age;
|
|
|
(b)
|
a
person who is a disqualified person within the meaning of section 260(4)
of the Insolvency Act, 2003;
|
|
|
(c)
|
a
person who is a restricted person within the meaning of section 409 of the
Insolvency Act, 2003; and
|
|
|
(d)
|
an
undischarged bankrupt.
|
|
13.5
|
A
director shall not require a share qualification, but nevertheless shall
be entitled to attend and speak at any meeting of the directors and
meeting of the members and at any separate meeting of the holders of any
class of shares in the Company.
|
|
13.6
|
The
remuneration of directors (whether by way of salary, commission,
participation in profits or otherwise) in respect of services rendered or
to be rendered in any capacity to the Company (including to any company in
which the Company may be interested) shall be fixed by Resolution of
Directors or Resolution of Members. The directors may also be
paid such travelling, hotel and other expenses properly incurred by them
in attending and returning from meetings of the directors, or any
committee of the directors or meetings of the members, or in connection
with the business of the Company as shall be approved by Resolution of
Directors or Resolution of Members.
|
|
14
|
Alternate
and Reserve Directors
|
|
14.1
|
A
director, by written instrument deposited at the registered office of the
Company, may from time to time appoint another director or another person
to be his alternate. Every such alternate shall be entitled to
be given notice of meetings of the directors and to attend and vote as a
director at any such meeting at which the director appointing him is not
personally present (and to vote on a Written Resolution) and generally at
such meeting (or in connection with such Written Resolution) to have and
exercise all the powers, rights, duties and authorities of the director
appointing him. Every such alternate shall be deemed to be an
officer of the Company and shall not be deemed to be an agent of the
director appointing him. Unless stated otherwise in the notice
of the appointment of the alternate, if undue delay or difficulty would be
occasioned by giving notice to a director of a resolution of which his
approval is sought in accordance with these Articles his alternate (if
any) shall be entitled to signify approval of the same on behalf of that
director. The remuneration of an alternate shall be payable out
of the remuneration payable to the director appointing him, as agreed
between such alternate and the director appointing him. A
director, by writing under his hand deposited at the registered office of
the Company, may at any time vary or revoke the appointment of an
alternate appointed by him. If a director shall die or cease to
hold the office of director, the appointment of his alternate shall
thereupon cease and terminate.
|
9
|
14.2
|
Where
the Company has only one member with voting rights who is an individual
and that member is also the sole director of the Company (the "sole member/director"),
that sole member/director may, by instrument in writing, nominate a person
who is not disqualified from being a director of the Company under section
111(1) of the Act as a reserve director of the Company to act in the place
of the sole director in the event of his death.A person shall not be
nominated as a reserve director unless he has consented in writing to be
nominated as a reserve director. The nomination of a person as a reserve
director of the Company ceases to have effect
if:
|
|
|
(a)
|
before
the death of the sole member/director who nominated
him:
|
|
|
(i)
|
he
resigns as reserve director, or
|
|
|
(ii)
|
the
sole member/director revokes the nomination in writing;
or
|
|
|
(b)
|
the
sole member/director who nominated him ceases to be the sole
member/director of the company for any reason other than his
death.
|
|
15
|
Duties
of Directors and Conflicts of
Interests
|
|
15.1
|
A
director of the Company, in exercising his powers or performing his
duties, shall
act honestly and in good faith and in what the director believes to be in
the best interests of the Company.
|
|
15.2
|
Notwithstanding
the foregoing Article, if the Company is a wholly-owned subsidiary, a
director of the Company may, when exercising powers or performing duties
as a director, act in a manner which he believes is in the best interests
of that Company’s holding company (as defined in the Act) even though it
may not be in the best interests of the
Company.
|
|
15.3
|
A
director shall exercise his powers as a director for a proper purpose and
shall not act, or agree to the Company acting, in a manner that
contravenes the Act or the Memorandum or
Articles.
|
|
15.4
|
A
director, when exercising powers or performing duties as a director, shall
exercise the care, diligence, and skill that a reasonable director would
exercise in the same circumstances taking into account, but
without limitation:
|
|
|
(a)
|
the
nature of the Company;
|
|
|
(b)
|
the
nature of the decision; and
|
|
|
(c)
|
the
position of the director and the nature of the responsibilities undertaken
by him.
|
10
|
15.5
|
A
director of the Company, when exercising his powers or performing his
duties as a director, is entitled to rely upon the register of members and
upon books, records, financial statements and other information prepared
or supplied, and on professional or expert advice given,
by:
|
|
|
(a)
|
an
employee of the Company whom the director believes on reasonable grounds
to be reliable and competent in relation to the matters
concerned;
|
|
|
(b)
|
a
professional adviser or expert in relation to matters which the director
believes on reasonable grounds to be within the person’s professional or
expert competence; and
|
|
|
(c)
|
any
other director, or committee of directors upon which the director did not
serve, in relation to matters within the director’s or committee’s
designated authority,
|
provided
that the director:
|
|
(d)
|
acts
in good faith;
|
|
|
(e)
|
makes
proper inquiry where the need for the inquiry is indicated by the
circumstances; and
|
|
|
(f)
|
has
no knowledge that his reliance on the register of members or the books,
records, financial statements and other information or expert advice is
not warranted.
|
|
15.6
|
A
director may hold any other office or position of profit under the Company
(except that of auditor) in conjunction with his office of director, and
may act in a professional capacity to the Company on such terms as to
remuneration and otherwise as the directors shall
approve.
|
|
15.7
|
A
director may be or become a director or officer of, or otherwise be
interested in any company promoted by the Company, or in which the Company
may be interested, as a member or otherwise and no such director shall be
accountable for any remuneration or other benefits received by him as
director or officer or from his interest in such other
company. The directors may also exercise the voting powers
conferred by the shares in any other company held or owned by the Company
in such manner in all respects as they think fit, including the exercise
thereof in favour of any resolutions appointing them, or of their number,
directors or officers of such other company, or voting or providing for
the payment of remuneration to the directors or officers of such other
company. A director may vote in favour of the exercise of such
voting rights in the manner aforesaid notwithstanding that he may be, or
be about to become, a director or officer of such other company, and as
such in any other manner is, or may be, interested in the exercise of such
voting rights in the manner
aforesaid.
|
|
15.8
|
No
director shall be disqualified by his office from contracting with the
Company either as a buyer, seller or otherwise, nor shall any such
contract or arrangement entered into by or on behalf of the Company in
which any director shall be in any way interested be voided, nor shall any
director so contracting or being so interested be liable to account to the
Company for any profit realised by any such contract or arrangement, by
reason of such director holding that office or by reason of the fiduciary
relationship thereby established, provided such director shall,
immediately after becoming aware of the fact that he is interested in a
transaction entered into or to be entered into by the Company, disclose
such interest to the board of directors. For the purposes of
this Article:
|
|
|
(a)
|
A
director of the Company is not required to make such a disclosure
if:
|
11
|
|
(i)
|
the
transaction or proposed transaction is between the director and the
Company; and
|
|
|
(ii)
|
the
transaction or proposed transaction is or is to be entered into in the
ordinary course of the Company's business and on usual terms and
conditions.
|
|
|
(b)
|
A
disclosure to the board to the effect that a director is a member,
director, officer or trustee of another named company or other person and
is to be regarded as interested in any transaction which may, after the
date of the entry or disclosure, be entered into with that company or
person, is a sufficient disclosure of interest in relation to that
transaction. Such a disclosure is not made to the board unless
it is made or brought to the attention of every director on the
board.
|
|
|
(c)
|
Subject
to Section 125(1) of the Act, the failure by a director to comply with
this Article does not affect the validity of a transaction entered into by
the director or the Company.
|
|
15.9
|
A
director of the Company who is interested in a transaction entered into or
to be entered into by the Company
may:
|
|
|
(a)
|
vote
on a matter relating to the
transaction;
|
|
|
(b)
|
attend
a meeting of directors at which a matter relating to the transaction
arises and be included among the directors present at the meeting for the
purposes of a quorum; and
|
|
|
(c)
|
sign
a document on behalf of the Company, or do any other thing in his capacity
as a director, that relates to the
transaction.
|
|
16
|
Powers
of Directors
|
|
16.1
|
The
business of the Company shall be managed by the directors who may pay all
expenses incurred preliminary to and in connection with the formation and
registration of the Company, and may exercise all such powers of the
Company necessary for managing and for directing and supervising, the
business and affairs of the Company as are not by the Act or by the
Memorandum or these Articles required to be exercised by the members,
subject to any delegation of such powers as may be authorised by these
Articles and permitted by the Act and to such requirements as may be
prescribed by Resolution of the Members, but no requirement made by
Resolution of the Members shall prevail if it be inconsistent with these
Articles nor shall such requirement invalidate any prior act of the
directors which would have been valid if such requirement had not been
made.
|
|
16.2
|
If
the number of directors shall have been fixed at two or more persons and
by reason of vacancies having occurred in the board of directors there
shall be only one continuing director, he shall be authorised to act alone
only for the purpose of appointing another
director.
|
|
17
|
Delegation
by the Board to Directors, Committees, Officers, Attorneys and
Agents
|
|
17.1
|
The
board of directors may entrust to and confer upon any director or officer
any of the powers exercisable by it upon such terms and conditions and
with such restrictions as it thinks fit, and either collaterally with, or
to the exclusion of, its own powers, and may from time to time revoke,
withdraw, alter or vary all or any of such powers. Subject to
the provisions of Section 110 of the Act, the directors may delegate any
of their powers to committees consisting of such member or members of
their body as they think fit. Any committees so formed shall in
the exercise of powers so delegated conform to any regulations that may be
imposed on it by the directors or the provisions of the
Act.
|
12
|
17.2
|
The
directors have no power to delegate the following powers to a committee of
directors:
|
|
|
(a)
|
to
amend the Memorandum or Articles;
|
|
|
(b)
|
to
designate committees of directors;
|
|
|
(c)
|
to
delegate powers to a committee of directors; (This and the preceding
sub-Article do not prevent a committee of directors, where authorised by
the directors, from appointing a sub-committee and delegating powers
exercisable by the committee to the
sub-committee);
|
|
|
(d)
|
to
appoint or remove directors;
|
|
|
(e)
|
to
appoint or remove an agent;
|
|
|
(f)
|
to
approve a plan or merger, consolidation or
arrangement;
|
|
|
(g)
|
to
make a declaration of solvency for the purposes of section 198(1)(a) of
the Act or approve a liquidation plan;
or
|
|
|
(h)
|
to
make a determination under section 57(1) of the Act that the Company will,
immediately after a proposed distribution, satisfy the solvency
test.
|
|
17.3
|
Where
the directors of the Company delegate their powers to a committee of
directors, they remain responsible for the exercise of that power by the
committee, unless they believed on reasonable grounds that at all times
before the exercise of the power that the committee would exercise the
power in conformity with the duties imposed on directors of the Company by
the Act.
|
|
17.4
|
The
directors of the Company may, by Resolution of Directors, appoint officers
of the Company at such times as shall be considered necessary or
expedient. The officers shall perform such duties as shall be
prescribed at the time of their appointment subject to any modifications
in such duties as may be prescribed by the directors
thereafter.
|
|
17.5
|
Any
person may hold more than one office and no officer need be a director or
member of the Company. The officers shall remain in office
until removed from office by the directors, whether or not a successor is
appointed.
|
|
17.6
|
Any
officer who is a body corporate may appoint any person as its duly
authorised representative for the purpose of representing it and of
transacting any of the business of the
officers.
|
|
17.7
|
The
directors may from time to time by power of attorney appoint any company,
firm or person or body of persons to be the attorney or attorneys of the
Company for such purposes and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the directors
under these Articles) and for such period and subject to such conditions
as the directors think fit.
|
13
|
17.8
|
The
directors may appoint any person, including a person who is a director, to
be an agent of the company. An agent of the Company has such
powers and authority of the directors, including the power and authority
to affix the common seal of the Company, as are set forth in the
Resolution of Directors appointing the agent, except that no agent has any
power or authority with respect to the
following:
|
|
|
(a)
|
to
amend the Memorandum or Articles;
|
|
|
(b)
|
to
change the registered office or registered
agent;
|
|
|
(c)
|
to
designate committees of directors;
|
|
|
(d)
|
to
delegate powers to a committee of
directors;
|
|
|
(e)
|
to
appoint or remove directors;
|
|
|
(f)
|
to
appoint or remove an agent;
|
|
|
(g)
|
to
fix emoluments of directors;
|
|
|
(h)
|
to
approve a plan of merger, consolidation or
arrangement;
|
|
|
(i)
|
to
make a declaration of solvency for the purposes of section 198(1)(a) of
the Act or to approve a liquidation
plan;
|
|
|
(j)
|
to
make a determination under section 57(1) of the Act that the Company will,
immediately after a proposed distribution, satisfy the solvency test as
stipulated in Section 56 of the Act;
or
|
|
|
(k)
|
to
authorise the Company to continue as a company incorporated under the laws
of a jurisdiction outside the British Virgin
Islands.
|
|
17.9
|
Where
the directors appoint any person to be an agent of the Company, they may
authorise the agent to appoint one or more substitutes or delegates to
exercise some or all of the powers conferred on the agent by the
Company.
|
|
17.10
|
The
directors may at any time remove an agent and may revoke or vary a power
conferred on him.
|
|
18
|
Proceedings
of Directors
|
|
18.1
|
The
directors may meet together for the dispatch of business, adjourn and
otherwise regulate their meetings as they think fit. The
meetings of the board of directors and any committee thereof shall be held
at such place or places (within or outside the British Virgin Islands) as
the directors shall decide.
|
|
18.2
|
A
director may at any time summon a meeting of the directors. A
director shall be given not less than three (3) business days' (being full
business days in the place of the director's residence) notice of a
meeting of the directors, save that a meeting of directors held on less
notice is valid if a majority of the directors entitled to vote at the
meeting have waived the notice of the meeting; and, for this purpose, the
presence of a director at the meeting shall be deemed to constitute waiver
on his part (unless he objects in writing before or at the
meeting).
|
14
|
18.3
|
The
inadvertent failure to give notice of a meeting to a director, or the fact
that a director has not received the notice shall not invalidate the
meeting.
|
|
18.4
|
Any
director who is a body corporate may appoint any person its duly
authorised representative for the purpose of representing it at meetings
of the directors and of transacting any of the business of the
directors.
|
|
18.5
|
A
meeting of the directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate
not less than one-third of the total number of directors with a minimum of
two (2).
|
|
18.6
|
If
within half an hour from the time appointed for the meeting a quorum is
not present, the meeting shall be
dissolved.
|
|
18.7
|
A
director of the Company shall be deemed to be present at a meeting of the
board if:
|
|
|
(a)
|
he
or his alternate participates by telephone or other electronic means;
and
|
|
|
(b)
|
all
directors and alternates participating in the meeting are able to hear
each other.
|
|
18.8
|
The
directors may elect a chairman (the "Chairman of the Board")
of their meeting and determine the period for which he is to hold
office. If no such Chairman of the Board is elected, or if at
any meeting the Chairman of the Board is not present at the time appointed
for holding the meeting, the directors present may choose one of their
number to be Chairman of the Board for the meeting. If the
directors are unable to choose a Chairman of the Board, for any reason,
then the longest serving director present at the meeting shall preside as
the Chairman of the Board.
|
|
18.9
|
Questions
arising at any meeting of directors shall be decided by a majority of
votes. In case of an equality in votes the Chairman of the
Board shall have a second or casting
vote.
|
|
18.10
|
A
resolution approved by a majority of the directors for the time being
entitled to receive notice of a meeting of the directors or of a committee
of the directors and taking the form of a Written Resolution shall be as
valid and effectual as if it had been passed at a meeting of the directors
or of such committee duly convened and held, without the need for any
notice.
|
|
18.11
|
If
the Company shall have only one director, the foregoing provisions for
meetings of the directors shall not apply but such sole director shall
have full power to represent and act for the Company in all matters and in
lieu of minutes of a meeting shall record in writing and sign a note of
memorandum of all matters requiring a resolution of the
directors. Such note or memorandum shall constitute sufficient
evidence of such resolution for all
purposes.
|
|
19
|
Indemnification
and Insurance
|
|
19.1
|
Subject
to the provisions of the Act and the subsequent provisions of this
Article, the Company may indemnify against all expenses, including legal
fees, and against all judgments, fines and amounts paid in settlement and
reasonably incurred in connection with legal, administrative or
investigative proceedings any person
who:
|
15
|
|
(a)
|
is
or was a party or is threatened to be made a party to any threatened,
pending or completed proceedings, whether civil, criminal, administrative
or investigative, by reason of the fact that the person is or was a
director of the
Company; or
|
|
|
(b)
|
is
or was, at the request of the Company, serving as a director of, or in any
other capacity is or was acting for, another company or a partnership,
joint venture, trust or other
enterprise.
|
|
19.2
|
This
Article applies only to a person who has acted honestly and in good faith
and in what he believed to be the best interests of the Company and, in
the case of criminal proceedings, the person had no reasonable cause to
believe that his conduct was unlawful. The Company shall not indemnify a
person who has not so acted, and any indemnity given to such a person is
void and of no effect. A director acts in the best interests of the
Company if he acts in the best interests
of:
|
|
|
(a)
|
the
Company’s holding company; or
|
|
|
(b)
|
a
shareholder or shareholders of the
Company;
|
in either
case, in the circumstances specified in the sub-Articles below, as the case may
be:
|
19.3
|
The
termination of any proceedings by any judgement, order, settlement,
conviction or the entering of a nolle prosequi does
not, by itself, create a presumption that the person did not act honestly
and in good faith and with a view to the best interests of the Company or
that the person had reasonable cause to believe that his conduct was
unlawful.
|
|
19.4
|
Expenses,
including legal fees, incurred by a director in defending any legal,
administrative or investigative proceedings may be paid by the Company in
advance of the final disposition of such proceedings upon receipt of an
undertaking by or on behalf of the director to repay the amount if it
shall ultimately be determined that the director is not entitled to be
indemnified by the Company in accordance with this
Article.
|
|
19.5
|
Expenses,
including legal fees, incurred by a former director in defending any
legal, administrative or investigative proceedings may be paid by the
Company in advance of the final disposition of such proceedings upon
receipt of an undertaking by or on behalf of the former director to repay
the amount if it shall ultimately be determined that the former director
is not entitled to be indemnified by the Company in accordance with this
Article and upon such other terms and conditions, if any, as the Company
deems appropriate.
|
|
19.6
|
The
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article is not exclusive of any other rights to which
the person seeking indemnification or advancement of expenses may be
entitled under any agreement, resolution of members, resolution of
disinterested directors or otherwise, both as to acting in the person’s
official capacity and as to acting in another capacity while serving as a
director of the Company.
|
|
19.7
|
The
Company may purchase and maintain insurance in relation to any person who
is or was a director of the Company, or who at the request of the Company
is or was serving as a director of, or in any other capacity is or was
acting for, another body corporate or a partnership, joint venture, trust
or other enterprise, against any liability asserted against the person and
incurred by the person in that capacity, whether or not the Company has or
would have had the power to indemnify the person against the liability
under the foregoing Article.
|
16
|
20
|
Company
Seal and Entry into Contracts and
Deeds
|
|
20.1
|
The
directors shall provide for the safe custody of the common seal of the
Company. The common seal when affixed to any instrument (save
for a share certificate in accordance with these Articles) shall be
witnessed by a director or officer of the Company or any other person so
authorised from time to time by the
directors.
|
|
20.2
|
A
contract may be entered into by the Company as
follows:
|
|
|
(a)
|
a
contract that, if entered into by an individual, would be required by law
to be in writing and under seal, may be entered into by or on behalf of
the Company in writing under the common seal of the Company, or executed
by or on behalf of the Company by a director or an authorised agent of the
Company, and may be varied or discharged in the same
manner;
|
|
|
(b)
|
a
contract that, if entered into by an individual, would be required by law
to be in writing and signed, may be entered into by or on behalf of the
Company in writing and signed by a person acting under the express or
implied authority of the company, and may be varied or discharged in the
same manner; and
|
|
|
(c)
|
a
contract that, if entered into by an individual, would be valid although
entered into orally, and not reduced to writing, may be entered into
orally by or on behalf of the Company by a person acting under the express
or implied authority of the Company, and may be varied or discharged in
the same manner.
|
|
20.3
|
Notwithstanding
the foregoing Article, an instrument is validly executed by the Company as
a deed, or an instrument under seal, if it is
either:
|
|
|
(a)
|
sealed
with the common seal of the Company and witnessed by a director of the
Company and/or such other person who is authorised by the Memorandum or
Articles to witness the application of the Company’s seal;
or
|
|
|
(b)
|
expressed
to be, or is expressed to be executed as, or otherwise makes clear on its
face that it is intended to be, a deed and it is signed by a director
and/or by a person acting under the express or implied authority of the
Company.
|
|
21
|
Distributions
|
|
21.1
|
Subject
to the provisions of the Act, the directors of a Company may, by
Resolution of Directors, authorise a distribution by the Company at a
time, and of an amount, and to any members they think fit if they are
satisfied, on reasonable grounds that, immediately after the distribution,
the value of the Company's assets will exceed the Company's liabilities
and the Company is able to pay its debts as they fall
due.
|
|
21.2
|
No
distribution shall be paid on those shares which are held by the Company
as treasury shares at the date of declaration of the
distribution.
|
|
21.3
|
The
directors may, before recommending any distribution, set aside out of the
profits of the Company such sums as they think proper as a reserve or
reserves which shall, at their discretion, either be employed in the
business of the Company or be invested in such investments as the
directors may from time to time think
fit.
|
17
|
21.4
|
If
several persons are registered as joint holders of any share, any of them
may give effectual receipt for any distribution or other monies payable on
or in respect of the share.
|
|
21.5
|
Notice
of any distribution that may have been declared shall be given to each
member in manner hereinafter mentioned and all distributions unclaimed for
three years after having been declared may be forfeited by the directors
for the benefit of the Company.
|
|
21.6
|
No
distribution shall bear interest against the
Company.
|
|
22
|
Company
Records
|
|
22.1
|
The
Company shall keep records that:
|
|
|
(a)
|
are
sufficient to show and explain the Company's transactions;
and
|
|
|
(b)
|
will,
at any time, enable the financial position of the Company to be determined
with reasonable accuracy.
|
|
22.2
|
The
Company shall keep the following records at the office of its registered
agent or at such other place or places, within or outside the British
Virgin Islands, as the directors may
determine:
|
|
|
(a)
|
minutes
of all meetings and all resolutions of members and of classes of members;
and
|
|
|
(b)
|
minutes
of all meetings and all resolutions of directors and committees of
directors.
|
Where any
such records are kept at a place other than at the office of the Company’s
registered agent, the Company shall provide the registered agent with a written
record of the physical address of the place or places at which the records are
kept. Where the place at which any such records is changed, the
Company shall provide the registered agent with the physical address of the new
location of the records within fourteen days of the change of
location.
|
22.3
|
The
Company shall keep a register to be known as a register of directors
containing the names and addresses of the persons who are directors of the
Company, the date on which each person whose name is entered in the
register was appointed as a director of the Company, the date on which
each person named as a director ceased to be a director of the Company,
and such other information as may be prescribed from time to time by
law.
|
|
22.4
|
The
Company shall maintain an accurate and complete register of members
showing the full names and addresses of all persons holding registered
shares in the Company, the number of each class and series of registered
shares held by such person, the date on which the name of each member was
entered in the register of members and where applicable, the date such
person ceased to hold any registered shares in the
Company.
|
|
22.5
|
The
Company shall keep the following at the office of its registered
agent:
|
|
|
(a)
|
the
Memorandum and Articles of the
Company;
|
|
|
(b)
|
the
register of members maintained in accordance with these Articles or a copy
of the register of members;
|
18
|
|
(c)
|
the
register of directors maintained in accordance with these Articles or a
copy of the register of directors;
|
|
|
(d)
|
copies
of all notices and other documents filed by the Company in the previous
ten years;
|
|
|
(e)
|
a
copy of the register of charges kept by the Company pursuant to Section
162(1) of the Act; and
|
|
|
(f)
|
an
imprint of the common seal.
|
|
22.6
|
Where
the Company keeps a copy of the register of members or the register of
directors at the office of its registered agent, it
shall:
|
|
|
(a)
|
within
15 days of any change in the register, notify the registered agent,
in writing, of the change;
and
|
|
|
(b)
|
provide
the registered agent with a written record of the physical
address of the place or places at which the original register of members
or the original register of directors is
kept.
|
|
|
(c)
|
Where
the place at which the original register of members or the original
register of directors is changed, the Company shall provide the registered
agent with the physical address of the new location of the records within
14 days of the change of
location.
|
|
22.7
|
The
records, documents and registers required by these Articles shall be open
to the inspection of the directors at all
times.
|
|
22.8
|
The
directors shall from time to time determine whether and to what extent and
at what times and places and under what conditions the records, documents
and registers of the Company or any of them shall be open to the
inspection of members not being directors, and no member (not being a
director) shall have any right to inspect any records, documents or
registers of the Company except as conferred by the Act or authorised by a
Resolution of Directors.
|
|
23
|
Audit
|
|
23.1
|
The
directors may by a Resolution of Directors call for the accounts of the
Company to be examined by an auditor or auditors to be appointed by them
at such remuneration as may from time to time be
agreed.
|
|
23.2
|
The
auditor may be a member of the Company but no director or officer shall be
eligible during his continuance in
office.
|
|
23.3
|
Every
auditor of the Company shall have a right of access at all times to the
books of accounts of the Company, and shall be entitled to require from
the officers of the Company such information and explanations as he thinks
necessary for the performance of his
duties.
|
|
23.4
|
The
report of the auditor shall be annexed to the accounts upon which he
reports, and the auditor shall be entitled to receive notice of, and to
attend, any meeting at which the Company's audited profit and loss account
and/or balance sheet is to be
presented.
|
19
|
24
|
Notices
|
|
24.1
|
Any
notice, information or written statement required to be given to members
shall be served by mail (air-mail service if available) addressed to each
member at the address shown in the share
register.
|
|
24.2
|
All
notices directed to be given to the members shall, with respect to any
registered shares to which persons are jointly entitled, be given to
whichever of such persons is named first in the share register, and notice
so given shall be sufficient notice to all the holders of such
shares.
|
|
24.3
|
Any
notice, if served by post, shall be deemed to have been served within ten
days of posting, and in proving such service it shall be sufficient to
prove that the letter containing the notice was properly addressed and
mailed with the postage prepaid.
|
|
25
|
Continuation
|
The
Company may, by a Resolution of Directors or by a Resolution of Members,
continue as a company incorporated under the laws of a jurisdiction outside the
British Virgin Islands in the manner provided under those laws.
|
26
|
Winding
Up
|
|
26.1
|
The
Company may be voluntarily liquidated under Part XII of the Act if it has
no liabilities and it is able to pay its debts as they become
due. A liquidator may, subject to the terms of the Act, be
appointed by a Resolution of Directors or by a Resolution of
Members.
|
|
26.2
|
If
the Company shall be wound up, the liquidator may, in accordance with a
Resolution of Members, divide amongst the members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist
of property of the same kind or not) and may for such purpose set such
value as he deems fair upon any such property to be divided as aforesaid
and may determine how such division shall be carried out as between the
members or different classes of members. The liquidator may
vest the whole or any part of such assets in trustees upon such trust for
the benefit of the contributors as the liquidator shall think fit, but so
that no member shall be compelled to accept any shares or other securities
whereon there is any liability.
|
|
27
|
Business
Combination
|
|
27.1
|
The
following provisions 27.2 through 27.5 and Article 13 shall terminate upon
the consummation of any "Business Combination," and may not be amended
during the "Target Business Acquisition Period." A "Business
Combination" shall mean the acquisition by the Company, whether by merger,
share capital exchange, asset or share acquisition or other similar type
of transaction, of an operating business ("Target Business"). The "Target
Business Acquisition Period" shall mean the period commencing from the
effectiveness of the registration statement filed in connection with the
initial public offering ("IPO") of the Company’s parent corporation, Alyst
Acquisition Corporation, a Delaware corporation (“Alyst”) up to and
including the first to occur of (a) a Business Combination; or (b) the
Termination Date (defined below).
|
|
27.2
|
Prior
to the consummation of any Business Combination, the Company shall submit
such Business Combination to its shareholders for approval regardless of
whether the Business Combination is of a type which normally would require
such shareholder approval under the Act. In the event that a majority of
the IPO Shares (defined below) cast at the meeting to approve the Business
Combination are voted for the approval of such Business Combination, the
Company shall be authorized to consummate the Business Combination;
provided that the Company shall not consummate any Business Combination if
the holders of 30% or more of the IPO Shares exercise their redemption
rights described in Article 27.3
below.
|
20
|
27.3
|
In
the event that a Business Combination is approved in accordance with the
above Article 27.2 and is consummated by the Company, any shareholder of
the Company holding Ordinary Shares in the IPO ("IPO Shares") who voted
against the Business Combination may, contemporaneously with such vote,
demand that the Company redeem his IPO Shares into cash. If so demanded,
the Company shall, promptly after consummation of the Business
Combination, redeem such shares into cash at a per share redemption price
equal to the quotient determined by dividing (i) the amount in the Trust
Fund (as defined below), inclusive of any interest thereon, calculated as
of two business days prior to the consummation of the Business
Combination, by (ii) the total number of IPO Shares. "Trust Fund" shall
mean the trust account established by Alyst at the consummation of Alyst's
IPO and into which a certain amount of the net proceeds of the IPO are
deposited.
|
|
27.4
|
In
the event that the Company does not consummate a Business Combination by
29 June 2009 (the "Termination Date"), the officers of the Company shall
take all such action necessary to liquidate and dissolve the Company as
soon as reasonably practicable. In the event that the Company is so
wound-up and subsequently liquidated, only the holders of IPO Shares shall
be entitled to receive pro rata liquidating distributions and the Company
shall pay no liquidating distributions with respect to any other shares of
the Company.
|
|
27.5
|
A
holder of IPO Shares shall be entitled to receive distributions from the
Trust Fund only in the event of a liquidation of the Company or in the
event he demands redemption of his shares in accordance with Article 27.3
above. In no other circumstances shall a holder of IPO Shares have any
right or interest of any kind in or to the Trust
Fund.
|
We,
Maples Finance BVI Limited of Kingston Chambers, PO Box 173, Road Town, Tortola,
British Virgin Islands in our capacity as registered agent for the Company
hereby apply to the Registrar for the incorporation of the Company this 17th day
of April 2008.
Incorporator
|
(Sgd.)
Clinton Hempel
|
|
|
|
|
Clinton
Hempel
Authorised
Signatory
Maples
Finance BVI Limited
Annex
E
DELAWARE
GENERAL CORPORATION LAW
SECTION
262
(a) Any
stockholder of a corporation of this State who holds shares of stock on the date
of the making of a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to § 228 of this title
shall be entitled to an appraisal by the Court of Chancery of the fair value of
the stockholder’s shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
‘‘stockholder’’ means a holder of record of stock in a stock corporation and
also a member of record of a nonstock corporation; the words ‘‘stock’’ and
‘‘share’’ mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words ‘‘depository receipt’’ mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the
depository.
(b)
Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to § 25 1 (other than a merger effected pursuant to § 251(g) of this
title), § 252, § 254, § 257, § 258, § 263 or § 264 of this title:
(1)
Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights shall be available
for any shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of § 251 of this
title.
(2)
Notwithstanding paragraph (1) of this subsection, appraisal rights under this
section shall be available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263
and 264 of this title to accept for such stock anything except:
a. Shares of
stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof;
b. Shares of
stock of any other corporation, or depository receipts in respect thereof, which
shares of stock (or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or held of record by more than 2,000
holders;
c. Cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph; or
d. Any
combination of the shares of stock, depository receipts and cash in lieu of
fractional shares or fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In
the event all of the stock of a subsidiary Delaware corporation party to a
merger effected under § 253 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any
corporation may provide in its certificate of incorporation that appraisal
rights under this section shall be available for the shares of any class or
series of its stock as a result of an amendment
to its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
E-1
(d)
Appraisal rights shall be perfected as follows:
(1) If a
proposed merger or consolidation for which appraisal rights are provided under
this section is to be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall notify each of
its stockholders who was such on the record date for such meeting with respect
to shares for which appraisal rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or all of the shares of
the constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such stockholder’s
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of such stockholder’s
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder’s shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the
merger or consolidation was approved pursuant to § 228 or § 253 of this title,
then either a constituent corporation before the effective date of the merger or
consolidation or the surviving or resulting corporation within 10 days
thereafter shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section. Such
notice may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder’s shares.
Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder’s shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder’s
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is
given.
E-2
(e) Within
120 days after the effective date of the merger or consolidation, the surviving
or resulting corporation or any stockholder who has complied with subsections
(a) and (d) of this section hereof and who is otherwise entitled to appraisal
rights, may commence an appraisal proceeding by filing a petition in the Court
of Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a named party
shall have the right to withdraw such stockholder’s demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) of this section
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholder’s written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) of this section hereof, whichever is
later. Notwithstanding subsection (a) of this section, a person who is the
beneficial owner of shares of such stock held either in a voting trust or by a
nominee on behalf of such person may, in such person’s own name, file a petition
or request from the corporation the statement described in this
subsection.
(f) Upon the
filing of any such petition by a stockholder, service of a copy thereof shall be
made upon the surviving or resulting corporation, which shall within 20 days
after such service file in the office of the Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the
hearing on such petition, the Court shall determine the stockholders who have
complied with this section and who have become entitled to appraisal rights. The
Court may require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After the
Court determines the stockholders entitled to an appraisal, the appraisal
proceeding shall be conducted in accordance with the rules of the Court of
Chancery, including any rules specifically governing appraisal proceedings.
Through such proceeding the Court shall determine the fair value of the shares
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. Unless the Court in its
discretion determines otherwise for good cause shown, interest from the
effective date of the merger through the date of payment of the judgment shall
be compounded quarterly and shall accrue at 5% over the Federal Reserve discount
rate (including any surcharge) as established from time to time during the
period between the effective date of the merger and the date of payment of the
judgment. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, proceed to trial upon the appraisal prior to the final
determination of the stockholders
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted such stockholder’s certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.
E-3
(i) The Court
shall direct the payment of the fair value of the shares, together with
interest, if any, by the surviving or resulting corporation to the stockholders
entitled thereto. Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court’s decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any
state.
(j) The costs
of the proceeding may be determined by the Court and taxed upon the parties as
the Court deems equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the expenses incurred by
any stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney’s fees and the fees and expenses of experts, to
be charged pro rata against the value of all the shares entitled to an
appraisal.
(k) From and
after the effective date of the merger or consolidation, no stockholder who has
demanded appraisal rights as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive payment of dividends
or other distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the effective date
of the merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder’s demand for an appraisal
and an acceptance of the merger or consolidation, either within 60 days after
the effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just; provided, however that
this provision shall not affect the right of any stockholder who has not
commenced an appraisal proceeding or joined that proceeding as a named party to
withdraw such stockholder’s demand for appraisal and to accept the terms offered
upon the merger or consolidation within 60 days after the effective date of the
merger or consolidation, as set forth in subsection (e) of this
section.
(l) The
shares of the surviving or resulting corporation to which the shares of such
objecting stockholders would have been converted had they assented to the merger
or consolidation shall have the status of authorized and unissued shares of the
surviving or resulting corporation.
E-4
Annex
F
THE
BRITISH VIRGIN ISLANDS BUSINESS COMPANIES ACT, 2004
SECTION
179
(1) A member
of a company is entitled to payment of the fair value of his shares upon
dissenting from
(a) a merger,
if the company is a constituent company, unless the company is the surviving
company and the member continues to hold the same or similar
shares;
(b) a
consolidation, if the company is a constituent company;
(c) any sale,
transfer, lease, exchange or other disposition of more than 50 per cent in value
of the assets or business of the company, if not made in the usual or regular
course of the business carried on by the company, but not including
(i) a
disposition pursuant to an order of the Court having jurisdiction in the
matter,
(ii) a
disposition for money on terms requiring all or substantially all net proceeds
to be distributed to the members in accordance with their respective interests
within one year after the date of disposition, or
(iii) a
transfer pursuant to the power described in section 28(2);
(d) a
redemption of his shares by the company pursuant to section 176;
and
(e) an
arrangement, if permitted by the Court.
(2) A member
who desires to exercise his entitlement under subsection (1) shall give to the
company, before the meeting of members at which the action is submitted to a
vote, or at the meeting but before the vote, written objection to the action;
but an objection is not required from a member to whom the company did not give
notice of the meeting in accordance with this Act or where the proposed action
is authorised by written consent of members without a meeting.
(3) An
objection under subsection (2) shall include a statement that the member
proposes to demand payment for his shares if the action is taken.
(4) Within 20
days immediately following the date on which the vote of members authorising the
action is taken, or the date on which written consent of members without a
meeting is obtained, the company shall give written notice of the authorisation
or consent to each member who gave written objection or from whom written
objection was not required, except those members who voted for, or consented in
writing to, the proposed action.
(5) A member
to whom the company was required to give notice who elects to dissent shall,
within 20 days immediately following the date on which the notice referred to in
subsection (4) is given, give to the company a written notice of his decision to
elect to dissent, stating
(a) his name
and address;
(b) the
number and classes of shares in respect of which he dissents; and
(c) a demand
for payment of the fair value of his shares;
and a
member who elects to dissent from a merger under section 172 shall give to the
company a written notice of his decision to elect to dissent within 20 days
immediately following the date on which the copy of the plan of merger or an
outline thereof is given to him in accordance with section 172.
(6) A member
who dissents shall do so in respect of all shares that he holds in the
company.
(7) Upon the
giving of a notice of election to dissent, the member to whom the notice relates
ceases to have any of the rights of a member except the right to be paid the
fair value of his shares.
F-1
(8) Within 7
days immediately following the date of the expiration of the period within which
members may give their notices of election to dissent, or within 7 days
immediately following the date on which the proposed action is put into effect,
whichever is later, the company or, in the case of a merger or consolidation,
the surviving company or the consolidated company shall make a written offer to
each dissenting member to purchase his shares at a specified price that the
company determines to be their fair value; and if, within 30 days immediately
following the date on which the offer is made, the company making the offer and
the dissenting member agree upon the price to be paid for his shares, the
company shall pay to the member the amount in money upon the surrender of the
certificates representing his shares.
(9) If the
company and a dissenting member fail, within the period of 30 days referred to
in subsection (8), to agree on the price to be paid for the shares owned by the
member, within 20 days immediately following the date on which the period of 30
days expires, the following shall apply:
(a) the
company and the dissenting member shall each designate an
appraiser;
(b) the two
designated appraisers together shall designate an appraiser
(c) the three
appraisers shall fix the fair value of the shares owned by the dissenting member
as of the close of business on the day prior to the date on which the vote of
members authorising the action was taken or the date on which written consent of
members without a meeting was obtained, excluding any appreciation or
depreciation directly or indirectly induced by the action or its proposal, and
that value is binding on the company and the dissenting member for all purposes;
and
(d) the
company shall pay to the member the amount in money upon the surrender by him of
the certificates representing his shares.
(10) Shares
acquired by the company pursuant to subsection (8) or (9) shall be cancelled but
if the shares are shares of a surviving company, they shall be available for
reissue.
(11) The
enforcement by a member of his entitlement under this section excludes the
enforcement by the member of a right to which he might otherwise be entitled by
virtue of his holding shares, except that this section does not exclude the
right of the member to institute proceedings to obtain relief on the ground that
the action is illegal.
(12) Only
subsections (1) and (8) to (11) shall apply in the case of a redemption of
shares by a company pursuant to the provisions of section 176 and in such case
the written offer to be made to the dissenting member pursuant to subsection (8)
shall be made within 7 days immediately following the direction given to a
company pursuant to section 176 to redeem its shares.
F-2
Annex G
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
2008
OMNIBUS SECURITIES AND INCENTIVE PLAN
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
2008
OMNIBUS SECURITIES AND INCENTIVE PLAN
Table of
Contents
|
Page
|
|||
|
ARTICLE
I
|
PURPOSE
|
1
|
|
|
|
|||
|
ARTICLE
II
|
DEFINITIONS
|
1
|
|
|
|
|||
|
ARTICLE
III
|
EFFECTIVE
DATE OF PLAN
|
6
|
|
|
|
|||
|
ARTICLE
IV
|
ADMINISTRATION
|
6
|
|
|
Section
4.1
|
Composition
of Committee
|
6
|
|
|
Section
4.2
|
Powers
|
6
|
|
|
Section
4.3
|
Additional
Powers
|
6
|
|
|
Section
4.4
|
Committee
Action
|
7
|
|
|
|
|||
|
ARTICLE
V
|
SHARES
SUBJECT TO PLAN AND LIMITATIONS THEREON
|
7
|
|
|
Section
5.1
|
Shares
Grant and Award Limits
|
7
|
|
|
Section
5.2
|
Shares
Offered
|
7
|
|
|
Section
5.3
|
Lock-Up
Agreement
|
8
|
|
|
|
|||
|
ARTICLE
VI
|
ELIGIBILITY
FOR AWARDS; TERMINATION OF EMPLOYMENT, DIRECTOR STATUS OR CONSULTANT
STATUS
|
8
|
|
|
Section
6.1
|
Eligibility
|
8
|
|
|
Section
6.2
|
Termination
of Employment or Director Status
|
8
|
|
|
Section
6.3
|
Termination
of Consultant Status
|
9
|
|
|
Section
6.4
|
Special
Termination Rule
|
10
|
|
|
Section
6.5
|
Termination
for Cause
|
10
|
|
|
|
|||
|
ARTICLE
VII
|
OPTIONS
|
10
|
|
|
Section
7.1
|
Option
Period
|
10
|
|
|
Section
7.2
|
Limitations
on Exercise of Option
|
10
|
|
|
Section
7.3
|
Special
Limitations on Incentive Share Options
|
11
|
|
|
Section
7.4
|
Option
Agreement
|
11
|
|
|
Section
7.5
|
Option
Price and Payment
|
12
|
|
|
Section
7.6
|
Shareholder
Rights and Privileges
|
12
|
|
|
Section
7.7
|
Options
and Rights in Substitution for Share Options Granted by Other
Corporations
|
12
|
|
|
|
|||
|
ARTICLE
VIII
|
RESTRICTED
SHARE AWARDS
|
12
|
|
|
Section
8.1
|
Restriction
Period to be Established by Committee
|
12
|
|
|
Section
8.2
|
Other
Terms and Conditions
|
12
|
|
|
Section
8.3
|
Payment
for Restricted Shares
|
13
|
|
|
Section
8.4
|
Restricted
Share Award Agreements
|
13
|
|
|
|
|||
|
ARTICLE
IX
|
UNRESTRICTED
SHARE AWARDS
|
13
|
|
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
2008
OMNIBUS SECURITIES AND INCENTIVE PLAN
Table of Contents
(cont’d)
|
Page
|
|||
|
ARTICLE
X
|
PERFORMANCE
UNIT AWARDS
|
13
|
|
|
Section
10.1
|
Terms
and Conditions
|
13
|
|
|
Section
10.2
|
Payments
|
14
|
|
|
|
|||
|
ARTICLE
XI
|
PERFORMANCE
SHARE AWARDS
|
14
|
|
|
Section
11.1
|
Terms
and Conditions
|
14
|
|
|
Section
11.2
|
Shareholder
Rights and Privileges
|
14
|
|
|
|
|||
|
ARTICLE
XII
|
DISTRIBUTION
EQUIVALENT RIGHTS
|
14
|
|
|
Section
12.1
|
Terms
and Conditions
|
14
|
|
|
Section
12.2
|
Interest
Equivalents
|
14
|
|
|
|
|||
|
ARTICLE
XIII
|
SHARE
APPRECIATION RIGHTS
|
14
|
|
|
Section
13.1
|
Terms
and Conditions
|
15
|
|
|
Section
13.2
|
Tandem
Share Appreciation Rights
|
15
|
|
|
|
|||
|
ARTICLE
XIV
|
RECAPITALIZATION
OR REORGANIZATION
|
16
|
|
|
Section
14.1
|
Adjustments
to Ordinary Shares
|
16
|
|
|
Section
14.2
|
Recapitalization
|
16
|
|
|
Section
14.3
|
Other
Events
|
16
|
|
|
Section
14.4
|
Powers
Not Affected
|
16
|
|
|
Section
14.5
|
No
Adjustment for Certain Awards
|
17
|
|
|
|
|||
|
ARTICLE
XV
|
AMENDMENT
AND TERMINATION OF PLAN
|
17
|
|
|
|
|||
|
ARTICLE
XVI
|
SPECIAL
RULES
|
17
|
|
|
Section
16.1
|
Right
of First Refusal
|
17
|
|
|
Section
16.2
|
Call
Option
|
17
|
|
|
|
|||
|
ARTICLE
XVII
|
MISCELLANEOUS
|
18
|
|
|
Section
17.1
|
No
Right to Award
|
18
|
|
|
Section
17.2
|
No
Rights Conferred
|
18
|
|
|
Section
17.3
|
Other
Laws; Withholding
|
18
|
|
|
Section
17.4
|
No
Restriction on Corporate Action
|
18
|
|
|
Section
17.5
|
Restrictions
on Transfer
|
19
|
|
|
Section
17.6
|
Beneficiary
Designations
|
19
|
|
|
Section
17.7
|
Rule
16b-3
|
19
|
|
|
Section
17.8
|
Section
162(m)
|
19
|
|
|
Section
17.9
|
Section
409A
|
20
|
|
|
Section
17.10
|
Other
Plans
|
20
|
|
|
Section
17.11
|
Limits
of Liability
|
20
|
|
|
Section
17.12
|
Governing
Law
|
20
|
|
ii
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
2008
OMNIBUS SECURITIES AND INCENTIVE PLAN
Table of Contents
(cont’d)
|
Page
|
|||
|
|
|||
|
Section
17.13
|
Severability
of Provisions
|
20
|
|
|
Section
17.14
|
No
Funding
|
20
|
|
|
Section
17.15
|
Headings
|
20
|
|
|
Section
17.16
|
Terms
of Award Agreements
|
20
|
iii
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
2008
OMNIBUS SECURITIES AND INCENTIVE PLAN
ARTICLE
I
PURPOSE
The
purpose of this China Networks International Holdings Ltd. 2008 Omnibus
Securities and Incentive Plan (the “Plan”) is to benefit
the shareholders of China Networks International Holdings Ltd., a BVI
corporation (the “Company”), by
assisting the Company to attract, retain and provide incentives to key
management employees and nonemployee directors of, and non-employee consultants
to, the Company and its Affiliates, and to align the interests of such
employees, nonemployee directors and nonemployee consultants with those of the
Company’s shareholders. Accordingly, the Plan provides for the granting of
Distribution Equivalent Rights, Incentive Share Options, Non-Qualified Share
Options, Performance Share Awards, Performance Unit Awards, Restricted Share
Awards, Share Appreciation Rights, Tandem Share Appreciation Rights,
Unrestricted Share Awards or any combination of the foregoing, as may be best
suited to the circumstances of the particular Employee, Director or Consultant
as provided herein.
ARTICLE
II
DEFINITIONS
The
following definitions shall be applicable throughout the Plan unless the context
otherwise requires:
“Affiliate” shall mean
any corporation which, with respect to the Company, is a “parent corporation”
within the meaning of Section 424(e) of the Code.
“Award” shall mean,
individually or collectively, any Distribution Equivalent Right, Option,
Performance Share Award, Performance Unit Award, Restricted Share Award, Share
Appreciation Right or Unrestricted Share Award.
“Award Agreement”
shall mean a written agreement between the Company and the Holder with respect
to an Award, each of which shall constitute a part of the Plan.
“Board” shall mean the
Board of Directors of the Company from time to time.
“Cause” shall mean (i)
if the Holder is a party to an employment or similar agreement with the Company
or an Affiliate which agreement defines “Cause” (or a similar term) therein,
“Cause” shall
have the same meaning as provided for in such agreement, or (ii) for a Holder
who is not a party to such an agreement, “Cause” shall mean
termination by the Company or an Affiliate of the employment (or other service
relationship) of the Holder by reason of the Holder’s (A) intentional failure to
perform reasonably assigned duties, (B) dishonesty or willful misconduct in the
performance of the Holder’s duties, (C) involvement in a transaction which is
materially adverse to the Company or an Affiliate, (D) breach of fiduciary duty
involving personal profit, (E) willful violation of any law, rule, regulation or
court order (other than misdemeanor traffic violations and misdemeanors not
involving misuse or misappropriation of money or property), (F) commission of an
act of fraud or intentional misappropriation or conversion of any asset or
opportunity of the Company or an Affiliate, or (G) material breach of any
provision of the Plan or the Holder’s Award Agreement or any other written
agreement between the Holder and the Company or an Affiliate, in each case as
determined in good faith by the Board, the determination of which shall be
final, conclusive and binding on all parties.
“Change of Control”
shall mean (i) for a Holder who is a party to an employment or consulting
agreement with the Company or an Affiliate which agreement defines “Change of
Control” (or a similar term) therein, “Change of Control”
shall have the same meaning as provided for in such agreement, or (ii) for a
Holder who is not a party to such an agreement, “Change of Control”
shall mean the satisfaction of any one or more of the following conditions (and
the “Change of Control” shall be deemed to have occurred as of the first day
that any one or more of the following conditions shall have been
satisfied):
(a) Any
person (as such term is used in paragraphs 13(d) and 14(d)(2) of the Exchange
Act, hereinafter in this definition, “Person”), other than
the Company or an Affiliate or an employee benefit plan of the Company or an
Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than fifty percent (50%) of the combined voting power of the Company’s then
outstanding securities;
(b) The
closing of a merger, consolidation or other business combination (a “Business
Combination”) other than a Business Combination in which holders of
ordinary shares of the Company immediately prior to the Business Combination
have substantially the same proportionate ownership of common share of the
surviving corporation immediately after the Business Combination as immediately
before;
(c) The
closing of either (i) an agreement for the sale or disposition of all or
substantially all of the Company’s assets to any entity that is not an
Affiliate, or (ii) a plan of complete liquidation of the Company;
(d) The
persons who were members of the Board immediately before a tender offer by any
Person other than the Company or an Affiliate, or before a merger, consolidation
or contested election, or before any combination of such transactions, cease to
constitute a majority of the members of the Board as a result of such
transaction or transactions; or
(e) Any other
event which shall be deemed by a majority of the members of the Board to
constitute a “Change of Control.”
“Code” shall mean the
United States Internal Revenue Code of 1986, as amended. Reference in the Plan
to any section of the Code shall be deemed to include any amendments or
successor provisions to any section and any regulation under such
section.
“Committee” shall mean
a committee comprised of (i) at any time that the Ordinary Shares are not
registered under Section 12 of the Exchange Act, the Compensation Committee of
the Board, and (ii) at any time that the Ordinary Shares are registered under
Section 12 of the Exchange Act, not less than three (3) members of the Board who
are selected by the Board as provided in Section 4.1.
2
“Company” shall mean
China Networks International Holdings Ltd., a BVI corporation, and any successor
thereto.
“Consultant” shall
mean any non-Employee (individual or entity) advisor to the Company or an
Affiliate who or which has contracted directly with the Company or an Affiliate
to render bona fide consulting or advisory services thereto.
“Director” shall mean
a member of the Board or a member of the board of directors of an Affiliate, in
either case, who is not an Employee.
“Distribution Equivalent
Right” shall mean an Award granted under Article XII of the Plan which
entitles the Holder to receive bookkeeping credits, cash payments and/or
Ordinary Share distributions equal in amount to the distributions that would
have been made to the Holder had the Holder held a specified number of Ordinary
Shares during the period the Holder held the Distribution Equivalent
Right.
“Distribution Equivalent
Right Award Agreement” shall mean a written agreement between the Company
and a Holder with respect to a Distribution Equivalent Right Award.
“Effective Date” shall
mean _____________ , 2008.
“Employee” shall mean
any employee, including officers, of the Company or an Affiliate.
“Exchange Act” shall
mean the United States Securities Exchange Act of 1934, as amended.
“Fair Market Value”
shall mean, as determined consistent with the applicable requirements of
Sections 409A and 422 of the Code, as of any specified date, the closing sales
price of the Ordinary Shares for such date (or, in the event that the Ordinary
Shares are not traded on such date, on the immediately preceding trading date)
on the Nasdaq Share Market or a domestic or foreign national securities exchange
(including London’s Alternative Investment Market) on which the Ordinary Shares
may be listed, as reported in The Wall Street Journal or The Financial
Times. If the Ordinary Shares are not listed on the Nasdaq Share
Market or on a national securities exchange, but are quoted on the OTC Bulletin
Board or by the National Quotation Bureau, the Fair Market Value of the Ordinary
Shares shall be the mean of the bid and asked prices per Ordinary Share for such
date. If the Ordinary Shares are not quoted or listed as set forth
above, Fair Market Value shall be determined by the Board in good faith by any
fair and reasonable means (which means, with respect to a particular Award
grant, may be set forth with greater specificity in the applicable Award
Agreement). The Fair Market Value of property other than Ordinary
Shares shall be determined by the Board in good faith by any fair and reasonable
means, and consistent with the applicable requirements of Sections 409A and 422
of the Code.
3
“Family Member” shall
mean any child, stepchild, grandchild, parent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, including adoptive relationships, any person
sharing the Holder’s household (other than a tenant of the Holder), a trust in
which such persons have more than fifty percent (50%) of the beneficial
interest, a foundation in which such persons (or the Holder) control the
management of assets, and any other entity in which such persons (or the Holder)
own more than fifty percent (50%) of the voting interests.
“Holder” shall mean an
Employee, Director or Consultant who has been granted an Award or any such
individual’s beneficiary, estate or representative, to the extent
applicable.
“Incentive Share
Option” shall mean an Option which is intended by the Committee to
constitute, and which does constitute, an “incentive stock option” under Section
422 of the Code.
“Non-Qualified Share
Option” shall mean an Option which is not an Incentive Share
Option.
“Option” shall mean an
Award granted under Article VII of the Plan of an option to purchase Ordinary
Shares and includes both Incentive Share Options and Non-Qualified Share
Options.
“Option Agreement”
shall mean a written agreement between the Company and a Holder with respect to
an Option.
“Ordinary Shares”
shall mean the ordinary shares, par value $0.0001 per share, of the
Company.
“Performance Share
Award” shall mean an Award granted under Article XI of the Plan under
which, upon the satisfaction of predetermined individual and/or Company (and/or
Affiliate) performance goals and/or objectives, Ordinary Shares are paid to the
Holder.
“Performance Share Award
Agreement” shall mean a written agreement between the Company and a
Holder with respect to a Performance Share Award.
“Performance Unit”
shall mean a Unit awarded to a Holder pursuant to a Performance Unit
Award.
“Performance Unit
Award” shall mean an Award granted under Article X of the Plan under
which, upon the satisfaction of predetermined individual and/or Company (and/or
Affiliate) performance goals and/or objectives, a cash payment shall be made to
the Holder, based on the number of Units awarded to the Holder.
“Performance Unit Award
Agreement” shall mean a written agreement between the Company and a
Holder with respect to a Performance Unit Award.
“Plan” shall mean this
China Networks International Holdings Ltd. 2008 Omnibus Securities and Incentive
Plan, as amended from time to time, together with each of the Award Agreements
utilized hereunder.
4
“Restricted Share
Award” shall mean an Award granted under Article VIII of the Plan of
Ordinary Shares, the transferability of which by the Holder shall be subject to
Restrictions.
“Restricted Share Award
Agreement” shall mean a written agreement between the Company and a
Holder with respect to a Restricted Share Award.
“Restriction Period”
shall mean the period of time for which Ordinary Shares subject to a Restricted
Share Award shall be subject to Restrictions, as set forth in the applicable
Restricted Share Award Agreement.
“Restrictions” shall
mean forfeiture, transfer and/or other restrictions applicable to Ordinary
Shares awarded to an Employee, Director or Consultant under the Plan pursuant to
a Restricted Share Award and set forth in a Restricted Share Award
Agreement.
“Rule 16b-3” shall
mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the
Exchange Act, as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a substantially similar
function.
“Share Appreciation
Right” shall mean an Award granted under Article XIII of the Plan of a
right, granted alone or in connection with a related Option, to receive a
payment on the date of exercise.
“Share Appreciation Right
Award Agreement” shall mean a written agreement between the Company and a
Holder with respect to a Share Appreciation Right.
“Tandem Share Appreciation
Right” shall mean a Share Appreciation Right granted in connection with a
related Option, the exercise of which shall result in termination of the
otherwise entitlement to purchase some or all of the Ordinary Shares under the
related Option, all as set forth in Section 13.2.
“Ten Percent
Shareholder” shall mean an Employee who, at the time an Option is granted
to him or her, owns shares possessing more than ten percent (10%) of the total
combined voting power of all classes of shares of the Company or of any parent
corporation or subsidiary corporation thereof (both as defined in Section 424 of
the Code), within the meaning of Section 422(b)(6) of the Code.
“Total and Permanent
Disability” shall mean the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months, all as
described in Section 22(e)(3) of the Code.
“Units” shall mean
bookkeeping units, each of which represents such monetary amount as shall be
designated by the Committee in each Performance Unit Award
Agreement.
“Unrestricted Share
Award” shall mean an Award granted under Article IX of the Plan of
Ordinary Shares which are not subject to Restrictions.
5
“Unrestricted Share Award
Agreement” shall mean a written agreement between the Company and a
Holder with respect to an Unrestricted Share Award.
ARTICLE
III
EFFECTIVE
DATE OF PLAN
The Plan
shall be effective as of the Effective Date, provided that the Plan is approved
by the shareholders of the Company within twelve (12) months of such
date.
ARTICLE
IV
ADMINISTRATION
Section
4.1 Composition of
Committee. The Plan shall be administered by the Committee,
which shall be appointed by the Board. Notwithstanding the foregoing, however,
at any time that the Ordinary Shares are registered under Section 12 of the
Exchange Act, the Committee shall consist solely of three (3) or more Directors
who are each (i) “outside directors” within the meaning of Section 162(m) of the
Code (“Outside
Directors”), (ii) “non-employee directors” within the meaning of Rule
16b-3, and (iii) “independent” for purposes of any applicable listing
requirements (“Non-Employee
Directors”); provided, however, that the
Board or the Committee may delegate to a committee of one or more members of the
Board who are not (x) Outside Directors, the authority to grant Awards to
eligible persons who are not (A) then “covered employees” within the meaning of
Section 162(m) of the Code and are not expected to be “covered employees” at the
time of recognition of income resulting from such Award, or (B) persons with
respect to whom the Company wishes to comply with the requirements of Section
162(m) of the Code, and/or (y) Non-Employee Directors, the authority to grant
Awards to eligible persons who are not then subject to the requirements of
Section 16 of the Exchange Act. If a member of the Committee shall be eligible
to receive an Award under the Plan, such Committee member shall have no
authority hereunder with respect to his or her own Award.
Section
4.2 Powers. Subject to
the provisions of the Plan, the Committee shall have the sole authority, in its
discretion, to make all determinations under the Plan, including but not limited
to determining which Employees, Directors or Consultants shall receive an Award,
the time or times when an Award shall be made (the date of grant of an Award
shall be the date on which the Award is awarded by the Committee), what type of
Award shall be granted, the term of an Award, the date or dates on which an
Award vests (including acceleration of vesting), the form of any payment to be
made pursuant to an Award, the terms and conditions of an Award, the
Restrictions under a Restricted Share Award and the number of Ordinary Shares
which may be issued under an Award, all as applicable. In making such
determinations the Committee may take into account the nature of the services
rendered by the respective Employees, Directors and Consultants, their present
and potential contribution to the Company’s (or the Affiliate’s) success and
such other factors as the Committee in its discretion shall deem
relevant.
Section
4.3 Additional
Powers. The Committee shall have such additional powers as are
delegated to it under the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective Award Agreements executed hereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the
intent of the Plan, and to determine the terms, restrictions and provisions of
each Award, including such terms, restrictions and provisions as shall be
requisite in the judgment of the Committee to cause designated Options to
qualify as Incentive Share Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any Award
Agreement in the manner and to the extent it shall deem expedient to carry it
into effect. The determinations of the Committee on the matters referred to in
this Article IV shall be conclusive and binding on the Company and all
Holders.
6
Section
4.4 Committee
Action. In the absence of specific rules to the contrary,
action by the Committee shall require the consent of a majority of the members
of the Committee, expressed either orally at a meeting of the Committee or in
writing in the absence of a meeting. No member of the Committee shall
have any liability for any good faith action, inaction or determination in
connection with the Plan.
Section
4.5 Special Committee Action
Regarding Applicable Law. The Committee shall be authorized to
adopt special rules and requirements under the Plan for compliance with
applicable law, including but not limited to applicable Chinese law, as shall be
set forth on Appendix A to the Plan and in the applicable Award
Agreements.
ARTICLE
V
SHARES
SUBJECT TO PLAN AND LIMITATIONS THEREON
Section
5.1 Shares Grant and Award
Limits. The Committee may from time to time grant Awards to
one or more Employees, Directors and/or Consultants determined by it to be
eligible for participation in the Plan in accordance with the provisions of
Article VI. Subject to Article XIV, the aggregate number of Ordinary Shares that
may be issued under the Plan shall not exceed Two Million Five Hundred Thousand
(2,500,000) Ordinary Shares. Ordinary Shares shall be deemed to have
been issued under the Plan solely to the extent actually issued and delivered
pursuant to an Award. To the extent that an Award lapses, expires, is canceled,
is terminated unexercised or ceases to be exercisable for any reason, or the
rights of its Holder terminate, any Ordinary Shares subject to such Award shall
again be available for the grant of a new Award. Notwithstanding any provision
in the Plan to the contrary, the maximum number of Ordinary Shares that may be
subject to Awards of Options under Article VII and/or Share Appreciation Rights
under Article XIII, in either or both cases granted to any one Employee during
any calendar year, shall be _________ (____) Ordinary Shares (subject to
adjustment in the same manner as provided in Article XIV with respect to
Ordinary Shares subject to Awards then outstanding). The limitation set forth in
the preceding sentence shall be applied in a manner which shall permit
compensation generated in connection with the exercise of Options or Share
Appreciation Rights to constitute “performance-based” compensation for purposes
of Section 162(m) of the Code, including, but not limited to, counting against
such maximum number of Ordinary Shares, to the extent required under Section
162(m) of the Code, any Ordinary Shares subject to Options or Share Appreciation
Rights that are canceled or repriced.
Section
5.2 Shares
Offered. The share to be offered pursuant to the grant of an
Award may be authorized but unissued Ordinary Shares, Ordinary Shares purchased
on the open market or Ordinary Shares previously issued and outstanding and
reacquired by the Company.
7
Section
5.3 Lock-Up
Agreement. Each Award Agreement which provides for the
issuance of Ordinary Shares, including but not limited to the issuance of
Ordinary Shares upon the exercise of an Option, shall provide for a lock-up
covenant by the Holder, to be effective for a period not to exceed one
year, upon the
request of the Company or the Company’s principal underwriter in connection with
an underwritten public offering of the Ordinary Shares.
ARTICLE
VI
ELIGIBILITY
FOR AWARDS; TERMINATION OF
EMPLOYMENT,
DIRECTOR STATUS OR CONSULTANT STATUS
Section
6.1 Eligibility. Awards
made under the Plan may be granted solely to persons or entities who, at the
time of grant, are Employees, Directors or Consultants. An Award may be granted
on more than one occasion to the same Employee, Director or Consultant, and,
subject to the limitations set forth in the Plan, such Award may include, a
Non-Qualified Share Option, a Restricted Share Award, an Unrestricted Share
Award, a Distribution Equivalent Right Award, a Performance Share Award, a
Performance Unit Award, a Share Appreciation Right, a Tandem Share Appreciation
Right, any combination thereof or, solely for Employees, an Incentive Share
Option.
Section
6.2 Termination of Employment or
Director Status. Except to the extent inconsistent with the
terms of the applicable Award Agreement and/or the provisions of Section 6.4,
the following terms and conditions shall apply with respect to the termination
of a Holder’s employment with, or status as a Director of, the Company or an
Affiliate, as applicable, for any reason, including, without limitation, Total
and Permanent Disability or death:
(a) The
Holder’s rights, if any, to exercise any then exercisable Non-Qualified Share
Options and/or Share Appreciation Rights shall terminate:
(1) If such
termination is for a reason other than the Holder’s Total and Permanent
Disability or death, not more than ninety (90) days after the date of such
termination of employment or after the date of such termination of Director
status;
(2) If such
termination is on account of the Holder’s Total and Permanent Disability, one
(1) year after the date of such termination of employment or Director status;
or
(3) If such
termination is on account of the Holder’s death, one (1) year after the date of
the Holder’s death.
Upon such
applicable date the Holder (and such Holder’s estate, designated beneficiary or
other legal representative) shall forfeit any rights or interests in or with
respect to any such Non-Qualified Share Options and Share Appreciation
Rights.
(b) The
Holder’s rights, if any, to exercise any then exercisable Incentive
Share Option shall terminate:
8
(1) If such
termination is for a reason other than the Holder’s Total and Permanent
Disability or death, not more than three (3) months after the date of such
termination of employment;
(2) If such
termination is on account of the Holder’s Total and Permanent Disability, one
(1) year after the date of such termination of employment; or
(3) If such
termination is on account of the Holder’s death, one (1) year after the date of
the Holder’s death.
Upon such
applicable date the Holder (and such Holder’s estate, designated beneficiary or
other legal representative) shall forfeit any rights or interests in or with
respect to any such Incentive Share Options.
(c) If a
Holder’s employment with, or status as a Director of, the Company or an
Affiliate, as applicable, terminates for any reason prior to the actual or
deemed satisfaction and/or lapse of the restrictions, terms and conditions
applicable to an Award of Restricted Shares, such Restricted Shares shall
immediately be canceled, and the Holder (and such Holder’s estate, designated
beneficiary or other legal representative) shall forfeit any rights or interests
in and with respect to any such Restricted Shares. The immediately preceding
sentence to the contrary notwithstanding, the Committee, in its sole discretion,
may determine, prior to or within thirty (30) days after the date of such
termination of employment or Director status, that all or a portion of any such
Holder’s Restricted Shares shall not be so canceled and
forfeited.
Section
6.3 Termination of Consultant
Status. Except to the extent inconsistent with the terms of the
applicable Award Agreement and/or the provisions of Section 6.4, the following
terms and conditions shall apply with respect to the termination of a Holder’s
status as a Consultant, for any reason:
(a) The
Holder’s rights, if any, to exercise any then exercisable Non-Qualified Share
Options and Share Appreciation Rights shall terminate:
(1) If such
termination is for a reason other than the Holder’s death, not more than ninety
(90) days after the date of such termination; or
(2) If such
termination is on account of the Holder’s death, one (1) year after the date of
the Holder’s death.
(b) If the
status of a Holder as a Consultant terminates for any reason prior to the actual
or deemed satisfaction and/or lapse of the Restrictions, terms and conditions
applicable to an Award of Restricted Shares, such Restricted Shares shall
immediately be canceled, and the Holder (and such Holder’s estate, designated
beneficiary or other legal representative) shall forfeit any rights or interests
in and with respect to any such Restricted Shares. The immediately preceding
sentence to the contrary notwithstanding, the Committee, in its sole discretion,
may determine, prior to or within thirty (30) days after the date of such
termination of such a Holder’s status as a Consultant, that all or a portion of
any such Holder’s Restricted Shares shall not be so canceled and
forfeited.
9
Section
6.4 Special Termination
Rule. Except to the extent inconsistent with the terms of the applicable
Award Agreement, and notwithstanding anything to the contrary contained in this
Article VI, if a Holder’s employment with, or status as a Director of, the
Company or an Affiliate shall terminate, if, within ninety (90) days of such
termination, such Holder shall become a Consultant, such Holder’s rights with
respect to any Award or portion thereof granted thereto prior to the date of
such termination may be preserved, if and to the extent determined by the
Committee in its sole discretion, as if such Holder had been a Consultant for
the entire period during which such Award or portion thereof had been
outstanding. Should the Committee effect such determination with respect to such
Holder, for all purposes of the Plan, such Holder shall not be treated as if his
or her employment or Director status had terminated until such time as his or
her Consultant status shall terminate, in which case his or her Award, as it may
have been reduced in connection with the Holder’s becoming a Consultant, shall
be treated pursuant to the provisions of Section 6.3; provided, however, that any
such Award which is intended to be an Incentive Share Option shall, upon the
Holder’s no longer being an Employee, automatically convert to a Non-Qualified
Share Option. Should a Holder’s status as a Consultant terminate, if,
within ninety (90) days of such termination, such Holder shall become an
Employee or a Director, such Holder’s rights with respect to any Award or
portion thereof granted thereto prior to the date of such termination may be
preserved, if and to the extent determined by the Committee in its sole
discretion, as if such Holder had been an Employee or a Director, as applicable,
for the entire period during which such Award or portion thereof had been
outstanding, and, should the Committee effect such determination with respect to
such Holder, for all purposes of the Plan, such Holder shall not be treated as
if his or her Consultant status had terminated until such time as his or her
employment with the Company or an Affiliate, or his or her Director status, as
applicable, shall terminate, in which case his or her Award shall be treated
pursuant to the provisions of Section 6.2.
Section
6.5 Termination for
Cause. Notwithstanding anything in this Article VI or
elsewhere in the Plan to the contrary, and unless a Holder’s Award Agreement
specifically provides otherwise, should a Holder’s employment, Director status
or engagement as a Consultant with or for the Company or an Affiliate be
terminated by the Company or Affiliate for Cause, all of such Holder’s then
outstanding Awards shall expire immediately and be forfeited in their entirety
upon such termination.
ARTICLE
VII
OPTIONS
Section
7.1 Option
Period. The term of each Option shall be as specified in the
Option Agreement; provided, however, that except
as set forth in Section 7.3, no Option shall be exercisable after the expiration
of ten (10) years from the date of its grant.
Section
7.2 Limitations on Exercise of
Option. An Option shall be exercisable in whole or in such
installments and at such times as specified in the Option
Agreement.
10
Section
7.3 Special Limitations on
Incentive Share Options. To the extent that the aggregate Fair
Market Value (determined at the time the respective Incentive Share Option is
granted) of Ordinary Shares with respect to which Incentive Share Options are
exercisable for the first time by an individual during any calendar year under
all plans of the Company and any parent corporation or subsidiary corporation
thereof (both as defined in Section 424 of the Code) which provide for the grant
of Incentive Share Options exceeds One Hundred Thousand Dollars ($100,000) (or
such other individual limit as may be in effect under the Code on the date of
grant), the portion of such Incentive Share Options that exceeds such threshold
shall be treated as Non-Qualified Share Options. The Committee shall determine,
in accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of a Holder’s Options, which were
intended by the Committee to be Incentive Share Options when granted to the
Holder, will not constitute Incentive Share Options because of such limitation,
and shall notify the Holder of such determination as soon as practicable after
such determination. No Incentive Share Option shall be granted to an Employee
if, at the time the Option is granted, such Employee is a Ten Percent
Shareholder, unless (i) at the time such Incentive Share Option is granted the
Option price is at least one hundred ten percent (110 %) of the Fair Market
Value of the Ordinary Shares subject to the Option, and (ii) such Incentive
Share Option by its terms is not exercisable after the expiration of five (5)
years from the date of grant. No Incentive Share Option shall be
granted more than ten (10) years from the date on which the Plan is approved by
the Company’s shareholders. The designation by the Committee of an
Option as an Incentive Share Option shall not guarantee the Holder that the
Option will satisfy the applicable requirements for “incentive stock option”
status under Section 422 of the Code.
Section
7.4 Option Agreement.
Each Option shall be evidenced by an Option Agreement in such form and
containing such provisions not inconsistent with the provisions of the Plan as
the Committee from time to time shall approve, including, but not limited to,
provisions intended to qualify an Option as an Incentive Share Option. An Option
Agreement may provide for the payment of the Option price, in whole or in part,
by the delivery of a number of Ordinary Shares that have been owned by the
Holder for at least six (6) months (plus cash if necessary) and having a Fair
Market Value equal to such Option price. Each Option Agreement shall, solely to
the extent inconsistent with the provisions of Sections 6.2, 6.3 and 6.4, as
applicable, specify the effect of termination of employment, Director status or
Consultant status on the exercisability of the Option. Moreover, an Option
Agreement may provide for a “cashless exercise” of the Option by establishing
procedures whereby the Holder, by a properly-executed written notice, directs
(i) an immediate market sale or margin loan respecting all or a part of the
Ordinary Shares to which he is entitled upon exercise pursuant to an extension
of credit by the Company to the Holder of the Option price, (ii) the delivery of
the Ordinary Shares from the Company directly to a brokerage firm and (iii) the
delivery of the Option price from sale or margin loan proceeds from the
brokerage firm directly to the Company. Each Option Agreement shall,
solely to the extent inconsistent with the provisions of Sections 6.2, 6.3 and
6.4, as applicable, specify the effect of the termination of the Holder’s
employment with the Company or an Affiliate, Director status or Consultant
status on the exercisability of the Option. An Option Agreement may
also include provisions relating to (i) subject to the provisions hereof,
accelerated vesting of Options, (ii) tax matters (including provisions covering
any applicable Employee wage withholding requirements and requiring additional
“gross-up” payments to Holders to meet any excise taxes or other additional
income tax liability imposed as a result of a payment upon a “change of control”
of the Company resulting from the operation of the Plan or of such Option
Agreement) and (iii) any other matters not inconsistent with the terms and
provisions of the Plan that the Committee shall in its sole discretion
determine. The terms and conditions of the respective Option Agreements need not
be identical.
11
Section
7.5 Option Price and
Payment. The price at which an Ordinary Share may be purchased
upon exercise of an Option shall be determined by the Committee; provided, however, that such
Option price (i) shall not be less than the Fair Market Value of an Ordinary
Share on the date such Option is granted, and (ii) shall be subject to
adjustment as provided in Article XIV. The Option or portion thereof may be
exercised by delivery of an irrevocable notice of exercise to the Company. The
Option price for the Option or portion thereof shall be paid in full in the
manner prescribed by the Committee as set forth in the applicable Option
Agreement. Separate share certificates shall be issued by the Company for those
Ordinary Shares acquired pursuant to the exercise of an Incentive Share Option
and for those Ordinary Shares acquired pursuant to the exercise of a
Non-Qualified Share Option.
Section
7.6 Shareholder Rights and
Privileges. The Holder of an Option shall be entitled to all the
privileges and rights of a shareholder of the Company solely with respect to
such Ordinary Shares as have been purchased under the Option and for which
certificates of share have been registered in the Holder’s name.
Section
7.7 Options and Rights in
Substitution for Share Options Granted by Other
Corporations. Options may be granted under the Plan from time
to time in substitution for share options held by individuals employed by
entities who become Employees as a result of a merger or consolidation of the
employing entity with the Company or any Affiliate, or the acquisition by the
Company or an Affiliate of the assets of the employing entity, or the
acquisition by the Company or an Affiliate of share of the employing entity with
the result that such employing entity becomes an Affiliate.
ARTICLE
VIII
RESTRICTED
SHARE AWARDS
Section
8.1 Restriction Period to be
Established by Committee. At the time a Restricted Share Award
is made, the Committee shall establish the Restriction Period applicable to such
Award. Each Restricted Share Award may have a different Restriction Period, in
the discretion of the Committee. The Restriction Period applicable to a
particular Restricted Share Award shall not be changed except as permitted by
Section 8.2.
Section
8.2 Other Terms and
Conditions. Ordinary Shares awarded pursuant to a Restricted
Share Award shall be represented by a share certificate registered in the name
of the Holder of such Restricted Share Award. If provided for under the
Restricted Share Award Agreement, the Holder shall have the right to vote
Ordinary Shares subject thereto and to enjoy all other shareholder rights,
including the entitlement to receive dividends on the Ordinary Shares during the
Restriction Period, except that (i) the Holder shall not be entitled to delivery
of the share certificate until the Restriction Period shall have expired, (ii)
the Company shall retain custody of the share certificate during the Restriction
Period (with a share power endorsed by the Holder in blank), (iii) the Holder
may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of
the Ordinary Shares during the Restriction Period and (iv) a breach of the terms
and conditions established by the Committee pursuant to the Restricted Share
Award Agreement shall cause a forfeiture of the Restricted Share Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe
additional terms and conditions or restrictions relating to Restricted Share
Awards, including, but not limited to, rules pertaining to the effect of
termination of employment, Director status or Consultant status prior to
expiration of the Restriction Period. Such additional terms, conditions or
restrictions shall, to the extent inconsistent with the provisions of Sections
6.2, 6.3 and 6.4, as applicable, be set forth in a Restricted Share Award
Agreement made in conjunction with the Award. Such Restricted Share Award
Agreement may also include provisions relating to (i) subject to the provisions
hereof, accelerated vesting of Awards, including but not limited to accelerated
vesting upon the occurrence of a “change of control” of the Company, (ii) tax
matters (including provisions covering any applicable Employee wage withholding
requirements and requiring additional “gross-up” payments to Holders to meet any
excise taxes or other additional income tax liability imposed as a result of a
payment made in connection with a “change of control” of the Company resulting
from the operation of the Plan or of such Restricted Share Award Agreement) and
(iii) any other matters not inconsistent with the terms and provisions of the
Plan that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Restricted Share Agreements need not be
identical. All Ordinary Shares delivered to a Holder as part of a
Restricted Share Award shall be delivered and reported by the Company or the
Affiliate, as applicable, to the Holder by no later than two and one-half
(2-1/2) months after the end of the calendar year in which the Holder’s
entitlement to such Ordinary Shares becomes vested.
12
Section
8.3 Payment for Restricted
Shares. The Committee shall determine the amount and form of
any payment from a Holder for Ordinary Shares received pursuant to a Restricted
Share Award, if any, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Ordinary Shares received
pursuant to a Restricted Share Award, except to the extent otherwise required by
law.
Section
8.4 Restricted Share Award
Agreements. At the time any Award is made under this Article VIII, the
Company and the Holder shall enter into a Restricted Share Award Agreement
setting forth each of the matters contemplated hereby and such other matters as
the Committee may determine to be appropriate.
ARTICLE
IX
UNRESTRICTED
SHARE AWARDS
Pursuant
to the terms of the applicable Unrestricted Share Award Agreement, a Holder may
be awarded (or sold at a discount) Ordinary Shares which are not subject to
Restrictions, in consideration for past services rendered thereby to the Company
or an Affiliate or for other valid consideration.
ARTICLE
X
PERFORMANCE
UNIT AWARDS
Section
10.1 Terms and
Conditions. The Committee shall set forth in the applicable
Performance Unit Award Agreement the performance goals and objectives (and the
period of time to which such goals and objectives shall apply) which the Holder
and/or the Company would be required to satisfy before the Holder would become
entitled to payment pursuant to Section 10.2, the number of Units awarded to the
Holder and the dollar value assigned to each such Unit.
13
Section
10.2 Payments. The
Holder of a Performance Unit shall be entitled to receive a cash payment equal
to the dollar value assigned to such Unit under the applicable Performance Unit
Award Agreement if the Holder and/or the Company satisfy (or partially satisfy,
if applicable under the applicable Performance Unit Award Agreement) the
performance goals and objectives set forth in such Performance Unit Award
Agreement.
ARTICLE
XI
PERFORMANCE
SHARE AWARDS
Section
11.1 Terms and
Conditions. The Committee shall set forth in the applicable
Performance Share Award Agreement the performance goals and objectives (and the
period of time to which such goals and objectives shall apply) which the Holder
and/or the Company would be required to satisfy before the Holder would become
entitled to the receipt of Ordinary Shares pursuant to such Holder’s Performance
Share Award and the number of Ordinary Shares subject to such Performance Share
Award.
Section
11.2 Shareholder Rights and
Privileges. The Holder of a Performance Share Award shall have
no rights as a shareholder of the Company until such time, if any, as the Holder
actually receives Ordinary Shares pursuant to the Performance Share
Award.
ARTICLE
XII
DISTRIBUTION
EQUIVALENT RIGHTS
Section
12.1 Terms and
Conditions. The Committee shall set forth in the applicable
Distribution Equivalent Rights Award Agreement the terms and conditions, if any,
including whether the Holder is to receive credits currently in cash, is to have
such credits reinvested (at Fair Market Value determined as of the date of
reinvestment) in additional Ordinary Shares or is to be entitled to choose among
such alternatives. Distribution Equivalent Rights Awards may be settled in cash
or in Ordinary Shares, as set forth in the applicable Distribution Equivalent
Rights Award Agreement. A Distribution Equivalent Rights Award may, but need not
be, awarded in tandem with another Award, whereby, if so awarded, such
Distribution Equivalent Rights Award shall expire, terminate or be forfeited by
the Holder, as applicable, under the same conditions as under such other
Award.
Section
12.2 Interest
Equivalents. The Distribution Equivalent Rights Award
Agreement for a Distribution Equivalent Rights Award may provide for the
crediting of interest on a Distribution Rights Award to be settled in cash at a
future date, at a rate set forth in the applicable Distribution Equivalent
Rights Award Agreement, on the amount of cash payable thereunder.
ARTICLE
XIII
SHARE
APPRECIATION RIGHTS
14
Section
13.1 Terms and
Conditions. The Committee shall set forth in the applicable
Share Appreciation Right Award Agreement the terms and conditions of the Share
Appreciation Right, including (i) the base value (the “Base Value”) for the
Share Appreciation Right, which for purposes of a Share Appreciation Right which
is not a Tandem Share Appreciation Right, shall be not less than the Fair Market
Value of an Ordinary Share on the date of grant of the Share Appreciation Right,
(ii) the number of Ordinary Shares subject to the Share Appreciation Right,
(iii) the period during which the Share Appreciation Right may be exercised;
provided, however, that no
Share Appreciation Right shall be exercisable after the expiration of ten (10)
years from the date of its grant, and (iv) any other special rules and/or
requirements which the Committee imposes upon the Share Appreciation Right. Upon
the exercise of some or all of the portion of a Share Appreciation Right, the
Holder shall receive a payment from the Company, in cash or in the form of
Ordinary Shares having an equivalent Fair Market Value or in a combination of
both, as determined in the sole discretion of the Committee, equal to the
product of:
(a) The
excess of (i) the Fair Market Value of an Ordinary Share on the date of
exercise, over (ii) the Base Value, multiplied by;
(b) The
number of Ordinary Shares with respect to which the Share Appreciation Right is
exercised.
Section
13.2 Tandem Share Appreciation
Rights. If the Committee grants a Share Appreciation Right which is
intended to be a Tandem Share Appreciation Right, the Tandem Share Appreciation
Right must be granted at the same time as the related Option, and the following
special rules shall apply:
(a) The Base
Value shall be equal to or greater than the exercise price under the related
Option;
(b) The
Tandem Share Appreciation Right may be exercised for all or part of the Ordinary
Shares which are subject to the related Option, but solely upon the surrender by
the Holder of the Holder’s right to exercise the equivalent portion of the
related Option (and when an Ordinary Share is purchased under the related
Option, an equivalent portion of the related Tandem Share Appreciation Right
shall be cancelled);
(c) The
Tandem Share Appreciation Right shall expire no later than the date of the
expiration of the related Option;
(d) The value
of the payment with respect to the Tandem Share Appreciation Right may be no
more than one hundred percent (100%) of the difference between the exercise
price under the related Option and the Fair Market Value of the Ordinary Shares
subject to the related Option at the time the Tandem Share Appreciation Right is
exercised, multiplied by the number of Ordinary Shares with respect to which the
Tandem Share Appreciation Right is exercised; and
(e) The
Tandem Share Appreciation Right may be exercised solely when the Fair Market
Value of the Ordinary Shares subject to the related Option exceeds the exercise
price under the related Option.
15
ARTICLE
XIV
RECAPITALIZATION
OR REORGANIZATION
Section
14.1 Adjustments to Ordinary
Shares. The shares with respect to which Awards may be granted
under the Plan are Ordinary Shares as presently constituted; provided, however, that if, and
whenever, prior to the expiration or distribution to the Holder of an Award
theretofore granted, the Company shall effect a subdivision or consolidation of
the Ordinary Shares or the payment of a share dividend on Ordinary Shares
without receipt of consideration by the Company, the number of Ordinary Shares
with respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding
Ordinary Shares, shall be proportionately increased, and the purchase price per
Ordinary Share shall be proportionately reduced, and (ii) in the event of a
reduction in the number of outstanding Ordinary Shares, shall be proportionately
reduced, and the purchase price per Ordinary Share shall be proportionately
increased. Notwithstanding the foregoing or any other provision of this Article
XIV, any such adjustment made with respect to an Award which is an Incentive
Share Option shall comply with the requirements of Section 424(a) of the Code,
and in no event shall any such adjustment be made which would render any
Incentive Share Option granted under the Plan to be other than an “incentive
stock option” for purposes of Section 422 of the Code.
Section
14.2 Recapitalization. If
the Company recapitalizes or otherwise changes its capital structure, thereafter
upon any exercise or satisfaction, as applicable, of a previously granted Award,
the Holder shall be entitled to receive (or entitled to purchase, if applicable)
under such Award, in lieu of the number of Ordinary Shares then covered by such
Award, the number and class of shares and securities to which the Holder would
have been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the Holder had been the holder of record of the
number of Ordinary Shares then covered by such Award.
Section
14.3 Other
Events. In the event of changes to the outstanding Ordinary
Shares by reason of recapitalization, reorganization, mergers, consolidations,
combinations, exchanges or other relevant changes in capitalization occurring
after the date of the grant of any Award and not otherwise provided for under
this Article XIV, any outstanding Awards and any Award Agreements evidencing
such Awards shall be adjusted by the Board in its discretion as to the number
and price of Ordinary Shares or other consideration subject to such Awards. In
the event of any such change to the outstanding Ordinary Shares, the aggregate
number of Ordinary Shares available under the Plan may be appropriately adjusted
by the Board, the determination of which shall be conclusive.
Section
14.4 Powers Not
Affected. The existence of the Plan and the Awards granted
hereunder shall not affect in any way the right or power of the Board or of the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change of the Company’s capital
structure or business, any merger or consolidation of the Company, any issue of
debt or equity securities ahead of or affecting Ordinary Shares or the rights
thereof, the dissolution or liquidation of the Company or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.
16
Section
14.5 No Adjustment for Certain
Awards. Except as hereinabove expressly provided, the issuance
by the Company of shares of any class or securities convertible into shares of
any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect
previously granted Awards, and no adjustment by reason thereof shall be made
with respect to the number of Ordinary Shares subject to Awards theretofore
granted or the purchase price per share, if applicable.
ARTICLE
XV
AMENDMENT
AND TERMINATION OF PLAN
The Board
in its discretion may terminate the Plan at any time with respect to any shares
for which Awards have not theretofore been granted; provided, however, that the
Plan’s termination shall not materially and adversely impair the rights of a
Holder with respect to any Award theretofore granted without the consent of the
Holder. The Board shall have the right to alter or amend the Plan or any part
hereof from time to time; provided, however, that no
change in any Award theretofore granted may be made which would materially and
adversely impair the rights of a Holder with respect to such Award without the
consent of the Holder (unless such change is required in order to cause the
benefits under the Plan to qualify as “performance-based” compensation within
the meaning of Section 162(m) of the Code).
ARTICLE
XVI
SPECIAL
RULES
Section
16.1 Right of First
Refusal. Solely during such time that the Ordinary Shares are not
publicly traded, no Holder (or beneficiary of a Holder including but not limited
to the Holder’s estate) may sell or otherwise transfer (except for inter vivos
transfers to Family Members) any Ordinary Shares obtained thereby pursuant to an
Award without first (a) providing the Company with a written offer to sell the
Ordinary Shares to the Company on the same terms as were offered to the Holder
(or the Holder’s beneficiary) by a bona fide third party (a copy of which third
party offer shall be attached to the Holder’s or beneficiary’s offer to sell
such Ordinary Shares to the Company) for a sales price and with other terms and
conditions, in each case equal to those stated in the third party’s purchase
offer, and (b) waiting thirty (30) days from the date of the Company’s receipt
of such offer. If the Company shall accept the Holder’s or beneficiary’s offer
in writing within said thirty (30) day period, the Holder or beneficiary and the
Company shall promptly effect such transaction. If the Company does not provide
a written acceptance of the Holder’s or beneficiary’s offer within said thirty
(30) day period, the Holder or beneficiary shall be entitled to accept such
third party’s offer and effect such transaction.
Section
16.2 Call Option. Solely
during such time that the Ordinary Shares are not publicly traded, upon the
termination of (a) an Employee’s employment with the Company or an Affiliate,
(b) a Director’s membership on the Board or on the board of directors of an
Affiliate or (c) a Consultant’s consulting or advisory engagement by the Company
or Affiliate, the Company shall have the right to purchase from such individual
or from such individual’s estate, for a period of 90 days following the date of
such termination, any Ordinary Shares obtained thereby pursuant to the exercise
of a Share Option hereunder for a purchase price equal to the Fair Market Value
of such Ordinary Shares as of the date on which the Company provides written
notice of its intent to exercise its call option hereunder to such individual or
to such individual’s estate; provided, however, that
notwithstanding the foregoing, should the individual’s employment, Board
membership or consulting or advisory engagement be terminated by the Company for
Cause, in lieu of Fair Market Value, the purchase price shall equal the amount
paid, if any, by such individual, to obtain such Ordinary Shares.
17
ARTICLE
XVII
MISCELLANEOUS
Section
17.1 No Right to
Award. Neither the adoption of the Plan by the Company nor any
action of the Board or the Committee shall be deemed to give an Employee,
Director or Consultant any right to an Award except as may be evidenced by an
Award Agreement duly executed on behalf of the Company, and then solely to the
extent and on the terms and conditions expressly set forth therein.
Section
17.2 No Rights
Conferred. Nothing contained in the Plan shall (i) confer upon
any Employee any right with respect to continuation of employment with the
Company or any Affiliate, (ii) interfere in any way with any right of the
Company or any Affiliate to terminate the employment of an Employee at any time,
(iii) confer upon any Director any right with respect to continuation of such
Director’s membership on the Board, (iv) interfere in any way with any right of
the Company or an Affiliate to terminate a Director’s membership on the Board at
any time, (v) confer upon any Consultant any right with respect to continuation
of his or her consulting engagement with the Company or any Affiliate, or (vi)
interfere in any way with any right of the Company or an Affiliate to terminate
a Consultant’s consulting engagement with the Company or an Affiliate at any
time.
Section
17.3 Other Laws;
Withholding. The Company shall not be obligated to issue any
Ordinary Shares pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and under such other state and federal laws, rules or regulations as
the Company or the Committee deems applicable and, in the opinion of legal
counsel of the Company, if there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such Ordinary Shares. No fractional Ordinary Shares shall be delivered,
nor shall any cash in lieu of fractional Ordinary Shares be paid. The Company
shall have the right to deduct in cash (whether under this Plan or otherwise) in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations. In the case of any Award satisfied in the form of Ordinary Shares,
no Ordinary Shares shall be issued unless and until arrangements satisfactory to
the Company shall have been made to satisfy any tax withholding obligations
applicable with respect to such Award. Subject to such terms and conditions as
the Committee may impose, the Company shall have the right to retain, or the
Committee may, subject to such terms and conditions as it may establish from
time to time, permit Holders to elect to tender, Ordinary Shares (including
Ordinary Shares issuable in respect of an Award) to satisfy, in whole or in
part, the amount required to be withheld.
Section
17.4 No Restriction on Corporate
Action. Nothing contained in the Plan shall be construed to
prevent the Company or any Affiliate from taking any corporate action which is
deemed by the Company or such Affiliate to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the Plan or
any Award made under the Plan. No Employee, Director, Consultant, beneficiary or
other person shall have any claim against the Company or any Affiliate as a
result of any such action.
18
Section
17.5 Restrictions on
Transfer. No Award under the Plan or any Award Agreement and no rights or
interests herein or therein, shall or may be assigned, transferred, sold,
exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a
Holder except (i) by will or by the laws of descent and distribution, or (ii)
except for an Incentive Share Option, by gift to any Family Member of the
Holder. An Award may be exercisable during the lifetime of the Holder only by
such Holder or by the Holder’s guardian or legal representative unless it has
been transferred by gift to a Family Member of the Holder, in which case it
shall be exercisable solely by such transferee. Notwithstanding any such
transfer, the Holder shall continue to be subject to the withholding
requirements provided for under Section 17.3 hereof.
Section
17.6 Beneficiary
Designations. Each Holder may, from time to time, name a
beneficiary or beneficiaries (who may be contingent or successive beneficiaries)
for purposes of receiving any amount which is payable in connection with an
Award under the Plan upon or subsequent to the Holder’s death. Each such
beneficiary designation shall serve to revoke all prior beneficiary
designations, be in a form prescribed by the Company and be effective solely
when filed by the Holder in writing with the Company during the Holder’s
lifetime. In the absence of any such written beneficiary designation, for
purposes of the Plan, a Holder’s beneficiary shall be the Holder’s
estate.
Section
17.7 Rule
16b-3. It is intended that, at any time when the Ordinary
Shares are registered under Section 12 of the Exchange Act, the Plan and any
Award made to a person subject to Section 16 of the Exchange Act shall meet all
of the requirements of Rule 16b-3. If any provision of the Plan or of any such
Award would disqualify the Plan or such Award under, or would otherwise not
comply with the requirements of, Rule 16b-3, such provision or Award shall be
construed or deemed to have been amended as necessary to conform to the
requirements of Rule 16b-3.
Section
17.8 Section
162(m). It is intended that, at any time when the Ordinary
Shares are registered under Section 12 of the Exchange Act, the Plan shall
comply fully with and meet all the requirements of Section 162(m) of the Code so
that Awards hereunder which are made to Holders who are “covered employees” (as
defined in Section 162(m) of the Code) shall constitute “performance-based”
compensation within the meaning of Section 162(m) of the Code. The performance
criteria to be utilized under the Plan for such purposes shall consist of
objective tests based on one or more of the following: earnings or earnings per
share, cash flow, customer satisfaction, revenues, financial return ratios (such
as return on equity and/or return on assets), market performance, shareholder
return and/or value, operating profits, EBITDA, net profits, profit returns and
margins, share price, credit quality, sales growth, market share, comparisons to
peer companies (on a company-wide or divisional basis), working capital and/or
individual or aggregate employee performance. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan to comply with
Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section
162(m).
19
Section
17.9 Section
409A. Notwithstanding any other provision of the Plan, the
Committee shall have no authority to issue an Award under the Plan with terms
and/or conditions which would cause such Award to constitute non-qualified
“deferred compensation” under Section 409A of the Code. Accordingly,
by way of example but not limitation, no Option shall be granted under the Plan
with a per share Option exercise price which is less than the Fair Market Value
of an Ordinary Share on the date of grant of the
Option. Notwithstanding anything herein to the contrary, no Award
Agreement shall provide for any deferral feature with respect to an Award which
constitutes a deferral of compensation under Section 409A of the
Code. The Plan and all Award Agreements are intended to comply with
the requirements of Section 409A of the Code and shall be so interpreted and
construed.
Section
17.10 Other
Plans. No Award, payment or amount received hereunder shall be
taken into account in computing an Employee’s salary or compensation for the
purposes of determining any benefits under any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate, unless such
other plan specifically provides for the inclusion of such Award, payment or
amount received.
Section
17.11 Limits of
Liability. Any liability of the Company with respect to an
Award shall be based solely upon the contractual obligations created under the
Plan and the Award Agreement. None of the Company, any member of the Board nor
any member of the Committee shall have any liability to any party for any action
taken or not taken, in good faith, in connection with or under the
Plan.
Section
17.12 Governing
Law. Except as otherwise provided herein, the Plan shall be
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
Section
17.13 Severability of
Provisions. If any provision of the Plan is held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of the Plan, and the Plan shall be construed and enforced as if such
invalid or unenforceable provision had not been included in the
Plan.
Section
17.14 No
Funding. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of funds or assets to ensure the payment of any Award.
Section
17.15 Headings. Headings
used throughout the Plan are for convenience only and shall not be given legal
significance.
Section
17.16 Terms of Award
Agreements. Each Award shall be evidenced by an Award Agreement, which
Award Agreement, if it provides for the issuance of Ordinary Shares, shall
require the Holder to enter into and be bound by the terms of the Company’s
Shareholders’ Agreement, if any. The terms of the Award Agreements
utilized under the Plan need not be the same.
20
Appendix A
[Applicable
Law Appendix]
|
1.
|
Regulations
on the Foreign Exchange System of The People’s Republic of China, issued
by the State Council in 2008.
|
|
2.
|
Measures
for Administration of Individual Foreign Exchange, issued by the People’s
Bank of China in 2006.
|
|
3.
|
Detailed
Rules of the Measures for Administration of Individual Foreign Exchange,
issued by the State Administration of Foreign Exchange
(SAFE), in 2007.
|
|
4.
|
Notice
of the State Administration of Foreign Exchange on Relevant Issues
concerning Foreign Exchange Administration for Domestic Residents to
Engage in Financing and in Return Investment via Overseas Special Purpose
Companies (Circular 75) and its Operation Rules (Circular 106) issued by
the SAFE in 2005 and 2007.
|
|
5.
|
Operating
Rules on the Foreign Exchange Administration of the Involvement of
Domestic Individuals in the Employee Stock Ownership Plans and Share
Option Schemes of Overseas Listed Companies (Circular 78), issued by the
SAFE in 2007.
|
|
6.
|
Other
applicable regulations which issued or will be issued by the PRC
government authorities within the Term of this
Plan.
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
20. Indemnification of Directors and Officers
Section
132 of the BVI Business Companies Act, 2004 (as amended) (‘‘BCA’’) generally
provides for indemnification and permits a company to obtain insurance. The
Amended and Restated Memorandum and Articles of Association of the Registrant
follows the BCA. The Registrant intends to obtain director and officer insurance
at the consummation of the Business Combination and Redomestication
Merger.
The
following is a statement of Section 132 of the BCA:
‘‘Indemnification.
(1) Subject
to subsection (2) and its memorandum or articles, a company may indemnify
against all expenses, including legal fees, and against all judgments, fines and
amounts paid in settlement and reasonably incurred in connection with legal,
administrative or investigative proceedings any person who
(a)is or
was a party or is threatened to be made a party to any threatened, pending or
completed proceedings, whether civil, criminal, administrative or investigative,
by reason of the fact that the person is or was a director of the company;
or
(b)is or
was, at the request of the company, serving as a director of, or in any other
capacity is or was acting for, another body corporate or a partnership, joint
venture, trust or other enterprise.
(2) Subsection
(1) does not apply to a person referred to in that subsection unless the person
acted honestly and in good faith and in what he believed to be in the best
interests of the company and, in the case of criminal proceedings, the person
had no reasonable cause to believe that his conduct was unlawful.
(2A) For
the purposes of subsection (2), a director acts in the best interests of the
company if he acts in the best interests of:
(a) the
company’s holding company; or
(b) a
shareholder or shareholders of the company;
in either
case, in the circumstances specified in section 120(2), (3) or (4), as the case
maybe;
(3) The
termination of any proceedings by any judgment, order, settlement, conviction or
the entering of a nolle prosequi does not, by itself, create a presumption that
the person did not act honestly and in good faith and with a view to the best
interests of the company or that the person had reasonable cause to believe that
his conduct was unlawful.
(3A) Expenses,
including legal fees, incurred by a director in defending any legal,
administrative or investigative proceedings may be paid by the company in
advance of the final disposition of such proceedings upon receipt of an
undertaking by or on behalf of the director to repay the amount if it shall
ultimately be determined that the director is not entitled to be indemnified by
the company in accordance with subsection (1).
(3B) Expenses,
including legal fees, incurred by a former director in defending any legal,
administrative or investigative proceedings may be paid by the company in
advance of the final disposition of such proceedings upon receipt of an
undertaking by or on behalf of the former director to repay the amount if it
shall ultimately be determined that the former director is not entitled to be
indemnified by the company in accordance with subsection (1) and upon such other
terms and conditions, if any, as the company deems appropriate.
II -
1
(3C) The
indemnification and advancement of expenses provided by, or granted pursuant to,
this section is not exclusive of any other rights to which the person seeking
indemnification or advancement of expenses may be entitled under any agreement,
resolution of members, resolution of disinterested directors or otherwise, both
as to acting in the person’s official capacity and as to acting in another
capacity while serving as a director of the company.
(4) If
a person referred to in subsection (1) has been successful in defense of any
proceedings referred to in subsection (1), the person is entitled to be
indemnified against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
(5) A
company shall not indemnify a person in breach of subsection (2) and, any
indemnity given in breach of that section is void and of no
effect.’’
The
following is a statement of Section 133 of the BCA:
‘‘Insurance.
A company
may purchase and maintain insurance in relation to any person, who is or was a
director of the company, or who at the request of the company is or was serving
as a director of, or in any other capacity is or was acting for, another body
corporate or a partnership, joint venture, trust or other enterprise, against
any liability asserted against the person and incurred by the person in that
capacity, whether or not the company has or would have had the power to
indemnify the person against the liability under section 132.’’
ITEM
21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Exhibits
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
2.1
|
Agreement
and Plan of Merger, dated as of August 13, 2008, by and among Alyst
Acquisition Corp., China Networks Media, Ltd., MediaInv Ltd., Li
Shuangqing, Kerry
Propper, China Networks International Holdings Ltd. and China
Networks Merger Co., Ltd
|
Attached
as Annex A to the joint proxy statement/prospectus, which is part of this
registration statement on Form S-4.
|
||
| 2.2 |
Amendment
No. 1 to the Merger Agreement ,
dated as of January 28, 2009 ,
by and among Alyst Acquisition Corp., China Networks Media, Ltd., MediaInv
Ltd., Li Shuangqing, Kerry
Propper, China Networks International Holdings Ltd. and China
Networks Merger Co., Ltd
|
Attached
as Annex B to the joint proxy statement/prospectus, which is part of this
registration statement on Form S-4.
|
||
|
3.1
|
Form
of Amended and Restated Memorandum of Association
|
Attached
as Annex C to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
3.2
|
Form
of Amended and Restated Articles of Association
|
Attached
as Annex D to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
4.1*
|
Specimen
Unit Certificate
|
|||
|
4.2*
|
Specimen
Ordinary Share Certificate
|
|||
|
4.3*
|
Form
of Unit Purchase Option
|
|||
|
4.4*
|
Form
of Warrant
|
|||
|
4.5*
|
Form
of Warrant Agreement
|
|||
|
5.1*
|
Opinion
of Maples & Calder
|
II -
2
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
5.2*
|
Opinion
of TransAsia Lawyers
|
|||
|
8.1*
|
Opinion
of McDermott Will & Emery LLP
|
|||
|
10.1
|
Form
of Service Agreement between Advertising Networks Limited and Li
Shuangqing
|
|||
|
10.2
|
Purchase
Agreement, dated as of July 21, 2008, by and among China Networks Media
and the investors listed on the Schedule of Investors attached thereto as
Schedule I
|
|||
|
10.3
|
Registration
Rights Agreement, dated July 21, 2008, by and among China Networks Media
and the investors listed on Schedule A attached thereto
|
|||
|
10.4
|
Share
Pledge Agreement, dated as of July 21, 2008, by Kerry Propper and MediaInv
Ltd. in favor of the persons and entities listed on the Schedule of
Investors attached thereto as Schedule III
|
|||
|
10.5*
|
Form
of Registration Rights Agreement among the Registrant and the Initial
Stockholders
|
|||
|
10.6
|
Escrow
Agreement, dated June 19, 2008, between the Alyst Acquisition
Corp., Chardan Capital Markets, LLC, Grushko & Mittman and the
subscribers to China Networks Media’s Bridge Loan
|
|||
|
10.7
|
Form
of China Networks Media Bridge Loan Promissory Note
|
|||
|
10.8
|
Collateral
Agent Agreement, dated July 21, 2008, by and between China
Networks Media, Collateral Agents, LLC, the Investors listed on Schedule A
thereto, Kerry Propper and Clive Ng.
|
|||
|
10.9
|
Framework
Agreement between Advertising Networks Limited and China Yellow River
Television Station, dated January 26, 2008
|
|||
|
10.10
|
Supplementary
Agreement between China Yellow River Television Station and Advertising
Networks Limited
|
|||
|
10.11
|
Exclusive
Services Agreement between Shanxi Yellow River and Advertising Networks
Cartoon Technology Co., Ltd and Taiyuan Advertising Networks Advertising
Co., Ltd, dated July 17 , 2008
|
II -
3
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
10.12
|
Exclusive
Cooperation Agreement between China Yellow River Television Station and
Shanxi Yellow River and Advertising Networks Cartoon Technology Co., Ltd.,
dated July 17, 2008
|
|||
|
10.13
|
Asset
Transfer Agreement between China Yellow River Television Station and
Shanxi Yellow River and Advertising Networks Cartoon Technology Co., Ltd.,
dated July 17, 2008
|
|||
|
10.14
|
Equity
Joint Venture Contract between China Yellow River Television Station and
Advertising Networks Limited
|
|||
|
10.15
|
Framework
Agreement between Advertising Networks Limited and Kunming Television
Station, dated February 2008
|
|||
|
10.16
|
Supplementary
Agreement between Kunming Television Station and Advertising Networks
Limited, dated May 2008
|
|||
|
10.17
|
Exclusive
Services Agreement between Kunming Taishi Information Cartoon Co., Ltd.
and Kunming Kaishi Advertising Co., Ltd., dated May
2008
|
|||
|
10.18
|
Exclusive
Cooperation Agreement between Kunming Television Station and Kunming
Taishi Information Cartoon Co., Ltd., dated May 2008
|
|||
|
10.19
|
Asset
Transfer Agreement between Kunming Television Station and Kunming Taishi
Information Cartoon Co., Ltd., dated May 2008
|
|||
|
10.20
|
Equity
Joint Venture Contract between Kunming Television Station and Advertising
Networks Limited, dated May 2008
|
|||
|
10.21
|
Trustee
Arrangement Letter, by and between China Networks Media Limited and Li
Shuangqing, dated May 1, 2008
|
|||
|
10.22
|
Trustee
Arrangement Letter, by and between China Networks Media Limited and Guan
Yong, dated May 1, 2008
|
|||
|
10.23
|
Amended
Loan Agreement by and between Advertising Networks Limited, Li Shuangqing
and Guan Yong, dated October 7, 2008
|
|||
| 10.24 | Amended Share Pledge Agreement between Advertising Networks Technology Consulting (Beijing) Co., Ltd., Li Shuangqing and Guan Yong, dated October 7, 2008 | |||
| 10.25 |
Share
Purchase Option Agreement between Advertising Networks Limited, Li
Shuangqing, Guan Yong and Beijing Guanwang Hetong Advertising & Media
Co., Ltd., dated October 7, 2008
|
II -
4
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
10.26
|
Form
of Employment Agreement between China Networks Media Ltd. and Michael
Weksel
|
|||
| 10.27 | Form of 2008 Omnibus Securities and Incentive Plan |
Attached
as Annex G to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
23.1
|
Consent
of Marcum & Kliegman LLP
|
|||
|
23.2
|
Consent
of UHY Vocation HK CPA Limited
|
|||
|
23.3
|
Consent
of UHY LLP
|
|||
|
23.4*
|
|
Consent
of McDermott Will & Emery LLP (included in Exhibit
8.1)
|
|
|
|
99.1
|
Consent of Kerry Propper | |||
|
99.2
|
Consent of Li Shuangqing | |||
|
99.3
|
Proxy For Special Meeting of Stockholders | |||
| 99.4 | Notice of Internet Availability of Proxy Materials |
* To
be filed by amendment.
(b)
Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
(1) To file, during
any period in which offers or sales are being made, a post effective amendment
to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the ‘‘Calculation of Registration Fee’’ table in the
effective registration statement.
(iii) To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the
purpose of determining any liability under the Securities Act of 1933, each such
post effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from
registration by means of a post effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(4)
To file a post-effective amendment to the registration statement to include any
financial statements required by Item 8.A of Form 20-F at the start of any
delayed offering or throughout a continuous offering.
(5)
That, for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i) If the
registrant is relying on Rule 430B:
II -
5
(A) Each prospectus
filed by the registrant pursuant to Rule 424(b) (3) shall be deemed to be part
of the registration statement as of the date the filed prospectus was deemed
part of and included in the registration statement; and
(B) Each prospectus
required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(l)(i), (vii), or (x) for the purpose of providing the
information required by section 10(a) of the Securities Act of 1933 shall be
deemed to be part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after effectiveness or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall, be
deemed to be a new effective date of the registration statement relating to the
securities in the registration statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration; statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date; or
(ii) If the registrant
is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part
of a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
date of first use.
(6) That, for the
purpose of determining liability of the registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary
prospectus or prospectus of the undersigned registrant relating to the offering
required to be filed pursuant to Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned registrant;
(iii) The portion
of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
The
undersigned registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
II -
6
The
registrant undertakes that every prospectus: (1) that is filed pursuant to the
immediately preceding paragraph, or (2) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The
undersigned registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11, or 13 of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
The
undersigned registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II -
7
SIGNATURES
Pursuant
to the requirements of the Securities Act, the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 29th day of
January 2009.
|
CHINA
NETWORKS INTERNATIONAL HOLDINGS, LTD.
|
|||
|
By:
|
/s/ Michael E.
Weksel
|
||
|
Name:
Michael E. Weksel
|
|||
|
Title: Chief
Executive Officer and Chairman
|
|||
Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following person in the
capacities and on the date indicated.
|
Name
|
Title
|
Date
|
||
|
/s/ Michael E. Weksel
|
Chief
Executive Officer and Chairman
|
January
29, 2009
|
||
|
Michael
E. Weksel
|
(Principal
Executive Officer, Principal Accounting Officer and Principal Financial
Officer)
|
II -
8
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
of Exhibit
|
|||
|
2.1
|
Agreement
and Plan of Merger, dated as of August 13, 2008, by and among Alyst
Acquisition Corp., China Networks Media, Ltd., MediaInv Ltd., Li
Shuangqing, Kerry
Propper, China Networks International Holdings Ltd. and China Networks
Merger Co., Ltd
|
Attached
as Annex A to the joint proxy statement/prospectus, which is part of
this registration statement on Form S-4.
|
||
|
|
||||
|
2.2
|
Amendment
No. 1 to the Merger Agreement ,
dated as of January 28, 2009 ,
by and among Alyst Acquisition Corp., China Networks Media, Ltd., MediaInv
Ltd., Li Shuangqing, Kerry
Propper, China Networks International Holdings Ltd. and China
Networks Merger Co., Ltd
|
Attached
as Annex B to the joint proxy statement/prospectus, which is part of this
registration statement on Form S-4.
|
||
|
3.1
|
Form
of Amended and Restated Memorandum of Association
|
Attached
as Annex C to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
|
||||
|
3.2
|
Form
of Amended and Restated Articles of Association
|
Attached
as Annex D to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
4.1*
|
Specimen
Unit Certificate
|
|||
|
4.2*
|
Specimen
Ordinary Share Certificate
|
|||
|
4.3*
|
Form
of Unit Purchase Option
|
|||
|
4.4*
|
Form
of Warrant
|
|||
|
4.5*
|
Form
of Warrant Agreement
|
|||
|
5.1*
|
Opinion
of Maples & Calder
|
|||
|
5.2*
|
Opinion
of TransAsia Lawyers
|
|||
|
8.1*
|
Opinion
of McDermott Will & Emery LLP
|
|||
|
10.1
|
Form
of Service Agreement between Advertising Networks
Limited and Li Shuangqing
|
|||
|
10.2
|
Purchase
Agreement, dated as of July 21, 2008, by and among China Networks Media
and the investors listed on the Schedule of Investors attached thereto as
Schedule I
|
|||
|
10.3
|
Registration
Rights Agreement, dated July 21, 2008, by and among China Networks Media
and the investors listed on Schedule A attached
thereto
|
|||
|
10.4
|
Share
Pledge Agreement, dated as of July 21, 2008, by Kerry Propper and MediaInv
Ltd. in favor of the persons and entities listed on the Schedule of
Investors attached thereto as Schedule III
|
|||
|
10.5*
|
Form
of Registration Rights Agreement among the Registrant and the Initial
Stockholders
|
II -
9
|
Exhibit
Number
|
Description
of Exhibit
|
|||
|
10.6
|
Escrow
Agreement, dated June 19, 2008, between the Alyst Acquisition Corp.,
Chardan Capital Markets, LLC, Grushko & Mittman and the subscribers to
China Networks Media’s Bridge Loan
|
|||
|
10.7
|
Form
of China Networks Media Bridge Loan Promissory Note
|
|||
|
10.8
|
Collateral
Agent Agreement, dated July 21, 2008, by and between China Networks
Media, Collateral Agents, LLC, the Investors listed on Schedule A thereto,
Kerry Propper and Clive Ng.
|
|||
|
10.9
|
Framework
Agreement between Advertising Networks Limited and Yellow River Television
Stations, dated January 26, 2008
|
|||
|
|
||||
|
10.10
|
Supplementary
Agreement between Yellow River Television Stations and Advertising
Networks Limited
|
|||
|
10.11
|
Exclusive
Services Agreement between Shanxi Yellow River and Advertising Networks
Cartoon Technology Co., Ltd and Taiyuan Advertising Networks Advertising
Co., Ltd dated July 17, 2008
|
|||
|
10.12
|
Exclusive
Cooperation Agreement between China Yellow River Television Station and
Shanxi Yellow River and Advertising Networks Cartoon Technology Co., Ltd.,
dated July 17, 2008
|
|||
|
10.13
|
|
Asset
Transfer Agreement between Yellow River Television Stations and Shanxi
Yellow River and Advertising Networks Cartoon Technology Co., Ltd., dated
July 17, 2008
|
||
|
10.14
|
Equity
Joint Venture Contract between Yellow River Television Stations
and Advertising Networks Limited
|
|||
|
10.15
|
Framework
Agreement between Advertising Networks Limited and Kunming Television
Stations, dated February 2008
|
|||
|
10.16
|
Supplementary
Agreement between Kunming Television Stations and Advertising Networks
Limited, dated May 2008
|
|||
|
10.17
|
Exclusive
Services Agreement between Kunming JV Tech Cos Information Cartoon Co.,
Ltd. and Kunming Kaishi Advertising Co., Ltd., dated May,
2008
|
|||
|
10.18
|
Exclusive
Cooperation Agreement between Kunming Television Stations and Kunming
Taishi Information Cartoon Co., Ltd. dated May, 2008
|
|||
|
10.19
|
Asset
Transfer Agreement between Kunming Television Stations and Kunming Taishi
Information Cartoon Co., Ltd., dated May 2008
|
|||
|
10.20
|
Equity
Joint Venture Contract between Kunming Television Stations and Advertising
Networks Limited, dated May 2008
|
II -
10
|
Exhibit
Number
|
Description
of Exhibit
|
|||
|
10.21
|
Trustee
Arrangement Letter, by and between China Networks Media Limited and Li
Shuangqing, dated May 1, 2008
|
|||
|
10.22
|
Trustee
Arrangement Letter, by and between China Networks Media Limited and Guan
Yong, dated May 1, 2008
|
|||
|
10.23
|
Amended
Loan Agreement by and between Advertising Networks Limited, Li Shuangqing
and Guan Yong, dated October 7, 2008
|
|||
|
10.24
|
Amended Share
Pledge Agreement between Advertising Networks Technology Consulting
(Beijing) Co., Ltd., Li Shuangqing and Guan Yong, dated October 7,
2008
|
|||
|
10.25
|
Share
Purchase Option Agreement between Advertising Networks Limited, Li
Shuangqing, Guan Yong and Beijing Guanwang Hetong Advertising & Media
Co., Ltd., dated October 7, 2008
|
|||
|
10.26
|
Form of Employment Agreement between China Networks Media Ltd. and
Michael Weksel
|
|||
|
10.27
|
Form of 2008
Omnibus Securities and Incentive Plan
|
Attached
as Annex G to
the joint proxy statement/prospectus, which is part of this registration
statement on Form S-4.
|
||
|
23.1
|
Consent
of Marcum & Kliegman LLP
|
|||
|
23.2
|
Consent
of UHY Vocation HK CPA Limited
|
|||
|
23.3
|
Consent
of UHY LLP
|
|||
|
23.4*
|
|
Consent
of McDermott Will & Emery LLP (included in Exhibit
8.1)
|
|
|
|
99.1
|
Consent
of Kerry Propper
|
|||
|
99.2
|
Consent
of Li Shuangqing
|
|||
|
99.3
|
Proxy
For Special Meeting of Stockholders
|
|||
|
99.4
|
Notice
of Internet Availability of Proxy Materials
|
|||
| * |
To
be filed by
amendment .
|
II -
11