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PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
AND
PROSPECTUS FOR UP TO 5,257,121 SHARES OF COMMON STOCK
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• | except as otherwise permitted by the Letter of Undertaking, to not transfer, dispose of or create an encumbrance on any of their ChinaCast shares from July 13, 2006 (the “Commencement Date”), until the earlier of the date that the Offer lapses unconsummated or Great Wall withdraws the Offer (the “Expiration Time”); | |
• | to not breach their obligations under the Letters of Undertaking; | |
• | except with Great Wall’s prior written consent, during the period from the Commencement Date and ending at the Expiration Time, to not directly or indirectly solicit, encourage (including without limitation, by way of providing information concerning Great Walland/or any of its subsidiaries to any person), vote in favor of, initiate or participate in any tender (including without limitation accepting any tender offer), negotiations, discussions or resolutions with respect to any expression of interest, offer or proposal by any person other than Great Wall to acquire an interest in all or a substantial part of the business, operations or undertakings of ChinaCast and its subsidiaries or in five percent or more of the issued share capital of ChinaCast, acquire control of ChinaCast or otherwise acquire or merge with ChinaCast (including by way of scheme of arrangement, capital restructuring, tender offer, joint venture or dual listed company structure); | |
• | within seven business days after the date of dispatch of the offer document in respect of the Offer, to tender their ChinaCast shares and elect the Stock Offer; and | |
• | notwithstanding any rights of withdrawal under the Singapore Code on Takeovers and Mergers, to not withdraw any of their ChinaCast shares tendered, unless the Offer lapses without Great Wall’s having accepted their tendered shares or is withdrawn by Great Wall. |
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AND THE GREAT WALL SPECIAL MEETING
Q. | Why is Great Wall proposing the Acquisition? | |
A. | Great Wall was organized to acquire a China-based operating business having significant growth potential. On September 13, 2005, Great Wall announced that holders of a majority of the outstanding ordinary shares of ChinaCast Communication Holdings Limited irrevocably agreed to accept a pre-conditional voluntary tender offer made by Great Wall. These ChinaCast shareholders (the “ChinaCast Majority”) agreed to accept Great Wall common stock in exchange for their ChinaCast shares; other ChinaCast shareholders will have the option of choosing between Great Wall common stock (the ‘‘Stock Offer”) and cash (in Singapore dollars) for their shares (the “Cash Offer,” and together with the Stock Offer, the ‘‘Offer”). As a result of this transaction, Great Wall will acquire control of ChinaCast, and at the same time become at least 65.7% owned by former ChinaCast shareholders (without taking into account Great Wall warrants). (Exercises of Great Wall warrants could reduce the total ownership of Great Wall by former ChinaCast shareholders to less than 50%.) | |
ChinaCast is one of the leading providers ofe-learning services to K-12 schools, universities, government agencies and corporate enterprises in the People’s Republic of China and has been listed on the Main Board of the Singapore Exchange Securities Trading Limited since May 2004. Great Wall believes that a business combination with ChinaCast will provide Great Wall stockholders with an opportunity to invest in a company with significant growth potential. Great Wall has been aware since the beginning of acquisition discussions with ChinaCast that the primary focus of ChinaCast’s business is that of a disseminator ofe-learning services rather than a provider of content ofe-learning services. Great Wall has subsequently amended or modified its disclosures to more accurately describe the business of ChinaCast. Great Wall determined to pursue the ChinaCast acquisition based on an accurate understanding of ChinaCast’s business. Specifically, it has been known to Great Wall since the time that it began its pursuit of the proposed ChinaCast acquisition, that ChinaCast’se-learning content business has not been as significant a portion of its overall business as itse-learning dissemination business. Great Wall’s valuation analysis of ChinaCast and its business was based on the public market valuation of ChinaCast in Singapore and on the valuation analysis performed by W.R. Hambrecht as more fully described elsewhere in this proxy statement/prospectus— not on statements made by ChinaCast regarding the extent to which it providese-learning content. The companies which were the subject of W.R. Hambrecht’s valuation analysis were, on the whole, companies whose business was comparable to that of ChinaCast i.e. companies whose businesses were not primarily focused on the provision of content. Great Wall acknowledges that in past public filings, it provided disclosure which over-emphasized the size and scope of ChinaCast’s content provision business, and in fact erroneously referred to ChinaCast as a “leading provider of content”. Great Wall further acknowledges that these statements may have been materially misleading to its shareholders and its potential investors. To the extent that any shareholder of Great Wall relied upon this information in making its decision whether or not to vote to approve the proxy extension or any shareholder of Great Wall relied upon this information in making its decision whether or not to purchase or sell securities of Great Wall, the Company may be subject to claims for damages or recission under the federal securities laws. | ||
Great Wall’s proposed acquisition of ChinaCast is intended to be a qualifying “business combination” under Great Wall’s amended and restated certificate of incorporation, or charter. If the proposed acquisition of at least a majority interest in ChinaCast is not approved by Great Wall stockholders and completed by December 31, 2006, Great Wall will be liquidated and its net assets returned to stockholders. | ||
Q. | What is being voted on? | |
A. | You are being asked to vote on three proposals, to: | |
• | Approve the acquisition (the “Acquisition”) by Great Wall of ChinaCast and the transactions contemplated thereby. |
• | Amend Great Wall’s charter to increase the number of authorized shares of its common stock to 100,000,000. |
• | Change Great Wall’s corporate name to “ChinaCast Education Corporation.” |
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Each proposal is essential to the Acquisition, and, therefore, Great Wall’s Board of Directors will abandon it unless all are approved by stockholders. None of the proposals will be effectuated unless the Acquisition is completed. | ||
As noted in “What other important considerations are there?” of this Q&A, “Summary — The Acquisition” and “— Possible Claims Against and Impairment of the IPO Trust Account,” “Risk Factors,” “The ChinaCast Acquisition — Possible Claims Against and Impairment of the IPO Trust Account” and “Information About Great Wall — Liquidation if no business combination,” in pursuing the Acquisition, Great Wall has incurred substantial additional transaction expenses, and the Acquisition may also result in securities law and other claims being made against Great Wall whose holders might seek to have the claims satisfied from funds in the IPO trust account. If Great Wall incurs material liability as a result of potential securities law or other claims, the IPO trust account could be depleted to the extent of any judgments arising from such claims, in addition to transaction expenses that are not paid by the combined company or Great Wall’s two insiders who, as discussed below, have agreed to indemnify it against certain claims and expenses. Moreover, attendant litigation could result in delay in payments to Public Shareholders of IPO trust account funds on conversion or liquidation. | ||
Q. | Why is Great Wall proposing two charter amendments? | |
A. | Great Wall is proposing to amend its charter at the time of the Acquisition to increase the number of authorized shares of Great Wall common stock to 100,000,000 and change Great Wall’s corporate name to “ChinaCast Education Corporation.” Great Wall must increase its authorized common stock to accommodate all ChinaCast shareholders who may elect the Stock Offer. While it currently has no specific plans to do so, Great Wall also intends for additional increased capitalization to be available for future acquisitions, compensation plans and other corporate purposes. The name change will reflect the significance of the ChinaCast acquisition to Great Wall. None of the proposals will be effectuated unless the Acquisition is completed. | |
Q. | How do the Great Wall insiders intend to vote their shares? | |
A. | All Great Wall insiders who purchased their shares prior to Great Wall’s initial public offering (“Private Shares”), including Great Wall’s sole director, have agreed to vote all of their shares (including shares acquired after the IPO) in accordance with the holders of a majority of the Public Shares voting in person or by proxy at the meeting: If holders of a majority of the Public Shares vote for or against, or abstain with respect to, a proposal, the initial stockholders will cast all their shares in the same manner as such majority votes on such proposal. No initial holder will demand conversion of any Public Shares he owns. Shares acquired after the IPO by any Great Wall insider, which are subject to the foregoing agreement, will be counted as part of the aggregate number of Public Shares at the meeting, a majority of which are required to vote in favor of each proposal for the ChinaCast Acquisition to be approved. | |
Q. | What vote is required to approve the Acquisition? | |
A. | Under Great Wall’s charter, approval of the Acquisition requires the affirmative vote of holders of a majority of the outstanding shares of Great Wall’s common stock. As noted above, stockholders of Great Wall who purchased 1,000,000 shares prior to its IPO and currently own 1,250,000 shares, have agreed to vote all their shares (including shares acquired after the IPO) in accordance with the holders of a majority of the Public Shares voting in person or by proxy at the meeting. Therefore, as a practical matter, the affirmative vote of holders of a majority of the Public Shares present in person or by proxy at the meeting will be required to approve the Acquisition. Since, however, Great Wall’s IPO prospectus arguably misstated the vote required to approve a business combination by providing that “[w]e will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in [that] offering vote in favor [of it] ...,” the affirmative vote of holders of a majority of the Public Shares outstanding will be required to approve the Acquisition. In all events, if the holders of 903,195 or more Public Shares (20% of the total) vote against the Acquisition and demand that Great Wall convert their Public Shares into pro rata portions of the trust account established at the time of the IPO (as described below), however, the Acquisition will not be consummated. | |
Q. | What vote is required to adopt the two charter amendments? | |
A. | Approval of each of the two charter amendments will require the affirmative vote of holders of a majority of the Great Wall common stock outstanding on the record date. The same arrangements described above for the Acquisition vote apply to the votes on these proposals. |
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Q. | What will Great Wall stockholders receive in the Acquisition? | |
A. | Great Wall security holders will continue to own the securities they currently hold and will not receive any of the Great Wall common stock or cash paid to ChinaCast shareholders in the Acquisition. As a result of the Acquisition, former ChinaCast shareholders will own at least 65.7% of Great Wall (without taking into account Great Wall warrants). Great Wall’s sole director, Kin Shing Li, has informed Great Wall that he does not expect to sell any of his holdings in Great Wall, including his unexercised warrants and their underlying securities. Great Wall’s sole director is proposing the Acquisition, however, because he believes stockholders will benefit from Great Wall’s ownership of ChinaCast. | |
Q | Who will manage Great Wall and ChinaCast? | |
A. | The current management of ChinaCast and its subsidiaries is led by Messrs. Yin Jianping, Ron Chan Tze Ngon and Li Wei. Upon consummation of the Offer, Great Wall intends to retain these persons to continue to lead the combined company and serve as management of the public company. In addition, Great Wall intends to nominate each of them to its Board of Directors. Great Wall’s sole director will not continue on the Board after consummation of the Offer. | |
Q. | How much of GreatWall will itscurrentstockholders ownpost-Acquisition? | |
A. | Based on the Offer exchange ratio, if no Great Wall stockholders demand to convert their Public Shares into pro rata portions of the IPO trust account, Great Wall’s pre-Acquisition holders of Public and Private Shares will own in the aggregate approximately 18.2% (Public Shareholders alone will own 14.2%) of Great Wall’s post-Acquisition common stock, if all ChinaCast shareholders tender their shares and elect the Stock Offer (without taking into account Great Wall warrants). If no ChinaCast shares, other than those of the ChinaCast Majority, are tendered for the Stock Offer, Great Wall’s pre-Acquisition Public and Private Shareholders together will own 34.3% (Public Shareholders alone will own 28.1%) of Great Wall’s post-Acquisition common stock (without taking into account Great Wall warrants). | |
Q. | How much dilutionwill Great Wallstockholdersexperience? | |
A. | There are 5,515,975 shares of Great Wall common stock currently outstanding, 4,515,975 (81.9%) of which are Public Shares. A minimum of 10,551,526 and a maximum of 20,752,301 shares will be issued for the Acquisition of ChinaCast. Therefore, all current Great Wall stockholders together will own approximately between 21% (if all ChinaCast shareholders tender and elect the Stock Offer) and 34.3% (if only the ChinaCast Majority elects the Stock Offer) of the post-Acquisition company, a reduction in percentage ownership of between 79% and 65.7% (without taking into account Great Wall warrants). Public Shareholders alone will own between 17.2% and 28.1%, a reduction in their percentage ownership of between 64.7% and 53.8% (without taking into account Great Wall warrants). The approximately 10.5 million Great Wall common shares to be issued to the ChinaCast Majority shareholders and the approximately 5 million shares held by other ChinaCast shareholders solicited to sign the Letters of Undertaking in the Offer are not covered by this proxy statement/prospectus and will not, therefore, be freely-tradable by those shareholders immediately upon completion of the Acquisition. The Company may file a registration statement relating to resales of such shares by the ChinaCast Majority shareholders and other ChinaCast shareholders solicited to sign the Letters of Undertaking after completion of the Acquisition. | |
Q. | Do Great Wallstockholders haveconversion rights? | |
A. | If you hold Public Shares and vote against the Acquisition, you will have the right to demand that Great Wall convert your shares into a pro rata portion of the IPO trust account. | |
Q. | If I haveconversion rights,how do I exercisethem? | |
A. | If you wish to exercise your conversion rights, you must vote against the Acquisition and at the same time demand that Great Wall convert your Public Shares into cash. If, notwithstanding your vote, the Acquisition is completed, you will be entitled to receive a pro rata portion of the IPO trust account, including any interest earned thereon through the record date, or approximately $5.10 plus interest per share, assuming that the IPO trust account is not reduced by claims against Great Wall as described in “Summary — The Acquisition” and “— Possible Claims Against and Impairment of the IPO Trust Account,” “Risk Factors,” “The ChinaCast Acquisition — Possible Claims Against and Impairment of the IPO Trust Account” and “Information About |
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Great Wall — Liquidation If No Business Combination.” At September 30, 2006, there was $24,849,534 in the IPO trust account. You will be entitled to receive this cash only if you continue to hold your shares through the closing of the Acquisition and then tender your stock certificate(s). Upon conversion of your shares, you will no longer own them. Do not send your stock certificates with your proxy. | ||
Q. | Do Great Wall stockholders have dissenter or appraisal rights under Delaware law? | |
A. | No. | |
Q. | What happens post-Acquisition to the funds deposited in the IPO trust account? | |
A. | Great Wall stockholders exercising conversion rights will receive their pro rata portions of the IPO trust account. The balance of the funds in the account will be paid to ChinaCast shareholders electing the Cash Offer and, if funds remain after such payment, retained by Great Wall for operating capital subsequent to the closing of the Acquisition. Since as much as $36 million may be paid to ChinaCast shareholders who elect the Cash Offer, Great Wall is in discussions with DBS Bank Ltd. (DBS) with respect to a standby credit facility to provide sufficient funds to pay all of ChinaCast shareholders electing the Cash Offer. As certain fees would apply immediately upon entering into definitive arrangements regarding such a credit facility. Great Wall does not expect to do so until immediately prior to commencing the Offer. | |
Q. | What other important considerations are there? | |
A. | Great Wall stockholders may have securities law claims against Great Wall for rescission (under which a successful claimant has the right to receive the total amount paid for his or her shares pursuant to an allegedly deficient prospectus, plus interest and less any income earned on the shares, in exchange for surrender of the shares) or damages (compensation for loss on an investment caused by alleged material misrepresentations or omissions in the sale of the security). Such claims may entitle Great Wall stockholders asserting them to up to US$6.00 per Share, based on the initial offering price of the Units comprised of stock and warrants, less any amount received from sale of the original warrants purchased with them and plus interest from the date of Great Wall’s IPO (which may be more than the pro rata shares of the IPO trust account to which they are entitled on conversion or liquidation). In general, a claim for rescission must be made by a person who purchased shares pursuant to a defective prospectus or other representation, and within the applicable statute of limitations period, which, for claims made under federal law (Section 12 of the Securities Act) and most state statutes, is one year from the time the claimant discovered or reasonably should have discovered the facts giving rise to the claim, but not more than three years from the occurrence of the event giving rise to the claim. A successful claimant for damages under federal or state law could be awarded an amount to compensate for the decrease in value of his or her shares caused by the alleged violation (including, possibly, punitive damages), together with interest, while retaining the shares. Claims under the anti-fraud provisions of the federal securities laws must generally be brought within two years of discovery, but not more than five years after occurrence. Rescission and damages claims would not necessarily be finally adjudicated by the time the Acquisition may be completed, and such claims would not be extinguished by consummation of that transaction. | |
Even if some Great Wall stockholders do not pursue such claims, others may. If they do, holders of such claims, who may include all stockholders who own shares issued in Great Wall’s IPO, might seek to have the claims satisfied from funds in the IPO trust account. If Great Wall incurs material liability as a result of potential securities law or other claims, the IPO trust account could be depleted to the extent of any judgments arising from such claims, together with any expenses related to defending such claims that are not fully indemnified. A consequence might be that holders of Public Shares who elect conversion at the Acquisition vote would not receive the entire amount of their pro rata portion of the IPO trust account to which they would otherwise be entitled, or might be unable to satisfy a rescission or damages award. Great Wall cannot predict whether stockholders will bring such claims, how many might bring them or the extent to which they might be successful. Moreover, attendant litigation could result in delay in payments to Public Shareholders of IPO trust account funds on conversion or liquidation. | ||
Aside from possible securities law claims against Great Wall, you should also be aware that in pursuing the Acquisition, Great Wall has incurred substantial expenses. Great Wall currently has practically no available funds outside the IPO trust account, and will therefore be required to borrow funds or make arrangements with vendors and service providers in reliance on the existing indemnification obligations of Great Wall’s sole director, Kin Shing Li, and Justin Tang, a pre-IPO stockholder of Great Wall, or the expectation that such |
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expenses will be paid by the combined company. If for any reason the ChinaCast acquisition is not consummated and Messrs. Li and Tang do not perform their indemnification obligations, Great Wall’s creditors may also seek to satisfy their claims from funds in the IPO trust account. This could result in further depletion of the IPO trust account, which would reduce a stockholder’s pro rata portion of the IPO trust account upon liquidation. See “Summary — Enforceability of Civil Liabilities Against Non-U.S. Persons,” below. | ||
You should read this proxy statement/prospectus carefully for more information concerning these possibilities and other consequences of approval of the Acquisition. | ||
Q. | What happens if the Acquisition is not consummated? | |
A. | To avoid being required to liquidate, as provided in its charter, Great Wall must consummate a business combination by December 31, 2006. If Great Wall does not acquire at least majority control of ChinaCast pursuant to the Offer by December 31, 2006, Great Wall will dissolve and distribute to its public stockholders the amount in the IPO trust account plus any remaining net assets. Following dissolution, Great Wall would no longer exist as a corporation. This period cannot practically be extended any further. Great Wall has entered into a letter agreement with the trustee of the IPO trust account pursuant to which the trustee has agreed to forbear, on a month-to-month basis until December 31, 2006, from depositing the funds in the IPO trust account with a court as contemplated by the IPO trust agreement. The purpose of this agreement is to effectively preclude any additional extension of the period in which Great Wall is permitted to consummate a business combination and any delay in the liquidation of the IPO trust account. | |
In any liquidation, the funds held in the IPO trust account, plus any interest earned thereon, together with any remainingout-of-trust net assets and subject to possible claims referred to above, will be distributed pro rata to Great Wall common stockholders (other than holders of Private Shares, who have waived any right to any liquidation distribution with respect to them). | ||
Q. | When do you expectthe Acquisition tobe completed? | |
A. | If the Acquisition is approved at the special meeting, Great Wall expects to commence the Offer promptly thereafter. The ChinaCast Majority have agreed to accept the Stock Offer within seven business days after the date of dispatch of the offer document in respect of the Offer, giving Great Wall control of ChinaCast, and therefore constituting consummation of the Acquisition since the closing of the Acquisition of the shares held by the ChinaCast Majority could take place prior to the close of the Offer under Singapore law. If Great Wall obtains 90% or more of the outstanding ChinaCast shares that are subject of the Offer (excluding those, if any, held by Great Wall, its subsidiaries or their nominees at the date of the Offer) or (ii) 95% or more of the outstanding ChinaCast shares at any time, it may seek to obtain the remaining ChinaCast shares that did not accept the Offer through the compulsory acquisition provisions of Bermuda law. | |
Q. | If I am not goingto attend thespecial meeting inperson, should Ireturn my proxycard instead? | |
A. | Yes. After carefully reading and considering the information in this document, 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 or Internet, as explained on the proxy card. A properly executed proxy will be counted for the purpose of determining the existence of a quorum. | |
Q. | What will happen ifI abstain fromvoting or fail tovote? | |
A. | Abstaining or failing to vote will have the same effect as a vote against the Acquisition, except that it will not count toward the 20% “against” vote that would result in the Acquisition’s abandonment, and will not have the effect of converting your Public Shares into a pro rata portion of the IPO trust account. To demand conversion, you must vote against the Acquisition and elect to convert your shares. | |
Q. | How do I change myvote? | |
A. | Send a later-dated, signed proxy card to Great Wall’s secretary prior to the date of the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to Great Wall’s counsel at Loeb & Loeb LLP, 345 Park Avenue, New York, New York10154-1895, Attention: Mitchell S. Nussbaum, Esq. |
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Q. | If my shares areheld in “streetname,” will mybrokerautomatically votethem 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. | Who can help answer my questions? | |
A. | If you have questions, you may write or call Great Wall Acquisition Corporation, 660 Madison Avenue, 15th Floor, New York, New York, 10021,(212) 753-0804, Attention: Mr. Richard Xue, Consultant to Great Wall. |
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• | except as otherwise permitted by the Letter of Undertaking, to not transfer, dispose of or create an encumbrance on any of their ChinaCast shares from July 13, 2006 (the “Commencement Date”), until the earlier of the date that the Offer lapses unconsummated or Great Wall withdraws the Offer (the “Expiration Time”); | |
• | to not breach their obligations under the Letters of Undertaking; | |
• | except with Great Wall’s prior written consent, during the period from the Commencement Date and ending at the Expiration Time, to not directly or indirectly solicit, encourage (including without limitation, by way of providing information concerning Great Walland/or any of its subsidiaries to any person), vote in favor of, initiate or participate in any tender (including without limitation accepting any tender offer), negotiations, discussions or resolutions with respect to any expression of interest, offer or proposal by any person other than Great Wall to acquire an interest in all or a substantial part of the business, operations or undertakings of ChinaCast and its subsidiaries or in five percent or more of the issued share capital of ChinaCast, acquire control of ChinaCast or otherwise acquire or merge with ChinaCast (including by way of scheme of arrangement, capital restructuring, tender offer, joint venture or dual listed company structure); | |
• | within seven business days after the date of dispatch of the offer document in respect of the Offer, to tender their ChinaCast shares and elect the Stock Offer; and | |
• | notwithstanding any rights of withdrawal under the Singapore Code on Takeovers and Mergers, to not withdraw any of their ChinaCast shares tendered, unless the Offer lapses without Great Wall’s having accepted their tendered shares or is withdrawn by Great Wall. |
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• | If the Acquisition is not completed, and Great Wall is therefore required to liquidate, the pre-IPO stockholders’ Great Wall shares will in all probability be worthless, because they will not be entitled to receive any of the net proceeds of Great Wall’s IPO distributed upon liquidation of the IPO trust account. In addition, Messrs. Li and Tang will be required to perform their obligations under the indemnity agreements referred to in “The Proposed Acquisition — Procedure,” above. The Company is, however, incurring substantial transaction expenses in completing the Acquisition, for which Messrs. Li and Tang might be called upon to perform their indemnity obligations. In other words, in pursuing the Acquisition, Messrs. Li and Tang are incurring additional potential liability before knowing whether their indemnity obligations will be called upon or not. Great Wall cannot assure you that Messrs. Li and Tang would be able to satisfy their obligations if material liabilities are sought to be satisfied from the IPO trust account. | |
• | Warrants to purchase Great Wall common stock held by Mr. Li are potentially exercisable upon consummation of the Acquisition (Mr. Li continues to not receive any cash compensation for his services). | |
• | The rights of directors and executive officers to be indemnified by Great Wall specified in its charter, and of Great Wall’s directors to be exculpated from monetary liability with respect to prior acts or omissions, may continue after the Acquisition. If the Acquisition is not approved and Great Wall liquidates, such indemnification rights would effectively cease by virtue of Great Wall’s dissolution. If the Acquisition is ultimately completed, the combined company’s ability to perform such obligations will probably be substantially enhanced, and the possibility that Messrs. Li and Tang will be required to indemnify Great Wall as described above will be substantially lessened. As noted above, their potential indemnity liability will increase before they know whether their indemnity obligations will be called upon. | |
• | As described in “The Proposed Extension Amendment — Board Consideration and Approval,” the Company’s financial, legal and other advisors have rendered services for which they may not be paid if the Acquisition is not approved, and certain of them may have the opportunity to provide additional services to Great Wall after the Acquisition, if it occurs. |
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• | uncertain growth in the market for, and uncertain market acceptance of, products, services and technologies; | |
• | the evolving nature ofe-learning services and content; and | |
• | competition, technological change or evolving customer preferences that could harm sales of their services, content or solutions. |
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• | the potential rescission liability existing as a result of Great Wall’s charter amendments; | |
• | the outstanding liabilities due to service providers since the announcement of the transaction; | |
• | the liabilities that would exist if any ChinaCast shareholders elect cash instead of Great Wall securities; | |
• | liabilities that would exist if any Great Wall shareholders elect to convert their shares; and | |
• | the costs of being a public reporting company. |
• | system failures and outages caused by fire, floods, earthquakes or power loss; | |
• | telecommunications failures and similar events; | |
• | software errors; | |
• | computer viruses, break-ins and similar disruptions from unauthorized tampering with ChinaCast’s computer systems; and | |
• | security breaches related to the storage and transmission of proprietary information, such as credit card numbers or other personal information. |
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• | Chinese authorities deem ChinaCast’s corporate activities as violating applicable Chinese laws and regulations (including restrictions on foreign investments); | |
• | Chinese regulatory authorities change applicable laws and regulations or impose additional requirements and conditions with which ChinaCast is unable to comply; or | |
• | ChinaCast is found to violate any existing or future Chinese laws or regulations; |
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• | the number and importance of state-owned enterprises in the PRC is greater than in most OECD countries; | |
• | the level of capital reinvestment is lower in the PRC than in most OECD countries; and | |
• | Chinese policies make it more difficult for foreign firms to obtain local currency in China than in OECD jurisdictions. |
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• | Great Wall’s sole director will, consistent with Delaware law and the obligations described in its amended and restated certificate of incorporation to dissolve, prior to the passing of such deadline, convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to its stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out such plan of dissolution and liquidation as well as the board’s recommendation of such plan; | |
• | upon such deadline, it will file a preliminary proxy statement with the Securities and Exchange Commission; | |
• | if the Securities and Exchange Commission does not review the preliminary proxy statement, then, approximately 10 days following the passing of such deadline, it will mail the proxy statements to its stockholders, and approximately 30 days following the passing of such deadline it will convene a meeting of stockholders, at which they will either approve or reject the plan of dissolution and liquidation; and | |
• | if the Securities and Exchange Commission does review the preliminary proxy statement, Great Wall currently estimates that it will receive their comments approximately 30 days following the passing of such deadline. Great Wall will mail the proxy statements to stockholders following the conclusion of the comment and review process (the length of which cannot be predicted with any certainty, and which may be substantial) and it will convene a meeting of its stockholders at which they will either approve or reject the plan of dissolution and liquidation. |
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For the Nine Months Ended September 30, | For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||
2006 | 2006 | 2005 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||
USD | RMB | RMB | USD | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||
Revenue | 16,244 | 129,953 | 95,177 | 19,043 | 152,347 | 80,571 | 72,757 | 73,512 | 26,416 | |||||||||||||||||||||||||||
Cost of Revenue | (8,280 | ) | (66,239 | ) | (36,198 | ) | (9,220 | ) | (73,757 | ) | (39,713 | ) | (34,373 | ) | (34,369 | ) | (13,578 | ) | ||||||||||||||||||
Gross Profit | 7,964 | 63,714 | 58,979 | 9,823 | 78,590 | 40,858 | 38,384 | 39,143 | 12,838 | |||||||||||||||||||||||||||
Selling and Marketing Expenses | (349 | ) | (2,796 | ) | (2,328 | ) | (443 | ) | (3,543 | ) | (3,613 | ) | (2,584 | ) | (6,245 | ) | (10,059 | ) | ||||||||||||||||||
General and Administrative Expenses | (3,616 | ) | (28,929 | ) | (25,514 | ) | (4,508 | ) | (36,065 | ) | (49,893 | ) | (19,727 | ) | (18,448 | ) | (37,368 | ) | ||||||||||||||||||
Foreign Exchange Loss | (134 | ) | (1,068 | ) | 1,688 | (295 | ) | (2,361 | ) | (78 | ) | (73 | ) | — | — | |||||||||||||||||||||
Management Service Fee | 1,018 | 8,147 | 6,865 | 1,786 | 14,286 | 34,451 | 26,528 | 2,756 | 40 | |||||||||||||||||||||||||||
Total operating (expenses) income, net | (3,081 | ) | (24,646 | ) | (22,665 | ) | (3,460 | ) | (27,683 | ) | (19,133 | ) | 4,144 | (21,937 | ) | (47,387 | ) | |||||||||||||||||||
Income (loss) from Operations | 4,883 | 39,068 | 36,314 | 6,363 | 50,907 | 21,725 | 42,528 | 17,206 | (34,549 | ) | ||||||||||||||||||||||||||
Interest Income | 783 | 6,260 | 4,287 | 576 | 4,604 | 2,648 | 635 | 435 | 236 | |||||||||||||||||||||||||||
Interest Expense | (2 | ) | (14 | ) | (14 | ) | (2 | ) | (19 | ) | (391 | ) | (1,050 | ) | (1,177 | ) | (2,235 | ) | ||||||||||||||||||
Other Income | — | — | 194 | 73 | 581 | 144 | 4 | 65 | 26 | |||||||||||||||||||||||||||
Income (loss) before Income Taxes | 5,664 | 45,314 | 40,781 | 7,010 | 56,073 | 24,126 | 42,117 | 16,529 | (36,522 | ) | ||||||||||||||||||||||||||
Provision for Income Taxes | (1,095 | ) | (8,758 | ) | (7,282 | ) | (1,318 | ) | (10,540 | ) | (8,689 | ) | (7,460 | ) | (3,566 | ) | (1,536 | ) | ||||||||||||||||||
Net Income (loss) after Income Taxes Before Equity Earnings of Equity Investments and Minority Interest | 4,569 | 36,556 | 33,499 | 5,692 | 45,533 | 15,437 | 34,657 | 12,963 | (38,058 | ) | ||||||||||||||||||||||||||
Equity Earnings of Equity Investments | (88 | ) | (704 | ) | (165 | ) | (50 | ) | (402 | ) | — | — | — | — | ||||||||||||||||||||||
Minority Interest | (286 | ) | (2,290 | ) | — | (209 | ) | (1,669 | ) | — | — | — | — | |||||||||||||||||||||||
Net Income (loss) | 4,195 | 33,562 | 33,334 | 5,433 | 43,462 | 15,437 | 34,657 | 12,963 | (38,058 | ) | ||||||||||||||||||||||||||
Deemed dividend on Redeemable Convertible Preference Shares | — | — | — | — | — | (10,576 | ) | (22,609 | ) | (17,503 | ) | (11,696 | ) | |||||||||||||||||||||||
Income (loss) Attributable to Holders of Ordinary Shares | 4,195 | 33,562 | 33,334 | 5,433 | 43,462 | 4,861 | 12,048 | (4,540 | ) | (49,754 | ) |
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For the Nine Months Ended September 30, | For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||
2006 | 2006 | 2005 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||
USD | RMB | RMB | USD | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||
Income (loss) per share (in RMB cents/US cents) | ||||||||||||||||||||||||||||||||||||
Basic | 0.95 | 7.60 | 7.54 | 1.23 | 9.84 | 1.36 | 6.05 | (2.28 | ) | (24.97 | ) | |||||||||||||||||||||||||
Diluted | 0.91 | 7.28 | 7.27 | 1.19 | 9.48 | 1.32 | 6.05 | (2.28 | ) | (24.97 | ) | |||||||||||||||||||||||||
Shares used in computation | ||||||||||||||||||||||||||||||||||||
Basic | 441,816,501 | 441,816,501 | 441,816,501 | 441,816,501 | 441,816,501 | 356,346,342 | 199,218,524 | 199,218,524 | 199,218,524 | |||||||||||||||||||||||||||
Diluted | 461,276,020 | 461,276,020 | 458,375,869 | 458,642,895 | 458,642,895 | 368,759,638 | 199,218,524 | 199,218,524 | 199,218,524 |
December 31, | ||||||||||||||||||||||||||||||||
September 30, 2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||
USD | RMB | USD | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
Cash and Cash Equivalents | 4,973 | 39,780 | 15,046 | 120,368 | 54,425 | 46,682 | 126 | 13,321 | ||||||||||||||||||||||||
Term Deposits | 53,784 | 430,271 | 34,225 | 273,798 | 323,901 | 64,313 | 27,313 | 16,553 | ||||||||||||||||||||||||
Total Current Assets | 66,679 | 533,431 | 57,727 | 461,813 | 412,860 | 159,115 | 65,114 | 39,724 | ||||||||||||||||||||||||
Non-Current Assets | 23,891 | 191,131 | 26,887 | 215,100 | 174,085 | 147,174 | 69,609 | 66,826 | ||||||||||||||||||||||||
Total Assets | 90,570 | 724,562 | 84,614 | 676,913 | 586,945 | 306,289 | 134,723 | 106,550 | ||||||||||||||||||||||||
Total Current Liabilities | 12,020 | 96,159 | 10,499 | 83,993 | 41,691 | 39,279 | 32,521 | 5,822 | ||||||||||||||||||||||||
Total Long-term liabilities | 9 | 74 | 24 | 190 | 428 | 642 | 13,392 | 24,922 | ||||||||||||||||||||||||
Minority interest | 3,188 | 25,506 | 2,902 | 23,216 | 19,063 | 19,063 | — | — | ||||||||||||||||||||||||
Total Liabilities | 15,217 | 121,739 | 13,425 | 107,399 | 61,182 | 58,984 | 45,913 | 30,744 | ||||||||||||||||||||||||
Redeemable convertible preference shares | — | — | — | — | — | 299,530 | 166,253 | 148,682 | ||||||||||||||||||||||||
Total Shareholders’ (deficit) Equity | 75,353 | 602,823 | 71,189 | 569,514 | 525,763 | (52,225 | ) | (77,443 | ) | (72,876 | ) |
For the Nine Months Ended September 30, | For the Year Ended December 31, | |||||||||||||||||||||||||||
2006 | 2006 | 2005 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
USD | RMB | RMB | USD | RMB | RMB | RMB | ||||||||||||||||||||||
Post secondary education-distance learning services (millions)(1) | 6,401 | 51,207 | 36,501 | 6,394 | 51,123 | 7,206 | — | |||||||||||||||||||||
No. of students(2) | 128,000 | 128,000 | 97,000 | 113,000 | 113,000 | 82,000 | 47,000 | |||||||||||||||||||||
No of universities generating revenues | 14 | 14 | 10 | 14 | 14 | 8 | 7 | |||||||||||||||||||||
No. of universities under contract | 20 | 20 | 15 | 20 | 20 | 15 | 15 |
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(1) The Post secondary education-distance learning services revenue figure disclosed below represents the revenue of the Post secondary education-distance learning services of ChinaCast and CCLBJ. |
For the Nine Months Ended September 30, | For the Year Ended December 31, | |||||||||||||||||||||||||||
(in millions) | 2006 | 2006 | 2005 | 2005 | 2005 | 2004 | 2003 | |||||||||||||||||||||
USD | RMB | RMB | USD | RMB | RMB | RMB | ||||||||||||||||||||||
Post secondary education—distance learning services | ||||||||||||||||||||||||||||
ChinaCast | 6.4 | 51.2 | 36.5 | 6.4 | 51.0 | 7.2 | — | |||||||||||||||||||||
CCLBJ | 1.9 | 15.5 | 12.7 | 2.7 | 22.3 | 49.2 | 37.6 |
(2) The enrollment data presented represents the combined enrollment of ChinaCast and CCLBJ. The breakdown of the student enrollment of ChinaCast and CCLBJ is presented below: |
Nine Months | ||||||||||||||||
Ended | Year | Year | Year | |||||||||||||
September 30, | Ended | Ended | Ended | |||||||||||||
2006 | 2005 | 2004 | 2003 | |||||||||||||
No. of students enrolled in post secondary distance learning courses | ||||||||||||||||
ChinaCast | 84,000 | 71,000 | 13,000 | — | ||||||||||||
CCLBJ | 44,000 | 42,000 | 69,000 | 47,000 | ||||||||||||
Combined | 128,000 | 113,000 | 82,000 | 47,000 |
Period from | ||||||||||||||||||||||||
August 20, 2003 | ||||||||||||||||||||||||
(Inception) to | ||||||||||||||||||||||||
September 30, | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||
Nine Months Ended September 30, | 2006 | December 31, | December 31, | December 31, | ||||||||||||||||||||
2006 | 2005 | (Cumulative) | 2005 | 2004 | 2003 | |||||||||||||||||||
(Unaudited) | (Restated) | |||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Interest income on IPO trust account(1) | 649,555 | 373,430 | 1,353,779 | 540,264 | 163,960 | — | ||||||||||||||||||
Net loss | (355,692 | ) | (146,068 | ) | (1,563,014 | ) | (1,214,957 | ) | (141,152 | ) | (1,213 | ) | ||||||||||||
Net loss per share | (0.06 | ) | (0.03 | ) | — | (0.22 | ) | (0.03 | ) | (0.00 | ) | |||||||||||||
Cash dividends per share | — | — | — | — | — | — |
(1) | Excludes deferred portion of interest. |
At September 30, | At December 31, | |||||||||||
2006 | 2005 | 2004 | ||||||||||
(Unaudited) | (Restated) | |||||||||||
Total assets (including cash deposited in IPO trust account in 2004) | $ | 25,254,679 | $ | 24,298,479 | $ | 24,057,277 | ||||||
Common stock subject to possible conversion | 4,629,887 | 4,629,887 | 4,629,887 | |||||||||
Stockholders’ equity | 18,671,131 | 18,324,738 | 19,238,695 |
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Nine Months Ended September 30, 2006 | Year Ended December 31, 2005 | |||||||||||||||
Assuming Maximum | Assuming Minimum | Assuming Maximum | Assuming Minimum | |||||||||||||
Approval(1) | Approval(1) | Approval(1) | Approval(1) | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenue | $ | 16,244 | $ | 16,244 | $ | 19,043 | $ | 19,043 | ||||||||
Net income | 4,000 | 3,840 | 4,353 | 4,218 | ||||||||||||
Net income per share — diluted | 0.15 | 0.24 | 0.16 | 0.27 | ||||||||||||
Total assets | 115,675 | 85,812 | ||||||||||||||
Stockholders’ equity | 98,990 | 57,992 |
(1) | Refers to the possible levels of approval of the Acquisition by ChinaCast’s and Great Wall’s stockholders. See “Unaudited Pro Forma Condensed Consolidated Financial Statements.” |
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Post-Acquisition | ||||||||||||
Comparative per Share Information | ChinaCast(1)(2) | Great Wall(1) | Company(1)(2) | |||||||||
Great Wall common stock assumed issued in Offering, assuming: | ||||||||||||
Maximum Stock Tender | 20,752,301 | |||||||||||
Minimum Stock Tender | 10,551,526 | |||||||||||
Great Wall common stock outstanding, assuming: | ||||||||||||
No conversions | 5,515,975 | 26,875,064 | (5) | |||||||||
Maximum conversions with Acquisition approved | 4,612,781 | (7) | 15,771,095 | (5) | ||||||||
Income (loss) per diluted share (historical) for year ended December 31, 2004 | US$ | 0.00 | $ | (0.03 | ) | |||||||
Income (loss) per diluted share (historical) for year ended December 31, 2005 | $ | 0.01 | $ | (0.22 | ) | |||||||
Income (loss) per diluted share (historical) for nine-months ended September 30,2006 | $ | 0.01 | $ | (0.06 | ) | |||||||
Earnings per diluted share (proforma) for the nine months ended September 30, 2006 | ||||||||||||
No conversions | $ | 0.15 | ||||||||||
Maximum conversions with Acquisition approved | $ | 0.24 | ||||||||||
Earnings per diluted share (pro forma) for year ended December 31, 2005 | ||||||||||||
No conversions | $ | 0.16 | ||||||||||
Maximum conversions with Acquisition approved | $ | 0.27 | ||||||||||
Book value per share — September 30, 2006 | $ | 0.16 | (6) | $ | 3.38 | |||||||
Book value per share — December 31, 2005 | $ | 0.16 | (6) | $ | 3.32 | |||||||
Pro forma Book value per share — September 30, 2006 | ||||||||||||
No conversions | $ | 3.68 | (6) | |||||||||
Maximum conversions with Acquisition approved(3) | $ | 3.68 | (6) | |||||||||
Cash dividends declared per share — Year ended December 31, 2005 | 0.00 | 0.00 | 0.00 | (4) | ||||||||
Nine months ended September 30, 2006 | 0.00 | 0.00 | 0.00 | (4) |
(1) | Historical per share amounts for Great Wall and ChinaCast were determined based upon their respective actual weighted average diluted shares outstanding at December 31, 2004 and 2005 and September 30, 2006, respectively. Post-Acquisition Company (pro forma) per share amounts (for Great Wall and ChinaCast combined) were determined based upon the assumed number of shares to be issued under the two different levels of tendering of shares of ChinaCast by its stockholders. | |
(2) | Based on the exchange rate 1USD=8.0 at September 30, 2006 for September 30, 2006 and December 31, 2005, and 1USD=8.28 for December 31, 2004 and the historical exchange rate of 1USD=1.6810SGD on September 13, 2005. | |
(3) | Post-Acquisition Company figures calculated based on the minimum Great Wall approval, thus assumes return of escrowed funds ($4.97 million as of September 30, 2006) to dissenting Great Wall stockholders and the minimum Stock Offer tender to record cash payout ($36.03 million) to ChinaCast shareholders. | |
(4) | Assumes no change in the total dividends paid in 2005 and 2006. | |
(5) | Includes incremental shares related to warrants issued on Great Wall’s public offering of 606,788. | |
(6) | Based on diluted shares. |
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(7) | Based upon 903,194 shares of common stock subject to redemption, equal to one less than 20% of the total 4,515,975 Public Shares. This amount is more precise than but not materially different from the 902,744 shares of common stock subject to redemption shown on Great Wall’s historical financial statements, which is 19.99% of 4,515,975. |
Warrants | ||||||||||||||||||||||||
Common Stock | (US$) | Units | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
2004: | ||||||||||||||||||||||||
First Quarter | US$ | 4.90 | US$ | 4.50 | US$ | 0.70 | US$ | 0.60 | US$ | 6.15 | US$ | 6.00 | ||||||||||||
Second Quarter | 4.90 | 4.63 | 0.90 | 0.60 | 6.40 | 6.00 | ||||||||||||||||||
Third Quarter | 4.95 | 4.75 | 0.75 | 0.60 | 6.50 | 5.90 | ||||||||||||||||||
Fourth Quarter | 5.25 | 4.90 | 0.95 | 0.56 | 6.95 | 6.00 | ||||||||||||||||||
2005: | ||||||||||||||||||||||||
First Quarter | 5.40 | 5.03 | 0.95 | 0.59 | 7.45 | 6.10 | ||||||||||||||||||
Second Quarter | 5.20 | 5.03 | 0.69 | 0.39 | 6.80 | 5.80 | ||||||||||||||||||
Third Quarter | 5.50 | 5.10 | 0.82 | 0.26 | 7.00 | 5.80 | ||||||||||||||||||
Fourth Quarter | 5.25 | 5.15 | 0.71 | 0.15 | 6.45 | 5.49 | ||||||||||||||||||
2006: | ||||||||||||||||||||||||
First Quarter | 5.56 | 5.23 | 0.80 | 0.21 | 7.00 | 5.75 | ||||||||||||||||||
Second Quarter | 5.53 | 5.04 | 0.80 | 0.51 | 7.08 | 6.05 | ||||||||||||||||||
Third Quarter | 5.50 | 5.13 | 0.75 | 0.34 | 6.90 | 5.80 | ||||||||||||||||||
Fourth Quarter (through November 30) | 6.35 | 5.40 | 1.33 | 0.65 | 9.15 | 6.80 |
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Ordinary Shares | ||||||||
(SG$) | ||||||||
High | Low | |||||||
2004: | ||||||||
First Quarter | ||||||||
Second Quarter | SG$ | 0.48 | SG$ | 0.26 | ||||
Third Quarter | 0.36 | 0.21 | ||||||
Fourth Quarter | 0.32 | 0.20 | ||||||
2005: | ||||||||
First Quarter | 0.31 | 0.23 | ||||||
Second Quarter | 0.26 | 0.20 | ||||||
Third Quarter | 0.30 | 0.22 | ||||||
Fourth Quarter | 0.28 | 0.24 | ||||||
2006: | ||||||||
First Quarter | 0.34 | 0.23 | ||||||
Second Quarter | 0.40 | 0.29 | ||||||
Third Quarter | 0.37 | 0.27 | ||||||
Fourth Quarter (through November 21) | 0.40 | 0.33 |
ADRs | ||||||||
(US$) | ||||||||
High | Low | |||||||
2004: | ||||||||
Fourth Quarter | US$ | 4.75 | US$ | 3.64 | ||||
2005: | ||||||||
First Quarter | 7.00 | 1.15 | ||||||
Second Quarter | 4.80 | 3.70 | ||||||
Third Quarter | 5.17 | 3.97 | ||||||
Fourth Quarter | 4.90 | 4.42 | ||||||
2006: | ||||||||
First Quarter | 6.13 | 4.28 | ||||||
Second Quarter | 7.23 | 5.75 | ||||||
Third Quarter | 7.00 | 5.26 | ||||||
Fourth Quarter (through November 21) | 7.70 | 6.25 |
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• | 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 Great Wall Board“for”approval of each proposal. | |
• | By telephone or on the Internet. You can vote this way by following the telephone or Internet voting instructions included with your proxy card. If you do, you should not return the proxy card. | |
• | You can attend the special meeting and vote in person. We will give you a ballot when you arrive. If your shares are held in the name of your broker, bank or another nominee, however, you must get a proxy from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your shares. |
• | Sending another proxy card with a later date; | |
• | Notifying Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154, Attention: Mitchell S. Nussbaum, Esq., in writing before the special meeting that you have revoked your proxy; or | |
• | Attending the special meeting, revoking your proxy and voting in person. |
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• | If the Acquisition is not completed and Great Wall is therefore required to liquidate, the pre-IPOs stockholders’ Great Wall shares will in all probability be worthless because they will not be entitled to receive any of the net proceeds of Great Wall’s IPO distributed upon liquidation of the IPO trust account. In addition, Messrs. Li and Tang will be required to perform their obligations under the indemnity agreements referred to in “The Proposed Acquisition — Procedure,” above. The Company is, however, incurring substantial transaction expenses in completing the Acquisition, for which Messrs. Li and Tang might be called upon to perform their indemnity obligations. In other words, in pursuing the Acquisition, Messrs. Li and Tang are incurring additional potential liability before knowing whether their indemnity obligations will be called upon or not. Great Wall cannot assure you that Messrs. Li and Tang would be able to satisfy their obligations if material liabilities are sought to be satisfied from the IPO trust account. | |
• | Warrants to purchase Great Wall common stock held by Mr. Li are potentially exercisable upon consummation of the Acquisition (Mr. Li continues to not receive any cash compensation for his services). | |
• | The rights of directors and executive officers to be indemnified by Great Wall specified in its charter, and of Great Wall’s directors to be exculpated from monetary liability with respect to prior acts or omissions, may continue after the Acquisition. If the Acquisition is not approved and Great Wall liquidates, such indemnification rights would effectively cease by virtue of Great Wall’s dissolution. If the Acquisition is ultimately completed, the combined company’s ability to perform such obligations will probably be substantially enhanced, and the possibility that Messrs. Li and Tang will be required to indemnify Great Wall as described above will be substantially lessened. As noted above, their potential indemnity liability will increase before they know whether their indemnity obligations will be called upon. | |
• | The Company’s financial, legal and other advisors have rendered services for which they may not be paid if the Acquisition is not approved, and certain of them may have the opportunity to provide services to Great Wall. In connection with the ChinaCast negotiations, Great Wall’s counsel, Loeb & Loeb LLP, has provided approximately US$950,000 of services for which it has received payment of approximately $550,000 and is entitled to be reimbursed by the Company for approximately US$3,000 ofout-of-pocket expenses as of October 12, 2006. Great Wall’s accountants, Goldstein Golub Kessler LLP, have provided approximately $45,000 of services through October 31, 2006 in connection with the ChinaCast transaction for which they have received no payment. Potter Anderson & Carron LLP, in connection with issuing an opinion from special Delaware counsel regarding the validity the amendment to Great Wall’s Certificate of Incorporation, has provided US$52,283 of services for which Great Wall has paid in full from the proceeds of a loan from Justin Tang. If a business combination is completed, WR Hambrecht + Co. will be entitled to receive from the Company a transaction fee of $750,000 and a warrant conversion fee equal to 2.5% of the proceeds Great Wall receives from exercise of warrants within four years of consummation of such combination, which latter fee is 50% of the warrant conversion fee disclosed in the Company’s IPO prospectus. WR Hambrecht + Co. is also entitled to be reimbursed by the Company for approximately $54,600 ofout-of-pocket expenses as of September 30, 2006. Broadband Capital Management LLC will also be entitled to receive from the Company a warrant conversion fee equal to 2.5% of such proceeds, also 50% of the warrant conversion fee |
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disclosed in the Company’s IPO prospectus. Broadband and its affiliates also have the right to purchase up to a total of 400,000 units of Great Wall common stock and warrants at a price of $9.90, as disclosed in the Company’s IPO prospectus. Currently, we have no arrangements with any of our financial, legal or other advisors to defer or waive any fees or expenses. |
• | ChinaCast’s strategic fit, in light of Great Wall’s charter requirement that it acquire a company operating in the PRC with long-term strategic direction, prospects for growth and management capability, makes it an attractive business combination candidate. | |
• | Current industry, economic and market conditions and trends in the PRC, and the time used in pursuing other potential business combination possibilities that did not come to fruition, left Great Wall with few opportunities to achieve a business combination prior to its mandated liquidation date. | |
• | The Acquisition’s financial terms are fair and its other terms reasonable. |
• | His consideration of possible business combinations, including the process he undertook, with the assistance of outside consultants, to explore and review alternatives in the stockholders’ best interests. |
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• | His understanding of economic and industry conditions relating to K-12 and university education in the PRC. | |
• | ChinaCast’s business, operations, financial condition, cash flow and prospects, augmented by Great Wall’s cash and U.S. public company status. Great Wall has been aware since the beginning of acquisition discussions with ChinaCast that the primary focus of ChinaCast’s business is that of a disseminator ofe-learning services rather than a provider of content ofe-learning services. Great Wall has subsequently amended or modified its disclosures to more accurately describe the business of ChinaCast. Great Wall determined to pursue the ChinaCast acquisition based on an accurate understanding of ChinaCast’s business. Specifically, it has been known to Great Wall since the time that it began its pursuit of the proposed ChinaCast acquisition, that ChinaCast’se-learning content business has not been as significant a portion of its overall business as itse-learning dissemination business. Great Wall’s valuation analysis of ChinaCast and its business was based on the public market valuation of ChinaCast in Singapore and on the valuation analysis performed by W.R. Hambrecht as more fully described elsewhere in this proxy statement/prospectus— not on statements made by ChinaCast regarding the extent to which it providese-learning content. The companies which were the subject of W.R. Hambrecht’s valuation analysis were, on the whole, companies whose business was comparable to that of ChinaCast i.e. companies whose businesses were not primarily focused on the provision of content. Great Wall acknowledges that in past public filings, it provided disclosure which over-emphasized the size and scope of ChinaCast’s content provision business, and in fact erroneously referred to ChinaCast as a “leading provider of content”. Great Wall further acknowledges that these statements may have been materially misleading to its shareholders and its potential investors. To the extent that any shareholder of Great Wall relied upon this information in making its decision whether or not to vote to approve the proxy extension or any shareholder of Great Wall relied upon this information in making its decision whether or not to purchase or sell securities of Great Wall, the Company may be subject to claims for damages or recission under the federal securities laws. | |
• | The possible stock market reaction to the Acquisition, and the expected impact of the announcement of the Acquisition on Great Wall and ChinaCast. | |
• | That the terms and conditions of the Offer, the manageable execution risk of consummating the Acquisition, the proposed structure of the transaction, the operational and capital market profile of the combined company following the Acquisition and the anticipated closing date of the Acquisition are favorable for a transaction of this size and nature. | |
• | The results of due diligence investigations of ChinaCast by Great Wall’s management, independent auditors, outside legal counsel and financial advisors. |
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2005 | 2006 | 2005 | 2006 | |||||||||||||||||||||
Forward | Forward | Forward | Forward | 2005 | 2006 | |||||||||||||||||||
Enterprise | Enterprise | Enterprise | Enterprise | Forward | Forward | |||||||||||||||||||
Value / | Value / | Value / | Value / | Price / | Price / | |||||||||||||||||||
Name | Revenue | Revenue | EBITDA | EBITDA | Earnings | Earnings | ||||||||||||||||||
Tier 1 — Education and Training Companies (40%) | ||||||||||||||||||||||||
APOLLO GROUP INC. | 5.2 | x | 4.2 | x | 15.1 | x | 12.0 | x | 27.3 | x | 21.2 | x | ||||||||||||
CAREER EDUCATION CORP. | 1.4 | x | 1.2 | x | 6.1 | x | 5.0 | x | 13.9 | x | 11.6 | x | ||||||||||||
LAUREATE EDUCATION INC. | 2.7 | x | 2.2 | x | 13.8 | x | 11.2 | x | 28.4 | x | 22.7 | x | ||||||||||||
EDUCATION MGMT CORP. | 1.8 | x | na | 7.4 | x | na | 19.8 | x | na | |||||||||||||||
ITT EDUCATIONAL SERVICES | 2.4 | x | 2.1 | x | 8.5 | x | 7.1 | x | 18.7 | x | 15.8 | x | ||||||||||||
DEVRY INC. | 1.9 | x | na | 12.7 | x | na | 35.8 | x | na | |||||||||||||||
STRAYER EDUCATION INC. | 5.4 | x | 4.6 | x | 14.5 | x | 12.6 | x | 28.6 | x | 24.5 | x | ||||||||||||
CORINTHIAN COLLEGES INC. | 1.2 | x | 1.1 | x | 7.2 | x | 5.9 | x | 15.2 | x | 12.4 | x | ||||||||||||
LEAPFROG ENTERPRISES INC. | 0.7 | x | 0.7 | x | 20.3 | x | 10.2 | x | 75.7 | x | 27.8 | x | ||||||||||||
Average | 2.5 | x | 2.3 | x | 11.7 | x | 9.1 | x | 29.3 | x | 19.4 | x | ||||||||||||
Tier 2 — Internet Services Companies (30%) | ||||||||||||||||||||||||
BLACKBOARD INC. | 2.9 | x | 2.5 | x | 13.6 | x | 9.2 | x | 22.4 | x | 22.7 | x | ||||||||||||
HOUSEVALUES INC. | 2.9 | x | 2.1 | x | 11.0 | x | 7.4 | x | 27.8 | x | 18.9 | x | ||||||||||||
BANKRATE INC. | 5.0 | x | 4.5 | x | 16.7 | x | 13.1 | x | 34.5 | x | 29.7 | x | ||||||||||||
ECOLLEGE.COM | 2.1 | x | 1.8 | x | 12.1 | x | 9.9 | x | 23.5 | x | 18.5 | x | ||||||||||||
KNOT INC. | na | na | na | na | na | na | ||||||||||||||||||
Average | 3.2 | x | 2.7 | x | 13.3 | x | 9.9 | x | 27.1 | x | 22.5 | x | ||||||||||||
Tier 3 — eCommerce Companies (30%) | ||||||||||||||||||||||||
CTRIP.COM INTL. LTD. | 11.5 | x | 8.7 | x | 25.0 | x | 18.1 | x | 35.1 | x | 26.2 | x | ||||||||||||
51JOB INC. | 3.5 | x | 2.8 | x | 24.1 | x | 14.2 | x | 50.8 | x | 24.0 | x | ||||||||||||
CHINA FINANCE ONLINE CO. | 4.4 | x | 3.6 | x | 6.8 | x | 5.3 | x | 22.1 | x | 17.7 | x | ||||||||||||
ELONG INC. | na | na | na | na | na | na | ||||||||||||||||||
Average | 6.5 | x | 5.0 | x | 18.6 | x | 12.5 | x | 36.0 | x | 22.6 | x | ||||||||||||
Weighted Average | 3.9 | x | 3.2 | x | 14.3 | x | 10.4 | x | 30.6 | x | 21.3 | x |
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2005 | 2006 | 2005 | 2006 | |||||||||||||||||||||
Forward | Forward | Forward | Forward | 2005 | 2006 | |||||||||||||||||||
Enterprise | Enterprise | Enterprise | Enterprise | Forward | Forward | |||||||||||||||||||
Value / | Value / | Value / | Value / | Price / | Price / | |||||||||||||||||||
Revenue | Revenue | EBITDA | EBITDA | Earnings | Earnings | |||||||||||||||||||
Comparable Companies Weighted Average Multiples | 3.9 | x | 3.2 | x | 14.3 | x | 10.4 | x | 30.6 | x | 21.3 | x | ||||||||||||
ChinaCast Financial Estimates ($MM) | 20.7 | 26.7 | 8.0 | 11.6 | 6.1 | 9.1 | ||||||||||||||||||
ChinaCast Enterprise Value ($MM) | 81.0 | 86.6 | 114.0 | 120.8 | 151.3 | 157.2 | ||||||||||||||||||
ChinaCast Net Cash ($MM) | 37.0 | 37.0 | 37.0 | 37.0 | 37.0 | 37.0 | ||||||||||||||||||
ChinaCast Market Value ($MM) | 117.9 | 123.6 | 151.0 | 157.8 | 188.3 | 194.2 | ||||||||||||||||||
Average Market Value ($MM) | 155.5 |
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• | except as otherwise permitted by the Letter of Undertaking, to not transfer or dispose of or create an encumbrance on any of their ChinaCast shares from July 13, 2006 (the “Commencement Date”), until the earliest of the date that the Offer lapses unconsummated or Great Wall withdraws the Offer (the “Expiration Time”); | |
• | to not breach their obligations under the Letters of Undertaking; | |
• | except with Great Wall’s prior written consent, during the period from the Commencement Date and ending at the Expiration Time, to not directly or indirectly solicit, encourage (including without limitation, by way of providing information concerning Great Walland/or any of its subsidiaries to any person), vote in favor of, initiate or participate in any tender (including without limitation accepting any tender offer), negotiations, discussions or resolutions with respect to any expression of interest, offer or proposal by any person other than Great Wall to acquire an interest in all or a substantial part of the business, operations or undertakings of ChinaCast and its subsidiaries or in five percent or more of the issued share capital of ChinaCast, acquire control of ChinaCast or otherwise acquire or merge with ChinaCast (including by way of scheme of arrangement, capital restructuring, tender offer, joint venture or dual listed company structure); | |
• | within seven business days after the date of dispatch of the offer document in respect of the Offer, to tender their ChinaCast shares and elect the Stock Offer; and | |
• | notwithstanding any rights of withdrawal under the Singapore Code on Takeovers and Mergers, to not withdraw any of their ChinaCast shares tendered, unless the Offer lapses without Great Wall’s having accepted their tendered shares or is withdrawn by Great Wall. |
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• | Post Secondary Education Distance Learning Services — ChinaCast enables universities and other higher learning institutions to provide nationwide real-time distance learning services. Its “turn-key” packages include all the hardware, software and broadband satellite network services necessary to allow university students located at remote classrooms around the country to interactively participate in live lectures broadcast from a main campus. ChinaCast currently services 15 universities with over 113,000 students in over 300 remote classrooms. For example, Beijing Aeronautical and Aeronautics University (Beihang), consistently ranked among the top ten Universities in China by the Ministry of Education, launched its distance learning network in cooperation with ChinaCast in 2002. By 2005, the number of distance learning students reached 20,000, at over 120 remote learning centers in China. In return for the turnkey distance learning services, ChinaCast receives from the University a percentage of each remote student’s tuition. According to China’s Ministry of Education, in 2003 there were over 100 million higher education students in the PRC, while universities had sufficient physical space to accommodate only about 15% of the students qualified to attend. | |
• | K-12 Educational Services — ChinaCast currently broadcasts multimedia educational content to 6,500 primary, middle and high schools throughout the PRC in partnership with leading educational content companies, such as Sun TV, Huajiao and the Clever Group, and renowned educational institutions such as the Beida Middle School and the Middle China Normal University High School. The educational content packages assist teachers in preparing and teaching course content. Each school pays ChinaCast a subscription fee for this service. |
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• | Vocational/Career Training Services — In partnership with various ministries and government departments, ChinaCast has deployed over 100 training centers throughout China providing job-skills training to recent graduates, employees of state-owned enterprises and the unemployed. One such key vocationale-learning project for the Ministry of Labor and Social Security (MLSS) provides job skills training for recently laid off workers from state-owned enterprises. The MLSS/ChinaCast distance learning job sills program was launched in April 2003 and has trained over 50,000 workers. Over 75% of the graduates of the program have gone on to find jobs. Future plans include expanding the distance learning network from 50 to over 200 sites to achieve a target of up to 30,000 graduates per year. MLSS pays ChinaCast monthly service and content subscription fees to provide the distance learning service. | |
• | Enterprise/Government Training and Networking Services — ChinaCast provides training and networking services to large corporations, government agencies and multinational companies that require data, video and voice communications between their head office and branch offices throughout China. ChinaCast provides these services to such customers as energy companies, post offices, insurance/financial institutions, retailers and manufacturers. One such enterprise network for Taikang Insurance, the country’s fifth largest insurance company, provides interactive corporate training to over 165,000 insurance agents throughout China. These enterprise customers typically buy the hardware and software and pay a monthly service fee based on the number of sites and bandwidth used. |
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• | e-learning first mover advantage in the PRC |
• | Highly scalable, recurring revenue business model |
• | ChinaCast has an experienced and proven management team |
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• CCHL | ChinaCast Communication Holdings Limited | |
• CCN | ChinaCast Communication Network Company Ltd. | |
• CCT | ChinaCast Technology (BVI) Limited | |
• CCT HK | ChinaCast Technology (HK) Limited | |
• CCT Shanghai | ChinaCast Technology (Shanghai) Limited | |
• Tongfang Education | Beijing Tongfang Digital Education Technology Limited | |
• TCS | Beijing Tongfang Chuangxin Technology Limited | |
• ETS | Tsinghua Tangfang Education Training School | |
• TTIM | Tibet Tiantai Investment Management Co., Ltd. | |
• CCL | ChinaCast Co., Ltd. |
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• CCLX | ChinaCast Li Xiang Co., Ltd. | |
• CCLBJ | Beijing Branch of ChinaCast Co., Ltd. | |
• BCN | Beijing Col Network Technology Co., Ltd. | |
• SZT | Shenzhen Zhongxun Teng Investment Development Co., Ltd. |
(1) | The Satellite Operating Entities (“SOE”) are CCLX and CCLBJ (the Beijing branch of CCL). CCT Shanghai receives service fees from SOE under technical service agreements and pledge agreements signed between CCT Shanghai and CCL, CCLX and the shareholders of CCLX and CCL. Although technically a branch office of CCL and not a legal entity, CCLBJ is operated as a stand-alone group of businesses for purposes of the contractual arrangements with CCT Shanghai. CCLBJ represents CCL’s Turbo 163 business, DDN Enhancement business and Cablenet business (the “Satellite Business”). The revenues and expenses of the branch office are not commingled with those of CCL. The purpose of this arrangement was to carve out the satellite-related businesses of CCL and put them into CCLBJ to facilitate ChinaCast’s monitoring of the Satellite Business and the computation of service fee. CCLBJ is not consolidated in ChinaCast’s financial statements. |
(2) | Glander Assets Limited holds 1.5% of the issued share capital of CCT. |
(3) | Tsinghua Tongfang Co. Ltd holds 50% of the issued share capital of Tongfang Education. CCHL’s effective ownership of Tongfang Education is 49.3%. |
(4) | The PRC’s Ministry of Personnel holds 49% of the issued share capital of TCS. |
(5) | Tongfang Education holds the exclusive operating right of ETS. ETS was established by Tsinghua Tongfang Co. Ltd, with the right to enroll students and offer training services. The ownership of ETS cannot be transferred without losing the student enrolment right. According to an agreement between Tongfang Education and Tsinghua Tongfang Co. Ltd, the operating right of ETS is assigned to Tongfang Education and Tongfang Education becomes the exclusive operator of ETS for a period of 10 years. During this period, Tongfang Education assumes all the rights and responsibility of the operations of ETS. Through this arrangement, the Tongfang Education can use ETS to enroll students and derive a service fee out of ETS for providing distance learning service to it. Considering that Tongfang Education has significant influence over ETS through the operating right it has, ETS is to be accounted for as a related party. |
(6) | BCN and SZT are investment holding companies that do not have any interest or business relationship with any company in the ChinaCast Group. |
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• | the accounts of CCLX shall be prepared in accordance with International Accounting Standards or in accordance with such other accounting standards, principles and practices generally accepted at CCT Shanghai’s absolute discretion; | |
• | all revenue earned in the course of CCLX’s business for which ChinaCast and its subsidiaries provide technical services shall be accurately and timely reflected in the accounts of CCLX; and | |
• | in the course of CCLX’s business for which ChinaCast and its subsidiaries provide technical services, CCLX will only incur reasonable operating expenses. |
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Nine Months | ||||||||||||||||||||||||||||||||||||||||
Ended | Years Ended | |||||||||||||||||||||||||||||||||||||||
September 30, | % of | Year Ended | % of | % of | % of | |||||||||||||||||||||||||||||||||||
(In millions) | 2006 | 2006 | Total | 2005 | 2005 | Total | 2004 | Total | 2003 | Total | ||||||||||||||||||||||||||||||
(US$) | RMB | (US$) | (RMB) | (RMB) | (RMB) | |||||||||||||||||||||||||||||||||||
Post secondary education — distance learning services(1) | 6.4 | 51.2 | 39% | 6.4 | 51.0 | 34% | 7.2 | 9% | ||||||||||||||||||||||||||||||||
K-12(1) | 7.1 | 57.5 | 44% | 8.9 | 71.8 | 47% | 72.5 | 90% | 72.8 | 100% | ||||||||||||||||||||||||||||||
Others(1) | 2.7 | 21.3 | 17% | 3.7 | 29.5 | 19% | 0.9 | 1% | ||||||||||||||||||||||||||||||||
Total revenue | 16.2 | 130.0 | 100% | 19.0 | 152.3 | 100% | 80.6 | 100% | 72.8 | 100% | ||||||||||||||||||||||||||||||
Management Service Fee | 1.0 | 8.1 | 1.8 | 14.3 | 34.4 | 26.5 |
Nine Months | ||||||||||||||||
Ended | Year | Year | Year | |||||||||||||
September 30, | Ended | Ended | Ended | |||||||||||||
2006 | 2005 | 2004 | 2003 | |||||||||||||
No. of students enrolled in post secondary distance learning courses(2) | 128,000 | 113,000 | 82,000 | 47,000 | ||||||||||||
No. of subscribers for K-12 contents | 6,500 | 6,500 | 6,700 | 7,000 |
(1) | The revenue figures of each business line disclosed include revenue transferred from CCLBJ to CCLX, which is shown below for reference. |
Nine Months | Year | Year | Year | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, | 2005 | 2004 | 2003 | |||||||||||||
(in millions) | 2006 | (RMB) | (RMB) | (RMB) | ||||||||||||
(RMB) | ||||||||||||||||
Revenue transfer from CCLBJ to CCLX | ||||||||||||||||
Post secondary education distance learning services | — | 31.0 | 7.2 | — | ||||||||||||
K-12 | 1.9 | 0.9 | — | |||||||||||||
Others | — | 3.2 | 1.0 | — | ||||||||||||
Total | — | 36.1 | 9.1 | — |
(2) | The enrollment data presented represents the combined enrollment of ChinaCast and CCLBJ. The breakdown of the student enrollment of ChinaCast and CCLBJ is presented below: |
Nine Months | ||||||||||||||||
Ended | Year | Year | Year | |||||||||||||
September 30, | Ended | Ended | Ended | |||||||||||||
2006 | 2005 | 2004 | 2003 | |||||||||||||
No. of students enrolled in post secondary distance learning courses | ||||||||||||||||
ChinaCast | 84,000 | 71,000 | 13,000 | — | ||||||||||||
CCLBJ | 44,000 | 42,000 | 69,000 | 47,000 | ||||||||||||
Combined | 128,000 | 113,000 | 82,000 | 47,000 |
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Years Ended December 31, | Period Ended September 30, | |||||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | 2006 | |||||||||||||||||||
(RMB) | (RMB) | (RMB) | (US Dollars) | (RMB) | (US Dollars) | |||||||||||||||||||
Net cash (used in) provided by operating activities | 39,994 | 74,332 | 57,929 | 7,241 | 62,362 | 7,796 | ||||||||||||||||||
Net cash (used in) provided by investing activities | (108,345 | ) | (292,186 | ) | 8,333 | 1,042 | (142,834 | ) | (17,854 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | 114,843 | 225,590 | (291 | ) | (37 | ) | (111 | ) | (14 | ) | ||||||||||||||
Net increase(decrease) in cash and cash equivalents | 46,492 | 7,736 | 65,971 | 8,246 | (80,583 | ) | (10,072 | ) | ||||||||||||||||
Cash and cash equivalents, beginning of year | 126 | 46,682 | 54,425 | 6,804 | 120,368 | 15,046 | ||||||||||||||||||
Cash and cash equivalents, end of year | 46,682 | 54,425 | 120,368 | 15,046 | 39,780 | 4,973 |
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Payment Due by Period | ||||||||||||||||||||||||||||
Within | ||||||||||||||||||||||||||||
Total | 1 Year | 2007 | 2008 | 2009 | 2010 | Thereafter | ||||||||||||||||||||||
(RMB ‘000) | (RMB ‘000) | (RMB ‘000) | (RMB ‘000) | (RMB ‘000) | (RMB ‘000) | (RMB ‘000) | ||||||||||||||||||||||
Operating lease commitments | 2,757 | 2,454 | 303 | |||||||||||||||||||||||||
Other contractual obligations | — | — | — | — | — | |||||||||||||||||||||||
Total contractual obligations | 2,757 | 2,454 | 303 | |||||||||||||||||||||||||
Equivalent US$ ‘000 | 345 | 307 | 38 |
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• | its board of directors will, consistent with its obligations described in its charter to dissolve, prior to the passing of such deadline, convene and adopt a specific plan of dissolution and distribution, which it will then vote to recommend to its stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out such plan of dissolution and distribution and the board’s recommendation of such plan; | |
• | upon such deadline, it would file the preliminary proxy statement with the U.S. Securities and Exchange Commission (SEC); | |
• | if the SEC does not review the preliminary proxy statement, then approximately ten days following the passing of such deadline, it will mail the proxy statements to its stockholders, and approximately 30 days following the passing of such deadline it will convene a meeting of its stockholders at which they will either approve or reject the plan of dissolution and distribution; and | |
• | if the SEC does review the preliminary proxy statement, Great Wall estimates that it will receive its comments approximately 30 days following the passing of such deadline. It will mail the proxy statements to its stockholders following the conclusion of the comment and review process (the length of which cannot be predicted with certainty), and it will convene a meeting of its stockholders at which it will either approve or reject its plan of dissolution and distribution. |
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• | except as otherwise permitted by the Letter of Undertaking, to not transfer, dispose of or create an encumbrance on any of their ChinaCast shares from September 13, 2005 (the “Commencement Date”), until the earlier of the date that the Offer lapses unconsummated or Great Wall withdraws the Offer (the “Expiration Time”); | |
• | to not breach their obligations under the Letters of Undertaking; | |
• | except with Great Wall’s prior written consent, during the period from the Commencement Date and ending at the Expiration Time, to not directly or indirectly solicit, encourage (including without limitation, by way of providing information concerning Great Walland/or any of its subsidiaries to any person), vote in favor of, initiate or participate in any tender (including without limitation accepting any tender offer), negotiations, discussions or resolutions with respect to any expression of interest, offer or proposal by any person other than Great Wall to acquire an interest in all or a substantial part of the business, operations or undertakings of ChinaCast and its subsidiaries or in five percent or more of the issued share capital of ChinaCast, acquire control of ChinaCast or otherwise acquire or merge with ChinaCast (including by way of scheme of arrangement, capital restructuring, tender offer, joint venture or dual listed company structure); | |
• | within seven business days after the date of dispatch of the offer document in respect of the Offer, to tender their ChinaCast shares and elect the Stock Offer; and | |
• | notwithstanding any rights of withdrawal under the Singapore Code on Takeovers and Mergers, to not withdraw any of their ChinaCast shares tendered, unless the Offer lapses without Great Wall’s having accepted their tendered shares or is withdrawn by Great Wall. |
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Pro Forma | Pro Forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,973 | $ | 40 | $ | 24,850 | A | $ | 29,863 | |||||||||||
Investments held in trust | 24,850 | (24,850 | ) | A | — | |||||||||||||||
Term deposits | 53,784 | 53,784 | ||||||||||||||||||
Accounts receivables, net | 5,309 | 5,309 | ||||||||||||||||||
Inventory | 521 | 521 | ||||||||||||||||||
Prepaid expenses and other current assets | 1,917 | 2 | (150 | ) | C | 1,769 | ||||||||||||||
Amount due from related parties — non trade | 175 | 175 | ||||||||||||||||||
Total current assets | 66,679 | 24,892 | (150 | ) | 91,421 | |||||||||||||||
Non-current assets: | ||||||||||||||||||||
Property, plant and equipment | $ | 1,969 | — | $ | 1,969 | |||||||||||||||
Acquired intangible assets, net | 1,921 | 1,921 | ||||||||||||||||||
Deposit for acquiring equipment | 125 | — | 125 | |||||||||||||||||
Deposit for business acquisition | 1,250 | 1,250 | ||||||||||||||||||
Goodwill | 442 | 442 | ||||||||||||||||||
Long-term investments | 2,324 | 2,324 | ||||||||||||||||||
Deferred tax assets | 27 | 363 | 390 | |||||||||||||||||
Non-current advances to a related party | 15,833 | 15,833 | ||||||||||||||||||
Total non-current assets | 23,891 | 363 | — | 24,254 | ||||||||||||||||
Total assets | $ | 90,570 | $ | 25,255 | $ | (150 | ) | $ | 115,675 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payables | $ | 2,028 | — | $ | 2,028 | |||||||||||||||
Accrued expenses and other current liabilities | 5,467 | 534 | 6,001 | |||||||||||||||||
Due to ChinaCast | 150 | (150 | ) | C | — | |||||||||||||||
Notes payable, stockholder | 34 | 440 | 474 | |||||||||||||||||
Income tax payable | 4,472 | 494 | 4,966 | |||||||||||||||||
Current portion of capital lease obligation | 19 | 19 | ||||||||||||||||||
Deferred interest | 336 | (336 | ) | B | — | |||||||||||||||
Total current liabilities | 12,020 | 1,954 | (486 | ) | 13,488 | |||||||||||||||
Non-current liabilities: | ||||||||||||||||||||
Capital lease obligation — long term | $ | 9 | — | $ | 9 | |||||||||||||||
Minority interest | 3,188 | — | 3,188 | |||||||||||||||||
Total liabilities | 15,217 | 1,954 | (486 | ) | 16,685 | |||||||||||||||
Common stock subject to redemption | 4,630 | (4,630 | ) | B | — | |||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock | $ | 36,529 | 1 | (36,529 | ) | C | $ | 3 | ||||||||||||
2 | C | |||||||||||||||||||
Additional paid-in capital | 40,440 | 20,383 | 4,630 | B | 100,603 | |||||||||||||||
36,529 | C | |||||||||||||||||||
(2 | ) | C | ||||||||||||||||||
(1,377 | ) | C | ||||||||||||||||||
Accumulated other comprehensive loss | (375 | ) | (375 | ) | ||||||||||||||||
Accumulated deficit | (1,241 | ) | (1,713 | ) | 336 | B | (1,241 | ) | ||||||||||||
1,377 | C | |||||||||||||||||||
Total shareholders’ equity | 75,353 | 18,671 | 4,966 | 98,990 | ||||||||||||||||
Total liabilities and shareholders’ equity | $ | 90,570 | $ | 25,255 | $ | (150 | ) | $ | 115,675 | |||||||||||
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ASSUMING MINIMUM APPROVAL
SEPTEMBER 30, 2006
Pro Forma | Pro Forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,973 | $ | 40 | $ | 24,850 | A | $ | — | |||||||||||
(4,966 | ) | B1 | ||||||||||||||||||
(24,897 | ) | B2 | ||||||||||||||||||
Investments held in trust | 24,850 | (24,850 | ) | A | — | |||||||||||||||
Term deposits | 53,784 | 53,784 | ||||||||||||||||||
Accounts receivables, net | 5,309 | 5,309 | ||||||||||||||||||
Inventory | 521 | 521 | ||||||||||||||||||
Prepaid expenses and other current assets | 1,917 | 2 | (150 | ) | C | 1,769 | ||||||||||||||
Amount due from related parties — non trade | 175 | 175 | ||||||||||||||||||
Total current assets | 66,679 | 24,892 | (30,013 | ) | 61,558 | |||||||||||||||
Non-current assets: | ||||||||||||||||||||
Property, plant and equipment | $ | 1,969 | — | $ | 1,969 | |||||||||||||||
Acquired intangible assets, net | 1,921 | 1,921 | ||||||||||||||||||
Deposit for acquiring equipment | 125 | — | 125 | |||||||||||||||||
Deposit for business acquisition | 1,250 | 1,250 | ||||||||||||||||||
Goodwill | 442 | 442 | ||||||||||||||||||
Long-term investments | 2,324 | 2,324 | ||||||||||||||||||
Deferred tax assets | 27 | 363 | 390 | |||||||||||||||||
Non-current advances to a related party | 15,833 | 15,833 | ||||||||||||||||||
Total non-current assets | 23,891 | 363 | — | 24,254 | ||||||||||||||||
Total assets | $ | 90,570 | $ | 25,255 | $ | (30,013 | ) | $ | 85,812 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Cash overdraft | $ | — | $ | 11,135 | B2 | $ | 11,135 | |||||||||||||
Accounts payables | 2,028 | — | 2,028 | |||||||||||||||||
Accrued expenses and other current liabilities | 5,467 | 534 | 6,001 | |||||||||||||||||
Due to ChinaCast | 150 | (150 | ) | C | — | |||||||||||||||
Notes payable, stockholder | 34 | 440 | 474 | |||||||||||||||||
Income tax payable | 4,472 | 494 | 4,966 | |||||||||||||||||
Current portion of capital lease obligation | 19 | 19 | ||||||||||||||||||
Deferred interest | 336 | (336 | ) | B1 | — | |||||||||||||||
Total current liabilities | 12,020 | 1,954 | 10,649 | 24,623 | ||||||||||||||||
Non-current liabilities: | ||||||||||||||||||||
Capital lease obligation — long term | $ | 9 | — | $ | 9 | |||||||||||||||
Minority interest | 3,188 | — | 3,188 | |||||||||||||||||
Total liabilities | 15,217 | 1,954 | 10,649 | 27,820 | ||||||||||||||||
Common stock subject to redemption | 4,630 | (4,630 | ) | B1 | — | |||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock | $ | 36,529 | 1 | 1 | C | $ | 2 | |||||||||||||
(36,529 | ) | C | ||||||||||||||||||
Additional paid-in capital | 40,440 | 20,383 | (36,032 | ) | B2 | 59,606 | ||||||||||||||
(1,713 | ) | C | ||||||||||||||||||
36,528 | C | |||||||||||||||||||
Accumulated other comprehensive loss | (375 | ) | (375 | ) | ||||||||||||||||
Accumulated deficit | (1,241 | ) | (1,713 | ) | 1,713 | C | (1,241 | ) | ||||||||||||
Total shareholders’ equity | 75,353 | 18,671 | (36,032 | ) | 57,992 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 90,570 | $ | 25,255 | $ | (30,013 | ) | $ | 85,812 | |||||||||||
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ASSUMING MAXIMUM APPROVAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
Pro Forma | Pro Forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Service | $ | 12,814 | $ | — | $ | — | $ | 12,814 | ||||||||||||
Equipment | 3,430 | — | 3,430 | |||||||||||||||||
16,244 | 16,244 | |||||||||||||||||||
Cost of Revenue | ||||||||||||||||||||
Service | (4,891 | ) | (4,891 | ) | ||||||||||||||||
Equipment | (3,389 | ) | (3,389 | ) | ||||||||||||||||
(8,280 | ) | (8,280 | ) | |||||||||||||||||
Gross profit | 7,964 | — | — | 7,964 | ||||||||||||||||
Operating (expenses) income: | ||||||||||||||||||||
Selling and marketing expenses | (349 | ) | — | — | (349 | ) | ||||||||||||||
General and administrative expenses | (3,616 | ) | (920 | ) | — | (4,536 | ) | |||||||||||||
Foreign exchange loss | (134 | ) | (134 | ) | ||||||||||||||||
Management service fee | 1,018 | — | — | 1,018 | ||||||||||||||||
Total operating (expenses) income, net | (3,081 | ) | (920 | ) | — | (4,001 | ) | |||||||||||||
Income (loss) from operations | 4,883 | (920 | ) | — | 3,963 | |||||||||||||||
Interest income | 783 | 650 | 160 | B | 1,593 | |||||||||||||||
Other income | — | — | ||||||||||||||||||
Interest expenses | (2 | ) | (10 | ) | (12 | ) | ||||||||||||||
Income (loss) before income taxes | 5,664 | (280 | ) | 160 | 5,544 | |||||||||||||||
Income taxes | (1,095 | ) | (75 | ) | — | (1,170 | ) | |||||||||||||
Net income (loss) after income taxes before equity earnings of affiliates | 4,569 | (355 | ) | 160 | 4,374 | |||||||||||||||
Equity earnings of affiliated companies | (88 | ) | — | — | (88 | ) | ||||||||||||||
Minority interest | (286 | ) | (286 | ) | ||||||||||||||||
Net income (loss) | $ | 4,195 | $ | (355 | ) | $ | 160 | $ | 4,000 | |||||||||||
Earnings (loss) per common share — basic | $ | 0.01 | $ | (0.06 | ) | (D | ) | $ | 0.15 | |||||||||||
Earnings (loss) per common share — diluted | $ | 0.01 | $ | (0.06 | ) | (D | ) | $ | 0.15 | |||||||||||
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ASSUMING MINIMUM APPROVAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
Pro Forma | Pro forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Service | $ | 12,814 | $ | — | $ | — | $ | 12,814 | ||||||||||||
Equipment | 3,430 | — | 3,430 | |||||||||||||||||
16,244 | 16,244 | |||||||||||||||||||
Cost of Revenue | ||||||||||||||||||||
Service | (4,891 | ) | (4,891 | ) | ||||||||||||||||
Equipment | (3,389 | ) | (3,389 | ) | ||||||||||||||||
(8,280 | ) | (8,280 | ) | |||||||||||||||||
Gross profit | 7,964 | — | — | 7,964 | ||||||||||||||||
Operating (expenses) income: | ||||||||||||||||||||
Selling and marketing expenses | (349 | ) | — | — | (349 | ) | ||||||||||||||
General and administrative expenses | (3,616 | ) | (920 | ) | — | (4,536 | ) | |||||||||||||
Foreign exchange loss | (134 | ) | (134 | ) | ||||||||||||||||
Management service fee | 1,018 | — | — | 1,018 | ||||||||||||||||
Total operating (expenses) income, net | (3,081 | ) | (920 | ) | — | (4,001 | ) | |||||||||||||
Income (loss) from operations | 4,883 | (920 | ) | — | 3,963 | |||||||||||||||
Interest income | 783 | 650 | 1,433 | |||||||||||||||||
Other income | — | — | ||||||||||||||||||
Interest expenses | (2 | ) | (10 | ) | (12 | ) | ||||||||||||||
Income (loss) before income taxes | 5,664 | (280 | ) | — | 5,384 | |||||||||||||||
Income taxes | (1,095 | ) | (75 | ) | — | (1,170 | ) | |||||||||||||
Net income (loss) after income taxes before equity earnings of affiliates | 4,569 | (355 | ) | — | 4,214 | |||||||||||||||
Equity earnings of affiliated companies | (88 | ) | — | — | (88 | ) | ||||||||||||||
Minority interest | (286 | ) | (286 | ) | ||||||||||||||||
Net income (loss) | $ | 4,195 | $ | (355 | ) | $ | — | $ | 3,840 | |||||||||||
Earnings (loss) per common share — basic | $ | 0.01 | $ | (0.06 | ) | (D | ) | $ | 0.25 | |||||||||||
Earnings (loss) per common share — diluted | $ | 0.01 | $ | (0.06 | ) | (D | ) | $ | 0.24 | |||||||||||
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ASSUMING MAXIMUM APPROVAL
FOR THE YEAR ENDED DECEMBER 31, 2005
Pro Forma | Pro Forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Service | $ | 15,319 | $ | — | $ | — | $ | 15,319 | ||||||||||||
Equipment | 3,724 | — | 3,724 | |||||||||||||||||
19,043 | 19,043 | |||||||||||||||||||
Cost of Revenue | ||||||||||||||||||||
Service | (5,588 | ) | (5,588 | ) | ||||||||||||||||
Equipment | (3,632 | ) | (3,632 | ) | ||||||||||||||||
(9,220 | ) | (9,220 | ) | |||||||||||||||||
Gross profit | 9,823 | — | — | 9,823 | ||||||||||||||||
Operating (expenses) income: | ||||||||||||||||||||
Selling and marketing expenses | (443 | ) | — | — | (443 | ) | ||||||||||||||
General and administrative expenses | (4,508 | ) | (1,718 | ) | — | (6,226 | ) | |||||||||||||
Foreign exchange loss | (295 | ) | (295 | ) | ||||||||||||||||
Management service fee | 1,786 | — | — | 1,786 | ||||||||||||||||
Total operating (expenses) income, net | (3,460 | ) | (1,718 | ) | — | (5,178 | ) | |||||||||||||
Income (loss) from operations | 6,363 | (1,718 | ) | — | 4,645 | |||||||||||||||
Interest income | 576 | 540 | 135 | B | 1,251 | |||||||||||||||
Other income | 73 | — | 73 | |||||||||||||||||
Interest expenses | (2 | ) | — | (2 | ) | |||||||||||||||
Income (loss) before income taxes | 7,010 | (1,178 | ) | 135 | 5,967 | |||||||||||||||
Income taxes | (1,318 | ) | (37 | ) | — | (1,355 | ) | |||||||||||||
Income (loss) after income taxes before equity earnings of affiliates | 5,692 | (1,215 | ) | 135 | 4,612 | |||||||||||||||
Equity earnings of affiliated companies | (50 | ) | — | — | (50 | ) | ||||||||||||||
Minority interest | (209 | ) | (209 | ) | ||||||||||||||||
Net income (loss) | $ | 5,433 | $ | (1,215 | ) | $ | 135 | $ | 4,353 | |||||||||||
Earnings (Loss) per common share — basic | $ | 0.01 | $ | (0.22 | ) | (D | ) | $ | 0.17 | |||||||||||
Earnings (Loss) per common share — diluted | $ | 0.01 | $ | (0.22 | ) | (D | ) | $ | 0.16 | |||||||||||
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ASSUMING MINIMUM APPROVAL
FOR THE YEAR ENDED DECEMBER 31, 2005
Pro Forma | Pro Forma | |||||||||||||||||||
Chinacast | Great Wall | Adjustments | Combined | |||||||||||||||||
In thousands | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Service | $ | 15,319 | $ | — | $ | — | $ | 15,319 | ||||||||||||
Equipment | 3,724 | — | 3,724 | |||||||||||||||||
19,043 | 19,043 | |||||||||||||||||||
Cost of Revenue | ||||||||||||||||||||
Service | (5,588 | ) | (5,588 | ) | ||||||||||||||||
Equipment | (3,632 | ) | (3,632 | ) | ||||||||||||||||
(9,220 | ) | (9,220 | ) | |||||||||||||||||
Gross profit | 9,823 | — | — | 9,823 | ||||||||||||||||
Operating (expenses) income: | ||||||||||||||||||||
Selling and marketing expenses | (443 | ) | — | — | (443 | ) | ||||||||||||||
General and administrative expenses | (4,508 | ) | (1,718 | ) | — | (6,226 | ) | |||||||||||||
Foreign exchange loss | (295 | ) | (295 | ) | ||||||||||||||||
Management service fee | 1,786 | — | — | (1,786 | ) | |||||||||||||||
Total operating (expenses) income, net | (3,460 | ) | (1,718 | ) | — | (5,178 | ) | |||||||||||||
Income (loss) from operations | 6,363 | (1,718 | ) | — | 4,645 | |||||||||||||||
Interest income | 576 | 540 | 1,116 | |||||||||||||||||
Other income | 73 | — | 73 | |||||||||||||||||
Interest expenses | (2 | ) | — | (2 | ) | |||||||||||||||
Income (loss) before income taxes | 7,010 | (1,178 | ) | — | 5,832 | |||||||||||||||
Income taxes | 1,318 | (37 | ) | — | (1,355 | ) | ||||||||||||||
Income (loss) after income taxes before equity earnings of affiliates | 5,692 | (1,215 | ) | — | 4,477 | |||||||||||||||
Equity earnings of affiliated companies | (50 | ) | — | — | (50 | ) | ||||||||||||||
Minority interest | (209 | ) | (209 | ) | ||||||||||||||||
Net income (loss) | $ | 5,433 | $ | (1,215 | ) | — | $ | 4,218 | ||||||||||||
Earnings (Loss) per common share — basic | $ | 0.01 | $ | (0.22 | ) | (D | ) | $ | 0.28 | |||||||||||
Earnings (Loss) per common share — diluted | $ | 0.01 | $ | 0.22 | (D | ) | $ | 0.27 | ||||||||||||
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Pro Forma Adjustments
A | to record the release of funds held in trust by Great Wall |
B | assuming maximum approval, to reclassify common stock held in trust to permanent equity and to record related deferred interest as income |
B1 | assuming minimum approval, to record refund of funds to Great Wall dissenting shareholders |
B2 | assuming minimum approval, to record refund of funds to ChinaCast dissenting shareholders |
C | to record the shares issued in the Acquisition, to eliminate the accumulated deficit (as adjusted when assuming maximum approval) of Great Wall, to record the recapitalization of ChinaCast and to eliminate intercompany transactions |
D | Pro forma net income per share was calculated by dividing pro forma net income by the weighted average number of shares outstanding as follows: |
Nine Months Ended September 30, 2006 | Year Ended December 31, 2005 | |||||||||||||||
Assuming | Assuming | Assuming | Assuming | |||||||||||||
Maximum | Minimum | Maximum | Minimum | |||||||||||||
Approval | Approval | Approval | Approval | |||||||||||||
Shares issued in the Acquisition | 20,752,301 | 10,551,526 | 20,752,301 | 10,551,526 | ||||||||||||
Great Wall weighted average shares | 5,515,975 | 4,612,781 | 5,515,975 | 4,612,781 | ||||||||||||
Basic shares | 26,268,276 | 15,164,307 | 26,268,276 | 15,164,307 | ||||||||||||
Great Wall warrants incremental shares | 609,139 | 609,139 | 380,657 | 380,657 | ||||||||||||
Diluted shares | 26,877,415 | 15,773,446 | 26,648,933 | 15,544,964 | ||||||||||||
Name | Age | Position | ||||
Yin Jianping | 45 | Executive Chairman of the Board | ||||
Ron Chan Tze Ngon | 50 | Chief Executive Officer and Director | ||||
Li Wei | 43 | Chief Operating Officer and Director | ||||
Antonio Sena | 51 | Chief Financial Officer and Company Secretary | ||||
David Sun Guangfeng | 35 | Chief Technology Officer | ||||
Michael J. Santos | 44 | Chief Marketing Officer | ||||
Jim Ma Jim Lok | 34 | Vice President, Finance | ||||
Kin Shing Li | 49 | Director | ||||
Justin Tang | 35 | Director |
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2005 | 2004 | 2003 | ||||||||||||||||||||||||
Cash | Non-Cash | Cash | Non-cash | Cash | Non-cash | |||||||||||||||||||||
Compensation | Compensation | Compensation | Compensation | Compensation | Compensation | |||||||||||||||||||||
No. of Options | No. of Options | No. of Options | ||||||||||||||||||||||||
Titles | RMB | Granted | RMB | Granted* | RMB | Granted | ||||||||||||||||||||
Yin Jian Pian | Director & Chairman | 1,647,360 | 1,679,040 | 559,680 | ||||||||||||||||||||||
Ron Chan | Director & CEO | 1,110,720 | 1,268,820 | 10,010,000 | 559,680 | |||||||||||||||||||||
Li Wei | Director & COO | 595,555 | 599,993 | 599,993 | ||||||||||||||||||||||
Antonio Sena | CFO | 748,800 | — | — | ||||||||||||||||||||||
Michael Santos | CMO | 1,497,600 | 1,526,400 | 1,750,000 | 1,526,400 | |||||||||||||||||||||
David Sun | CTO | 317,247 | 333,600 | 333,600 | ||||||||||||||||||||||
Jim Ma | Vice President, finance | 823,680 | 839,520 | 7,000,000 | 839,520 |
* | the fair value of the options were valued at RMB1.012 per option as at the grant date |
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Number of | ||||||
Name | Shares | Relationship to Great Wall | ||||
Kin Shing Li | 430,000 | Chairman of the Board, Chief Executive Officer and Secretary | ||||
Justin Tang | 430,000 | Stockholder | ||||
Dr. Xiaolin Zhong | 50,000 | Former Director | ||||
Dr. Ya-qin Zhang | 40,000 | Former Director | ||||
Jack Silver | 50,000 | Stockholder(1) |
(1) | Mr. Silver is an affiliate of Sherleigh Associates LLC, a company that provides Great Wall with office space and secretarial services. |
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Amount and | ||||||||
Nature of | ||||||||
Beneficial | ||||||||
Name | Ownership | Percent of Class | ||||||
Kin Shing Li(1) | 430,000 | 7.8 | % | |||||
Justin Tang(2) | 430,000 | 7.8 | % | |||||
Sapling, LLCet al.(3) | 1,000,330 | 18.1 | % | |||||
Federated Investors, Inc.et al.(4) | 616,300 | 11.2 | % | |||||
North Pole Capital Master Fund,et al.(5) | 424,700 | 7.2 | % | |||||
Jack Silver(6) | 300,000 | 5.4 | % | |||||
All directors and executive officers as a group (1 individual) | 430,000 | 7.8 | % |
(1) | Mr. Li’s business address is 660 Madison Avenue, 15th Floor, New York, New York 10021. The share amount does not include 305,000 shares of common stock issuable upon exercise of warrants that are not currently exercisable and will become exercisable only upon consummation of the Acquisition, but includes 50,000 common shares that Mr. Li has agreed to sell to Mr. Richard Xue, a consultant to Great Wall in connection with Mr. Xue’s consulting with Great Wall, which sale is contingent on Great Wall’s completion of a business combination and release of such shares from escrow. | |
(2) | Mr. Tang’s business address is c/o eLong, Inc., Union Plaza, Suite 604, 20 Chaoyang Men Wai Ave., Beijing 100020, China. Does not include 300,000 shares of common stock issuable upon exercise of warrants that are not currently exercisable and will become exercisable only upon consummation of the Acquisition. | |
(3) | The business address of Sapling, LLC is 505 Fifth Avenue, 23rd Floor, New York, New York 10017. The business address of Fir Tree Recovery Master Fund, L.P. is c/o Admiral Administration Ltd., Admiral Financial Center, 5th Floor, 90 Fort Street, Box 32021 SMB, Grand Cayman, Cayman Islands. Fir Tree Value Master Fund, LP, a Cayman Island exempted limited partnership, is the sole member of Sapling, LLC, a Delaware limited liability company, and Fir Tree, Inc., a New York corporation, is the investment manager of Sapling LLC and Fir Tree Recovery Master Fund, L.P., a Cayman Islands exempted limited partnership. Fir Tree, Inc. may be deemed to beneficially own the shares held by Sapling, LLC and Fir Tree Recovery Master Fund, L.P. Sapling, LLC and Fir Tree Recovery Master Fund, L.P. are the beneficial owners of 784,259 and 216,071 shares |
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of common stock, respectively. The foregoing information was derived from a Schedule 13G filed with the SEC on January 28, 2005 and amended September 22, 2006. | ||
(4) | The business address of Federated Investors, Inc. is Federated Investors Tower, Pittsburgh, PA15222-3779. Federated Investors, Inc. is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Global Investment Management Corp., which act as investment advisers to registered investment companies and separate accounts that own shares of Great Wall common stock and are wholly owned subsidiaries of FII Holdings, Inc., which is a wholly owned subsidiary of Federated Investors, Inc. All of Federated Investors, Inc.’s outstanding voting stock is held in the Voting Shares Irrevocable Trust, for which John F. Donahue, Rhodora J. Donahue and J. Christopher Donahue act as trustees. The foregoing information was derived from a Schedule 13G filed with the SEC on October 10, 2006. | |
(5) | The business address of North Pole Capital Master Fund is c/o Polar Securities Inc., 372 Bay Street, 21st floor, Toronto, Ontario M5H 2W9, Canada. Polar Securities Inc., a company incorporated under the laws of Ontario, Canada, serves as the investment manager to North Pole Capital Master Fund, a Cayman Islands exempted company. Paul Sabourin is the Chief Executive Officer and Chief Investment Officer of Polar Securities Inc. John Paul Cahill serves as a trader for Polar Securities, Inc. and has discretionary authority over the investments of North Pole Capital Master Fund. Kamran Siddiqui serves as a portfolio manager for Polar Securities Inc. and has discretionary authority over the investments of North Pole Capital Master Fund. The foregoing information was derived from a Schedule 13G filed with the SEC on October 20, 2005. | |
(6) | Mr. Silver’s business address is SIAR Capital LLC, 660 Madison Avenue, New York, New York 10021. The share amount includes 250,000 shares of common stock held by Sherleigh Associates Inc. Profit Sharing Plan, of which Mr. Silver is the trustee, and 50,000 shares of common stock held by Sherleigh which shares are being held in escrow pursuant to an escrow agreement among Mr. Silver, the Company and certain other shareholders. The foregoing information was derived from a Schedule 13G filed with the SEC on March 26, 2004 and amended February 9 and 27, 2006. Of these shares, 250,000 were purchased in the Company’s IPO. |
Shares of | Approximate | |||||||
the Combined | Percentage of | |||||||
Company’s | Outstanding | |||||||
Name | Common Stock(1) | Common Stock(2) | ||||||
Yin Jianping | 3,162,368 | 12.0 | % | |||||
Ron Chan Tze Ngon | 3,103,543 | 11.8 | % | |||||
Wei Li | 82,156 | 0.3 | % | |||||
Kin Shing Li | 430,000 | 1.6 | % | |||||
Justin Tang | 430,000 | 1.6 | % | |||||
Directors and officers (five persons) as a group | 6,778,067 | 27.4 | % |
(1) | Beneficial ownership has been determined in accordance withRule 13d-3 under the Securities Exchange Act of 1934. | |
(2) | Assumes full tender into the Offer and election of the Stock Offer, and no exercise of outstanding Great Wall warrants. |
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• | enhance the likelihood of continuity and stability in the Board; | |
• | 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; |
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Great Wall | ChinaCast | Combined Company | ||||
GENERAL MATTERS | ||||||
Purpose | To engage in any lawful act not prohibited by law. | To carry on business as a holding company and to acquire and hold shares, stocks, etc issued by various entities whether in Bermuda or elsewhere. | Same as Great Wall. | |||
Standard form of business objects. | ||||||
Registered office | 9 East Loockerman Street, Dover, Kent County, Delaware. | Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda. | Same as Great Wall. | |||
Transfer agent | Continental Stock Transfer & Trust Company. | Reid Management Limited. | Same as Great Wall. | |||
CAPITAL STRUCTURE | ||||||
Authorized capital stock | 21 million, of which: • 20 million are shares of common stock, par value $0.0001 per share; and • 1 million are shares of preferred stock, par value $0.0001 per share. Great Wall’s shares are registered shares. | US$60,000,000 divided into 6,000,000,000 shares of US$0.08 each. | 101,000,000 million, of which: • 100,000,000 million are shares of common stock, par value $0.0001 per share; and • 1 million are shares of preferred stock, par value $0.0001 per share. Great Wall’s shares are registered shares. | |||
Par value; changes in capitalization | Stated in United States dollars; changes in capital generally require stockholder approval. | Stated in United States dollars; changes in capital generally require shareholders’ approval. | Same as Great Wall. |
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Great Wall | ChinaCast | Combined Company | ||||
Preferred (Preference) Shares | Directors may fix the designations, powers, preferences, rights, qualifications, limitations and restrictions by resolution. | Currently the authorized share capital does not include any class of preference shares and there are no preference shares in issue. Shareholders’ approval required to create new class(es) of preference shares. Any new shares shall be issued upon such terms and conditions and with such rights, privileges or restrictions as the shareholders or the Board of Directors may determine, subject to the class rights of existing classes of shareholders. | Same as Great Wall. | |||
Redemption and repurchase of equity | Shares may be repurchased or otherwise acquired, provided the company’s capital will not be impaired. Company may hold or sell treasury shares. | Shares may be repurchased in accordance with provisions of the Bermuda Companies Act. No provision for treasury shares. | Same as Great Wall. | |||
STOCKHOLDERS | ||||||
Annual meetings | Date, time and place of the annual meeting is determined by the Board of Directors. | Company shall in each year hold an annual general meeting, and not more than 15 months shall elapse between one annual general meeting and the next. | Same as Great Wall. | |||
Date, time and place of the annual meeting is determined by the Board of Directors. | ||||||
Special meetings | Special meetings may be called by a majority of the Board or by the chief executive officer, and must be called by the secretary if requested by holders of a majority of the shares of capital stock. | Special general meetings may be called by the Board of Directors and must be called by the directors if requisitioned by holders of at least one-tenth of thepaid-up capital. | Same as Great Wall. | |||
Notice of meetings | Not less than ten nor more than 60 days. | For an annual general meeting and a meeting called for the passing of a Special Resolution, at least 21 clear days’ notice in writing. For other meetings, at least 14 clear days’ notice. | Same as Great Wall. | |||
Quorum requirements | The holders of a majority of the capital stock outstanding, present in person or represented by proxy, constitutes a quorum. Meeting may be adjourned for up to 30 days without additional notice to stockholders. | Two shareholders present in person or by duly authorized corporate representative or by proxy and entitled to vote. | Same as Great Wall. | |||
Location | Within or outside Delaware. | Anywhere as determined by the Board. | Same as Great Wall. | |||
Record date for voting | As fixed by the directors, no more than 60 nor less than ten days before the meeting. If not fixed, the day before notice of meeting is given. | Not provided in the Bye-laws. | Same as Great Wall. |
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Great Wall | ChinaCast | Combined Company | ||||
Action by written consent | Permitted. Holders of a sufficient number of shares to approve at a meeting with 100% attendance is required. If not unanimous, notice must be given to others. | Written resolutions of shareholders permitted. Need to be signed by all the shareholders who would have been entitled to attend a meeting. | Same as Great Wall. | |||
Notice requirements for stockholder nominations and other proposals | In general, to bring a matter before an annual meeting or nominate a candidate for director, a stockholder must give notice of the proposed matter or nomination not less than 60 and not more than 90 days prior to the date of the annual meeting. In the event that less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than the close of business on the tenth day following the date notice of the meeting was mailed or public disclosure was made, whichever first occurs. | To nominate a candidate for director, a shareholder (other than the person proposed) must give notice of the proposed nomination at least 11 clear days before the date of the general meeting. | Same as Great Wall. | |||
Cumulative voting | None. | None. | Same as Great Wall. | |||
BOARD OF DIRECTORS | ||||||
General | The Board shall consist of at least one and not more than nine directors, the exact number determined from time to time by resolution adopted by a majority of the entire Board. Great Wall currently has one director. The Board has all powers to govern the corporation not reserved to the stockholders. Directors appoint the officers, subject to the by-laws, with such powers as the Board determines. | The Board shall consist of not less than two Directors and not more than 20. All Directors must be natural persons. ChinaCast currently has six directors. The management of the business of the Company is vested in the Board. Directors need not be shareholders. | Same as Great Wall. | |||
Directors need not be stockholders. | ||||||
Election | By the stockholders as entitled by the terms of the class of their stock, including the holders of common stock. | By the shareholders or by the Board, in accordance with the provisions of the Bye-laws. | Same as Great Wall. | |||
Classes of directors; term | The Board is divided into three classes of directors, designated Class A, Class B and Class C. The number of directors in each class must be as nearly equal as possible. Each director serves for a three-year term. | The Board is subject to a one-third retirement by rotation at each annual general meeting. Each director shall retire at least once every three years. Retiring Directors are eligible for re-election. | Same as Great Wall. |
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Board quorum and vote requirements | A majority of the entire Board constitutes a quorum. The affirmative vote of a majority of directors present at a meeting at which there is a quorum constitutes action by the Board (unless a greater vote is required by law). | Unless otherwise determined by the Board, two directors is the quorum. Decisions at meetings are made by a majority of votes and if there is an equality, the Chairman shall have a second and casting vote except when only two Directors are present and form a quorum or only two Directors are competent to vote on the question in issue. | Same as Great Wall. | |||
Vacancies | Vacancies (unless the result of stockholder action) and newly-created directorships are filled by the majority vote of the remaining directors in office, even though less than a quorum, or by a sole remaining director. Vacancies resulting from the action of stockholders are filled by the stockholders. | The Company or the Board may appoint Directors either to fill casual vacancies or as additions to the Board, subject to the maximum number determined from time to time. A vacancy created by the removal of a director at a shareholders’ meeting may be filled at that meeting by the election of another director or in the absence of such election, by the other directors. | Same as Great Wall. | |||
Committees | Directors may establish one or more committees with such authority as the Board determines. | Board may delegate any of its powers to committees formed from its members or such other persons as the Board thinks fit. | Same as Great Wall. | |||
Action by written consent | Directors may take action by written consent of all directors, in addition to action at meeting. | Written resolutions signed by all Directors, save those absent from the principal office or temporarily unable to act through ill health or disability are valid, provided they are signed by at least two Directors and a copy given or the contents communicated to all the Directors. | Same as Great Wall. | |||
Removal | The entire Board or any director may be removed with or without cause by majority vote of the holders of outstanding shares. In case the Board or any one or more directors are so removed, new directors may be elected at the same time for the unexpired portion of the term of the removed director or directors. | Company may by ordinary resolution remove any Director before expiration of his period of office and may elect another person instead to hold office only until the next following annual general meeting, provided that notice of the special general meeting is served on the Director concerned and he is entitled to be heard at such meeting. | Same as Great Wall. |
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ORGANIC CHANGES | ||||||
Amendment of charter and by-laws | Amendments must be approved by the Board 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 by the Board. | Amendments to the Memorandum of Association and the Bye-laws require shareholders’ approval. | Same as Great Wall. | |||
The power of the Board to amend the by-laws will not divest the stockholders of their power to do so or limit that power. | ||||||
Merger, consolidation and sale of substantially all assets | Generally requires stockholder approval. | Generally requires shareholder approval. | Same as Great Wall. | |||
Dissenter’s Rights | Provision is made under Delaware corporate law to dissent and obtain fair value of shares in connection with certain corporate actions requiring stockholder approval or consent. | Dissenters may apply to the court to objectand/or seek appraisal of value of shares in connection with compulsory acquisition provisions under the Bermuda Companies Act. | Same as Great Wall. | |||
OTHER PROVISIONS | ||||||
Exculpation of directors, officers and employees | A director may not be personally liable for monetary damages for breach of fiduciary duty as a director, except for liability: • for breach of the director’s duty of loyalty; • for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; • under Section 174 of the Delaware General Corporation Law (prohibiting payment of dividends or redeeming shares without adequate capital); or • for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, the liability of a director must be eliminated or limited to the fullest extent permitted by that law. | Under the Bermuda Companies Act, a Director shall: (a) act honestly and in good faith with a view to the best interests of the company; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. There are certain deeming provisions as to whether a Director is acting honestly and in good faith. | Same as Great Wall. |
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Indemnification of directors, officers, employees and agents | In general, the by-laws provide for the indemnification of any person who was or is a party to any threatened, pending or completed action by reason of his or her status as a director, officer, employee or agent of Great Wall, or is or was serving at the request of Great Wall as a director, officer, employee or agent of another entity, against any expenses, judgments, fines or settlements actually and reasonably incurred by him or her, if the individual: • acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the company; and • with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The by-laws provide for indemnification of any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the company as a director, officer, employee or agent of another entity, against expenses (including attorneys’ fees) actually and reasonably incurred by him or her, in connection with the defense or settlement of such action or suit if the individual acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the company. No indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the company unless and only to the extent that a competent court determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court deems proper. | The By-laws provide indemnification to directors, auditors, officers, trustees and their respective executors or administrators from and against all actions, costs, charges, losses, damages and expenses which any of them may incur or sustain by reason of any act done, concurred in or omitted in or about the execution of their duty or supposed duty in their respective offices or trusts, except such (if any) as they shall incur or sustain through their own willful neglect or default, fraud and dishonesty respectively, and none of them shall be answerable for the acts, receipts, neglects or defaults of any other of them, or for joining in any receipt for the sake of conformity, or for any bankers or other persons with whom any moneys or effects of the Company shall be lodged or deposited for safe custody, or for the insufficiency or deficiency of any security upon which any moneys of the Company shall be placed out or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, except as the same shall happen by or through their own willful neglect or default, fraud and dishonesty respectively. | Same as Great Wall. | |||
Great Wall will advance expenses to a director or officer upon receipt of an undertaking to repay the advanced amount if it is ultimately determined that the individual is not entitled to indemnification. | ||||||
Indemnification Insurance | Great Wall may purchase insurance covering any person who is or was a director or officer of the company in respect to such matters. | ChinaCast may take out liability insurance for the benefit of its directors and officers. | Same as Great Wall. |
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Great Wall Acquisition Corporation
660 Madison Avenue, 15th floor
New York, New York 10021
(212) 753-0804
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(In thousands, except share and per share data)
As of December 31, | As of September 30, | |||||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | 2006 | |||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | US$ | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | 46,682 | 54,425 | 120,368 | 15,046 | 39,780 | 4,973 | ||||||||||||||||||
Term deposits | 64,313 | 323,901 | 273,798 | 34,225 | 430,271 | 53,784 | ||||||||||||||||||
Accounts receivable, net of allowance of RMBnil, RMBnil, RMB37 and RMB37 for 2003, 2004, 2005 and September 30, 2006 (unaudited), respectively | 26,001 | 15,977 | 39,277 | 4,910 | 42,472 | 5,309 | ||||||||||||||||||
Inventory | — | 338 | 3,276 | 410 | 4,166 | 521 | ||||||||||||||||||
Prepaid expenses and other current assets | 10,271 | 11,308 | 16,489 | 2,060 | 15,339 | 1,917 | ||||||||||||||||||
Amounts due from related parties | 11,848 | 6,911 | 8,605 | 1,076 | 1,403 | 175 | ||||||||||||||||||
Total current assets | 159,115 | 412,860 | 461,813 | 57,727 | 533,431 | 66,679 | ||||||||||||||||||
Property, plant and equipment, net | 17,186 | 11,523 | 20,264 | 2,533 | 15,749 | 1,969 | ||||||||||||||||||
Acquired intangible assets, net | — | — | 19,378 | 2,422 | 15,370 | 1,921 | ||||||||||||||||||
Deposits for acquiring equipment | 5,283 | 25,839 | 3,800 | 475 | 1,000 | 125 | ||||||||||||||||||
Deposit for business acquisition | — | — | — | — | 10,000 | 1,250 | ||||||||||||||||||
Goodwill | 1,488 | 1,943 | 3,538 | 442 | 3,538 | 442 | ||||||||||||||||||
Long-term investments | — | 400 | 19,298 | 2,412 | 18,594 | 2,324 | ||||||||||||||||||
Deferred tax assets | 690 | 517 | 345 | 43 | 215 | 27 | ||||||||||||||||||
Non-current advances to a related party | 122,527 | 133,863 | 148,477 | 18,560 | 126,665 | 15,833 | ||||||||||||||||||
Total assets | 306,289 | 586,945 | 676,913 | 84,614 | 724,562 | 90,570 | ||||||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | 1,716 | 3,209 | 10,627 | 1,328 | 16,222 | 2,028 | ||||||||||||||||||
Accrued expenses and other current liabilities | 11,060 | 17,085 | 44,847 | 5,606 | 43,741 | 5,467 | ||||||||||||||||||
Amounts due to related parties | 13,402 | — | 87 | 11 | 274 | 34 | ||||||||||||||||||
Income tax payable | 12,886 | 21,182 | 28,280 | 3,535 | 35,774 | 4,472 | ||||||||||||||||||
Current portion of capital lease obligation | 155 | 155 | 152 | 19 | 148 | 19 | ||||||||||||||||||
Current portion of long-term bank loan | 60 | 60 | — | — | — | — | ||||||||||||||||||
Total current liabilities | 39,279 | 41,691 | 83,993 | 10,499 | 96,159 | 12,020 | ||||||||||||||||||
Long-term liabilities: | ||||||||||||||||||||||||
Capital lease obligation — long term | 502 | 348 | 190 | 24 | 74 | 9 | ||||||||||||||||||
Long-term bank loan — long term | 140 | 80 | — | — | — | — | ||||||||||||||||||
Total long-term liabilities | 642 | 428 | 190 | 24 | 74 | 9 | ||||||||||||||||||
Minority interest | 19,063 | 19,063 | 23,216 | 2,902 | 25,506 | 3,188 | ||||||||||||||||||
Total liabilities | 58,984 | 61,182 | 107,399 | 13,425 | 121,739 | 15,217 | ||||||||||||||||||
Commitments (Notes 10 & 17) | ||||||||||||||||||||||||
Mezzanine equity: | ||||||||||||||||||||||||
Series A redeemable convertible preference shares (US$0.08 par value; 500,000,000 shares authorized and 19,702,958, nil, nil and nil shares issued and outstanding in 2003, 2004, 2005 and as of September 30, 2006 (unaudited), respectively) (liquidation value US$nil) | 183,764 | — | — | — | — | — | ||||||||||||||||||
Series B redeemable convertible preference shares (US$0.08 par value; 500,000,000 shares authorized and 18,058,580, nil, nil and nil shares issued and outstanding in 2003, 2004, 2005 and as of September 30, 2006 (unaudited), respectively) (liquidation value US$nil) | 115,766 | — | — | — | — | — | ||||||||||||||||||
Shareholders’ (deficit) equity: | ||||||||||||||||||||||||
Ordinary shares (US$0.08 par value; 1,200,000, 750,000,000, 750,000,000 and 750,000,000 shares authorized in 2003, 2004, 2005 and as of September 30, 2006 (unaudited), respectively; 199,218,524, 441,816,501, 441,816,501, and 441,816,501 issued and outstanding in 2003, 2004, 2005 and as of September 30, 2006 (unaudited), respectively) | 131,771 | 292,235 | 292,235 | 36,529 | 292,235 | 36,529 | ||||||||||||||||||
Additional paid-in capital | (92,205 | ) | 323,519 | 323,519 | 40,440 | 323,519 | 40,440 | |||||||||||||||||
Deferred share-based compensation | — | (3,099 | ) | (1,181 | ) | (148 | ) | — | — | |||||||||||||||
Accumulated other comprehensive income (loss) | 23 | 61 | (1,568 | ) | (196 | ) | (3,002 | ) | (375 | ) | ||||||||||||||
Accumulated deficit | (91,814 | ) | (86,953 | ) | (43,491 | ) | (5,436 | ) | (9,929 | ) | (1,241 | ) | ||||||||||||
Total shareholders’ (deficit) equity | (52,225 | ) | 525,763 | 569,514 | 71,189 | 602,823 | 75,353 | |||||||||||||||||
Total liabilities, mezzanine equity and shareholders’ (deficit) equity | 306,289 | 586,945 | 676,913 | 84,614 | 724,562 | 90,570 | ||||||||||||||||||
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(In thousands, except share and per share data)
For the Year Ended December 31, | For the Nine-Month Period Ended September 30, | |||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2005 | 2006 | 2006 | ||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | US$ | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Service | 72,757 | 79,408 | 122,550 | 15,319 | 86,727 | 102,511 | 12,814 | |||||||||||||||||||||
Equipment | — | 1,163 | 29,797 | 3,724 | 8,450 | 27,442 | 3,430 | |||||||||||||||||||||
72,757 | 80,571 | 152,347 | 19,043 | 95,177 | 129,953 | 16,244 | ||||||||||||||||||||||
Cost of revenues | ||||||||||||||||||||||||||||
Service | (34,373 | ) | (38,979 | ) | (44,703 | ) | (5,588 | ) | (27,994 | ) | (39,124 | ) | (4,891 | ) | ||||||||||||||
Equipment | — | (734 | ) | (29,054 | ) | (3,632 | ) | (8,204 | ) | (27,115 | ) | (3,389 | ) | |||||||||||||||
(34,373 | ) | (39,713 | ) | (73,757 | ) | (9,220 | ) | (36,198 | ) | (66,239 | ) | (8,280 | ) | |||||||||||||||
Gross profit | 38,384 | 40,858 | 78,590 | 9,823 | 58,979 | 63,714 | 7,964 | |||||||||||||||||||||
Operating (expenses) income: | ||||||||||||||||||||||||||||
Selling and marketing expenses (including share-based compensation of RMBnil, RMB1,623, RMB148, RMB148 and RMBnil for 2003, 2004, 2005, and for the nine-month periods ended September 30, 2005 (unaudited) and 2006 (unaudited), respectively) | (2,584 | ) | (3,613 | ) | (3,543 | ) | (443 | ) | (2,328 | ) | (2,796 | ) | (349 | ) | ||||||||||||||
General and administrative expenses (including share-based compensation of RMBnil, RMB21,699, RMB1,770, RMB1,329 and RMB1,181 for 2003, 2004, 2005, and for the nine-month periods ended September 30, 2005 (unaudited) and 2006 (unaudited), respectively) | (19,727 | ) | (49,893 | ) | (36,065 | ) | (4,508 | ) | (25,514 | ) | (28,929 | ) | (3,616 | ) | ||||||||||||||
Foreign exchange loss | (73 | ) | (78 | ) | (2,361 | ) | (295 | ) | (1,688 | ) | (1,068 | ) | (134 | ) | ||||||||||||||
Management service fee | 26,528 | 34,451 | 14,286 | 1,786 | 6,865 | 8,147 | 1,018 | |||||||||||||||||||||
Total operating (expenses) income, net | 4,144 | (19,133 | ) | (27,683 | ) | (3,460 | ) | (22,665 | ) | (24,646 | ) | (3,081 | ) | |||||||||||||||
Income from operations | 42,528 | 21,725 | 50,907 | 6,363 | 36,314 | 39,068 | 4,883 | |||||||||||||||||||||
Interest income | 635 | 2,648 | 4,604 | 576 | 4,287 | 6,260 | 783 | |||||||||||||||||||||
Other income | 4 | 144 | 581 | 73 | 194 | — | — | |||||||||||||||||||||
Interest expense | (1,050 | ) | (391 | ) | (19 | ) | (2 | ) | (14 | ) | (14 | ) | (2 | ) | ||||||||||||||
Income before income taxes | 42,117 | 24,126 | 56,073 | 7,010 | 40,781 | 45,314 | 5,664 | |||||||||||||||||||||
Provision for income taxes | (7,460 | ) | (8,689 | ) | (10,540 | ) | (1,318 | ) | (7,282 | ) | (8,758 | ) | (1,095 | ) | ||||||||||||||
Net income after income taxes before equity earnings of equity investments and minority interest | 34,657 | 15,437 | 45,533 | 5,692 | 33,499 | 36,556 | 4,569 | |||||||||||||||||||||
Equity earnings of equity investments | — | — | (402 | ) | (50 | ) | (165 | ) | (704 | ) | (88 | ) | ||||||||||||||||
Minority interest | — | — | (1,669 | ) | (209 | ) | — | (2,290 | ) | (286 | ) \ | |||||||||||||||||
Net income | 34,657 | 15,437 | 43,462 | 5,433 | 33,334 | 33,562 | 4,195 | |||||||||||||||||||||
Deemed dividend on redeemable convertible preference shares | (22,609 | ) | (10,576 | ) | — | — | — | — | — | |||||||||||||||||||
Income attributable to holders of ordinary shares | 12,048 | 4,861 | 43,462 | 5,433 | 33,334 | 33,562 | 4,195 | |||||||||||||||||||||
Income per share (in RMB cents or US$ cents) | ||||||||||||||||||||||||||||
Basic | 6.05 | 1.36 | 9.84 | 1.23 | 7.54 | 7.60 | 0.95 | |||||||||||||||||||||
Diluted | 6.05 | 1.32 | 9.48 | 1.19 | 7.27 | 7.28 | 0.91 | |||||||||||||||||||||
Shares used in computation: | ||||||||||||||||||||||||||||
Basic | 199,218,524 | 356,346,342 | 441,816,501 | 441,816,501 | 441,816,501 | 441,816,501 | 441,816,501 | |||||||||||||||||||||
Diluted | 199,218,524 | 368,759,638 | 458,642,895 | 458,642,895 | 458,375,869 | 461,276,020 | 461,276,020 | |||||||||||||||||||||
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COMPREHENSIVE INCOME
(In thousands, except share data)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Deferred | Other | Total | |||||||||||||||||||||||||||||
Ordinary | Paid-in | Share-Based | Accumulated | Comprehensive | Stockholders’ | Comprehensive | ||||||||||||||||||||||||||
Shares | Amount | Capital | Compensation | Deficit | (Loss) Income | Equity | Income | |||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||
Balance at January 1, 2003 | 199,218,524 | 131,771 | (105,325 | ) | — | (103,862 | ) | (28 | ) | (77,444 | ) | — | ||||||||||||||||||||
Capital contribution from loan forgiveness from a shareholder | — | — | 13,120 | — | — | — | 13,120 | — | ||||||||||||||||||||||||
Deemed dividend on redeemable convertible preference shares | — | — | — | — | (22,609 | ) | — | (22,609 | ) | — | ||||||||||||||||||||||
Net income | — | — | — | — | 34,657 | — | 34,657 | 34,657 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 51 | 51 | 51 | ||||||||||||||||||||||||
Balance at December 31, 2003 | 199,218,524 | 131,771 | (92,205 | ) | — | (91,814 | ) | 23 | (52,225 | ) | 34,708 | |||||||||||||||||||||
Issuance of ordinary shares in exchange for Series A redeemable convertible preference shares and Series B redeemable convertible preference shares | 132,097,977 | 87,375 | 222,731 | — | — | — | 310,106 | — | ||||||||||||||||||||||||
Issuance of ordinary shares upon initial public offering, net of issuance costs of RMB19,922 | 110,500,000 | 73,089 | 166,572 | — | — | — | 239,661 | — | ||||||||||||||||||||||||
Deferred share-based compensation | — | — | 26,421 | (26,421 | ) | — | — | — | — | |||||||||||||||||||||||
Amortization of deferred share-based compensation | — | — | — | 23,322 | — | — | 23,322 | — | ||||||||||||||||||||||||
Deemed dividend on redeemable convertible preference shares | — | — | — | — | (10,576 | ) | — | (10,576 | ) | — | ||||||||||||||||||||||
Net income | — | — | — | — | 15,437 | — | 15,437 | 15,437 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | 38 | 38 | 38 | ||||||||||||||||||||||||
Balance at December 31, 2004 | 441,816,501 | 292,235 | 323,519 | (3,099 | ) | (86,953 | ) | 61 | 525,763 | 15,475 | ||||||||||||||||||||||
Amortization of deferred share-based compensation | — | — | — | 1,918 | — | — | 1,918 | — | ||||||||||||||||||||||||
Net income | — | — | — | — | 43,462 | — | 43,462 | 43,462 | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | (1,629 | ) | (1,629 | ) | (1,629 | ) | |||||||||||||||||||||
Balance at December 31, 2005 | 441,816,501 | 292,235 | 323,519 | (1,181 | ) | (43,491 | ) | (1,568 | ) | 569,514 | 41,833 | |||||||||||||||||||||
Amortization of deferred share-based compensation (unaudited) | — | — | — | 1,181 | — | — | 1,181 | — | ||||||||||||||||||||||||
Net income (unaudited) | — | — | — | — | 33,562 | — | 33,562 | 33,562 | ||||||||||||||||||||||||
Foreign currency translation adjustment (unaudited) | — | — | — | — | — | (1,434 | ) | (1,434 | ) | (1,434 | ) | |||||||||||||||||||||
Balance at September 30, 2006 (unaudited) | 441,816,501 | 292,235 | 323,519 | — | (9,929 | ) | (3,002 | ) | 602,823 | 32,128 | ||||||||||||||||||||||
US$ | 36,529 | US$ | 40,440 | US$ | — | US$ | (1,241 | ) | US$ | (375 | ) | US$ | 75,353 | US$ | 4,016 | |||||||||||||||||
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(In thousands)
For the Nine-Month | ||||||||||||||||||||||||||||
For the Year Ended December 31, | Period Ended September 30, | |||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2005 | 2006 | 2006 | ||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | US$ | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||||||
Net income attributable to holders of ordinary shares | 12,048 | 4,861 | 43,462 | 5,433 | 33,334 | 33,562 | 4,195 | |||||||||||||||||||||
Deemed dividend on redeemable convertible preference shares | 22,609 | 10,576 | — | — | — | — | — | |||||||||||||||||||||
Net income | 34,657 | 15,437 | 43,462 | 5,433 | 33,334 | 33,562 | 4,195 | |||||||||||||||||||||
Adjustments for: | ||||||||||||||||||||||||||||
Minority interest | — | — | 1,669 | 209 | — | 2,290 | 286 | |||||||||||||||||||||
Depreciation and amortization | 3,946 | 5,740 | 8,745 | 1,093 | 5,329 | 9,261 | 1,158 | |||||||||||||||||||||
Amortization of deferred share-based compensation | — | 23,322 | 1,918 | 240 | 1,477 | 1,181 | 148 | |||||||||||||||||||||
Allowance for accounts receivable | — | — | 37 | 5 | 37 | — | — | |||||||||||||||||||||
Loss on disposal of property, plant and equipment | — | 229 | 3 | — | — | 7 | 1 | |||||||||||||||||||||
Equity in earnings of equity investments | — | — | 402 | 50 | 165 | 704 | 88 | |||||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Accounts receivable, net | 11,661 | 10,055 | (22,713 | ) | (2,839 | ) | (22,265 | ) | (3,578 | ) | (447 | ) | ||||||||||||||||
Inventory | — | (338 | ) | (508 | ) | (64 | ) | (2,781 | ) | (747 | ) | (93 | ) | |||||||||||||||
Prepaid expenses and other current assets | (10,271 | ) | (1,037 | ) | (5,345 | ) | (668 | ) | (14,846 | ) | 877 | 110 | ||||||||||||||||
Amounts due from related parties | (6,848 | ) | 4,937 | (1,694 | ) | (212 | ) | 500 | 7,047 | 881 | ||||||||||||||||||
Accounts payable | (4,994 | ) | 1,493 | 7,418 | 927 | 3,571 | 5,595 | 700 | ||||||||||||||||||||
Accrued expenses and other current liabilities | 4,435 | 6,025 | 16,941 | 2,117 | 3,685 | (2,024 | ) | (254 | ) | |||||||||||||||||||
Amount due to a related party | — | — | 87 | 11 | — | 187 | 23 | |||||||||||||||||||||
Income tax payable | 7,236 | 8,296 | 7,335 | 917 | 4,697 | 7,870 | 984 | |||||||||||||||||||||
Deferred tax assets | 172 | 173 | 172 | 22 | 129 | 130 | 16 | |||||||||||||||||||||
Net cash provided by operating activities | 39,994 | 74,332 | 57,929 | 7,241 | 13,032 | 62,362 | 7,796 | |||||||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||
Purchase of equity investment | — | (400 | ) | (4,300 | ) | (538 | ) | (4,300 | ) | — | — | |||||||||||||||||
Purchase of cost investment | — | — | (15,000 | ) | (1,875 | ) | (15,000 | ) | — | — | ||||||||||||||||||
Advances to related parties | (64,415 | ) | (11,336 | ) | (15,182 | ) | (1,898 | ) | (5,759 | ) | — | — | ||||||||||||||||
Repayment from advance to related parties | — | — | — | — | — | 21,812 | 2,727 | |||||||||||||||||||||
Deposits for acquiring equipment | (5,283 | ) | (20,556 | ) | (3,800 | ) | (475 | ) | (3,800 | ) | — | — | ||||||||||||||||
Deposit for business acquisition | — | — | — | — | (14,700 | ) | (10,000 | ) | (1,250 | ) | ||||||||||||||||||
Return of deposit for acquiring equipment | — | — | 9,004 | 1,126 | — | 2,800 | 350 | |||||||||||||||||||||
Purchase of property, plant and equipment | (1,646 | ) | (306 | ) | (297 | ) | (37 | ) | (202 | ) | (973 | ) | (122 | ) | ||||||||||||||
Purchase of subsidiaries, net of cash acquired | — | — | (12,195 | ) | (1,524 | ) | — | — | — | |||||||||||||||||||
Term deposits | (37,001 | ) | (259,588 | ) | 50,103 | 6,263 | 28,525 | (156,473 | ) | (19,559 | ) | |||||||||||||||||
Net cash (used in) provided by investing activities | (108,345 | ) | (292,186 | ) | 8,333 | 1,042 | (15,236 | ) | (142,834 | ) | (17,854 | ) | ||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||
Proceeds from issuance of redeemable convertible preference shares, net of issuance cost | 110,668 | — | — | — | — | — | — | |||||||||||||||||||||
Capital contribution from minority shareholders | 6,000 | — | — | — | — | — | — | |||||||||||||||||||||
Cash paid for acquiring ordinary shares from minority shareholders | (1,488 | ) | (455 | ) | — | — | — | — | — | |||||||||||||||||||
Proceeds from issuance of ordinary shares upon initial public offering, net of issuance cost | — | 239,661 | — | — | — | — | — | |||||||||||||||||||||
Bank loan raised | 200 | — | — | — | — | — | — | |||||||||||||||||||||
Repayment of capital lease obligation | (130 | ) | (154 | ) | (151 | ) | (19 | ) | (113 | ) | (111 | ) | (14 | ) | ||||||||||||||
Repayment of bank loan | — | (60 | ) | (140 | ) | (18 | ) | (140 | ) | — | — | |||||||||||||||||
Repayment of advances from related parities | (407 | ) | (13,402 | ) | — | — | — | — | — | |||||||||||||||||||
Net cash provided by (used in) financing activities | 114,843 | 225,590 | (291 | ) | (37 | ) | (253 | ) | (111 | ) | (14 | ) | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 46,492 | 7,736 | 65,971 | 8,246 | (2,457 | ) | (80,583 | ) | (10,072 | ) | ||||||||||||||||||
Cash and cash equivalents at beginning of the period | 126 | 46,682 | 54,425 | 6,804 | 54,425 | 120,368 | 15,046 | |||||||||||||||||||||
Effect of foreign exchange rate changes | 64 | 7 | (28 | ) | (4 | ) | (28 | ) | (5 | ) | (1 | ) | ||||||||||||||||
Cash and cash equivalents at end of the period | 46,682 | 54,425 | 120,368 | 15,046 | 51,940 | 39,780 | 4,973 | |||||||||||||||||||||
Non-cash financing activities: | ||||||||||||||||||||||||||||
Shareholder’s loan and interest payable forgiveness | 13,120 | — | — | — | — | — | — | |||||||||||||||||||||
Inception of capital lease | 787 | — | — | — | — | — | — | |||||||||||||||||||||
Non-cash capital contribution from minority shareholders | 13,063 | — | — | — | — | — | — | |||||||||||||||||||||
Conversion of Series A redeemable convertible preference shares and Series B redeemable convertible preference shares into ordinary shares | — | 310,106 | — | — | — | — | — | |||||||||||||||||||||
Supplemental cash flow information: | ||||||||||||||||||||||||||||
Interest paid | 1,050 | 391 | 19 | 2 | 14 | 14 | 2 | |||||||||||||||||||||
Income taxes paid | 62 | 220 | 3,270 | 409 | 2,693 | 1,134 | 142 | |||||||||||||||||||||
Acquisition of subsidiaries: | ||||||||||||||||||||||||||||
Cash consideration | 21,000 | 2,625 | — | — | — | |||||||||||||||||||||||
Assets acquired (including cash and cash equivalent of RMB2,505, intangible assets of RMB20,736 and goodwill of RMB1,595) | 27,597 | 3,450 | — | — | — | |||||||||||||||||||||||
Liabilities assumed | (4,113 | ) | (514 | ) | — | — | — | |||||||||||||||||||||
Minority interest | (2,484 | ) | (311 | ) | — | — | — | |||||||||||||||||||||
21,000 | 2,625 | — | — | — | ||||||||||||||||||||||||
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Table of Contents
AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2005 (UNAUDITED)
AND 2006 (UNAUDITED)
(In thousands, except share and per share data)
1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
Date of | ||||||||||||||
Incorporation | Place of Incorporation (or | Proportion of Issued Share/Registered Capital Held by the Company | ||||||||||||
Name | or Establishment | Establishment)/Operation | Direct | Indirect | Principal Activity | |||||||||
Subsidiary: | ||||||||||||||
ChinaCast Communication Network Company Ltd. (“CCN”) | April 8, 2003 | British Virgin Islands | 100 | % | — | Investment holdings | ||||||||
Held by CCN | ||||||||||||||
ChinaCast Technology (BVI) Limited (“CCT BVI”) | June 18, 1999 | British Virgin Islands | — | 98.5 | % | Acts as technology enablers in the satellite communication industry and investment holding company | ||||||||
Held by CCT BVI | ||||||||||||||
ChinaCast Technology (HK) Limited (“CCT HK”) | October 4, 1999 | Hong Kong/ Hong Kong and other regions of the People’s Republic of China (“PRC”) | — | 98.5 | % | Acts as a liaison office for the Group’s operation | ||||||||
ChinaCast Technology (Shanghai) Limited (“CCT Shanghai”) | December 20, 2000 | PRC | — | 98.5 | % | Provision of technical services to related parties | ||||||||
Held by CCT Shanghai | ||||||||||||||
Beijing Tongfang Digital Education Technology Limited (“Tongfang”) | April 29, 2005 | PRC | — | 49.3 | % Investment holdings | |||||||||
Held by Tongfang | ||||||||||||||
Beijing Tongfang Chuangxin Technology Limited (“Tongfang Chuangxin”) | ||||||||||||||
(Note) | August 13, 2003 | PRC | — | 25.1 | % | Provision of network service for distance learning | ||||||||
Variable interest entity: | ||||||||||||||
ChinaCast Li Xiang Co., Ltd. (“CCLX”) | May 7, 2003 | PRC | — | — | Provision of satellite broad band services |
Note: | The Group considers Tongfang and Tongfang Chuangxin as subsidiaries due to the fact that the Group controls the entities through its representation of board of directors mandated by the Articles of Association of Tongfang which directly owns a majority stake in Tongfang Chuangxin. |
F-9
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F-10
Table of Contents
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation |
(b) | Basis of consolidation |
(c) | Cash and cash equivalents |
(d) | Term deposits |
(e) | Use of estimates |
(f) | Significant risks and uncertainties |
F-11
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(g) | Inventories |
(h) | Property, plant and equipment |
Satellite hub equipment | 7 years | |||
Computer equipment | 5 years | |||
Furniture and fixtures | 5 years | |||
Motor vehicles | 5 years |
(i) | Impairment of long-lived assets |
(j) | Goodwill |
F-12
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RMB | ||||
Balance as of January 1, 2005 | 1,943 | |||
Goodwill acquired during the year | 1,595 | |||
Balance as of December 31, 2005 | 3,538 | |||
(k) | Long-term investment |
(l) | Revenue recognition |
F-13
Table of Contents
(m) | Operating leases |
(n) | Foreign currency translation |
(o) | Translation into United States Dollars |
(p) | Foreign currency risk |
F-14
Table of Contents
(q) | Concentration of credit risk |
(r) | Fair value of financial instruments |
(s) | Income taxes |
(t) | Comprehensive income |
(u) | Segment reporting |
(v) | Net income per share |
(w) | Share-based compensation |
F-15
Table of Contents
(x) | Recently issued accounting pronouncements |
F-16
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(y) | Unaudited interim financial information |
3. | ACQUISITION |
Amortization | ||||||||
RMB | Period | |||||||
Net tangible assets acquired (including cash and cash equivalents of RMB2,505) | 1,153 | |||||||
Intangible assets: | ||||||||
Agreements with universities | 20,465 | 46 months | ||||||
Training school operating right (Note) | 271 | 10 years | ||||||
Minority interest | (2,484 | ) | ||||||
Goodwill | 1,595 | |||||||
Total | 21,000 | |||||||
Note: | Through the acquisition of Tongfang the Group acquired the exclusive operating right of Tsinghua Tongfang Education Training School (“ETS”) for a period of 10 years. ETS is a government agency which has the right to enroll students and offer training services. With the exclusive operating right, the Group can provide, exclusively, distance learning services to ETS to train the students enrolled by ETS and as consideration, ETS will pay a distance learning service fee to the Group. The Group has not commenced providing distance learning services to ETS as of December 31, 2005 and September 30, 2006 (unaudited) and accordingly no distance learning service revenue was recorded. |
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Table of Contents
For the Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
RMB | RMB | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues | 96,261 | 166,205 | ||||||
Income attributable to holders of ordinary shares | 2,574 | 40,548 | ||||||
Income per share — basic (in RMB cents) | 0.72 | 9.18 | ||||||
Income per share — diluted (in RMB cents) | 0.70 | 8.84 |
4. | INVENTORY |
As of | ||||||||||||||||
As of December 31, | September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Satellite communication related equipment and equipment accessories | — | 338 | 3,276 | 4,166 | ||||||||||||
5. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
As of | ||||||||||||||||
As of December 31, | September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Advances to suppliers | 3,260 | 8,412 | 10,036 | 10,503 | ||||||||||||
Prepaid expenses for initial public offering | 1,761 | — | — | — | ||||||||||||
Deposit for project development | 5,106 | 2,606 | 455 | 580 | ||||||||||||
Fees receivable (Note) | — | — | 4,094 | 1,188 | ||||||||||||
Others | 144 | 290 | 1,904 | 3,068 | ||||||||||||
10,271 | 11,308 | 16,489 | 15,339 | |||||||||||||
Note: | Fees receivable represent professional service fees paid by the Company in connection with an unsolicited voluntary conditional offer, to acquire all the issued ordinary shares in the capital of the Company, as announced by the offeror on September 14, 2005. The completion of the offer is subject to the satisfaction or waiver for certain pre-conditions. The offeror has undertaken that it will bear certain professional fees paid by the Company in relation to the conditional offer. The Company paid such professional fees of RMB2,430 and RMB5,282 in 2005 and 2006 (unaudited), respectively, which have been fully reimbursed by the offeror. |
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6. | PROPERTY, PLANT AND EQUIPMENT, NET |
As of | ||||||||||||||||
As of December 31, | September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Satellite hub equipment | 24,384 | 24,384 | 33,461 | 33,781 | ||||||||||||
Computer equipment | 11,017 | 8,946 | 15,434 | 15,580 | ||||||||||||
Furniture and fixtures | 128 | 216 | 372 | 629 | ||||||||||||
Motor vehicles | 1,051 | 1,232 | 1,624 | 1,605 | ||||||||||||
36,580 | 34,778 | 50,891 | 51,595 | |||||||||||||
Less: accumulated depreciation | 19,394 | 23,255 | 30,627 | 35,846 | ||||||||||||
17,186 | 11,523 | 20,264 | 15,749 | |||||||||||||
7. | ACQUIRED INTANGIBLE ASSETS, NET |
As of | As of | |||||||
December 31, | September 30, | |||||||
2005 | 2006 | |||||||
RMB | RMB | |||||||
(Unaudited) | ||||||||
Agreements with universities | 20,465 | 20,465 | ||||||
Training school operating right | 271 | 271 | ||||||
Less: accumulated amortization | (1,358 | ) | (5,366 | ) | ||||
19,378 | 15,370 | |||||||
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Table of Contents
8. | LONG-TERM INVESTMENTS |
As of | ||||||||||||||||||||||||
Percentage | As of December 31, | September 30, | ||||||||||||||||||||||
Name of Investment | Notes | of Ownership | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Equity investments: | ||||||||||||||||||||||||
ChongQing ChinaCast Distance Learning Service Limited | (a | ) | 20 | % | — | 400 | 348 | 224 | ||||||||||||||||
Guo You Communication Network Limited | (b | ) | 43 | % | — | — | 3,950 | 3,370 | ||||||||||||||||
— | 400 | 4,298 | 3,594 | |||||||||||||||||||||
Cost investment: | ||||||||||||||||||||||||
Beijing Dongshi-ChinaCast Education Technology Co., Ltd. | (c | ) | 20 | % | — | — | 15,000 | 15,000 | ||||||||||||||||
Total | — | 400 | 19,298 | 18,594 | ||||||||||||||||||||
(a) | In February 2004, the Group established ChongQing ChinaCast Distance Learning Service Limited (“ChongQing ChinaCast”) and invested a 20% stake of ChongQing ChinaCast for RMB400. The Group has accounted for its investment in ChongQing ChinaCast under the equity method of accounting. The carrying amount of RMB224 as of September 30, 2006 (unaudited) is equal to the underlying equity in net assets of ChongQing ChinaCast. |
(b) | In March 2005, the Group established Guo You Communication Network Limited (“Guo You”) and invested a 43% stake in Guo You for RMB4,300. The Group has accounted for its investment in Guo You under the equity method of accounting. The carrying amount of RMB3,370 as of September 30, 2006 (unaudited) is equal to the underlying equity in net assets of Guo You. |
(c) | In June 2005, the Group acquired a 20% stake in Beijing Dongshi-ChinaCast Education Technology Co., Ltd. (“Dongshi ChinaCast”) from CCL (see Note 19 (a)(ix))for RMB15,000. In view of its limited representation on the board of directors, the concentration of majority ownership among a group of other investors who operates Dongshi ChinaCast and the Group has assigned all of its voting rights to one of the other shareholders of Dongshi ChinaCast under certain circumstances, the Group has concluded that it does not exert significant influence over the operating and financial activities of Dongshi ChinaCast. Accordingly, the Group has accounted for its investment in Dongshi ChinaCast under the cost method of accounting. |
F-20
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9. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
As of December 31, | As of September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Accrued professional fees | 401 | 1,428 | 6,307 | 2,313 | ||||||||||||
Accrued employee payroll and other compensation | 796 | 839 | 1,885 | 2,779 | ||||||||||||
Advances from customers | 693 | 100 | 8,166 | 4,858 | ||||||||||||
Payable for acquired property, plant and equipment | — | — | 392 | 593 | ||||||||||||
Payable related to the acquisition (Note 3) | — | — | 6,300 | 6,300 | ||||||||||||
Rental payable | — | — | — | 997 | ||||||||||||
Others accrued expenses | 13 | 70 | 173 | 442 | ||||||||||||
Value-added taxes | 77 | — | — | 10 | ||||||||||||
Business tax payable | 9,080 | 14,591 | 21,355 | 25,072 | ||||||||||||
Other tax payables | — | 57 | 269 | 377 | ||||||||||||
Total | 11,060 | 17,085 | 44,847 | 43,741 | ||||||||||||
10. | CAPITAL LEASE OBLIGATION |
As of December 31, | As of September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Capital lease obligation bearing an average interest rate of 5.5% per annum | 657 | 503 | 342 | 222 | ||||||||||||
Total | 657 | 503 | 342 | 222 | ||||||||||||
Current portion of capital lease obligation | (155 | ) | (155 | ) | (152 | ) | (148 | ) | ||||||||
Capital lease obligation, less current portion | 502 | 348 | 190 | 74 | ||||||||||||
RMB | ||||
Year ending December 31, | ||||
2006 | 169 | |||
2007 | 169 | |||
2008 | 43 | |||
Total minimum lease payments | 381 | |||
Less: amount representing interest | (39 | ) | ||
Present value of net minimum lease payments | 342 | |||
Less: current maturities of capital lease obligation | (152 | ) | ||
Long-term capital lease obligation | 190 | |||
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11. | LONG-TERM BANK LOAN |
As of December 31, | As of September 30, | |||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(Unaudited) | ||||||||||||||||
Bank loan bearing an average interest rate of 5.49% per annum repayable by yearly installments of RMB60 | 200 | 140 | — | — | ||||||||||||
Total | 200 | 140 | — | — | ||||||||||||
Less: current portion of long-term bank loan | 60 | 60 | — | — | ||||||||||||
Long-term bank loan, less current portion | 140 | 80 | — | — | ||||||||||||
12. | REDEEMABLE CONVERTIBLE PREFERENCE SHARES |
F-22
Table of Contents
13. | SHARE OPTION PLANS |
F-23
Table of Contents
Weighted Average | ||||||||||||
Number of | Exercise Price | |||||||||||
Option | S$ | US$ | ||||||||||
Options outstanding at January 1, 2004 | — | — | — | |||||||||
Granted | 26,110,000 | 0.073 | 0.043 | |||||||||
Exercised | — | — | — | |||||||||
Cancelled | — | — | — | |||||||||
Options outstanding at December 31, 2004 | 26,110,000 | 0.073 | 0.043 | |||||||||
Granted | — | — | — | |||||||||
Exercised | — | — | — | |||||||||
Cancelled | — | — | — | |||||||||
Options outstanding at December 31, 2005 | 26,110,000 | 0.073 | 0.043 | |||||||||
Granted (unaudited) | — | — | — | |||||||||
Exercised (unaudited) | — | — | — | |||||||||
Cancelled (unaudited) | — | — | — | |||||||||
Options outstanding at September 30, 2006 (unaudited) | 26,110,000 | 0.073 | 0.043 | |||||||||
F-24
Table of Contents
S$ | 0.2075 | |||
Ordinary shares | (US$ | 0.123 | ) | |
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||||||||||||||||||||||
Average | ||||||||||||||||||||||||||||||||||||||||||||
Number | Remaining | Weighted Average | Aggregate | Number | Weighted Average | Aggregate | ||||||||||||||||||||||||||||||||||||||
Outstanding | Contractual Life | Exercise Price | Intrinsic Value | Exercisable | Exercise Price | Intrinsic Value | ||||||||||||||||||||||||||||||||||||||
S$ | US$ | S$ | US$ | S$ | US$ | S$ | US$ | |||||||||||||||||||||||||||||||||||||
Ordinary shares: | ||||||||||||||||||||||||||||||||||||||||||||
S$0.073 (equivalent to | ||||||||||||||||||||||||||||||||||||||||||||
US$0.043) | 26,110,000 | 7.50 years | 0.073 | 0.043 | 5,144 | 3,030 | 26,110,000 | 0.073 | 0.043 | 5,144 | 3,030 | |||||||||||||||||||||||||||||||||
Average risk-free rate of return | 3.14 | % | ||
Weighted average expected option life | 10 years | |||
Volatility rate | 54 | % | ||
Dividend yield | 0 | % |
14. | MANAGEMENT SERVICE FEE |
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Table of Contents
15. | INCOME TAXES |
For the Year Ended | For the Nine-Month | |||||||||||||||||||
December 31, | Period Ended September 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Current tax: | ||||||||||||||||||||
PRC income tax | 7,288 | 8,516 | 10,368 | 7,153 | 8,628 | |||||||||||||||
Deferred tax: | ||||||||||||||||||||
Subsidiary operating in PRC | 172 | 173 | 172 | 129 | 130 | |||||||||||||||
Total provision for income taxes | 7,460 | 8,689 | 10,540 | 7,282 | 8,758 | |||||||||||||||
F-26
Table of Contents
As of December 31, | As of September 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Deferred tax assets: | ||||||||||||||||||||
Net operating loss carry forwards | 6,590 | 7,991 | 8,897 | 9,108 | ||||||||||||||||
Pre-operating expenses | 690 | 517 | 345 | 215 | ||||||||||||||||
Total deferred tax assets | 7,280 | 8,508 | 9,242 | 9,323 | ||||||||||||||||
Valuation allowance on deferred tax assets | (6,590 | ) | (7,991 | ) | (8,897 | ) | (9,108 | ) | ||||||||||||
Net deferred tax assets | 690 | 517 | 345 | 215 | ||||||||||||||||
For the Nine-Month | ||||||||||||||||||||
For the Year Ended December 31, | Period Ended September 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Statutory tax rate (Note) | 15.0 | % | 15.0 | % | 15.0 | % | 15.0 | % | 15.0 | % | ||||||||||
Effect of non-deductible expenses | 0.7 | % | 8.8 | % | 2.2 | % | 1.3 | % | 3.0 | % | ||||||||||
Effect of tax exemption granted to a PRC subsidiary | — | — | (0.6 | )% | — | (0.7 | )% | |||||||||||||
Effect of different tax rates of subsidiaries operating with difference tax regulations in PRC | 0.7 | % | 6.4 | % | 1.1 | % | 0.7 | % | 1.5 | % | ||||||||||
Changes in valuation allowance | 1.3 | % | 5.8 | % | 1.1 | % | 0.9 | % | 0.5 | % | ||||||||||
Tax charge for the year/period | 17.7 | % | 36.0 | % | 18.8 | % | 17.9 | % | 19.3 | % | ||||||||||
Note: | The domestic tax rate in the jurisdiction where the operation of the Group is substantially based is used. |
F-27
Table of Contents
16. | NET INCOME PER SHARE |
For the Nine-Month | ||||||||||||||||||||
For the Year Ended December 31, | Period Ended September 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Income attributable to holders of ordinary shares (numerator) | RMB12,048 | RMB4,861 | RMB43,462 | RMB33,334 | RMB33,562 | |||||||||||||||
Shares (denominator): | ||||||||||||||||||||
Weighted average ordinary shares outstanding used in computing basic income per share | 199,218,524 | 356,346,342 | 441,816,501 | 441,816,501 | 441,816,501 | |||||||||||||||
Plus incremental ordinary shares from assumed conversions of stock options using treasury stock method | — | 12,413,296 | 16,826,394 | 16,559,368 | 19,459,519 | |||||||||||||||
Weighted average ordinary shares outstanding used in computing diluted income per share | 199,218,524 | 368,759,638 | 458,642,895 | 458,375,869 | 461,276,020 | |||||||||||||||
Net income per share (in RMB cents) Basic | 6.05 | 1.36 | 9.84 | 7.54 | 7.60 | |||||||||||||||
Diluted | 6.05 | 1.32 | 9.48 | 7.27 | 7.28 | |||||||||||||||
As of December 31, | As of September 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Series A redeemable convertible preference shares | 68,925,182 | — | — | — | — | |||||||||||||||
Series B redeemable convertible preference shares | 63,172,795 | — | — | — | — | |||||||||||||||
132,097,977 | — | — | — | — | ||||||||||||||||
17. | COMMITMENTS |
F-28
Table of Contents
18. | MAINLAND CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATION |
F-29
Table of Contents
19. | RELATED PARTY TRANSACTIONS |
(a) | Transactions |
For the Year | For the Nine-Month | |||||||||||||||||||||||
Ended December 31, | Period Ended September 30, | |||||||||||||||||||||||
Transactions | Notes | 2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
Service fee earned from CCL | (i | ) | 26,528 | 34,451 | 14,286 | 6,865 | 8,147 | |||||||||||||||||
Costs and expenses reimbursed to CCL | (ii | ) | 9,709 | 6,483 | 1,583 | 1,302 | 924 | |||||||||||||||||
Satellite platform usage fee to CCL | (iii | ) | 7,238 | 6,597 | 6,264 | 4,735 | 4,673 | |||||||||||||||||
Transponder utilisation fee from (to) CCL | (iv | ) | 4,529 | (6,265 | ) | — | — | — | ||||||||||||||||
Interest expenses to a principal shareholder | (v | ) | 992 | 351 | — | — | — | |||||||||||||||||
Purchase of inventory from CCL | (vi | ) | — | 1,816 | — | — | — | |||||||||||||||||
Sales to | ||||||||||||||||||||||||
Beijing ChinaCast Qidi Distance Learning Consultancy Limited (“ChinaCast Qidi”) | (vii | ) | — | 436 | — | — | — | |||||||||||||||||
Chongqing ChinaCast | (viii | ) | — | — | 1,125 | 900 | 900 | |||||||||||||||||
Guo You | (viii | ) | — | — | 1,777 | 1,777 | 284 | |||||||||||||||||
— | 436 | 2,902 | 2,677 | 1,184 | ||||||||||||||||||||
Purchase of investment from CCL | (ix | ) | — | — | 15,000 | 15,000 | — | |||||||||||||||||
(i) | The service fee was made at the agreed term of the CCL Technical Service Agreement (see Note 14). CCL is a company in which a principal shareholder and director of the Company, Mr. Yin Jian Ping, has over 10% interest. | |
(ii) | The costs and expenses were allocated from the Beijing branch of CCL based on the proportion of revenue generated and the agreement entered by the branch and the Group. | |
(iii) | The satellite platform usage fee was charged to CCT BVI. | |
(iv) | Both the Group and CCL provided satellite transmission service by utilizing the same transponder on a satellite which was owned by an outside supplier. Firstly, utilization fee was payable to the outside supplier either by the Group or CCL. Then, the allocation was made by reference to the proportion of the revenue generated by the respective parties. As such, reimbursed utilization fee was paid by the Group to CCL or by CCL to the Group depending on portion shared by the respective parties. |
F-30
Table of Contents
(v) | The interest was related to a shareholder loan (see Note 19 (b) (2)) and charged at a rate equal to the Hong Kong dollar prime-lending rate of the Hong Kong and Shanghai Banking Corporation plus 2 percent per annum. | |
(vi) | Inventory was purchased by CCLX from CCL at negotiated prices. | |
(vii) | CCLX provided satellite related service or sold equipment and accessories to ChinaCast Qidi, a subsidiary of CCL. | |
(viii) | CCLX provided satellite related service or sold equipment and accessories to Chongqing ChinaCast and Guo You, which are the associates of the Group (see Note 8). | |
(ix) | In June 2005, the Group purchased a 20% stake in Dongshi ChinaCast from CCL. (see Note 8). | |
(x) | On September 11, 2000, the Group and a holder of the Series A CCT BVI Preference Shares, Hughes Network Systems (“HNS”) entered into an agreement, pursuant to which HNS granted the Group a non-exclusive license to use the trademarks of HNS at no charge for a three-year period commencing on that date. | |
(xi) | On September 11, 2000, the Group granted CCL a non-exclusive license for a three-year period to use the trademarks of HNS at no charge in connection with CCL’s business. In addition, CCT HK granted CCL a non-exclusive license for the usage of certain domain names owned by CCT HK for 10 years at no charge. |
Amounts Due from Related Parties | Amounts Due to Related Parties | |||||||||||||||||||||||||||||||||||
As of December 31, | As of September 30, | As of December 31, | As of September 30, | |||||||||||||||||||||||||||||||||
Notes | 2003 | 2004 | 2005 | 2006 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||
Current amounts | ||||||||||||||||||||||||||||||||||||
Sequent China/ Hong Kong Ltd. | (1 | ) | 6,764 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Technology Venture Holdings Limited (“TVH”) | (2 | ) | — | 88 | — | — | 13,402 | — | 87 | 223 | ||||||||||||||||||||||||||
TopAsia Computer Co., Ltd. (“TopAsia”) | (3 | ) | — | 323 | — | — | — | — | — | — | ||||||||||||||||||||||||||
ChinaCast Qidi | (4 | ) | — | 510 | — | — | — | — | — | — | ||||||||||||||||||||||||||
Mr. Yin Jian Ping | (5 | ) | — | 100 | 25 | 22 | — | — | — | — | ||||||||||||||||||||||||||
Mr. Cliff Chow Siu Lam | (6 | ) | 84 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
ChongQing ChinaCast | (7 | ) | — | — | 225 | 600 | — | — | — | — | ||||||||||||||||||||||||||
Guo You | (7 | ) | — | — | 1,526 | 781 | — | — | — | — | ||||||||||||||||||||||||||
HNS | (8 | ) | — | — | 480 | — | — | — | — | — | ||||||||||||||||||||||||||
Wuhan Huashiyi ChinaCast Tele-Education Co., Ltd. (“Huashiyi”) | (9 | ) | 5,000 | 5,890 | 6,349 | — | — | — | — | — | ||||||||||||||||||||||||||
Mr. Chan Tze Ngon | (10 | ) | — | — | — | — | — | — | — | 51 | ||||||||||||||||||||||||||
11,848 | 6,911 | 8,605 | 1,403 | 13,402 | — | 87 | 274 | |||||||||||||||||||||||||||||
Non-current advances | ||||||||||||||||||||||||||||||||||||
CCL | (11 | ) | 122,527 | 133,863 | 148,477 | 126,665 | — | — | — | — | ||||||||||||||||||||||||||
F-31
Table of Contents
(1) | Sequent China/Hong Kong Ltd. was a subsidiary of TVH (see Note 19 (b) (2) below). The amount represented deposit for equipment purchase. | |
(2) | TVH is a principal shareholder of the Group. The balances due from TVH represent the reimbursed expenses. The balance due to TVH mainly represents a shareholder loan which bears interest at a rate equal to the Hong Kong dollar prime-lending rate of the Hong Kong and Shanghai Banking Corporation plus 2 percent per annum, is unsecured and payable on demand (see Note 19 (a) (v)). | |
(3) | TopAsia was a subsidiary of TVH. The amount represented a loan advance, which was non-interest bearing, unsecured and subsequently settled in 2005. | |
(4) | The balance primarily represented trade receivable from provision of satellite related service and equipment. | |
(5) | The balance relates to an advance to Mr. Yin Jian Ping, which is non-interest bearing, unsecured and payable on demand. | |
(6) | Mr. Cliff Chow Siu Lam was the Chief Financial Officer of the Company until he resigned in 2005. The balance related to an advance, which was non-interest bearing, unsecured and subsequently settled in 2004. | |
(7) | ChongQing ChinaCast and Guo You are the associates of the Group (see Note 8). The balance arose from the provision of satellite related service. | |
(8) | HNS is a principal shareholder of the Group. The balance due from HNS represents an loan advance, which is non-interest bearing, unsecured and payable on demand. | |
(9) | Huashiyi is an associate of CCL. The amount due from Huashiyi represents an loan advance, which is non-interest bearing, unsecured and payable on demand. | |
(10) | The balance relates to an disbursement due to Mr. Chan Tze Ngon, which is non-interest bearing, unsecured and payable on demand. | |
(11) | The advances by the Group to CCL are for money spent on asset and expenses to build up the satellite business of CCL over the years. CCL has undertaken that when regulation allows, the ownership of CCLX and all the relevant assets attributable to the satellite business operations in the books of CCL and its Beijing branch will be transferred to the Group, the consideration of which will be settled against the above advances to CCL in the books of the Group at the sole discretion of the Group. |
The above non-current advances are non-interest bearing and unsecured. As there are no fixed repayment terms, management considers that it is impracticable to disclose the fair value of the advances by using any of the appropriate valuation methods. |
20. | SUBSEQUENT EVENT |
F-32
Table of Contents
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 39,821 | $ | 130,059 | ||||
Money market funds | 554 | 348 | ||||||
Investment in Treasury Bills — held in trust | 24,849,534 | 24,040,374 | ||||||
Prepaid expenses | 1,720 | 720 | ||||||
Total current asset | 24,891,629 | 24,171,501 | ||||||
Deferred tax assets, net | 363,050 | 126,978 | ||||||
Total assets | $ | 25,254,679 | $ | 24,298,479 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accrued expenses | $ | 533,940 | $ | 431,700 | ||||
Due to ChinaCast | 150,000 | 507,000 | ||||||
Notes payable, stockholder | 440,000 | — | ||||||
Income taxes payable | 493,926 | 229,421 | ||||||
Deferred interest | 335,795 | 175,733 | ||||||
Total current liabilities | 1,953,661 | 1,343,854 | ||||||
Common stock subject to possible redemption — 902,744 shares at redemption value | 4,629,887 | 4,629,887 | ||||||
Commitments | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, $0.0001 par value; authorized 1,000,000 shares; issued — none Common stock, $0.0001 par value; authorized 20,000,000 shares; issued and outstanding — 5,515,975 shares (which including 902,744 shares of common stock subject to possible redemption) | 552 | 552 | ||||||
Additional paid-in capital | 20,383,593 | 19,681,508 | ||||||
Deficit accumulated during development stage | (1,713,014 | ) | (1,357,322 | ) | ||||
Total stockholders’ equity | 18,671,131 | 18,324,738 | ||||||
Total liabilities and stockholders’ equity | $ | 25,254,679 | $ | 24,298,479 | ||||
F-33
Table of Contents
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Period from | ||||||||||||||||||||
August 20, 2003 | ||||||||||||||||||||
(inception) to | ||||||||||||||||||||
September 30, | Three Months Ended | Nine Months Ended | ||||||||||||||||||
2006 | September 30, | September 30, | ||||||||||||||||||
(cumulative) | 2006 | 2006 | ||||||||||||||||||
(Restated) | (Restated) | 2005 | (Restated) | 2005 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Travel | $ | 134,087 | $ | 22,187 | $ | 26,979 | $ | 47,915 | $ | 45,245 | ||||||||||
Capital based taxes | 158,641 | 6,000 | 25,249 | 18,000 | 75,818 | |||||||||||||||
Professional fees | 2,586,954 | 324,083 | 120,840 | 829,572 | 380,792 | |||||||||||||||
Rent | 15,000 | 1,500 | 1,500 | 4,500 | 4,500 | |||||||||||||||
Transfer agent fees | 44,213 | 3,178 | 6,260 | 18,929 | 12,333 | |||||||||||||||
Other operating costs | 4,872 | 126 | 260 | 1,018 | 810 | |||||||||||||||
Loss from operations | (2,943,767 | ) | (357,074 | ) | (181,088 | ) | (919,934 | ) | (519,498 | ) | ||||||||||
Interest income | 1,353,779 | 239,422 | 155,264 | 649,555 | 373,430 | |||||||||||||||
Interest expense | (11,259 | ) | (6,411 | ) | — | (10,148 | ) | — | ||||||||||||
Loss before provision for income taxes | (1,601,247 | ) | (124,063 | ) | (25,824 | ) | (280,527 | ) | (146,068 | ) | ||||||||||
Provision (benefit) for income taxes | 111,767 | (9,324 | ) | — | 75,165 | — | ||||||||||||||
Net loss | $ | (1,713,014 | ) | $ | (114,739 | ) | $ | (25,824 | ) | $ | (355,692 | ) | $ | (146,068 | ) | |||||
Net loss per common share — basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.06 | ) | $ | (0.03 | ) | ||||||||
Weighted average number of common shares outstanding — basic and diluted | 5,515,975 | 5,515,975 | 5,515,975 | 5,515,975 | ||||||||||||||||
F-34
Table of Contents
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
During | Total | |||||||||||||||||||
Common Stock | Additional | Development | Stockholders’ | |||||||||||||||||
Shares | Amount | Paid-In Capital | Stage | Equity | ||||||||||||||||
Balance, August 20, 2003 (inception) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Sale of 1,000,000 shares of common stock to founding stockholders at $.025 per share | 1,000,000 | 100 | 24,900 | — | 25,000 | |||||||||||||||
Net loss | — | — | — | (1,213 | ) | (1,213 | ) | |||||||||||||
Balance, December 31, 2003 | 1,000,000 | $ | 100 | $ | 24,900 | $ | (1,213 | ) | $ | 23,787 | ||||||||||
Sale of 4,515,975 units (including 902,744 shares of common stock subject to possible redemption), net of underwriters discount and offering expenses | 4,515,975 | 452 | 23,985,395 | — | 23,985,847 | |||||||||||||||
Reclassification as a result of 902,744 shares of common stock being subject to possible redemption | — | — | (4,629,887 | ) | — | (4,629,887 | ) | |||||||||||||
Proceeds from issuance of stock option to underwriter | 100 | 100 | ||||||||||||||||||
Net loss | — | — | — | (141,152 | ) | (141,152 | ) | |||||||||||||
Balance, December 31, 2004 | 5,515,975 | $ | 552 | $ | 19,380,508 | $ | (142,365 | ) | $ | 19,238,695 | ||||||||||
Additional capital contributed through payment of expense | — | — | 301,000 | — | 301,000 | |||||||||||||||
Net loss | — | — | — | (1,214,957 | ) | (1,214,957 | ) | |||||||||||||
Balance, December 31, 2005 (Restated) | 5,515,975 | $ | 552 | $ | 19,681,508 | $ | (1,357,322 | ) | $ | 18,324,738 | ||||||||||
Unaudited: | ||||||||||||||||||||
Additional capital contributed through payment of expense and settlement of amount due to ChinaCast | — | — | 702,085 | — | 702,085 | |||||||||||||||
Net loss | — | — | — | (355,692 | ) | (355,692 | ) | |||||||||||||
Balance, September 30, 2006 (Restated) | 5,515,975 | $ | 552 | $ | 20,383,593 | $ | (1,713,014 | ) | $ | 18,671,131 | ||||||||||
F-35
Table of Contents
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Period from | ||||||||||||
August 20, 2003 | ||||||||||||
(inception) to | ||||||||||||
September 30, 2006 | Nine Months Ended September 30, | |||||||||||
(cumulative) | 2006 | |||||||||||
(Restated) | (Restated) | 2005 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (1,713,014 | ) | $ | (355,692 | ) | $ | (146,068 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Non-cash professional fee expense | 1,153,085 | 345,085 | — | |||||||||
Deferred taxes | (363,050 | ) | (236,072 | ) | — | |||||||
Interest on Treasury Bills | (1,679,817 | ) | (800,713 | ) | (466,702 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in — | ||||||||||||
Prepaid expenses | (1,720 | ) | (1,000 | ) | 2,534 | |||||||
Increase in — | ||||||||||||
Accrued expenses | 533,940 | 102,240 | 63,992 | |||||||||
Income tax payable | 493,926 | 264,505 | 1,018 | |||||||||
Deferred interest | 335,795 | 160,062 | 93,294 | |||||||||
Net cash used in operating activities | (1,240,855 | ) | (521,585 | ) | (451,932 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
(Increase) decrease in money market funds | (554 | ) | (206 | ) | 632 | |||||||
Purchase of Treasury Bills | (342,787,717 | ) | (92,602,447 | ) | (169,746,404 | ) | ||||||
Maturity of Treasury Bills | 319,618,000 | 92,594,000 | 169,746,000 | |||||||||
Net cash provided by (used in) investing activities | (23,170,271 | ) | (8,653 | ) | 228 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Gross proceeds from public offering | 27,095,850 | — | — | |||||||||
Proceeds from issuance of stock option | 100 | — | — | |||||||||
Payment of costs of public offering | (3,110,003 | ) | — | — | ||||||||
Proceeds from sale of shares of common stock | 25,000 | — | — | |||||||||
Proceeds from notes payable, stockholders | 475,000 | 440,000 | — | |||||||||
Repayment of note payable, stockholders | (35,000 | ) | — | — | ||||||||
Net cash provided by financing activities | 24,450,947 | 440,000 | — | |||||||||
CASH | ||||||||||||
Net increase (decrease) | 39,821 | (90,238 | ) | (451,704 | ) | |||||||
Balance at beginning of period | — | 130,059 | 688,542 | |||||||||
Balance at end of period | $ | 39,821 | $ | 39,821 | $ | 236,838 | ||||||
F-36
Table of Contents
(a corporation in the development stage)
Notes to Financial Statements (Unaudited)
Three Months and Nine Months ended September 30, 2006
1. | Basis of Presentation |
2. | Organization and Business Operations |
F-37
Table of Contents
(a corporation in the development stage)
Notes to Financial Statements (Unaudited) — (Continued)
F-38
Table of Contents
(a corporation in the development stage)
Notes to Financial Statements (Unaudited) — (Continued)
F-39
Table of Contents
(a corporation in the development stage)
Notes to Financial Statements (Unaudited) — (Continued)
F-40
Table of Contents
(a corporation in the development stage)
Notes to Financial Statements (Unaudited) — (Continued)
Three Months Ended | ||||||||
September 30, 2006 | ||||||||
As Reported | As Restated | |||||||
Statement of Operations | ||||||||
Total operating expenses | $ | 207,074 | $ | 357,074 | ||||
Loss from operations | (207,074 | ) | (357,074 | ) | ||||
Income (loss) before provision for income taxes | 25,937 | (124,063 | ) | |||||
Net income (loss) | 35,261 | (114,739 | ) | |||||
Net income (loss) per common share — basic and diluted | $ | 0.01 | (0.02 | ) |
Nine Months Ended September 30, 2006 | ||||||||
As Reported | As Restated | |||||||
Statement of Operations | ||||||||
Total operating expenses | $ | 769,934 | $ | 919,934 | ||||
Loss from operations | (769,934 | ) | (919,934 | ) | ||||
Loss before provision for income taxes | (130,527 | ) | (280,527 | ) | ||||
Net loss | (205,692 | ) | (355,692 | ) | ||||
Net loss per common share — basic and diluted | (0.04 | ) | (0.06 | ) |
Nine Months Ended September 30, 2006 | ||||||||
As Reported | As Restated | |||||||
Balance Sheet | ||||||||
Due to ChinaCast | $ | — | $ | 150,000 | ||||
Total current liabilities | 1,803,661 | 1,953,661 | ||||||
Deficit accumulated during the development stage | (1,563,014 | ) | (1,713,014 | ) | ||||
Total stockholders’ equity | $ | 18,821,131 | 18,671,131 |
F-41
Table of Contents
(a corporation in the development stage)
INDEX TO FINANCIAL STATEMENTS
F-43 | ||||
Financial Statements: | ||||
F-44 | ||||
F-45 | ||||
F-46 | ||||
F-47 | ||||
F-48 |
F-42
Table of Contents
F-43
Table of Contents
(A DEVELOPMENT STAGE COMPANY)
December 31, | ||||
2005 | ||||
ASSETS | ||||
Current assets: | ||||
Cash | $ | 130,059 | ||
Money market funds | 348 | |||
Investment in Treasury Bills — held in trust | 24,040,374 | |||
Prepaid expenses | 720 | |||
Total current assets | 24,171,501 | |||
Deferred tax assets | 126,978 | |||
Total assets | $ | 24,298,479 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
Current liabilities: | ||||
Accrued expenses | $ | 431,700 | ||
Due to ChinaCast | 507,000 | |||
Income taxes payable | 229,421 | |||
Deferred interest | 175,733 | |||
Total current liabilities | 1,343,854 | |||
Common stock subject to possible redemption — 902,744 shares at redemption value | 4,629,887 | |||
Commitments and contingencies | ||||
Stockholders’ equity | ||||
Preferred stock $0.0001 par value; authorized 1,000,000 shares; issued — none | ||||
Common stock, $0.0001 par value; authorized 20,000,000 shares; issued and outstanding — 5,515,975 shares (which including 902,744 shares of common stock subject to possible redemption) | 552 | |||
Additional paid-in capital | 19,681,508 | |||
Deficit accumulated during development stage | (1,357,322 | ) | ||
Total stockholders’ equity | 18,324,738 | |||
Total liabilities and stockholders’ equity | $ | 24,298,479 | ||
F-44
Table of Contents
(A DEVELOPMENT STAGE COMPANY)
Period from | ||||||||||||
August 20, 2003 | ||||||||||||
(Inception) to | ||||||||||||
December 31, | Year Ended | Year Ended | ||||||||||
2005 | December 31, | December 31, | ||||||||||
(Cumulative) | 2005 | 2004 | ||||||||||
Operating expenses: | ||||||||||||
Travel | $ | 86,172 | $ | 50,783 | $ | 35,389 | ||||||
Capital based taxes | 140,641 | 73,329 | 67,312 | |||||||||
Professional fees | 1,757,382 | 1,572,791 | 184,591 | |||||||||
Rent | 10,500 | 6,000 | 4,500 | |||||||||
Transfer agent fees | 25,284 | 14,686 | 10,598 | |||||||||
Other operating costs | $ | 3,854 | $ | 1,030 | $ | 1,941 | ||||||
Loss from operations | (2,023,833 | ) | (1,718,619 | ) | (304,331 | ) | ||||||
Interest income | 704,224 | 540,264 | 163,960 | |||||||||
Interest expense | (1,111 | ) | — | (781 | ) | |||||||
Loss before provisions for income taxes | $ | (1,320,720 | ) | $ | (1,178,355 | ) | $ | (141,152 | ) | |||
Provision for income taxes | 36,602 | 36,602 | — | |||||||||
Net Loss | (1,357,322 | ) | (1,214,957 | ) | (141,152 | ) | ||||||
Net loss per common share — basic and diluted | $ | (0.22 | ) | $ | (0.03 | ) | ||||||
Weighted average number of common shares outstanding — | ||||||||||||
Basic and diluted: | 5,515,975 | 4,590,900 | ||||||||||
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(A DEVELOPMENT STAGE COMPANY)
Deficit | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | During | Total | ||||||||||||||||||
Common Stock | Paid-In | Development | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Stage | Equity | ||||||||||||||||
Balance August 20, 2003 (inception) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Sale of 1,000,000 shares of common stock to founding stockholders at $0.25 per share | 1,000,000 | 100 | 24,900 | 25,000 | ||||||||||||||||
Net loss | — | — | — | (1,213 | ) | (1,213 | ) | |||||||||||||
Balance, December 31, 2003 | 1,000,000 | $ | 100 | $ | 24,900 | $ | (1,213 | ) | $ | 23,787 | ||||||||||
Sale of 4,515,975 units (including 902,744 shares of common stock subject to possible redemption), net of underwriters discount and offering expenses | 4,515,975 | 452 | 23,985,395 | — | 23,985,847 | |||||||||||||||
Reclassification as a result of 902,744 shares of common stock being subject to possible redemption | — | — | (4,629,887 | ) | — | (4,629,887 | ) | |||||||||||||
Proceeds from issuance of stock option to underwriter | — | — | 100 | 100 | ||||||||||||||||
Net loss | — | — | — | (141,152 | ) | (141,152 | ) | |||||||||||||
Balance, December 31, 2004 | 5,515,975 | $ | 552 | $ | 19,380,508 | $ | (142,365 | ) | $ | 19,238,695 | ||||||||||
Additional capital contributed through payment of expenses | — | — | 301,000 | — | 301,000 | |||||||||||||||
Net loss | — | — | — | (1,214,957 | ) | (1,214,957 | ) | |||||||||||||
Balance, December 31, 2005 | 5,515,975 | $ | 552 | $ | 19,681,508 | $ | (1,357,322 | ) | $ | 18,324,738 | ||||||||||
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(A DEVELOPMENT STAGE COMPANY)
August 20, 2003 | ||||||||||||
(Inception) to | Year Ended | Year Ended | ||||||||||
December 31, 2005 | December 31, | December 31, | ||||||||||
(Cumulative) | 2005 | 2004 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (1,357,322 | ) | $ | (1,214,957 | ) | $ | (141,152 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Noncash professional fee expense | 808,000 | 808,000 | — | |||||||||
Deferred taxes | (126,978 | ) | (126,978 | ) | — | |||||||
Interest on Treasury Bills | (879,104 | ) | (675,214 | ) | (203,890 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in — | ||||||||||||
Prepaid expenses | (720 | ) | 2,283 | (3,003 | ) | |||||||
Increase (decrease) in — | ||||||||||||
Accrued expenses | 431,700 | 351,074 | 79,413 | |||||||||
Income tax payable | 229,421 | 162,109 | 67,312 | |||||||||
Deferred interest | 175,733 | 134,976 | 40,757 | |||||||||
Net cash used in operating activities | (719,270 | ) | (558,707 | ) | (160,563 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
(Increase) decrease in money market funds | (348 | ) | 980 | (1,328 | ) | |||||||
Purchase of Treasury Bills | (250,185,270 | ) | (193,732,756 | ) | (56,452,514 | ) | ||||||
Maturity of Treasury Bills | 227,024,000 | 193,732,000 | 33,292,000 | |||||||||
Net cash provided by (used in) investing activities | (23,161,618 | ) | 224 | (23,161,842 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Gross proceeds from public offering | 27,095,850 | — | 27,095,850 | |||||||||
Proceeds from issuance of stock option | 100 | — | 100 | |||||||||
Payment of costs of public offering | (3,110,003 | ) | (3,068,343 | ) | ||||||||
Proceeds from sale of shares of common stock | 25,000 | — | — | |||||||||
Proceeds from notes payable, stockholders | 35,000 | — | — | |||||||||
Repayment of note payable, stockholders | (35,000 | ) | — | (35,000 | ) | |||||||
Net cash provided by financing activities | 24,010,947 | — | 23,992,607 | |||||||||
CASH | ||||||||||||
Net increase (decrease) | 130,059 | (558,483 | ) | 670,202 | ||||||||
Balance at beginning of period | — | 688,542 | 18,340 | |||||||||
Balance at end of period | $ | 130,059 | $ | 130,059 | $ | 688,542 | ||||||
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(a corporation in the development stage)
Notes to Financial Statements
1. | Organization and Business Operations |
F-48
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(a corporation in the development stage)
Notes to Financial Statements — (Continued)
2. | Initial Public Offering |
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(a corporation in the development stage)
Notes to Financial Statements — (Continued)
3. | Income taxes |
For the Year | For the Year | |||||||
Ended | Ended | |||||||
December 31, | December 31, | |||||||
2005 | 2004 | |||||||
Current | ||||||||
Federal | $ | 126,978 | $ | — | ||||
State | 36,602 | — | ||||||
Total Current | 163,580 | — | ||||||
Deferred | — | |||||||
Federal | (126,978 | ) | — | |||||
State | — | — | ||||||
Total deferred | (126,978 | ) | — | |||||
Total income taxes | $ | 36,602 | — | |||||
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(a corporation in the development stage)
Notes to Financial Statements — (Continued)
For the Year | For the Year | |||||||
Ended | Ended | |||||||
December 31, | December 31, | |||||||
2005 | 2004 | |||||||
Statutory rate | (34.0 | ) | (34.0 | )% | ||||
State and local taxes | (11.8 | ) | (11.8 | ) | ||||
Non deductible professional fees | 31.4 | — | ||||||
Increase in valuation allowance | 17.5 | 45.8 | ||||||
Effective tax rate | 3.1 | % | — | % | ||||
December 31, | ||||
2005 | ||||
Deferred interest income | 80,487 | |||
Deferred operating costs | 295,620 | |||
376,107 | ||||
Less valuation allowance | (249,129 | ) | ||
Net deferred tax asset | $ | 126,978 | ||
4. | Commitment and Contingencies |
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(a corporation in the development stage)
Notes to Financial Statements — (Continued)
5. | Preferred Stock |
6. | Common Stock |
7. | Loss Per Share |
8. | Tender Offer for Proposed Business Combination |
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(a corporation in the development stage)
Notes to Financial Statements — (Continued)
Year Ended December 31, 2005 | ||||||||
As Reported | As Restated | |||||||
Statement of Operations | ||||||||
Total operating expenses | $ | 910,619 | $ | 1,718,619 | ||||
Loss from operations | (910,619 | ) | (1,718,619 | ) | ||||
Loss before provision for income taxes | (370,355 | ) | (1,178,355 | ) | ||||
Net loss | (406,957 | ) | (1,214,957 | ) | ||||
Net loss per common share — basic and diluted | $ | (0.07 | ) | $ | (0.22 | ) |
Year Ended December 31, 2005 | ||||||||
As Reported | As Restated | |||||||
Balance Sheet | ||||||||
Due to ChinaCast | $ | — | $ | 507,000 | ||||
Total current liabilities | 836,854 | 1,343,854 | ||||||
Additional paid-in capital | 19,380,508 | 19,681,508 | ||||||
Deficit accumulated during the development stage | (549,322 | ) | (1,357,322 | ) | ||||
Total stockholders’ equity | $ | 18,831,738 | $ | 18,324,738 |
9. | Post Balance Sheet Events |
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To: | Great Wall Acquisition Corporation | |
660 Madison Avenue 15th Floor | ||
New York, New York 10021 | ||
Cc: | DBS Bank Ltd. | |
6 Shenton Way | ||
DBS Building Tower 1 | ||
#41-01 Singapore 068809 |
1. | We refer to the voluntary conditional offer (the “Offer”) to be made by or on behalf of Great Wall Acquisition Corporation (the “Offeror”), for all the issued ordinary shares of US$0.08 each (the “Shares”) in the capital of ChinaCast Communications Holdings Limited (the “Offeree”) on the terms and subject to the conditions set out in the pre-conditional offer announcement dated 14 September 2005 and attached as the Schedule hereto (the “Announcement”). |
2. | Further to the announcement dated 22 March 2006, the cut-off date for the fulfilment of the Pre-Conditions (as defined in the Announcement) has been extended to 31 December 2006 (or such later date as the Offeror may determine in consultation with the Securities Industry Council) (the “Extension”). In connection with the Extension, we execute this Letter of Undertaking to amend, restate and substitute the letter of undertaking dated 13 September 2005 executed by us in favour of the Offeror. |
3. | For the consideration of US$1.00 (the receipt of which we hereby acknowledge) we hereby irrevocably and unconditionally undertake to the Offeror that:- |
(a) | we are the beneficial owner of the number of Shares specified on the signature page of this Letter of Undertaking; | ||
(b) | we shall not, during the period commencing on the date of this Letter of Undertaking and ending at the Expiration Time (as defined in sub-paragraph (g) below), transfer (save to Permitted Transferees) or dispose of or create an encumbrance over all or any of the Shares specified on the signature page of this Letter of Undertaking except as permitted by the terms of this Letter of Undertaking; | ||
(c) | we shall not, during the period commencing on the date of this Letter of Undertaking and ending at the Expiration Time, take any action which would cause us to breach our obligations under this Letter of Undertaking; |
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(d) | (except with your prior written consent) we shall not, during the period commencing on the date of this Letter of Undertaking and ending at the Expiration Time, directly or indirectly solicit, encourage (including without limitation, by way of providing information concerning the Offeree and/or any of its subsidiaries to any person), vote in favour of, initiate or participate in any tender (including without limitation, accepting any tender offer), negotiations, discussions or resolutions with respect to any expression of interest, offer or proposal by any person other than the Offeror to:- |
(i) | acquire an interest in all or a substantial part of the business, operations or undertakings of the Offeree and its subsidiaries or an additional five per cent, or more of the issued share capital of the Offeree; | ||
(ii) | acquire control of the Offeree; or | ||
(iii) | otherwise acquire or merge with the Offeree (including by way of scheme of arrangement, capital restructuring, tender offer, joint venture or dual listed company structure), |
provided, for the avoidance of doubt, that nothing herein shall be construed as imposing any restriction on us from selling, transferring or otherwise disposing of any Shares not specified in the signature page of this Letter of Undertaking; | |||
(e) | we shall accept the Offer and elect to receive the Stock Consideration (as defined in the Announcement) in respect of all the Shares specified on the signature page of this Letter of Undertaking, on the terms and subject to the conditions set out in the Announcement (or on such other terms and conditions as may be agreed in writing between yourselves and ourselves) and in accordance with the requirements of the Singapore Code on Take-overs and Mergers (the“Code”), the Securities and Futures Act (Chapter 289) and the Listing Manual of the Singapore Exchange Securities Trading Limited (the“Listing Manual”); | ||
(f) | we shall accept the Offer and elect to receive the Stock Consideration not later than 5.00 pm (Singapore time) on the date falling seven (7) business days (a business day being a day which is not a Saturday, Sunday or public holiday in Singapore on which commercial banks are open for business in Singapore) after the date of despatch of the offer document in respect of the Offer, in accordance with the procedures prescribed in the offer document to be issued in connection with the Offer and the relevant form(s) of acceptance accompanying it; | ||
(g) | notwithstanding any rights of withdrawal under the Code, we shall not withdraw any of the Shares tendered for acceptance until such time as the Offer shall lapse or be withdrawn by the Offeror (the earlier of such time and the time at which the Offeror purchases the Shares pursuant to the Offer being referred to as the“Expiration Time”), whereupon we shall be discharged and released from our obligations under this Letter of Undertaking; and | ||
(h) | we shall do and execute or procure to be done and executed such further acts, deeds, things and documents as may reasonably be necessary to |
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accept the Offer and elect to receive the Stock Consideration in accordance with the terms of this Letter of Undertaking. |
It shall be a condition precedent to our right to transfer any Shares to any Permitted Transferee that such Permitted Transferee agrees in writing to be bound by and be entitled to the benefit of this Letter of Undertaking. Further, we shall be responsible for any breach of the provision of this Letter of Undertaking by any of our Permitted Transferees. | ||
For the purpose of paragraph 3(b),“Permitted Transferee” means, in relation to any corporation, any other corporation which is the holding company, ultimate holding company or subsidiary of such corporation or which is a subsidiary of the holding company or ultimate holding company of such corporation. | ||
4. | Our obligations under this Letter of Undertaking shall come Into effect only as of the date that such shareholders of CCHL (including Super Dynamic Consultancy Limited and Technology Venture Investments Limited.) collectively holding at least 50% of the issued share capital of CCHL enter into letters of undertaking with obligations similar to those in this Letter of Undertaking. This Letter of Undertaking shall terminate and be of no further effect on the earlier of the Expiration Time and the date falling ten (10) months after the date this Letter of Undertaking takes effect. | |
5. | We hereby consent to any and all references to, and descriptions of, this Letter of Undertaking in any announcement or document issued by or on behalf of the Offeror. We shall not make any further announcement concerning the Offer except as required by law or the Listing Manual or other regulatory body or the court or with your prior approval (such approval not to be unreasonably withheld or delayed). Pending the Offer becoming unconditional in all respects, we shall, subject to the requirements of any law or regulation (including, without limitation, the Listing Manual), consult you as to the terms of, the timetable for and manner of publication of, any formal announcement or circular to shareholders, employees and to any recognised stock exchange or other authorities or to the media or otherwise which we may desire or be obliged to make regarding the Offer and we will consult you regarding any other announcement which is or may be material in the context of the Offer. Any other communication which we may make concerning the foregoing matters shall, subject to the requirements of any law or regulation (including, without limitation, the Listing Manual), be consistent with any such formal announcement or circular as aforesaid. | |
6. | We further undertake not to sell, transfer, assign or otherwise dispose of any part of the Stock Consideration received by us pursuant to the acceptance of the Offer in a manner that would violate SEC rules and regulations. | |
7. | We agree that the Offeror will be irreparably damaged and will not have an adequate remedy at law in the event that we shall not accept the Offer and elect to receive the Stock Consideration in accordance with the provisions of this Letter of Undertaking. We therefore agree that the Offeror shall be entitled to injunctive relief, including specific enforcement, to enforce the provisions of this Letter of Undertaking, in addition to any other remedy to which the Offeror may be entitled at law. | |
8. | We shall be responsible for our own fees and expenses in connection with the execution and performance of this Letter of Undertaking. No broker, agent, finder, consultant or other person or entity is entitled to be paid based upon any agreement made by any party in connection with any of the transactions contemplated hereby. |
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9. | This Letter of Undertaking shall lapse if for whatever reason: - |
(a) | the Offer is withdrawn or lapses, or fails to become or be declared to be unconditional for any reason; | ||
(b) | any shareholder of CCHL who has provided an undertaking similar to this Letter of Undertaking is released from any of the obligations under its letter of undertaking referred to in paragraph 4 above; or | ||
(c) | you are delisted from the NASDAQ OTC Bulletin Board, |
provided that this shall not prejudice any accrued rights between the parties prior to the lapsing of this Letter of Undertaking. You agree to notify us in writing as promptly as practicable (and in any event within two (2) business days) after the occurrence of any of the events identified in paragraphs 9(a) through (c) above. | ||
10. | By signing this Letter of Undertaking, you represent and warrant to us that you are currently listed on the NASDAQ OTC Bulletin Board and you intend to apply to be listed on the NASDAQ National Market as soon as possible after the completion of the Offer. | |
11. | A person who is not a party to this Undertaking has no right under the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore to enforce any term of this Letter of Undertaking. | |
12. | This Letter of Undertaking is governed by, and shall be construed in accordance with, the laws of Singapore. |
Yours faithfully, | ||||||
Name: | ||||||
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DBS BANK LTD
(Company Registration No. 196800306E)
(Incorporated in the Republic of Singapore)
(Incorporated in Delaware, United States of America)
(Incorporated in Bermuda)
1. | Introduction | |
Unless otherwise defined herein, all terms and references used in this announcement shall bear the same meanings as those defined or construed in the announcement dated 14 September 2005 (the“Pre-Conditional Offer Announcement”)issued by DBS Bank Ltd (“DBS”) for and on behalf of Great Wall Acquisition Corporation (the“Offerer”or“GWAC”),in respect of the pre-conditional voluntary offer (the“Offer”) by the Offeror to acquire all the issued and paid-up ordinary shares of US$0.08 each (the“CCHL Shares”)in the capital of Chinacast Communication Holdings Limited (“CCHL”). | ||
2. | Irrevocable Undertakings | |
2.1 | Further to the Pre-Conditional Offer Announcement, DBS wishes to announce, for and on behalf of the Offeror, that the Undertakings given by each of the Covenantors as at the date of the Pre-Conditional Announcement has expired on 13 July 2006. | |
2.2 | In this regard, as at the date of this Announcement, the Offeror has procured each of Super Dynamic Consultancy Limited, Technology Venture Investments Limited, Intel Pacific, Inc., Sergio Ventures Limited, Kenbell Management Limited, Asia Capitol Technology Partners Limited, Panwell Investments Limited, Bostwicken Consultancy Limited, Time Global International Limited, Isthoch Assets Limited, GC&C Holdings Limited, Wang Yu Huei, Liao Zhen, Yin Jian Ping, Chan Tze Ngon, Leung Kin Fo, Stanley Chan Chi Kwong and Tang Chi Tang (each, an“Original Covenantor”)to give a replacement irrevocable undertaking (each, a“Replacement Undertaking”)to the Offeror,inter alia: |
(a) | to accept the Offer in respect of the number of CCHL Shares held by it as set out in the table below, not later than 5.00 pm (Singapore time) on the date falling seven (7) business days after the date of despatch of the offer document in respect of the Offer; | ||
(b) | to elect to receive the Stock Consideration in connection thereto; and | ||
(c) | not to sell, transfer, assign or otherwise dispose of any part of the Stock Consideration received by it pursuant to the acceptance of the Offer in a manner that would violate SEC rules and regulations. |
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Original Covenantors and Other Covenantors in CCHL subject to the Replacement Undertakings and Other Undertakings respectively are as follows: |
As a percentage of the | ||||||||||||
Number of | entire issued share | |||||||||||
S/No. | Name | CCHL Shares | capital of CCHL1 | |||||||||
1. | Super Dynamic Consultancy Limited | 67,326,820 | 15.24 | % | ||||||||
2. | Technology Venture Investments Limited2 | 66,074,441 | 14.96 | % | ||||||||
3. | Intel Pacific, Inc. | 22,222,918 | 5.03 | % | ||||||||
4. | Wang Yu Huei | 12,863,000 | 2.91 | % | ||||||||
5. | Asia Capitol Technology Partners Limited | 12,026,155 | 2.72 | % | ||||||||
6. | Panwell Investments Limited3 | 5,276,358 | 1.19 | % | ||||||||
7. | Wu Cai Yu | 5,276,358 | 1.19 | % | ||||||||
8. | Yang Yong Shi | 4,921,492 | 1.11 | % | ||||||||
9. | GC&C Holdings Limited | 4,679,468 | 1.06 | % | ||||||||
10. | Sergio Ventures Limited | 4,031,510 | 0.91 | % | ||||||||
11. | Isthoch Assets Limited | 3,015,755 | 0.68 | % | ||||||||
12. | Zhang Jin Hua | 2,830,341 | 0.64 | % | ||||||||
13. | Time Global International Limited | 1,749,107 | 0.40 | % | ||||||||
14. | Kenbell Management Limited | 1,723,287 | 0.39 | % | ||||||||
15. | Liao Zhen | 1,700,000 | 0.38 | % | ||||||||
16. | Wu Yao | 1,617,338 | 0.37 | % | ||||||||
17. | Bostwicken Consultancy Limited | 1,507,878 | 0.34 | % | ||||||||
18. | Leung Kin Fo | 1,400,000 | 0.32 | % | ||||||||
19. | Yin Jian Ping | 1,000,000 | 0.23 | % | ||||||||
20. | Stanley Chan Chi Kwong | 1,000,000 | 0.23 | % | ||||||||
21. | Chan Tze Ngon | 750,000 | 0.17 | % | ||||||||
22. | Tang Chi Tang | 300,000 | 0.07 | % | ||||||||
Total | 223,292,226 | 50.54 | % |
1 | Based on the total issued share capital of 441,816,501 CCHL Shares as at the date of this Announcement. | |
2 | Pursuant to the Replacement Undertaking of Technology Venture Investments Limited (“TVIL”), TVIL is permitted to transfer the 66,074,441 CCHL Shares held by it to Chan Tze Ngon, and Chan Tze Ngon has undertaken to the Offeror that in such event, he shall,inter alia,observe and discharge all the terms and conditions of the Replacement Undertaking in all respects as if he is TVIL. | |
3 | Pursuant to the Replacement Undertakings of Panwell Investments Limited (“Panwell”), Panwell is permitted to transfer the 5,276,358 CCHL Shares held by it to Wu Cai Yu, Yang Yong Shi and Wu Yao in the proportion of 1,418,719 CCHL Shares, 2,292,794 CCHL Shares and 1,564,845 CCHL Shares respectively, and each of Wu Cai Yu, Yang Yong Shi and Wu Yao has undertaken to the Offeror that in such event, he shall,inter alia,observe and discharge all the terms and conditions of the relevant Replacement Undertaking in all respects as if he is Panwell. |
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Assuming a full election of the Stock Consideration, the proforma shareholding of the Original Covenantors and Other Covenantors in GWAC upon conclusion of the Offer (and assuming the Offeror acquires 100% of the Offer Shares pursuant to the exercise of the right to compulsory acquisition) will be as follows: |
As a percentage | As a percentage | |||||||||||||||
Number of | of the enlarged | of the enlarged | ||||||||||||||
GWAC | issued share | issued share | ||||||||||||||
Common | capital of GWAC | capital of GWAC | ||||||||||||||
S/No. | Name | Stock | Common Stock4 | Common Stock6 | ||||||||||||
1. | Super Dynamic Consultancy Limited | 3,162,368 | 12.04 | % | 8.96 | % | ||||||||||
2. | Technology Venture Investments Limited (see footnote above) | 3,103,543 | 11.81 | % | 8.79 | % | ||||||||||
3. | Intel Pacific, Inc. | 1,043,819 | 3.97 | % | 2.96 | % | ||||||||||
4. | Wang Yu Huei | 604,180 | 2.30 | % | 1.71 | % | ||||||||||
5. | Asia Capitol Technology Partners Limited | 564,873 | 2.15 | % | 1.60 | % | ||||||||||
6. | Panwell Investments Limited (see footnote above) | 247,832 | 0.94 | % | 0.70 | % | ||||||||||
7. | Wu Cai Yu | 247,832 | 0.94 | % | 0.70 | % | ||||||||||
8. | Yang Yong Shi | 231,164 | 0.88 | % | 0.65 | % | ||||||||||
9. | GC&C Holdings Limited | 219,796 | 0.84 | % | 0.62 | % | ||||||||||
10. | Sergio Ventures Limited | 189,361 | 0.72 | % | 0.54 | % | ||||||||||
11. | Isthoch Assets Limited | 141,651 | 0.54 | % | 0.40 | % | ||||||||||
12. | Zhang Jin Hua | 132,942 | 0.51 | % | 0.38 | % | ||||||||||
13. | Time Global International Limited | 82,156 | 0.31 | % | 0.23 | % | ||||||||||
14. | Kenbell Management Limited | 80,943 | 0.31 | % | 0.23 | % | ||||||||||
15. | Liao Zhen | 79,849 | 0.30 | % | 0.23 | % | ||||||||||
16. | Wu Yao | 75,967 | 0.29 | % | 0.22 | % | ||||||||||
17. | Bostwicken Consultancy Limited | 70,825 | 0.27 | % | 0.20 | % | ||||||||||
18. | Leung Kin Fo | 65,758 | 0.25 | % | 0.19 | % | ||||||||||
19. | Yin Jian Ping | 46,970 | 0.18 | % | 0.13 | % | ||||||||||
20. | Stanley Chan Chi Kwong | 46,970 | 0.18 | % | 0.13 | % | ||||||||||
21. | Chan Tze Ngon | 35,227 | 0.13 | % | 0.10 | % | ||||||||||
22. | Tang Chi Tang | 14,091 | 0.05 | % | 0.04 | % | ||||||||||
Total | 10,488,117 | 39.93 | % | 29.71 | % |
4 | Based on the total enlarged issued share capital of 26,268,276 GWAC Common Stock and assumingnone of the 9,031,950 outstanding warrants of GWAC are exercised. | |
5 | Based on the total enlarged issued share capital of 26,268,276 GWAC Common Stock and assumingall of the 9,031,950 outstanding warrants of GWAC are exercised. |
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All Replacement Undertakings and Other Undertakings shall lapse if for whatever reason: |
(a) | the Offer is withdrawn, or lapses, or fails to become or be declared to be unconditional for any reason; | ||
(b) | any of the Original Covenantors and Other Covenantors is released from any of the obligations under the relevant Replacement Undertaking or Other Undertaking; or | ||
(c) | the Offeror is delisted from the NASDAQ OTC Bulletin Board, |
provided that this shall not prejudice any accrued rights between the parties prior to the lapsing of the relevant Replacement Undertaking or Other Undertaking. In addition, unless the Replacement Undertakings and Other Undertakings shall have earlier lapsed, they shall terminate and be of no further effect on the date falling ten (10) months from 13 July 2006. | ||
Save as disclosed in this Announcement, neither the Offeror nor any party acting in concert with it has received any irrevocable undertaking from any other party to accept or reject the Offer. | ||
3. | Responsibility Statement | |
The sole Director of the Offeror has taken all reasonable care to ensure that the facts stated and opinions expressed in this Announcement are fair and accurate and that no material facts have been omitted from this Announcement. | ||
Where any information has been extracted from published or otherwise publicly available sources or obtained from CCHL, the sole responsibility of the sole Director of the Offeror has been to ensure that such information has been accurately and correctly extracted from such sources or, as the case may be, accurately reflected or reproduced in this Announcement. | ||
The sole Director of the Offeror accepts responsibility accordingly. |
DBS BANK LTD
GREAT WALL ACQUISITION CORPORATION
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1. | INTRODUCTION |
2. | PRE-CONDITIONS TO THE MAKING OF THE OFFER |
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3. | THE OFFER |
For each Offer Share: | • | 0.046970408 new GWAC Common Stock (‘‘Stock Consideration”); | ||
OR | ||||
• | S$0.28 in cash (‘‘Cash Consideration”) |
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4. | OPTIONS |
5. | BENCHMARKING THE OFFER |
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6. | IRREVOCABLE UNDERTAKINGS |
As a Percentage | ||||||||
Number of | of the Entire Issued | |||||||
Name | CCHL Shares | Share Capital of CCHL(2) | ||||||
Super Dynamic Consultancy Limited | 67,326,820 | 15.24 | % | |||||
Technology Venture Investments Limited | 66,074,441 | 14.96 | % | |||||
Intel Pacific, Inc. | 22,222,918 | 5.03 | % | |||||
Sergio Ventures Limited | 6,031,510 | 1.37 | % | |||||
Kenbell Management Limited | 1,723,287 | 0.39 | % | |||||
Asia Capitol Technology Partners Limited | 12,026,155 | 2.72 | % | |||||
Bostwicken Consultancy Limited | 1,507,878 | 0.34 | % | |||||
Time Global International Limited | 1,749,107 | 0.40 | % | |||||
Isthoch Assets Limited | 3,015,755 | 0.68 | % | |||||
Panwell Investment Limited | 5,276,358 | 1.19 | % | |||||
GC&C Holdings Limited | 4,679,468 | 1.06 | % | |||||
Wang Yu Huei | 8,363,000 | 1.89 | % | |||||
Asdew Acquisitions Pte Ltd | 4,500,000 | 1.02 | % | |||||
Liao Zhen | 1,700,000 | 0.38 | % | |||||
Yin Jian Ping | 1,000,000 | 0.23 | % | |||||
Ron Chan | 750,000 | 0.17 | % | |||||
Kevin Poon | 700,000 | 0.16 | % | |||||
Duke Group Limited | 5,276,358 | 1.19 | % | |||||
Virtual Century Group Limited | 9,369,171 | 2.12 | % | |||||
Leung Kin Foo | 1,400,000 | 0.32 | % | |||||
Stanley Chan Chi Kwong | 1,000,000 | 0.23 | % | |||||
Tang Chi Tang | 300,000 | 0.07 | % | |||||
Total | 225,992,226 | 51.15 | % |
Note: |
(1) | Except for Super Dynamic Consultancy Limited who has undertaken to accept the Offer on the later of (i) the date falling seven (7) business days after the date of despatch of the offer document in respect of the Offer; and (ii) 15 November 2005. | |
(2) | Based on the total issued share capital of 441,816,501 CCHL Shares. |
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As a Percentage | ||||||||||||
of the Enlarged | As a Percentage of | |||||||||||
Issued Share | the Enlarged Issued | |||||||||||
Number of GWAC | Capital of GWAC | Share Capital of GWAC | ||||||||||
Name | Common Stock | Common Stock(1) | Common Stock(2) | |||||||||
Super Dynamic Consultancy Limited | 3,162,368 | 12.04 | % | 8.96 | % | |||||||
Technology Venture Investments Limited | 3,103,543 | 11.81 | % | 8.79 | % | |||||||
Intel Pacific, Inc. | 1,043,819 | 3.97 | % | 2.96 | % | |||||||
Sergio Ventures Limited | 283,302 | 1.08 | % | 0.80 | % | |||||||
Kenbell Management Limited | 80,943 | 0.31 | % | 0.23 | % | |||||||
Asia Capitol Technology Partners Limited | 564,873 | 2.15 | % | 1.60 | % | |||||||
Bostwicken Consultancy Limited | 70,825 | 0.27 | % | 0.20 | % | |||||||
Time Global International Limited | 82,156 | 0.31 | % | 0.23 | % | |||||||
Isthoch Assets Limited | 141,651 | 0.54 | % | 0.40 | % | |||||||
Panwell Investment Limited | 247,832 | 0.94 | % | 0.70 | % | |||||||
GC&C Holdings Limited | 219,796 | 0.84 | % | 0.62 | % | |||||||
Wang Yu Huei | 392,813 | 1.50 | % | 1.11 | % | |||||||
Asdew Acquisitions Pte Ltd | 211,366 | 0.80 | % | 0.60 | % | |||||||
Liao Zhen | 79,849 | 0.30 | % | 0.23 | % | |||||||
Yin Jian Ping | 46,970 | 0.18 | % | 0.13 | % | |||||||
Ron Chan | 35,227 | 0.13 | % | 0.10 | % | |||||||
Kevin Poon | 32,879 | 0.13 | % | 0.09 | % | |||||||
Duke Group Limited | 247,832 | 0.94 | % | 0.70 | % | |||||||
Virtual Century Group Limited | 440,073 | 1.68 | % | 1.25 | % | |||||||
Leung Kin Foo | 65,758 | 0.25 | % | 0.19 | % | |||||||
Stanley Chan Chi Kwong | 46,970 | 0.18 | % | 0.13 | % | |||||||
Tang Chi Tang | 14,091 | 0.05 | % | 0.04 | % | |||||||
Total | 10,614,936 | 40.41 | % | 30.07 | % |
Note: |
(1) | Based on the total enlarged issued share capital of 26,268,276 GWAC Common Stock and assuming none of the 9,031,950 outstanding warrants of GWAC are exercised. | |
(2) | Based on the total enlarged issued share capital of 26,268,276 GWAC Common Stock and assuming all of the 9,031,950 outstanding warrants of GWAC are exercised. |
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7. | INFORMATION ON THE OFFEROR |
8. | INFORMATION ON CCHL |
9. | RATIONALE FOR THE OFFER |
10. | COMPULSORY ACQUISITION AND DELISTING |
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11. | DISCLOSURE OF SHAREHOLDINGS AND DEALINGS |
12. | OFFER DOCUMENT |
13. | RESPONSIBILITY STATEMENT |
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14. | INDICATIVE TIMETABLE |
Indicative Date | Event | |
14 September 2005 | Announcement of Pre-Conditional Voluntary Offer | |
Not later than 30 September 2005 | CCHL providing GWAC with audited consolidated financial statements of CCHL prepared in accordance with U.S. generally accepted accounting principles andRegulation S-X promulgated under the Securities Exchange Act of 1934, as amended, for at least its two most recent financial years | |
Not later than 25 March 2006 | Extraordinary general meeting of the Offeror to approve,inter alia, the Offer and the issue of new GWAC Common Stock pursuant to the Offer If GWAC Stockholders’ approval is obtained and the other Pre-Condition is fulfilled and remain fulfilled or is waived, DBS Bank will announce firm intention to make the Offer on behalf of the Offeror | |
As soon as possible after satisfaction or waiver of the Pre-Conditions | Announcement of the Offer | |
Not earlier than 14 days and not later than 21 days from the date of the Offer Announcement | Despatch of Offer Document |
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Name | Address | |
Jeffrey M. Gallant | Graubard Miller 600 Third Avenue, 32nd Floor New York, New York 10016 |
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GREAT WALL ACQUISITION CORPORATION
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Name | Address | |
Jeffrey M. Gallant | Graubard Miller 600 Third Avenue, 32nd Floor New York, New York 10016 |
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Delaware General Corporation Law
Chairman
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OF
CERTIFICATE OF INCORPORATION
OF
GREAT WALL ACQUISITION CORPORATION
DELAWARE GENERAL CORPORATION LAW
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GREAT WALL ACQUISITION CORPORATION
DELAWARE GENERAL CORPORATION LAW
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