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Registration No. 333-158336
STOCKHOLDERS OF IDEATION ACQUISITION CORP.
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ANNEXES | ||
A-1 — Agreement and Plan of Merger, Conversion and Share Exchange | ||
A-2 — First Amendment to Agreement and Plan of Merger, Conversion and Share Exchange | ||
A-3 — Second Amendment and Joinder to Agreement and Plan of Merger, Conversion and Share Exchange | ||
A-4 — Third Amendment to Agreement and Plan of Merger, Conversion and Share Exchange | ||
B — Form of SearchMedia Holdings Limited Memorandum and Articles of Association | ||
C — Form of SearchMedia Holdings Limited Warrant | ||
D — ID Arizona Corp. Articles of Incorporation | ||
E — ID Arizona Corp. Bylaws | ||
F — Form of Voting Agreement | ||
G — Form ofLock-Up Agreement | ||
H — Form of Registration Rights Agreement | ||
I — The Amended and Restated SearchMedia Holdings Limited 2008 Share Incentive Plan | ||
J — Opinion of Richards, Layton & Finger, P.A. | ||
K — Letter Agreement, dated September 8, 2009, by and among Ideation and certain investors of Ideation and SM Cayman | ||
L — Form of Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Ideation Acquisition Corp. |
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• | Holders of Ideation units will be issued one ID Arizona unit for each Ideation unit held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman unit for each ID Arizona unit held at the time of the conversion. | |
• | Holders of Ideation common stock will be issued one share of ID Arizona common stock for each share of Ideation common stock held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman ordinary share for each share of ID Arizona common stock held at the time of the conversion. | |
• | Holders of Ideation warrants will be issued one ID Arizona warrant for each Ideation warrant held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman warrant for each ID Arizona warrant held at the time of the conversion. | |
• | Holders of the Ideation option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, will be issued one ID Arizona option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman option to purchase 500,000 units, consisting of 500,000 ordinary shares and 500,000 warrants of ID Cayman. |
• | An aggregate of 12,500,000 shares of common stock issued to the holders of (a) the 10,000,000 shares of Ideation common stock issued as part of the units issued in Ideation’s initial public offering, or IPO, and (b) the 2,500,000 shares of Ideation common stock issued to the founders of Ideation upon its incorporation. | |
• | An aggregate of 12,400,000 warrants issued to the holders of (a) the 10,000,000 warrants issued by Ideation as part of the units issued in Ideation’s IPO and (b) the 2,400,000 warrants issued by Ideation in a private placement transaction that occurred simultaneously with its IPO. This proxy statement/prospectus also covers 12,400,000 shares of common stock issuable upon the exercise of those warrants. A portion of the Ideation common stock and warrants may be held as units consisting of one |
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share of common stock and one warrant, which units are also covered by this proxy statement/prospectus. |
• | An option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, issuable to the representatives of the underwriters of Ideation’s IPO, each of which holds an identical option from Ideation. |
• | After giving effect to conversion of the preferred shares of SM Cayman, at closing, ID Cayman will acquire 98,652,365 ordinary shares of SM Cayman, representing 100% of SM Cayman shares in issue. | |
• | SM Cayman shareholders will receive 6,662,727 ordinary shares of ID Cayman. | |
• | SM Cayman warrantholders will receive warrants to purchase 1,519,186 ordinary shares of ID Cayman. | |
• | SM Cayman option holders will receive options to purchase 566,939 ordinary shares of ID Cayman. | |
• | SM Cayman holders of restricted share awards will receive 261,179 restricted share awards of ID Cayman. | |
• | Certain SM Cayman noteholders will receive 1,712,874 ordinary shares of ID Cayman and warrants to purchase 428,219 ordinary shares of ID Cayman. |
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(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | Lock-up agreements with all of the SearchMedia shareholders and warrantholders and ID Cayman directors designated by the SM shareholders’ representatives. Theselock-up agreements provide that parties bound to such agreements may not sell or otherwise transfer any of the shares of ID Cayman, securities convertible into or exchangeable or exercisable for shares of ID Cayman, or shares underlying such securities held by them or received in connection with the business combination, subject to exceptions for underwritten offerings and transfers by the SearchMedia shareholders that are in compliance with applicable federal and state securities laws to persons who agree in writing to be bound by the terms of thelock-up agreement. The SearchMedia non-management shareholders are bound by suchlock-up restrictions for a period of six months from the closing date with respect to 25% of such securities and 12 months from the closing date with respect to the remaining 75% of such securities; provided that with respect to shares or other securities acquired (or underlying securities acquired) by CSV in exchange for SM Cayman warrants, SM Cayman preferred shares or other SM Cayman securities exercisable for, or convertible into, SM Cayman ordinary shares, CSV will be subject to the samelock-up period as the other non-management shareholders, and with respect to shares acquired by CSV in exchange for SM Cayman ordinary shares held by it immediately prior to the closing of the business combination, thelock-up period shall apply until twelve months from the closing date with respect to 10% of such shares, eighteen months from the closing date with respect to 15% of such shares and twenty-four months from the closing date with respect to the remaining 75% of such shares. In addition, 1,268,795 ordinary shares and 396,826 warrants of ID Cayman (and shares underlying such warrants) issuable to Linden Ventures II (BVI) Ltd., which we refer to as Linden Ventures, as a warrantholder and upon conversion of the Linden Note pursuant to the share exchange agreement, will be subject tolock-up for six months. The management shareholders and warrantholders and the ID Cayman directors designated by the SM Cayman shareholders, as well as SM Cayman optionees who exercise their options or restricted share award holders whose shares vest during the one year after closing, are subject to suchlock-up restrictions for 12 months after the closing date with respect to the shares or other securities received in connection with the business combination or |
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underlying securities received in connection with the business combination, provided, that with respect to Le Yang and Qinying Liu, thelock-up period shall apply from 12 months after the closing of the share exchange agreement with respect to ten percent (10%) of the shares or other securities received in connection with the business combination or underlying securities received in connection with the business combination, 18 months after the closing of the share exchange agreement with respect to fifteen percent (15%) of such securities, and 24 months after the closing of the share exchange agreement with respect to the remaining seventy-five percent (75%) of such securities. |
• | A voting agreement that provides, among other things, that for a period commencing on the closing of the business combination and ending no sooner than the third anniversary of the date of the voting agreement, each SearchMedia shareholder and warrantholder will agree to vote in favor of the director nominees nominated by the Ideation representative as provided in the share exchange agreement, and certain significant shareholders of Ideation will agree to vote in favor of the director nominees nominated by the SM Cayman shareholders’ representatives. | |
• | A registration rights agreement pursuant to which the SearchMedia shareholders will be entitled to registration rights for their ID Cayman ordinary shares, including ordinary shares underlying warrants and preferred shares, received in connection with the business combination. |
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Q. | When and where will the special meeting be held? | |
A. | The meeting will be held at 8:30 am Eastern time on October 27, 2009 at the offices of Akerman Senterfitt, One Southeast 3rd Avenue, Miami, Florida 33131. | |
Q. | What is the record date for the special meeting? | |
A. | The Ideation board of directors has fixed the record date as the close of business on October 2, 2009, as the date for determining Ideation stockholders entitled to receive notice of and to vote at the special meeting. | |
Q. | What is Being Voted On? | |
A. | You are being asked to vote on ten proposals: | |
• The approval of an amendment to Section D of Article Sixth of Ideation’s Amended and Restated Certificate of Incorporation to provide conversion rights to holders of IPO Shares, upon approval of the business combination, regardless of whether such holder votes for or against the business combination. We refer to this proposal as the “Charter Amendment Proposal.” | ||
• The approval of the redomestication of Ideation to the Cayman Islands, resulting in it becoming ID Cayman. We refer to this proposal as the “Redomestication Proposal.” | ||
• The approval of the proposed share exchange resulting in SM Cayman becoming a wholly owned subsidiary of ID Cayman. We refer to this proposal as the “Business Combination Proposal.” | ||
• The approval of the authorization of 1,000,000,000 ordinary shares and 10,000,000 preferred shares in ID Cayman’s Memorandum of Association, as compared to 50,000,000 shares of common stock and 1,000,000 shares of preferred stock currently authorized in Ideation’s Amended and Restated Certificate of Incorporation. We refer to this proposal as the “Share Increase Proposal.” | ||
• The approval of the elimination in ID Cayman’s Articles of Association of the classified board currently authorized in Ideation’s Amended and Restated Certificate of Incorporation. We refer to this proposal as the “Declassification Proposal.” | ||
• The approval of a provision in ID Cayman’s Articles of Association providing that the amendment of either of ID Cayman’s Memorandum of Association or Articles of Association will require a vote of two-thirds of its shareholders, entitled to do so, voting in person or by proxy at a meeting, of which notice specifying the intention to propose a special resolution for such amendment has been given, as compared to the vote of a majority of the outstanding stock as set forth in Ideation’s Amended and Restated Certificate of Incorporation. We refer to this proposal as the “Amendment Proposal.” | ||
• The approval of a provision in ID Cayman’s Articles of Association providing that the ID Cayman shareholders may pass resolutions without holding a meeting only if such resolutions are passed by a unanimous written resolution signed by all of the shareholders entitled to vote, as opposed to the provisions in Ideation’s Amended and Restated Certificate of Incorporation that provide that stockholders may not take action without a meeting. We refer to this proposal as the “Shareholder Consent Proposal.” | ||
• The approval of a provision in ID Cayman’s Memorandum of Association providing for the perpetual existence of ID Cayman, as compared to a provision providing for the termination of Ideation’s existence on November 19, 2009 as set forth in Ideation’s Amended and Restated Certificate of Incorporation. We refer to this proposal as the “Corporate Existence Proposal.” | ||
• The approval of the Amended and Restated 2008 Share Incentive Plan. We refer to this proposal as the “Share Incentive Plan Proposal.” | ||
• The approval of an adjournment or postponement of the special meeting for the purpose of soliciting additional proxies. We refer to this proposal as the “Adjournment Proposal.” | ||
Q. | Why is Ideation proposing the redomestication to the Cayman Islands? | |
A. | As substantially all of the business operations of SearchMedia are conducted outside the United States, Ideation and SearchMedia decided to complete the redomestication to the Cayman Islands as part of the business combination. |
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Q. | How will the redomestication be accomplished? | |
A. | The redomestication will be accomplished in two steps. First, Ideation will effect a merger pursuant to which it will merge with and into ID Arizona, its wholly owned Arizona subsidiary, with ID Arizona surviving the merger. After the merger, ID Arizona will become a Cayman Islands exempted company, ID Cayman, pursuant to a conversion and continuation procedure under Arizona and Cayman Islands law. As a result of the redomestication, each Ideation stockholder will become a shareholder in ID Cayman instead of Ideation. | |
The redomestication will be completed in two steps to take advantage of Arizona corporate law requiring the approval of a majority of ID Arizona’s outstanding shares to approve the conversion and continuation of ID Arizona as ID Cayman rather than the approval of all of the outstanding shares as would be required under Delaware corporate law. | ||
Q. | Why is an Arizona subsidiary involved in the redomestication? | |
A. | As noted in the answer to the prior question, Delaware law would require the approval of 100% of Ideation’s outstanding shares to change its place of incorporation to the Cayman Islands by conversion and continuation. Because Ideation’s common stock is publicly traded, 100% approval cannot reasonably be obtained. By using an Arizona subsidiary in an intermediate step, Ideation is only required to obtain approval of a majority of its outstanding shares of common stock to effect the conversion and continuation. | |
Q. | What will I receive in the redomestication? | |
A. | The redomestication will change Ideation’s domicile from Delaware to the Cayman Islands. Also, as a result of the redomestication: |
• | Holders of Ideation units will be issued one ID Arizona unit for each Ideation unit held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman unit for each ID Arizona unit held at the time of the conversion. | |
• | Holders of Ideation common stock will be issued one share of ID Arizona common stock for each share of Ideation common stock held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman ordinary share for each share of ID Arizona common stock held at the time of the conversion. | |
• | Holders of Ideation warrants will be issued one ID Arizona warrant for each Ideation warrant held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman warrant for each ID Arizona warrant held at the time of the conversion. | |
• | Holders of the Ideation option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, will be issued one ID Arizona option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman option to purchase 500,000 units, consisting of 500,000 ordinary shares and 500,000 warrants of ID Cayman. |
Q. | Why is Ideation proposing the business combination? | |
A. | Ideation was organized to effect a business combination with an operating business. Ideation’s proposed business combination qualifies as a “business combination” under Ideation’s Amended and Restated Certificate of Incorporation. After the consummation of the business combination, the operating company of ID Cayman will be Jieli Investment Management Consulting (Shanghai) Co., Ltd., a PRC entity wholly owned by SM Cayman. Ideation believes that a business combination with SearchMedia will provide Ideation stockholders with an opportunity to invest in a company with significant growth potential. If Ideation is unable to complete the business combination with SearchMedia or another business combination by November 19, 2009, it will be forced to liquidate and distribute to the holders of IPO Shares the amount in the trust account, with any remaining net assets being distributed to the holders of IPO Shares. See “The Business Combination Proposal” below. |
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Q. | Why are Ideation stockholders being asked to approve actions that will be taken by ID Cayman? | |
A. | Ideation stockholders are being asked to approve the entry into the business combination by ID Cayman because Ideation’s Amended and Restated Certificate of Incorporation requires that the majority of the Ideation shares of common stock approve its business combination with SearchMedia and the business combination will not take effect unless and until Ideation’s corporate domicile becomes the Cayman Islands. | |
Q. | What will the name of the surviving company be after the redomestication and the business combination have been consummated? | |
A. | The name of the surviving corporation after the consummation of the redomestication and the business combination will be “SearchMedia Holdings Limited.” | |
Q. | What happens if the redomestication and the business combination are not consummated? | |
A. | If Ideation does not redomesticate and acquire SearchMedia in the business combination, and is unable to consummate an alternate business combination before November 19, 2009, Ideation will be forced to liquidate and distribute to the holders of IPO Shares theirpro rataportion of the amount of the funds available in the trust account, plus any other net assets not used or reserved to pay obligations and claims or such other corporate expenses relating to or arising from the plan of dissolution and distribution. Following liquidation, Ideation would no longer exist as a corporation. | |
In any liquidation, the funds held in the trust account, plus any interest earned thereon (net of taxes payable), less the portion of such interest previously paid to Ideation, plus any other net assets not used or reserved to pay obligations and claims or such other corporate expenses relating to or arising from the plan of dissolution and distribution, will be distributedpro rata to the stockholders of IPO Shares. At June 30, 2009, the trust conversion value per share was $7.8815. | ||
Q. | Why is Ideation proposing the Charter Amendment Proposal? | |
A. | Under the terms of the proposed charter amendment, if the business combination is approved and completed, stockholders holding IPO Shares who vote those shares either for or against the business combination will have the opportunity to either (1) continue to hold their IPO Shares, which will convert into shares of ID Cayman upon completion of the redomestication and business combination, or (2) convert their IPO Shares into cash upon the closing of the business combination. | |
Ideation believes that extending the right to elect conversion to those holders of IPO Shares who vote for the business combination will provide incentive to holders of IPO Shares to vote in favor of the business combination, since a business combination must be approved in order for a conversion to occur before the liquidation of the company. As such, Ideation believes holders of IPO Shares who want to convert their shares will vote to approve both the charter amendment and the business combination in order to obtain the conversion value of their IPO Shares in connection with the closing of the business combination, rather than having to wait for the liquidation of the company. | ||
Q. | Will the Charter Amendment Proposal change any rights of stockholders holding IPO Shares? | |
A. | No. The charter amendment would not alter or adversely affect the right of stockholders holding IPO Shares to convert their shares under Article Sixth as currently in effect. The charter amendment would merely extend this right to convert to those holders of IPO Shares who vote to approve the business combination, as well as those who vote against the business combination. | |
It is important to note that the charter amendment, if approved, would not change the voting standard for a business combination under Ideation’s Certificate of Incorporation, in that the business combination will not be approved if 30% or more of the holders of IPO Shares both vote against the transaction and elect to convert their IPO Shares. | ||
Q. | Do Ideation stockholders have conversion rights? | |
A. | Yes. Any holder of IPO Shares who votes those shares either for or against the business combination and properly demands conversion of their IPO Shares will be entitled to convert their IPO Shares to cash, if the business combination is approved and completed. |
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The per-share conversion price will equal the amount in Ideation’s trust account, inclusive of any interest not otherwise payable to Ideation, as of two business days before the consummation of the business combination, less taxes payable, divided by the number of shares of common stock issued in Ideation’s IPO, which, as of June 30, 2009, would be $7.8815 per share. | ||
If the business combination is not approved and completed, then no conversion rights will be available at this time. Holders of warrants issued by Ideation do not have conversion rights relating to those warrants. | ||
Q. | If I have conversion rights, how do I properly demand conversion of my IPO Shares? | |
A. | To properly demand conversion of your IPO Shares, you must: |
(1) | vote your IPO Shares, in person or by proxy, either“FOR” or“AGAINST” the business combination; | |
(2) | affirmatively request conversion of your IPO Shares by marking the appropriate box on your proxy card, voting information card, or ballot; and | |
(3) | deliver, or instruct your bank or broker to deliver, your IPO Shares to Ideation’s transfer agent before the special meeting. |
Stockholders holding IPO Shares who abstain or do not vote their IPO Shares on the business combination will forfeit their right to convert those shares if the business combination is approved. | ||
Q. | Why is Ideation proposing the Share Increase Proposal, the Declassification Proposal, the Amendment Proposal, the Shareholder Consent Proposal and the Corporate Existence Proposal? | |
A. | Ideation is proposing the Share Increase Proposal, the Declassification Proposal, the Amendment Proposal, the Shareholder Consent Proposal and the Corporate Existence Proposal as ID Cayman’s Memorandum and Articles of Association includes provisions that are materially different from Ideation’s Amended and Restated Certificate of Incorporation, and the Ideation stockholders would be entitled to vote on such changes if they were proposed as amendments to Ideation’s Certificate of Incorporation. | |
Q. | Why is Ideation proposing the Share Incentive Plan Proposal? | |
A. | Ideation is proposing the Share Incentive Plan Proposal to enable it to attract, retain and reward ID Cayman’s directors, officers, employees and consultants using equity-based incentives. The Amended and Restated 2008 Share Incentive Plan has been approved by the Ideation board of directors and will be effective upon the consummation of the business combination, subject to stockholder approval of the plan. Ideation does not expect to grant any awards under the plan until after the consummation of the business combination. | |
Q. | Why is Ideation proposing the Adjournment Proposal? | |
A. | Ideation is proposing to approve an adjournment or postponement of the special meeting so that Ideation may delay the meeting in the event that it appears that the other proposals to be presented at the meeting will not be approved. This will provide Ideation’s management with more time to solicit stockholders to vote or change their votes. | |
Q. | Has the Ideation board of directors made a recommendation regarding how to vote on these proposals? | |
A. | After careful consideration of the redomestication plan, the business combination and the terms and conditions of the share exchange agreement, the board of directors of Ideation has determined that each of the Charter Amendment Proposal, the Redomestication Proposal, the Business Combination Proposal, the Share Increase Proposal, the Declassification Proposal, the Amendment Proposal, the Shareholder Consent Proposal, the Corporate Existence Proposal, the Share Incentive Plan Proposal, and the Adjournment Proposal are in the best interests of the Ideation stockholders, and recommends that Ideation stockholders vote“FOR”each of these proposals. |
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In reaching its decision with respect to the business combination and the transactions contemplated thereby, the board of directors of Ideation reviewed various industry and financial data and the due diligence and evaluation materials provided by the SearchMedia shareholders. | ||
You should read the section titled “Interests of Ideation Officers and Directors in the Business Combination” for a discussion of how the interests of the Ideation executive officers and directors are different from your interests as a stockholder. | ||
Q. | How do the Ideation insiders intend to vote their shares? | |
A. | All of the Ideation insiders, including its officers and directors, will vote all of their common stock“FOR” all the proposals. However, some of the insiders’ shares were issued before Ideation’s IPO and insiders holding those shares are contractually obligated to vote those shares in accordance with the majority of the IPO Shares on the Business Combination Proposal. The Frost Group, LLC and its affiliates are contractually obligated not to convert any IPO Shares held by them in connection with voting“FOR” the Business Combination Proposal. | |
Q. | Will Ideation purchase shares of Ideation common stock before the special meeting? | |
A. | Ideation may seek to purchase, or enter into contracts to purchase, shares of Ideation common stock either in the open market or in privately negotiated transactions. Any such purchases and contracts would be effected pursuant to a 10b(5)-1 plan or at a time when Ideation, its initial stockholders or their affiliates are not aware of material nonpublic information regarding Ideation or its securities. Such purchases could involve the incurrence of indebtedness by Ideation, payment of significant fees or interest payments or the issuance of any additional Ideation securities. Any purchases other than ordinary course purchases shall require the prior approval of the SM Cayman shareholders’ representatives, any such approval not to be unreasonably withheld or delayed. If such approval is unreasonably withheld or delayed under certain circumstances, the obligation of The Frost Group, LLC to make sponsor purchases will terminate. An ordinary course purchase is a forward purchase between Ideation and a non-affiliate Ideation stockholder in which Ideation will purchase some or all of such stockholders’ shares of Ideation after closing, which contracts are not binding on SM Cayman or its assets. A condition to the closing of such contracts will be that all shares purchased would be voted in favor of the business combination. These purchases or arrangements could result in an expenditure of a substantial amount of funds in the trust account. | |
Q. | Will the Frost Group, LLC or its affiliates purchase shares of Ideation common stock before the special meeting? | |
A. | Commencing on April 1, 2009 and continuing until no later than 4:30 p.m. Eastern standard time on the day that is two business days before the special meeting of Ideation stockholders, The Frost Group, LLC, through itself, its affiliates or others, will purchaseand/or enter into forward contracts to purchase shares of Ideation common stock in the open market or in privately negotiated transactions in an amount equal to the Sponsor Purchase Commitment Amount. Such purchases will be conducted in compliance with the Securities Act, the Exchange Act and any other applicable law. | |
The aggregate amount of shares purchased pursuant to these arrangements will be disclosed to Ideation stockholders in a Current Report on Form 8-K as soon as practicable before the open of trading on the NYSE Amex on the day that is one business day before the special meeting of Ideation stockholders. We acknowledge that the timing of this disclosure limits the amount of time Ideation stockholders will have to consider the impact of these purchases before such stockholders submit a proxy, revoke a previously submitted proxy or otherwise vote on the proposals to be considered at the special meeting. | ||
Q. | If the business combination is completed, how much dilution will Ideation stockholders experience? | |
A. | Currently there are 12,500,000 shares of Ideation common stock issued and outstanding. Upon the consummation of the business combination, at least 6,662,727 ordinary shares will be issued to SearchMedia shareholders and 1,712,874 ordinary shares and warrants to purchase 428,219 ordinary shares will be issued to the interim note holders. As a result, immediately following the business |
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combination, assuming no Ideation stockholder converts its shares of common stock into apro rata portion of funds available in the trust account, current Ideation stockholders are expected to beneficially own 60.9% of the basic and 62.5% of the fully diluted issued and outstanding ordinary shares of ID Cayman, assuming no earn-out shares are issued. Assuming the maximum number of earn-out shares are issued, current Ideation stockholders are expected to beneficially own 41.0% of the basic and 44.5% of the fully diluted issued and outstanding ordinary shares of ID Cayman. | ||
Assuming the business combination is approved but all stockholders owning IPO Shares, except for The Frost Group, LLC, its affiliates and others owning IPO Shares purchased in satisfaction of the Sponsor Purchase Commitment Amount, exercise their conversion rights, current Ideation stockholders are expected to beneficially own 30.0% of the basic and 40.8% of the fully diluted issued and outstanding ordinary shares of ID Cayman, if no earn-out shares are issued. Assuming the maximum number of earn-out shares are issued, current Ideation stockholders are expected to beneficially own 16.1% of the basic and 24.8% of the fully diluted issued and outstanding ordinary shares of ID Cayman. | ||
To the extent outstanding warrants are exercised after the business combination, current Ideation stockholders will experience further dilution of their ownership interest. In addition, following the consummation of the business combination, and upon the approval of the Share Incentive Plan Proposal, ID Cayman will establish a share incentive plan under which it may issue equity awards to qualified employees in an amount up to 8% of its total outstanding shares. The issuance of such equity awards would also dilute the ownership interests of the existing ID Cayman shareholders at the time of issuance. | ||
Q. | Do Ideation stockholders have appraisal rights under Delaware law or dissenters rights under Arizona law? | |
A. | The Ideation stockholders do not have appraisal rights under Delaware corporate law or dissenters rights under Arizona corporate law. | |
Q. | What will happen to the funds deposited in the trust account after the business combination is completed? | |
A. | Ideation stockholders exercising conversion rights will receive theirpro rataportion of the trust account. The balance of the funds available in the trust account will be released from the trust account to ID Cayman and will be used for payments to be made in connection with any forward contracts entered into by Ideation in connection with the business combination, as well as for potential acquisitions and for operating capital after the closing of the business combination. | |
Q. | Since Ideation’s IPO prospectus contained information that is different from the information described in this proxy statement/prospectus and matters to be proposed at the special meeting, what are my legal rights? | |
A. | Ideation’s Amended and Restated Certificate of Incorporation and IPO prospectus stated that only those holders of IPO Shares who vote against the business combination will have the right to convert their IPO Shares into cash if the business combination is approved and completed. Furthermore, Ideation’s IPO prospectus stated that specific provisions in its Amended and Restated Certificate of Incorporation, including provisions of Article Sixth setting forth your conversion rights, would not be amended prior to the consummation of an initial business combination without the affirmative vote of 95% of the outstanding shares of common stock of the company. The IPO prospectus further stated that while the validity under Delaware law of a 95% supermajority provision restricting the ability to amend the charter has not been settled, Ideation would not take any actions to waive or amend any of those provisions. | |
Ideation is now taking action to amend Section D of Article Sixth of the Amended and Restated Certificate of Incorporation and extend conversion rights upon completion of the business combination to holders of IPO Shares who vote either for or against the business combination. Accordingly, each purchaser of IPO Shares or warrants issued in the IPO could assert federal or state securities law claims against Ideation for rescission, if such purchaser still holds the securities, or damages, if such purchaser no longer holds the securities. In a rescission claim, a successful claimant has the right to receive the total amount paid for the securities purchased pursuant to an allegedly deficient prospectus, plus interest |
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and less any income earned on the securities, in exchange for surrender of the securities. In a claim for damages, a successful claimant may be awarded compensation for loss on an investment caused by an alleged material misrepresentation or omission in the sale of a security, including, possibly, punitive damages, together with interest. | ||
Q. | When do you expect the business combination to be completed? | |
A. | It is anticipated that the business combination will be completed as soon as practicable following the Ideation special meeting on October 27, 2009. | |
Q. | If I am not going to attend the special meeting in person, should I return my proxy card instead? | |
A. | Yes. After carefully reading and considering the information in this proxy statement/prospectus, please fill out and sign your proxy card. Then return it in the return envelope as soon as possible, so that your shares may be represented at the special meeting. A properly executed proxy will be counted for the purpose of determining the existence of a quorum. | |
Q. | How do I change my vote? | |
A. | You must send a later-dated, signed proxy card to Ideation’s secretary prior to the date of the special meeting or attend the special meeting in person and vote. If your shares are held in an account with a brokerage firm or bank, you can vote in person at the meeting only by obtaining a proxy from your brokerage firm or bank. | |
Q. | If my shares are held in “street name,” will my broker automatically vote them for me? | |
A. | No. Your broker can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares. Your broker can tell you how to provide these instructions. | |
Q. | Do I need to turn in my old certificates? | |
A. | If you do not elect to convert your shares to cash, and the business combination is approved, you do not need to exchange your Ideation stock certificates for ID Cayman certificates. Your current certificates will be deemed to represent your rights in ID Cayman. Following the consummation of the business combination, you may exchange them by contacting the transfer agent, Continental Stock Transfer & Trust Company, Reorganization Department, and following their requirements for reissuance. If you elect conversion, you will need to deliver your old certificates, either physically or electronically, to Continental Stock Transfer & Trust Company, before the special meeting. | |
Q. | Who can help answer my questions? | |
A. | If you have questions, you may contact Morrow & Co., LLC, Ideation’s proxy solicitor, at: |
If you intend to convert your IPO Shares to cash, you or your broker or bank will need to deliver your IPO Shares, either physically or electronically, to Ideation’s transfer agent before the special meeting. If you have questions regarding delivery of your IPO Shares, please contact: |
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• | Outdoor billboard platform. SearchMedia operates a network of over 1,500 high-impact billboards with over 500,000 square feet of surface display area in 15 cities, including Beijing, Hong Kong, Qingdao, Shanghai, Shenyang, Shenzhen, Guangzhou, Chongqing and Chengdu. Its billboards are mostly large format billboards deployed in commercial centers and other desirable areas with heavy vehicleand/or foot traffic. SearchMedia has demonstrated its ability to acquire high-profile billboard contracts with its success in 2007 in securing the billboard advertising rights at the Bund, a landmark destination in Shanghai. | |
• | In-elevator platform. SearchMedia’s network of over 175,000 printed and digital poster frames delivers targeted advertising messages inside elevators to captive audiences in high-rise residential and office buildings in 57 major cities in China. The in-elevator platform targets the affluent urban population that is highly desired by advertisers and is characterized by its low cost structure and minimal capital requirements. According to the Nielsen Report, SearchMedia ranked first in market share of in-elevator advertising displays in 13 out of the 26 most affluent cities in China and ranked second in an additional nine of these cities. These 26 cities were among China’s most affluent measured by urban disposable income per capita and GDP per capita in 2007, and together accounted for 65% of all advertising expenditures on traditional media, including TV, newspaper and magazines in China in 2007. | |
• | Subway advertising platform. SearchMedia operates a network of large-format light boxes in concourses of eight major subway lines in Shanghai. According to the Metro Authority of Shanghai, in 2008, these subway lines carried an aggregate average daily traffic of approximately three million commuters. |
• | Ideation stockholders have approved each of the Charter Amendment Proposal, the Redomestication Proposal, the Business Combination Proposal, the Share Increase Proposal, the Declassification Proposal, the Amendment Proposal, the Shareholder Consent Proposal, the Corporate Existence Proposal, and the Share Incentive Plan Proposal in accordance with the voting standard or voting standards applicable to the proposal, as described below; and | |
• | the other conditions specified in the share exchange agreement have been satisfied or waived. |
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• | expenses arising from or in connection with dividends or deemed dividends paid or payable on any preferred shares of SM Cayman and the redemption features of any preferred shares of SM Cayman and other expenses relating to the preferential features of any preferred shares of SM Cayman; | |
• | any income or loss from a minority investment in any other entity by any of the SM entities and each of their subsidiaries, or the SM Cayman group companies; | |
• | any expenses arising from or in connection with the issue of any preferred shares of SM Cayman; | |
• | any compensation charges attributable to the repurchase by SM Cayman of an aggregate of 3,000,000 ordinary and preferred shares of SM Cayman and the grants by SM Cayman of awards to employees of SM Cayman and its subsidiaries of options exercisable for an aggregate of 3,000,000 ordinary shares of SM Cayman; | |
• | non-cash financial expenses arising from the issuance of any “equity securities” (as defined in the Memorandum and Articles of Association of SM Cayman); | |
• | non-recurring extraordinary items (including, without limitation, any accounting charges, costs or expenses arising from or in connection with the transactions contemplated by the share exchange agreement); |
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• | any costs, expenses or other items relating or attributable to that certain Convertible Note and Warrant Agreement dated as of March 17, 2008 among SM Cayman, Linden Ventures and the other parties thereto, as amended on September 15, 2008, December 18, 2008, March 12, 2009, and August 21, 2009, (including the issuance of the “Linden Note” (as defined in the agreement) as amended on September 15, 2008, December 18, 2008, March 12, 2009, and August 21, 2009); |
• | all revenues, expenses and other items (including acquisition-related charges) relating or attributable to the acquisition of a majority of the outstanding equity interests of, or all or substantially all of the assets of, any other entity or business by ID Cayman or any of the SM Cayman group companies following the closing of the business combination (not including the leasing or subleasing of a billboard, elevator frame unit or other media asset or advertising right); |
• | the effect of any change in accounting principles; or | |
• | any accounting charges, costs or expenses incurred by ID Cayman or SM Cayman arising from or in connection with the issuance and delivery of any earn-out shares. |
$12.7 million
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Jennifer Huang, Chief Operating Officer; and
Andrew Gormley, Executive Vice President.
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(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | A quorum of Ideation stockholders is necessary to hold a valid meeting. A quorum will be present at the Ideation special meeting if a majority of the outstanding shares entitled to vote at the meeting are represented in person or by proxy. Abstentions and broker non-votes will count as present for the purposes of establishing a quorum. | |
• | The approval of the Charter Amendment Proposal, Redomestication Proposal, the Share Increase Proposal, the Declassification Proposal, the Amendment Proposal, the Shareholder Consent Proposal, the Corporate Existence Proposal, and the Share Incentive Plan Proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Ideation common stock on the record date. | |
• | Pursuant to Ideation’s Amended and Restated Certificate of Incorporation and the rules of the NYSE Amex, the business combination will be completed only if (1) it is approved by a majority of the IPO Shares voted at a duly held stockholders meeting in person or by proxy, (2) it is approved by a majority of the votes cast on the proposal, and (3) fewer than 30% of stockholders owning IPO Shares both (a) vote against the business combination and (b) exercise their conversion rights to have their shares of common stock converted to cash. | |
• | The approval of the Adjournment Proposal will require the affirmative vote of holders of a majority of the voting power of Ideation’s common stock, represented in person or by proxy at the meeting. |
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• | If the business combination is not approved and Ideation is unable to complete another business combination by November 19, 2009, Ideation will be required to liquidate. In such event, the 2,500,000 shares of common stock held by Ideation officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless, as will the 2,400,000 warrants that were acquired simultaneously with the IPO for an aggregate purchase price of $2,400,000. The Ideation officers, directors and holders of initial shares currently hold 3,277,900 shares of the common stock and 3,691,200 of the warrants. Such common stock and warrants had an aggregate market value of $32.0 million based on the last sale price of $7.86 and $1.70, respectively, on the NYSE Amex on October 2, 2009, the record date. | |
• | In connection with the IPO, Ideation’s current officers and directors agreed to indemnify Ideation for debts and obligations to vendors owed by Ideation, but only to the extent necessary to ensure that certain liabilities do not reduce funds in the trust account. If the business combination is consummated, Ideation’s officers and directors will not have to perform such obligations. Ideation does not have sufficient funds outside of the trust account to pay these obligations. Therefore, if the business combination is not consummated and vendors that have not signed waivers sue the trust account and win their cases, the trust account could be reduced by the amount of the claims and Ideation’s officers and directors would be required to fulfill their indemnification obligations. | |
• | Warrants to purchase Ideation common stock held by Ideation’s officers and directors are exercisable upon consummation of the business combination. Based upon the closing price of Ideation’s common stock on October 2, 2009, the record date, of $7.86, if all warrants held by Ideation’s officers and directors were exercised at the $6.00 per share exercise price, the value of such shares of common stock would be approximately $29.0 million. |
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• | All rights specified in Ideation’s Amended and Restated Certificate of Incorporation relating to the right of officers and directors to be indemnified by Ideation, and of Ideation’s officers and directors to be exculpated from monetary liability with respect to prior acts or omissions, will continue after the business combination. If the business combination is not approved and Ideation liquidates, Ideation will not be able to perform its obligations to its officers and directors under those provisions. | |
• | In consideration of the Sponsor Purchase Commitment Amount, The Frost Group, LLC and its affiliates and other non-affiliates will receive a warrant to purchase 0.25 of an ordinary share of ID Cayman for each ordinary share it acquired, or will acquire, in connection with the satisfaction of the Sponsor Purchase Commitment Amount and upon the Converting Noteholders’ conversion of their notes into ordinary shares of ID Cayman. Accordingly, the interests of The Frost Group, LLC and its affiliates may be different from those of stockholders who will not receive such warrants. | |
• | On March 18 and March 19, 2009, SearchMedia received interim financing of $1.75 million from Frost Gamma Investments Trust, Robert Fried, Rao Uppaluri, and others, and interim financing of $1.75 million from CSV and members of SearchMedia’s management team. This financing was requested by SearchMedia in order to fund working capital until the closing of the transactions contemplated by the share exchange agreement. The affiliates of Ideation set forth above participated in such financing in order to demonstrate support for the transactions contemplated by the share exchange agreement. Each interim note accrues interest at a rate of 12% per annum, which rate will increase to 20% per annum after the maturity date of such note. Each note will mature upon the earliest of: (i) the closing of a Series D financing by SM Cayman, (ii) the closing of the transactions contemplated by the share exchange agreement, and (iii) the termination of the share exchange agreement. At the closing of the business combination, the principal amount outstanding under such notes will be converted into (1) a number of ordinary shares of ID Cayman calculated by dividing such outstanding principal amounts by $7.8815, rounding up to the nearest whole share, and (2) a number of warrants to purchase 0.25 of an ordinary share of ID Cayman, at an exercise price per such ordinary share of $7.8815, equal to such number of ID Cayman ordinary shares. | |
• | Ideation has entered into a letter agreement with the Converting Noteholders and The Frost Group, LLC. Pursuant to the letter agreement, if at any time during the two years following the closing of the business combination, ID Cayman issues any preferred shares or other equity securities (including securities convertible into or exchangeable for preferred shares or other equity securities), the parties to the letter agreement will have the right to exchange, for such securities, any ordinary shares of ID Cayman acquired by them as a result of: |
(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | the representations and warranties of the Ideation parties on one hand and the SearchMedia parties on the other hand being true and correct as of the closing, except where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had or would not reasonably be expected to have a material adverse effect on such parties, and all covenants contained in the share exchange agreement have been materially complied with by such party and the delivery by each party to the other party of a certificate to such effect; | |
• | no action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental authorities to restrain, modify or prevent the carrying out of the transactions contemplated by the share exchange agreement; and | |
• | no injunction or other order issued by any governmental authority or court of competent jurisdiction prohibiting the consummation of such transactions. |
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• | there shall have been no material adverse effect with respect to Ideation since September 30, 2008; | |
• | the receipt of necessary consents, authorizations and approvals by Ideation stockholders and third parties and the completion of necessary proceedings; | |
• | the resignation of those officers and directors who are not continuing as officers and directors of ID Cayman, together with a written release from each such director and officer that such person has no claim for employment or other compensation in any form from Ideation except for any reimbursement of outstanding expenses existing as of the date of such resignation; | |
• | SearchMedia shall have received legal opinions customary for transactions of this nature, from counsel to the Ideation parties; | |
• | Ideation shall have given instructions to the trustee of the trust account to have the monies in the trust account disbursed immediately upon the closing of the business combination; | |
• | Ideation shall have filed all reports and other documents required to be filed by Ideation under the U.S. federal securities laws through the closing date of the share exchange agreement; and | |
• | SearchMedia shall have received investor representation letters executed by each affiliate of Ideation who will receive ID Cayman shares at the closing in respect of certain SM Cayman promissory notes or SM Cayman securities held by such affiliate. Those affiliates are Frost Gamma Investments Trust (an affiliate of Dr. Phillip Frost), Robert N. Fried and Rao Uppaluri. |
• | there shall have been no material adverse effect with respect to SearchMedia since June 30, 2008; | |
• | the receipt of necessary consents, authorizations and approvals by Ideation stockholders and third parties and the completion of necessary proceedings; | |
• | Ideation shall have received legal opinions, customary for transactions of this nature, from counsel to SearchMedia; | |
• | Ideation shall have received investor representation letters executed by the shareholders and warrantholders of SM Cayman and holders of promissory notes, other than affiliates of Ideation; | |
• | the conversion of the preferred shares of SM Cayman to ordinary shares of SM Cayman shall have occurred; | |
• | each of Qinying Liu, Garbo Lee and Jennifer Huang shall have continued to serve in the same position at SM Cayman or the other SM Cayman group companies as such person was serving as of the date of the share exchange agreement, or in another senior management capacity; and | |
• | the delivery of certain financial statements by each of the SM entities and the SM Cayman shareholders which will show that the adjusted net income and EBITDA set forth in the financial statements for the 2008 fiscal year shall not be less than $15,297,000 and $30,218,000, respectively, and in the financial statements for the first quarter of 2009 shall not be less than $5,085,000 and $9,513,000, respectively. |
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• | mutual written consent of SM Cayman and Ideation; | |
• | either Ideation or the SM Cayman shareholders’ representatives, if the closing has not occurred by (a) October 30, 2009, or (b) such other date as may be mutually agreed to; | |
• | the SM Cayman shareholders’ representatives, if there has been a breach by Ideation of any representation, warranty, covenant or agreement contained in the share exchange agreement which has prevented the satisfaction of the conditions to the obligations of the SearchMedia parties under the share exchange agreement (which is deemed to have occurred if there is a material breach of the sponsor purchase commitment covenants of The Frost Group, LLC or the covenants of Ideation with respect to purchases of, and forward contracts to purchase, shares of Ideation common stock) and the violation or breach has not been waived by such representatives or cured by Ideation within 30 days after written notice from the SM Cayman shareholders’ representatives; | |
• | Ideation, if there has been a breach by the SearchMedia parties of any representation, warranty, covenant or agreement contained in the share exchange agreement which has prevented the satisfaction of the conditions to the obligations of Ideation under the share exchange agreement and such violation or breach has not been waived by Ideation or cured by the SearchMedia parties within 30 days after written notice from Ideation; | |
• | the SM Cayman shareholders’ representatives or Ideation, if the Ideation board of directors fails to recommend or withdraws or modifies in a manner adverse to the SearchMedia parties its approval or recommendation of the share exchange agreement and the transactions contemplated under the share exchange agreement; | |
• | either Ideation or the SM Cayman shareholders’ representatives, if the redomestication and the business combination are not approved by Ideation stockholders or if holders of 30% or more of Ideation’s IPO Shares both vote against the business combination and exercise their right to convert their shares of common stock into cash from the trust account; and | |
• | either Ideation or the SM Cayman shareholders’ representatives, if a court of competent jurisdiction or other governmental authority has issued a final, non-appealable order or injunction or taken any other action to permanently restrain, enjoin or prohibit the redomestication or the business combination. |
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• | acknowledgement of the transfer of the SM Cayman Series C preferred shares owned by Gentfull Investment Limited and Gavast Estates Limited to Vervain Equity Investment Limited and Sun Hing Associates Limited, respectively, their affiliates and the joinder of such transferees to the share exchange agreement; | |
• | the elimination of a potential obligation of ID Cayman to issue Series A preferred shares in connection with the closing, but continuing to provide for the issuance of a warrant to acquire 0.25 of an ID Cayman ordinary share, regardless of the amount in the trust account after closing, for each ID Cayman ordinary share issued to or acquired by those investors who hold SM Cayman interim notes or the Linden note that converted to ID Cayman ordinary shares at closing or ID Cayman ordinary shares acquired in connection with the Sponsor Purchase Commitment Amount; | |
• | the imposition of one-yearlock-up restrictions with respect to the ID Cayman shares underlying ID Cayman restricted share awards and options; | |
• | an additional covenant requiring the repayment of certain loans owed by Qinying Liu and Le Yang to SM Cayman prior to closing. Ms. Liu and Ms. Yang have agreed to repay an aggregate of RMB 4,289,889 owed by them to SM Cayman prior to the closing of the business combination. They may do so in cash or by surrendering a number of ordinary shares of SM Cayman owned by them prior to closing equal in value to such amount; | |
• | an increase of the board of directors of ID Cayman after the closing to ten (10) members, adding one director to be appointed by the Ideation representative and requiring certain independence and citizenship requirements as set forth elsewhere in this proxy statement/prospectus; | |
• | the amendment of the sponsor purchase commitment of The Frost Group, LLC to allow for certain warrant exercises, effective immediately after the closing, to be counted toward the satisfaction of the Sponsor Purchase Commitment Amount; | |
• | the addition of Ideation stockholder approval of the Ideation charter amendment (and a corresponding amendment to the charter of ID Arizona) as a condition to the closing of the business combination; | |
• | the extension of the end date by which the business combination must be consummated to October 30, 2009 from September 30, 2009; | |
• | technical corrections to the definition of “adjusted net income”; |
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• | the amendment of Schedules B and C to the share exchange agreement to reflect the transfers by Gentfull Investment Limited and Gavast Estates Limited and certain transfers by and among SM Cayman shareholders and correct some rounding errors; and | |
• | the amendment of the Memorandum and Articles of Association of ID Cayman, Exhibit A to the share exchange agreement, to eliminate the designation of the ID Cayman Series A preferred shares. |
(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
• | the amendment of Schedule B and Schedule C to the share exchange agreement to reflect the proportional repurchases of approximately 3,000,000 SM Cayman ordinary, Series B preferred and Series C preferred shares from SM Cayman shareholders and issuances of approximately 3,000,000 options under the SM Share Incentive Plan to employees of SM Cayman and its subsidiaries; | |
• | the exclusion of any compensation charges attributable to the above repurchases and issuances from the definition of “adjusted net income;” | |
• | the amendment and restatement of theLock-Up Agreements, which areExhibit F-1 and F-2 to the share exchange agreement providing that for Qinying Liu, Le Yang and CSV, thelock-up shall apply for 12 months after the closing of the share exchange agreement with respect to ten percent (10%) of the shares and other securities received in connection with the business combination and underlying securities received in connection with the business combination, 18 months after the closing of the share exchange agreement with respect to fifteen percent (15%) of such securities, and 24 months after the closing of the share exchange agreement with respect to the remaining seventy-five percent (75%) of such securities, provided that with respect to CSV, thislock-up shall apply only to shares acquired by CSV in exchange for SM Cayman ordinary shares held by it immediately prior to the closing of the business combination, and not with respect to shares or other securities acquired (or underlying securities acquired) by CSV in exchange for SM Cayman warrants, SM Cayman preferred shares or other SM Cayman securities exercisable for, or convertible into, SM Cayman ordinary shares, which shares shall be subject to the samelock-up that applies to non-management shareholders; | |
• | a decrease of the board of directors of ID Cayman after the closing to eight members, subtracting one director to be appointed by each of the Ideation representative and the SM Cayman shareholders’ representatives and requiring certain independence and citizenship requirements as set forth elsewhere in this proxy statement/prospectus; |
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• | an amendment of a covenant which now requires each of the SM entities and each of the SM Cayman shareholders to use commercially reasonable efforts to amend each acquisition agreement for each subsidiary of Jingli Shanghai to provide that following the closing (i) up to 75% of the earn-out or other contingent payment due thereunder with respect to 2010 may be paid, at the option of ID Cayman, in equity securities of ID Cayman, and (ii) in all other instances, all earn-outs or other contingent payments will be made in cash, provided that all such amendments shall be approved by Ideation prior to the execution thereof; | |
• | an additional covenant requiring each of the Ideation parties, on the one hand, and the SM Cayman entities, on the other hand, to use commercially reasonable efforts prior to closing of the share exchange agreement to reduce the expenses incurred by each such group, in connection with this transaction, by $2,000,000; and | |
• | the elimination of the earn-outmake-up provision that allowed for any unearned portion of the earn-out shares to be issued if the closing price of the ID Cayman ordinary shares maintained a certain level for a consecutive thirty trading day period. |
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• | the rules requiring the filing with the SEC of quarterly reports onForm 10-Q or current reports onForm 8-K; | |
• | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; | |
• | provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material non-public information; and | |
• | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short swing” trading transactions, or a purchase and sale, or a sale and purchase, of the issuer’s equity securities within less than six months. |
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• | failure in integrating acquired operations or personnel; | |
• | diversion of management’s attention; | |
• | unforeseen or hidden liabilities; | |
• | adverse effects on SearchMedia’s existing business relationships with its advertisers; and | |
• | loss of key employees, clients or distribution partners of the acquired businesses. |
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• | its ability to maintain and increase sales to existing advertising clients, attract new advertising clients and satisfy its clients’ demands; | |
• | the frequency of its clients’ advertisements on its network; | |
• | the price SearchMedia charges for its advertising time or changes in its pricing strategies or the pricing strategies of its competitors; | |
• | effects of strategic alliances, potential acquisitions and other business combinations, and its ability to successfully and timely integrate them into its business; | |
• | changes in government regulations in relation to the advertising industry; | |
• | lower advertising spending immediately following a major holiday season in China; and | |
• | economic and geopolitical conditions in China and elsewhere. |
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• | revoking the business and operating licenses of Jingli Shanghai or SearchMedia’s PRC subsidiary and other affiliated entities, if any; | |
• | discontinuing or restricting the operations of any transactions among SearchMedia’s PRC subsidiary, Jingli Shanghai and its shareholders; | |
• | imposing fines, confiscating the income of Jingli Shanghai or SearchMedia’s income, or imposing other requirements with which SearchMedia or its PRC subsidiary and affiliated entities may not be able to comply; |
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• | requiring SearchMedia or its PRC subsidiary and affiliated entities to restructure its ownership structure or operations; or | |
• | restricting or prohibiting SearchMedia’s use of the proceeds of this transaction to finance its business and operations in China. |
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• | loans by SearchMedia to its wholly-owned subsidiaries in China, each of which is a foreign-invested enterprise, to finance the activities cannot exceed statutory limits and must be registered with SAFE, or its local counterpart; and | |
• | loans by SearchMedia to Jingli Shanghai, which is a domestic PRC entity, may require the approval from the relevant government authorities or registration with SAFE or its local counterpart. |
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• | the CSRC currently has not issued any definitive rule or interpretation concerning whether transactions such as the one contemplated in this proxy statement/prospectus are subject to CSRC approval procedures; | |
• | despite the above, prior approval from CSRC is not required under the new regulations for this transaction, unless SearchMedia or ID Cayman is clearly required to do so by subsequent rules of the CSRC, because (i) none of ID Cayman, SearchMedia, Jieli Consulting or Jieli Network has acquired any equity or assets of a PRC domestic company and (ii) Jieli Consulting has entered into contractual arrangements with Jingli Shanghai and its shareholders, as current PRC laws and regulations require foreign investors in advertising businesses to meet certain qualifications, and SearchMedia currently does not operate a foreign-invested enterprise which is approved by competent PRC authorities to engage in advertising businesses. |
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• | the rules requiring the filing with the SEC of quarterly reports onForm 10-Q or current reports onForm 8-K; | |
• | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; | |
• | provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material non-public information; and | |
• | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short swing” trading transactions, or a purchase and sale, or a sale and purchase, of the issuer’s equity securities within less than six months. |
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• | a limited availability of market quotations for its securities; | |
• | a reduced liquidity with respect to its securities; | |
• | a determination that its common stock is a “penny stock” which will require brokers trading in its common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for its common stock; | |
• | a limited amount of news and analyst coverage for the company; and | |
• | a decreased ability to issue additional securities or obtain additional financing in the future. |
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• | exercise the warrants and pay the exercise price for such warrants at a time when it may be disadvantageous for the holders to do so; |
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• | sell the warrants at the then-current market price when they might otherwise wish to hold the warrants; or | |
• | accept the nominal redemption price which, at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants. |
• | a current registration statement under the Securities Act relating to the ordinary shares underlying the warrants is then effective; and | |
• | such shares are qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of warrants reside. |
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• | the number and percentage of Ideation stockholders electing to convert their shares into cash upon completion of the business combination; | |
• | legislation or regulatory environments, requirements or changes adversely affecting the business in which SearchMedia is engaged; | |
• | continued compliance with government regulations; | |
• | fluctuations in customer demand; | |
• | management of rapid growth; | |
• | intensity of competition from other out-of-home advertising companies; | |
• | the time to develop and market new services and products; | |
• | outcomes of government reviews, inquiries, investigations and related litigation; | |
• | general economic conditions; | |
• | recent market events and conditions, including disruptions in credit and other financial markets and the deterioration of U.S. and global economic conditions; | |
• | geopolitical events; and | |
• | changing principles of generally accepted accounting principles. |
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December 31, | ||||
Balance Sheet Data: | 2008 | |||
Working capital | 89,346 | |||
Total assets | 79,852,731 | |||
Total liabilities | 3,237,626 | |||
Value of common stock which may be redeemed for cash ($7.88 per share) | 23,639,992 | |||
Stockholders’ equity | 52,975,113 |
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Predecessors | ||||||||||||||||||||||||||||||||||||
Sige | Dale | SearchMedia | ||||||||||||||||||||||||||||||||||
June 8, | January 1, | January 1, | April 28, | January 1, | January 1, | February 9, | January 1, | |||||||||||||||||||||||||||||
2005 to | 2006 to | 2007 to | 2005 to | 2006 to | 2007 to | 2007 to | 2008 to | |||||||||||||||||||||||||||||
December 31, | December 31, | June 3, | December 31, | December 31, | June 3, | December 31, | December 31, | |||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | ($ in thousands) | ||||||||||||||||||||||||||||||||||
Selected Income Statement Data | ||||||||||||||||||||||||||||||||||||
Advertising service revenues | 952 | 1,424 | 599 | 324 | 1,104 | 745 | 7,828 | 88,637 | ||||||||||||||||||||||||||||
Cost of revenues(1)(2) | (522 | ) | (622 | ) | (369 | ) | (159 | ) | (387 | ) | (214 | ) | (2,451 | ) | (46,674 | ) | ||||||||||||||||||||
Gross profit | 430 | 802 | 230 | 165 | 717 | 531 | 5,377 | 41,963 | ||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Sales and marketing(1)(2) | (40 | ) | (36 | ) | (25 | ) | (38 | ) | (176 | ) | (105 | ) | (293 | ) | (7,397 | ) | ||||||||||||||||||||
General and administrative(2) | (151 | ) | (145 | ) | (129 | ) | (57 | ) | (172 | ) | (140 | ) | (2,555 | ) | (11,727 | ) | ||||||||||||||||||||
Loss on deconsolidation of variable interest entity | — | — | — | — | — | — | (358 | ) | — | |||||||||||||||||||||||||||
Total operating expenses | (191 | ) | (181 | ) | (154 | ) | (95 | ) | (348 | ) | (245 | ) | (3,206 | ) | (19,124 | ) | ||||||||||||||||||||
Income from operations | 239 | 621 | 76 | 70 | 369 | 286 | 2,171 | 22,839 | ||||||||||||||||||||||||||||
Interest income | — | — | — | — | — | — | 5 | 131 | ||||||||||||||||||||||||||||
Interest expense | — | — | — | — | — | — | (43 | ) | (8,922 | ) | ||||||||||||||||||||||||||
Decrease in fair value of note warrant liability | —— | — | — | — | — | — | 482 | |||||||||||||||||||||||||||||
Loss on extinguishment of the notes | — | — | — | — | — | — | — | (3,218 | ) | |||||||||||||||||||||||||||
Foreign currency exchange loss, net | — | — | — | — | — | — | (35 | ) | (167 | ) | ||||||||||||||||||||||||||
Income before income taxes | 239 | 621 | 76 | 70 | 369 | 286 | 2,098 | 11,145 | ||||||||||||||||||||||||||||
Income taxes expenses | (1 | ) | (15 | ) | (21 | ) | — | (36 | ) | (43 | ) | (850 | ) | (6,802 | ) | |||||||||||||||||||||
Net income (loss) | 238 | 606 | 55 | 70 | 333 | 243 | 1,248 | 4,343 |
Predecessors | ||||||||||||||||||||||||||||||||||||
Sige | Dale | SearchMedia | ||||||||||||||||||||||||||||||||||
June 8, | January 1, | January 1, | April 28, | January 1, | January 1, | February 9, | January 1, | |||||||||||||||||||||||||||||
2005 to | 2006 to | 2007 to | 2005 to | 2006 to | 2007 to | 2007 to | 2008 to | |||||||||||||||||||||||||||||
December 31, | December 31, | June 3, | December 31, | December 31, | June 3, | December 31, | December 31, | |||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||||||
($ in thousands) | ($ in thousands) | ($ in thousands) | ||||||||||||||||||||||||||||||||||
(1) Include amortization expenses of intangibles as follows | ||||||||||||||||||||||||||||||||||||
Cost of revenues | — | — | — | — | — | — | 132 | 1,756 | ||||||||||||||||||||||||||||
Sales and marketing | — | — | — | — | — | — | 86 | 1,709 | ||||||||||||||||||||||||||||
(2) Include share-based compensation expenses as follows | ||||||||||||||||||||||||||||||||||||
Cost of revenues | — | — | — | — | — | — | — | 56 | ||||||||||||||||||||||||||||
Sales and marketing | — | — | — | — | — | — | — | 68 | ||||||||||||||||||||||||||||
General and administrative | — | — | — | — | — | — | — | 2,230 |
Predecessors | |||||||||||||||||||||||||||
Sige | Dale | SearchMedia | |||||||||||||||||||||||||
As of | As of | As of | As of | As of | As of | ||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||
Selected Balance Sheet Data | 2005 | 2006 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||||
($ in thousands) | ($ in thousands) | ($ in thousands) | |||||||||||||||||||||||||
Current assets | 336 | 88 | 346 | 570 | 16,862 | 66,740 | |||||||||||||||||||||
Total assets | 361 | 108 | 353 | 582 | 24,235 | 111,776 | |||||||||||||||||||||
Current liabilities | 408 | 248 | 218 | 330 | 5,173 | 67,783 | |||||||||||||||||||||
Series B redeemable convertible preferred shares | — | — | —— | — | 19,734 | 24,906 | |||||||||||||||||||||
Series C redeemable convertible preferred shares | — | — | — | — | — | 12,918 | |||||||||||||||||||||
Total Shareholders’ equity/(deficit) | (47 | ) | (140 | ) | 135 | 252 | (691 | ) | 4,872 | ||||||||||||||||||
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$12.7 million
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Unaudited Pro Forma Condensed Balance Sheet
As of June 30, 2009
(US dollars in thousands)
Ideation | SearchMedia | |||||||||||||||||||||||||||||||
historical | historical | Zero Conversion Assumption | Maximum Conversion Assumption | |||||||||||||||||||||||||||||
June 30, | March 31, | Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||||||||
2009 | 2009 | Adjustments | Note | Combined | Adjustments | Note | Combined | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | 96 | 6,588 | 78,815 | (a | ) | 65,551 | (60,565 | ) | (d1 | ) | 3,459 | |||||||||||||||||||||
(2,730 | ) | (c2 | ) | (1,527 | ) | (d2 | ) | |||||||||||||||||||||||||
(12,200 | ) | (f1 | ) | |||||||||||||||||||||||||||||
(5,000 | ) | (i | ) | |||||||||||||||||||||||||||||
(18 | ) | (g2 | ) | |||||||||||||||||||||||||||||
Accounts receivable, net | 52,217 | 52,217 | 52,217 | |||||||||||||||||||||||||||||
Amounts due from related parties | 8,643 | 8,643 | 8,643 | |||||||||||||||||||||||||||||
Prepaid expenses and other current assets | 195 | 14,636 | (2,066 | ) | (f2 | ) | 12,765 | 12,765 | ||||||||||||||||||||||||
Deferred tax assets | 492 | 492 | 492 | |||||||||||||||||||||||||||||
Total current assets | 291 | 82,576 | 139,668 | 77,576 | ||||||||||||||||||||||||||||
Other asset, cash and cash equivalents held in trust | 78,815 | — | (78,815 | ) | (a | ) | — | — | ||||||||||||||||||||||||
Rental deposits | 169 | 169 | 169 | |||||||||||||||||||||||||||||
Property and equipment, net | 6,921 | 6,921 | 6,921 | |||||||||||||||||||||||||||||
Deposits for acquisitions | 6,228 | 6,228 | 6,228 | |||||||||||||||||||||||||||||
Intangible assets, net | 4,487 | 4,487 | 4,487 | |||||||||||||||||||||||||||||
Goodwill | 26,143 | 26,143 | 26,143 | |||||||||||||||||||||||||||||
Deferred tax assets | 387 | — | 387 | 387 | ||||||||||||||||||||||||||||
Total assets | 79,493 | 126,524 | 184,003 | 121,911 | ||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||
Short-term borrowings | 5,329 | (3,500 | ) | (g1 | ) | 1,829 | 1,829 | |||||||||||||||||||||||||
Promissory notes | 15,000 | (5,000 | ) | (i | ) | — | — | |||||||||||||||||||||||||
(10,000 | ) | (b1 | ) | |||||||||||||||||||||||||||||
Accounts payable | 13,415 | 13,415 | 13,415 | |||||||||||||||||||||||||||||
Accrued expenses and other payable | 1,537 | 15,466 | (1,875 | ) | (e1 | ) | 12,554 | 12,554 | ||||||||||||||||||||||||
(1,766 | ) | (f2 | ) | |||||||||||||||||||||||||||||
(790 | ) | (f2 | ) | |||||||||||||||||||||||||||||
(18 | ) | (g2 | ) | |||||||||||||||||||||||||||||
Acquisition consideration payable | 15,156 | 15,156 | 15,156 | |||||||||||||||||||||||||||||
Amounts due to related parties | 737 | 737 | 737 | |||||||||||||||||||||||||||||
Deferred revenue | 1,519 | 1,519 | 1,519 | |||||||||||||||||||||||||||||
Income taxes payable | 11,683 | 11,683 | 11,683 | |||||||||||||||||||||||||||||
Total current liabilities | 1,537 | 78,305 | 56,893 | 56,893 | ||||||||||||||||||||||||||||
— | ||||||||||||||||||||||||||||||||
Long-term liability: | — | |||||||||||||||||||||||||||||||
Deferred tax liabilities | 1,111 | 1,111 | 1,111 | |||||||||||||||||||||||||||||
Deferred underwriters’ fee | 2,730 | (2,730 | ) | (c2 | ) | — | — | |||||||||||||||||||||||||
Total liabilities | 4,267 | 79,416 | 58,004 | 58,004 |
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Unaudited Pro Forma Condensed Balance Sheet
As of June 30, 2009
(US dollars in thousands)
Ideation | SearchMedia | |||||||||||||||||||||||||||||||
historical | historical | Zero Conversion Assumption | Maximum Conversion Assumption | |||||||||||||||||||||||||||||
June 30, | March 31, | Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||||||||
2009 | 2009 | Adjustments | Note | Combined | Adjustments | Note | Combined | |||||||||||||||||||||||||
Redeemable common stock | ||||||||||||||||||||||||||||||||
Ideation — Common stock subject to possible redemption (2,999,999 shares at June 30, 2009 at redemption value of $7.88 per share) | 23,640 | — | (23,640 | ) | (c1 | ) | — | — | ||||||||||||||||||||||||
SearchMedia — Series B redeemable convertible preferred shares; US$0.0001 par value; 36,363,635 shares authorized, issued and outstanding as of March 31, 2009, respectively (Redemption value US$32,364) | — | 26,398 | (26,398 | ) | (b1 | ) | — | — | ||||||||||||||||||||||||
Series C redeemable convertible preferred shares; US$0.0001 par value; 40,000,000 shares authorized, 4,845,276 shares issued and outstanding as of March 31, 2009 (Redemption value US$13,975) | — | 13,705 | (13,705 | ) | (b1 | ) | — | — | ||||||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||||||||||
Ideation — Preferred Stock, $0.0001 par value, 1,000,000 shares authorized; none issued and outstanding at June 30, 2009 | — | — | — | — | ||||||||||||||||||||||||||||
Ideation — Common Stock, $0.0001 par value, 50,000,000 shares authorized, 12,500,000 shares issued and outstanding including 2,999,999 shares subject to possible redemption, at June 30, 2009 | 1 | — | (1 | ) | (b3 | ) | — | — | ||||||||||||||||||||||||
SearchMedia — Series A convertible preferred shares; US$0.0001 par value; 20,000,000 shares authorized, 10,000,000 shares issued and outstanding as of March 31, 2009 | — | 722 | (722 | ) | (b1 | ) | — | — | ||||||||||||||||||||||||
SearchMedia — Ordinary shares: US$0.0001 par value; 443,636,365 shares authorized, 32,119,500 shares issued and outstanding as of March 31, 2009 | — | 3 | (3 | ) | (b1 | ) | — | — | ||||||||||||||||||||||||
ID Cayman ordinary shares | 1 | (b3 | ) | 2 | (1 | ) | (d1 | ) | 1 | |||||||||||||||||||||||
1 | (b1 | ) | ||||||||||||||||||||||||||||||
Additional paid-in capital | 52,595 | 2,433 | 50,827 | (b1 | ) | 122,150 | (60,564 | ) | (d1 | ) | 60,059 | |||||||||||||||||||||
(1,010 | ) | (b2 | ) | (1,527 | ) | (d2 | ) | |||||||||||||||||||||||||
23,640 | (c1 | ) | ||||||||||||||||||||||||||||||
1,575 | (e1 | ) | ||||||||||||||||||||||||||||||
(12,200 | ) | (f1 | ) | |||||||||||||||||||||||||||||
790 | (f2 | ) | ||||||||||||||||||||||||||||||
3,500 | (g1 | ) | ||||||||||||||||||||||||||||||
Income accumulated during the development stage | (1,010 | ) | — | 1,010 | (b2 | ) | — | — | ||||||||||||||||||||||||
Accumulated other comprehensive income | — | 2,134 | 2,134 | 2,134 | ||||||||||||||||||||||||||||
Retained earnings | — | 1,713 | 1,713 | 1,713 | ||||||||||||||||||||||||||||
Total stockholders’ equity | 51,586 | 7,005 | 125,999 | 63,907 | ||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | 79,493 | 126,524 | 184,003 | 121,911 |
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Unaudited Pro Forma Condensed Statement of Income
For the Fiscal Year Ended December 31, 2008
(US dollars in thousands)
Zero Conversion Assumption | Maximum Conversion Assumption | |||||||||||||||||||||||||||||||
Ideation | SearchMedia | Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||||||||
historical | historical | Adjustments | Note | Combined | Adjustments | Note | Combined | |||||||||||||||||||||||||
Net revenues | 88,637 | 88,637 | 88,637 | |||||||||||||||||||||||||||||
Cost of revenues | (46,674 | ) | (46,674 | ) | (46,674 | ) | ||||||||||||||||||||||||||
Gross profit | 41,963 | 41,963 | 41,963 | |||||||||||||||||||||||||||||
Selling and distribution expenses | (7,397 | ) | (7,397 | ) | (7,397 | ) | ||||||||||||||||||||||||||
General and administrative expenses | (1,282 | ) | (11,727 | ) | (13,009 | ) | (13,009 | ) | ||||||||||||||||||||||||
Income (loss) from operations | (1,282 | ) | 22,839 | 21,557 | 21,557 | |||||||||||||||||||||||||||
Interest expense | (8,922 | ) | 8,887 | (e2 | ) | (35 | ) | (35 | ) | |||||||||||||||||||||||
Interest income | 1,616 | 131 | 1,747 | (1,242 | ) | (d3 | ) | 505 | ||||||||||||||||||||||||
Decrease in fair value of note warrant liability | 482 | (482 | ) | (e2 | ) | — | — | |||||||||||||||||||||||||
Loss on extinguishment of the Notes | (3,218 | ) | 3,218 | (e3 | ) | |||||||||||||||||||||||||||
Foreign currency exchange loss, net | (167 | ) | (167 | ) | (167 | ) | ||||||||||||||||||||||||||
Income before income taxes | 334 | 11,145 | 23,102 | 21,860 | ||||||||||||||||||||||||||||
Income tax expense | (99 | ) | (6,802 | ) | (6,901 | ) | (6,901 | ) | ||||||||||||||||||||||||
Net income | 235 | 4,343 | 16,201 | 14,959 | ||||||||||||||||||||||||||||
Net income per share — basic | ||||||||||||||||||||||||||||||||
Net income per share — diluted | 0.79 | 1.16 | ||||||||||||||||||||||||||||||
0.66 | 0.89 | |||||||||||||||||||||||||||||||
Weighted average share — basic | 20,634,134 | 12,949,683 | ||||||||||||||||||||||||||||||
Weighted average share — diluted | 24,481,969 | 16,797,518 |
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Unaudited Pro Forma Condensed Statement of Income
For the Six Months Ended June 30, 2009
(US dollars in thousands)
Ideation | SearchMedia | |||||||||||||||||||||||||||||||
Six Months | Six Months | Zero Conversion Assumption | Maximum Conversion Assumption | |||||||||||||||||||||||||||||
Ended | Ended | Pro Forma | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||||||||
June 30, 2009 | March 31, 2009 | Adjustments | Note | Combined | Adjustments | Note | Combined | |||||||||||||||||||||||||
Net revenues | 52,153 | 52,153 | 52,153 | |||||||||||||||||||||||||||||
Cost of revenues | (24,962 | ) | (24,962 | ) | (24,962 | ) | ||||||||||||||||||||||||||
Gross profit | 27,191 | 27,191 | 27,191 | |||||||||||||||||||||||||||||
Selling and distribution expenses | (3,299 | ) | (3,299 | ) | (3,299 | ) | ||||||||||||||||||||||||||
General and administrative expenses | (1,382 | ) | (7,650 | ) | (9,032 | ) | (9,032 | ) | ||||||||||||||||||||||||
Income (loss) from operations | (1,382 | ) | 16,242 | 14,860 | 14,860 | |||||||||||||||||||||||||||
Interest expense | (1,190 | ) | 1,055 | (e2 | ) | (135 | ) | (135 | ) | |||||||||||||||||||||||
Interest income | 30 | — | 30 | (23 | ) | (d3 | ) | 7 | ||||||||||||||||||||||||
Decrease in fair value of note warrant liability | 195 | (195 | ) | (e2 | ) | — | — | |||||||||||||||||||||||||
Loss on extinguishment of the Notes | ||||||||||||||||||||||||||||||||
Foreign currency exchange loss, net | ||||||||||||||||||||||||||||||||
Income before income taxes | (1,352 | ) | 15,247 | 14,755 | 14,732 | |||||||||||||||||||||||||||
Income tax expense | (37 | ) | (5,352 | ) | (5,389 | ) | (5,389 | ) | ||||||||||||||||||||||||
Net income | (1,389 | ) | 9,895 | 9,366 | 9,343 | |||||||||||||||||||||||||||
Net income per share — basic | ||||||||||||||||||||||||||||||||
Net income per share — diluted | 0.44 | 0.70 | ||||||||||||||||||||||||||||||
0.37 | 0.54 | |||||||||||||||||||||||||||||||
Weighted average share — basic | 21,078,213 | 13,393,762 | ||||||||||||||||||||||||||||||
Weighted average share — diluted | 24,995,879 | 17,311,428 |
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(a) | To record release of funds held in trust by Ideation to operating cash account upon consummation of the Transaction. | |
(b) | (b1) To record the issuance of 8,578,213 common stock of ID Cayman in exchange of outstanding SearchMedia ordinary shares, preferred shares, and promissory notes; (b2) To eliminate the retained earnings of Ideation as SearchMedia will be the continuing entity for accounting purposes; (b3) To reclassify Ideation common stock to ID Cayman ordinary shares. | |
(c) | Assuming zero conversion: (c1) To reclassify amounts relating to common stock subject to conversion to permanent equity; (c2) To record payment of deferred underwriting fee upon consummation of the Transaction. | |
(d) | Assuming maximum conversion: (d1) To record payment to converting shareholders, based on common stock subject to conversion at US$7.8815 per share assuming impact of the Sponsor Purchase Commitment Amount is satisfied entirely through open market purchases before the special meeting. However, such commitment may, and will most likely, be satisfied subsequent to the closing of the business combination through warrant exercises or issuances of Ideation common stock; (d2) To record payment of accrued interest on cash held in trust to converting shareholders; (d3) To adjust for interest income that would not have been recognized in respect of cash payment to converting shareholders. | |
(e) | (e1) To reflect exchange of SearchMedia liability-classified warrants with ID Cayman warrants which by nature is equity-classified; (e2) To adjust for the interest expense and fair value change related to SearchMedia’s liability-classified warrants; (e3) To adjust for the loss on extinguishment of the SearchMedia convertible notes. | |
(f) | (f1) To record payment of the recapitalization transaction costs, up to US$12.2 million including accountant, attorney, consulting and advisory fees and expenses incurred with respect to the printing, filing and mailing of the proxy statement/prospectus (including any related preliminary materials) and theForm S-4 Registration Statement and any amendments or supplements thereto; (f2) To adjust for elimination of deferred cost and accrued expense of the transaction costs. | |
(g) | (g1) To record conversion of US$3.5 million promissory notes, issued to a third party investor, an existing Series A preferred shareholder and certain management personnel of SearchMedia in March 2009 as described in the “Contractual Obligation” section, into 444,079 ID Cayman ordinary shares upon the consummation of the Transaction; (g2) To record the cash payment of interest on the US$3.5 million promissory notes which is accrued from March 18 and March 19, 2009 (as applicable) to the closing date of the Transaction at the rate of 12% per annum. | |
(h) | Pro forma basic and diluted net income per share was calculated by dividing the pro forma net income by the weighted average number of shares outstanding as follows: |
Fiscal Year Ended | Six Months Ended | |||||||||||||||
December 31, 2008 | June 30, 2009 | |||||||||||||||
Assuming | Assuming | Assuming | Assuming | |||||||||||||
Zero | Maximum | Zero | Maximum | |||||||||||||
Conversion | Conversion | Conversion | Conversion | |||||||||||||
Shares issued in the Transaction | 8,134,134 | 8,134,134 | 8,578,213 | 8,578,213 | ||||||||||||
Ideation weighted average shares | 12,500,000 | 4,815,549 | 12,500,000 | 4,815,549 | ||||||||||||
Basic shares | 20,634,134 | 12,949,683 | 21,078,213 | 13,393,762 | ||||||||||||
SearchMedia’ options and restricted shares* | 284,598 | 284,598 | 284,598 | 284,598 | ||||||||||||
Warrants ** | 3,563,237 | 3,563,237 | 3,633,068 | 3,633,068 | ||||||||||||
Diluted shares | 24,481,969 | 16,797,518 | 24,995,879 | 17,311,428 | ||||||||||||
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* | The underwriters purchase option for Ideation’s common stock is anti-dilutive and is not included in the computation of pro forma diluted earnings per share. The phrase restricted share awards includes both restricted shares and restricted share units. | |
** | The warrants include incremental shares of 2,960,173 from potential exercise of ID Cayman warrants converted from Ideation warrants (12,400,000 warrants); incremental shares of 603,064 from potential exercise of ID Cayman warrants converted from SearchMedia warrants (1,489,331 warrants) upon the Transaction; and incremental shares of 30,892 from potential exercise of ID Cayman warrants converted from SearchMedia promissory notes warrant (442,000 warrants). |
(i) | To reflect cash settlement of US$5 million of the Linden promissory notes. The pro forma adjustment has not reflected the payment of interest on the US$15 million Linden promissory notes which is accrued from September 17, 2008 to the closing date of the Transaction at the rate of 12% per annum. | |
(j) | As discussed in the introduction to the pro forma financial statements, no pro forma adjustment has been made for the effect, if any, relating to the potential issuance of Earn-out Shares to SearchMedia shareholders and warrantholders if certain performance targets are achieved. Also, no pro forma adjustment has been made for the effect, if any, relating to the alternative settlement method for the SearchMedia promissory notes if circumstances described in this document occur. | |
(k) | During the period from April 1, 2009 through September 8, 2009, SearchMedia granted 1,650,000 share options to certain management personnel to acquire ordinary shares of the SearchMedia. These options have an exercise price of US$0.5323 per share, a vesting period of three to four years and a contractual life of 10 years from the date of grant. The pro forma financial statements have not considered the effect of the issuance of such share option. | |
(l) | On September 22, 2009, SearchMedia’s board of directors and shareholders approved the repurchase of 3,000,000 ordinary shares, Series B preferred shares and Series C preferred shares on a pro rata basis from SearchMedia’s existing shareholders at a purchase price of US$0.0001 per share. The pro forma financial statements have not considered the effect of the repurchase of such shares. |
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ID Cayman | ID Cayman | |||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Fiscal Year | Fiscal Year | |||||||||||||||
Historical | Ended | Ended | ||||||||||||||
Ideation | SearchMedia | December 31, | December 31, | |||||||||||||
Fiscal Year | Fiscal Year | 2008 | 2008 | |||||||||||||
Ended | Ended | Assuming | Assuming | |||||||||||||
December 31, | December 31, | Maximum | Zero | |||||||||||||
2008 | 2008 | Conversion | Conversion | |||||||||||||
(Amounts in thousands except for per share and share amounts) | ||||||||||||||||
Net income | $ | 235 | $ | 4,343 | $ | 14,959 | $ | 16,201 | ||||||||
Net income per common share — basic | $ | 0.03 | – | $ | 1.16 | $ | 0.79 | |||||||||
Weighted average number of shares used in the calculation of net income per share — basic | 9,500,001 | – | 12,949,683 | 20,634,134 |
ID Cayman | ID Cayman | |||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Six Months | Six Months | |||||||||||||||
Historical | Ended | Ended | ||||||||||||||
Ideation | SearchMedia | June 30, | June 30, | |||||||||||||
Six Months | Six Months | 2009 | 2009 | |||||||||||||
Ended | Ended | Assuming | Assuming | |||||||||||||
June 30, | March 31, | Maximum | Zero | |||||||||||||
2009 | 2009 | Conversion | Conversion | |||||||||||||
(Amounts in thousands except for per share and share amounts) | ||||||||||||||||
Net income | $ | (1,389 | ) | $ | 9,895 | $ | 9,343 | $ | 9,366 | |||||||
Net income per common share — basic | $ | (0.15 | ) | – | $ | 0.70 | $ | 0.44 | ||||||||
Weighted average number of shares used in the calculation of net income per share — basic | 9,500,001 | – | 13,393,762 | 21,078,213 |
ID Cayman | ID Cayman | |||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
as of | as of | |||||||||||||||
Historical | June 30, | June 30, | ||||||||||||||
Ideation | SearchMedia | 2009 | 2009 | |||||||||||||
as of | as of | Assuming | Assuming | |||||||||||||
June 30, | March 31, | Maximum | Zero | |||||||||||||
2009 | 2009 | Conversion | Conversion | |||||||||||||
(Amounts in thousands except for per share and share amounts) | ||||||||||||||||
Total stockholders’ equity | $ | 51,586 | $ | 7,005 | $ | 63,907 | $ | 125,999 | ||||||||
Book value per share — basic | $ | 5.43 | – | $ | 4.77 | $ | 5.98 | |||||||||
Weighted average number of shares used in the calculation of book value per share — basic | 9,500,001 | – | 13,393,762 | 21,078,213 |
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Units | Common Stock | Warrants | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
2007 | ||||||||||||||||||||||||
November 20 through December 31, 2007 | $ | 8.01 | $ | 7.85 | $ | 7.20 | $ | 7.20 | $ | 0.70 | $ | 0.70 | ||||||||||||
2008 | ||||||||||||||||||||||||
First Quarter | $ | 7.90 | $ | 7.30 | $ | 7.10 | $ | 7.10 | $ | 0.70 | $ | 0.35 | ||||||||||||
Second Quarter | $ | 7.85 | $ | 7.35 | $ | 7.11 | $ | 7.11 | $ | 0.40 | $ | 0.29 | ||||||||||||
Third Quarter | $ | 8.10 | $ | 7.25 | $ | 8.10 | $ | 7.15 | $ | 0.44 | $ | 0.25 | ||||||||||||
Fourth Quarter | $ | 7.20 | $ | 6.85 | $ | 7.20 | $ | 6.75 | $ | 0.71 | $ | 0.03 | ||||||||||||
2009 | ||||||||||||||||||||||||
First Quarter | $ | 7.70 | $ | 7.17 | $ | 7.55 | $ | 7.18 | $ | 0.15 | $ | 0.03 | ||||||||||||
Second Quarter | $ | 8.72 | $ | 7.41 | $ | 7.86 | $ | 7.50 | $ | 0.69 | $ | 0.11 | ||||||||||||
Third Quarter (through September 28, 2009) | $ | 9.55 | $ | 8.15 | $ | 7.99 | $ | 7.69 | $ | 1.60 | $ | 0.48 |
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• | if you have already sent in a proxy, sending another proxy card with a later date; | |
• | if you voted by telephone, calling the same number and following the instructions; | |
• | notifying Ideation 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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• | the rules requiring the filing with the SEC of quarterly reports onForm 10-Q or current reports onForm 8-K; | |
• | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act; | |
• | provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material non-public information; and | |
• | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short swing” trading transactions, or a purchase and sale, or a sale and purchase, of the issuer’s equity securities within less than six months. |
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• | Holders of Ideation units will be issued one ID Arizona unit for each Ideation unit held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman unit for each ID Arizona unit held at the time of the conversion. | |
• | Holders of Ideation common stock will be issued one share of ID Arizona common stock for each share of Ideation common stock held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman ordinary share for each share of ID Arizona common stock held at the time of the conversion. | |
• | Holders of Ideation warrants will be issued one ID Arizona warrant for each Ideation warrant held at the time of the Arizona merger, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman warrant for each ID Arizona warrant held at the time of the conversion. | |
• | Holders of the Ideation option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, will be issued one ID Arizona option to purchase 500,000 units, consisting of 500,000 shares of common stock and 500,000 warrants, which, upon the conversion and continuation of ID Arizona to the Cayman Islands, will result in such holders holding one ID Cayman option to purchase 500,000 units, consisting of 500,000 ordinary shares and 500,000 warrants of ID Cayman. |
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Jennifer Huang, Chief Operating Officer; and
Andrew Gormley, Executive Vice President
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• | the board of directors of the corporation, prior to the time that such person became an interested shareholder, approved either the business combination or the transaction in which the shareholder becomes an interested shareholder; | |
• | the transaction which made the person an interested shareholder resulted in the interested shareholder owning at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or | |
• | the board of directors and the holders of at least 662/3% of the outstanding voting stock not owned by the interested shareholder approved and authorized at an annual or special meeting of stockholders, and not by written consent, the business combination on or after the time of the transaction in which the person became an interested shareholder. |
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• | the corporation’s shares are listed on a national securities exchange or held of record by more than 2,000 shareholders; or | |
• | the corporation will be the surviving corporation of the merger, and no vote of its shareholders is required to approve the merger. |
• | shares of stock of the corporation surviving or resulting from the merger or consolidation; or | |
• | shares of stock of any other corporation that on the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 shareholders. |
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• | profits; or | |
• | “share premium account,” which represents the excess of the price paid to ID Cayman on issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital. |
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• | protecting the interests of ID Cayman; | |
• | protecting the confidentiality of the information contained in those books and records; or | |
• | protecting any other interest of ID Cayman that the board of directors deems proper. |
• | the board of directors adopts a resolution setting forth the proposed amendment, declares the advisability of the amendment and directs that it be submitted to a vote at a meeting of shareholders or calls a special meeting of shareholders entitled to vote in respect thereof; and | |
• | the holders of at least a majority of shares of stock entitled to vote on the matter, and a majority of the outstanding stock of each class entitled to vote thereon as a class, approve the amendment, unless the Certificate of Incorporation requires the vote of a greater number of shares. |
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• | by a majority of the disinterested directors, even though less than a quorum; | |
• | by a committee of disinterested directors, designated by a majority vote of disinterested directors, even though less than a quorum; | |
• | by independent legal counsel, if there are no disinterested directors or if the disinterested directors so direct; or | |
• | by a majority vote of the shareholders. |
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• | breaching the duty of loyalty to the corporation or its shareholders; | |
• | failing to act in good faith; | |
• | engaging in intentional misconduct or a known violation of law; | |
• | obtaining an improper personal benefit from the corporation; or | |
• | paying a dividend or effecting a stock repurchase or redemption that was illegal under applicable law. |
• | where the act complained of is alleged to be beyond the corporate power of the company or illegal; | |
• | where the act complained of is alleged to constitute a fraud against the minority perpetrated by those in control of the company; | |
• | where the act requires approval by a greater percentage of the company’s shareholders than actually approved it; or | |
• | where there is an absolute necessity to waive the general rule that a shareholder may not bring such an action in order that there not be a denial of justice or a violation of the company’s memorandum of association. |
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• | in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat; and | |
• | in the case of an extraordinary general meeting by Members (or their proxies) having a right to attend and vote at the meeting and holding not less than seventy-five per cent (75%) in par value of the shares giving that right. |
• | at an annual general meeting of the company if all the shareholders of the company (or their proxies) entitled to attend and vote were present at the meeting and agreed to the nominationand/or the business proposal; and | |
• | at an extraordinary general meeting of the company if 75% of the shareholders of the company (or their proxies) entitled to attend and vote, were present at the meeting and agreed to the nominationand/or the business proposal. |
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• | By a procedure under the Companies Law known as a “scheme of arrangement.” A scheme of arrangement is made by obtaining the consent of the Cayman Islands exempted company, the consent of the court and approval of the arrangement by holders of affected shares (1) representing a majority in number of the shareholders present at the meeting (or meetings) held to consider the arrangement and (2) holding at least 75% of all the issued shares of each class of affected shareholders other than those held by the acquiring party, if any. If a scheme of arrangement receives all necessary consents, all holders of affected shares of a company would be compelled to sell their shares under the terms of the scheme of arrangement. | |
• | By acquiring, pursuant to a tender offer, 90% of the shares not already owned by the acquiring party. If an acquiring party has, within four months after the making of an offer for all the shares not owned by the acquiring party, obtained the approval of not less than 90% of all the shares to which the offer relates, the acquiring party may, at any time within two months after the end of that four-month period, require any non-tendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, non-tendering shareholders will be compelled to sell their shares, unless within one month from the date on which the notice to compulsorily acquire was given to the non-tendering shareholder, the non-tendering shareholder is able to convince the court to order otherwise. |
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• | After giving effect to conversion of the preferred shares of SM Cayman, at closing, ID Cayman will acquire 98,652,365 ordinary shares of SM Cayman, representing 100% of SM Cayman shares in issue. | |
• | SM Cayman shareholders will receive 6,662,727 ordinary shares of ID Cayman. | |
• | SM Cayman warrantholders will receive warrants to purchase 1,519,186 ordinary shares of ID Cayman. | |
• | SM Cayman option holders will receive options to purchase 566,939 ordinary shares of ID Cayman. | |
• | SM Cayman holders of restricted share awards will receive 261,179 restricted share awards of ID Cayman. | |
• | Certain holders of SM Cayman promissory notes will receive 1,712,874 ordinary shares of ID Cayman and warrants to purchase 428,219 ordinary shares of ID Cayman. |
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• | acknowledgement of the transfer of the SM Cayman Series C preferred shares owned by Gentfull Investment Limited and Gavast Estates Limited to Vervain Equity Investment Limited and Sun Hing Associates Limited, respectively, their affiliates and the joinder of such transferees to the share exchange agreement; | |
• | the elimination of a potential obligation of ID Cayman to issue Series A preferred shares in connection with the closing, but continuing to provide for the issuance of a warrant to acquire 0.25 of an ID Cayman ordinary share, regardless of the amount in the trust account after closing, for each ID Cayman ordinary share issued to or acquired by those investors who hold SM Cayman interim notes and the Linden Note that convert to ID Cayman ordinary shares at closing or ID Cayman ordinary shares acquired in connection with the Sponsor Purchase Commitment Amount; | |
• | the imposition of one-yearlock-up restrictions with respect to the ID Cayman shares underlying ID Cayman restricted share awards and options; | |
• | an additional covenant requiring the repayment of certain loans owed by Ms. Liu and Le Yang to SM Cayman prior to closing. Ms. Liu and Ms. Yang have agreed to repay an aggregate of RMB 4,289,889 owed by them to SM Cayman prior to the closing of the business combination. They may do so in cash or by surrendering a number of ordinary shares of SM Cayman owned by them prior to closing equal in value to such amount; | |
• | an increase of the board of directors of ID Cayman after the closing to ten (10) members, adding one director to be appointed by the Ideation representative and requiring certain independence and citizenship requirements as set forth elsewhere in this proxy statement/prospectus; | |
• | the amendment of the sponsor purchase commitment of The Frost Group, LLC to allow for certain warrant exercises, effective immediately after the closing, to be counted toward the satisfaction of the Sponsor Purchase Commitment Amount; | |
• | the addition of Ideation stockholder approval of the Ideation charter amendment (and a corresponding amendment to the charter of ID Arizona) as a condition to the closing of the business combination; | |
• | the extension of the end date by which the business combination must be consummated to October 30, 2009 from September 30, 2009; |
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• | technical corrections to the definition of “adjusted net income”; | |
• | the amendment of Schedules B and C to the share exchange agreement to reflect the transfers by Gentfull Investment Limited and Gavast Estates Limited and certain transfers by and among SM Cayman shareholders and correct some rounding errors; and | |
• | the amendment of the Amended and Restated Memorandum and Articles of Association of ID Cayman, Exhibit A to the share exchange agreement, to eliminate the designation of the ID Cayman Series A preferred shares. |
(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | If the business combination is not approved and Ideation is unable to complete another business combination by November 19, 2009, Ideation will be required to liquidate. In such event, the 2,500,000 shares of common stock held by Ideation officers, directors and affiliates, which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless, as will the 2,400,000 warrants that were acquired simultaneously with the IPO for an aggregate purchase price of $2,400,000. The Ideation officers, directors and holders of initial shares currently hold 3,277,900 shares of the common stock and 3,691,200 of the warrants. Such common stock and warrants had an aggregate market value of $32.0 million based on the last sale price of $7.86 and $1.70, respectively, on NYSE Amex on October 2, 2009, the record date. | |
• | In connection with the IPO, Ideation’s current officers and directors agreed to indemnify Ideation for debts and obligations to vendors that are owed money by Ideation, but only to the extent necessary to ensure that certain liabilities do not reduce funds in the trust account. If the business combination is consummated, Ideation’s officers and directors will not have to perform such obligations. Ideation does not have sufficient funds outside of the trust account to pay these obligations. Therefore, if the business combination is not consummated and vendors that have not signed waivers sue the trust account and win their cases, the trust account could be reduced by the amount of the claims and Ideation’s officers and directors would be required to fulfill their indemnification obligations. | |
• | Warrants to purchase Ideation common stock held by Ideation’s officers and directors are exercisable upon consummation of the business combination. Based upon the closing price of Ideation’s common stock on October 2, 2009, the record date, of $7.86, if all warrants held by Ideation’s officers and directors were exercised at the $6.00 per share exercise price, the value of such shares of common stock would be approximately $29.0 million. | |
• | All rights specified in Ideation’s Amended and Restated Certificate of Incorporation relating to the right of officers and directors to be indemnified by Ideation, and of Ideation’s officers and directors to be exculpated from monetary liability with respect to prior acts or omissions, will continue after the business combination. If the business combination is not approved and Ideation liquidates, Ideation will not be able to perform its obligations to its officers and directors under those provisions. | |
• | After closing of the business combination, The Frost Group, LLC and its affiliates and other non-affiliates may receive a warrant to purchase 0.25 of an ordinary share of ID Cayman for each ordinary share it acquired, or will acquire, in connection with the satisfaction of the Sponsor Purchase Commitment Amount and upon conversion of their interim notes in SM Cayman. Accordingly, the interests of The Frost Group, LLC and its affiliates may be different from those of stockholders who will not receive such warrants. | |
• | Ideation has entered into a letter agreement with the Converting Noteholders and The Frost Group, LLC. Pursuant to the letter agreement, if at any time during the two years following the closing of the business combination, ID Cayman issues any preferred shares or other equity securities (including securities convertible into or exchangeable for preferred shares or other equity securities), the parties to the letter agreement will have the right to exchange, for such securities, any ordinary shares of ID Cayman acquired by them as a result of: |
(1) | conversion of an interim note from SM Cayman or the Linden Note; |
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(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | Like SearchMedia, AirMedia Group, Focus Media Holding and VisionChina Media are outdoor advertising companies focused on the Chinese market; | |
• | Clear Channel Outdoor Holdings and JC Decaux are outdoor advertising companies with a global presence including the Chinese market; and | |
• | Lamar Advertising is an outdoor advertising company with a presence in the United States, Canada and Puerto Rico. |
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12/31/09E | ||||||||||
Share | GAAP | 2009E | ||||||||
Peer Companies | Price(2) | EPS(3) | P/E(4) | |||||||
AirMedia Group Inc. | $ | 4.58 | $ | 0.31 | 14.8x | |||||
Clear Channel Outdoor Holdings Inc. | 3.65 | 0.07 | Not Meaningful | |||||||
JCDecaux SA(1) | 11.59 | 0.81 | 14.3 | |||||||
Lamar Advertising Co. | 10.49 | (0.52 | ) | Not Meaningful | ||||||
VisionChina Media Inc. | 6.58 | 0.68 | 9.7 | |||||||
Average | 12.9x | |||||||||
Median | 14.3 |
12/31/09E GAAP | ||||||||||||||||||||||||||||
Total Shares | Share | Market | Adjusted | 2009E | ||||||||||||||||||||||||
SearchMedia International Limited | Outstanding(5) | Price(6) | Capitalization(7) | Net Income(8) | Adjusted EPS | P/E(4) | ||||||||||||||||||||||
0% Earn-out Achieved | 22.4 | $ | 7.88 | $ | 176.3 | $ | 25.7 | $ | 1.15 | 6.9 | x | |||||||||||||||||
32% Earn-out Achieved | 25.6 | 7.88 | 201.9 | 29.7 | 1.16 | 6.8 | ||||||||||||||||||||||
100% Earn-out Achieved | 32.5 | 7.88 | 256.3 | 38.4 | 1.18 | 6.7 |
(1) | Foreign peer company, JCDecaux SA, share price and December 31, 2009 estimated GAAP EPS converted to U.S. dollars based on the March 27, 2009 exchange rate of 0.7375 EUR / USD. | |
(2) | Market prices as of March 27, 2009. | |
(3) | Consensus analysts’ estimates as of March 27, 2009 for the fiscal year end December 31, 2009. | |
(4) | Price earnings ratios are calculated based on share price divided by the fully diluted estimated earnings per share for the 12 months ending December 31, 2009. | |
(5) | Fully-diluted outstanding shares based on the treasury method, assuming 30% conversion and the relevant number of earn-out shares (i.e., 0, 3.2 million and 10.2 million shares at, 0%, 32% and 100% of the total earn-out, respectively), and an Ideation liquidation price of $7.8815. | |
(6) | Share price based on an Ideation liquidation value of $7.8815 per share. | |
(7) | Calculated based on fully-diluted shares outstanding and a share price of $7.8815. | |
(8) | Represents December 31, 2009 estimated adjusted net income at the indicated earn-out scenarios. |
• | SearchMedia’s rates charged to advertising clients would increase in 2009; |
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• | SearchMedia’s occupancy rates would have an increasing trend in 2009; and | |
• | SearchMedia would modestly grow its advertising platform organically in 2009. |
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• | China has the largest advertising market in Asia excluding Japan, and in particular, the outdoor advertising market in China is expected to grow by a CAGR of 11.8% from $2.6 billion in 2007 to $4.0 billion in 2011; | |
• | As of 2007, it ranked first in market share of in-elevator advertising displays in 13 out of the 26 most affluent cities in China and ranked second in an additional nine of these cities, according to Nielsen Media Research (an independent research company, in its July 2008 report commissioned by SearchMedia, or the Nielsen Report); | |
• | SearchMedia has developed a respected brand name in the outdoor advertising industry in China and has built a large and diverse client base of more than 780 advertisers cumulatively from its inception to July 31, 2009; | |
• | SearchMedia has established an extensive advertising network across 57 cities in China and Hong Kong; | |
• | SearchMedia’s network is built on multiple platforms, including billboards, elevators and subways; and | |
• | With a strong capability to offer an expanding portfolio of media offerings, SearchMedia continues to increase penetration of existing markets and expand into new markets. |
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(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
• | expenses arising from or in connection with dividends or deemed dividends paid or payable on any preferred shares of SM Cayman and the redemption features of any preferred shares of SM Cayman and other expenses relating to the preferential features of any preferred shares of SM Cayman; | |
• | any income or loss from a minority investment in any other entity by any of the SM Cayman group companies; | |
• | any expenses arising from or in connection with the issue of any preferred shares of SM Cayman; | |
• | any compensation charges attributable to the repurchase by SM Cayman of an aggregate of 3,000,000 ordinary and preferred shares of SM Cayman and the grants by SM Cayman of awards to employees of SM Cayman and its subsidiaries of options exercisable for an aggregate of 3,000,000 ordinary shares of SM Cayman; |
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• | non-cash financial expenses arising from the issuance of any “equity securities” (as defined in the Memorandum and Articles of Association of SM Cayman); | |
• | non-recurring extraordinary items (including, without limitation, any accounting charges, costs or expenses arising from or in connection with the transactions contemplated by the share exchange agreement); | |
• | any costs, expenses or other items relating or attributable to the Convertible Note and Warrant Agreement dated as of March 17, 2008 among SM Cayman, Linden Ventures and the other parties thereto, as amended on September 15, 2008, December 18, 2008, March 12, 2009 and August 21, 2009 (including the issuance of the “Linden Note” (as defined in the Convertible Note and Warrant Agreement), as amended on September 15, 2008, December 18, 2008, March 12, 2009, and August 21, 2009); | |
• | all revenues, expenses and other items (including acquisition-related charges) relating or attributable to the acquisition of a majority of the outstanding equity interests of, or all or substantially all of the assets of, any other entity or business by ID Cayman or any of the SM Cayman group companies following the closing of the business combination (not including the leasing or subleasing of a billboard, elevator frame unit or other media asset or advertising right); | |
• | the effect of any change in accounting principles; or | |
• | any accounting charges, costs or expenses incurred by ID Cayman or SM Cayman arising from or in connection with the issuance and delivery of any earn-out shares. |
Earn-out shares = | (2009 adjusted net income − $25.7 million) $12.7 million | × 10,150,352 shares |
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• | capital structure; | |
• | proper corporate organization and similar corporate matters; | |
• | authorization, execution, delivery and enforceability of the share exchange agreement and other transaction documents; | |
• | absence of conflicts with the organizational documents, material contracts and material permits of the SearchMedia entities; | |
• | required consents and approvals; | |
• | financial information and absence of undisclosed liabilities; | |
• | absence of certain changes or events; | |
• | absence of undisclosed litigation; | |
• | licenses and permits; | |
• | title to shares, properties and assets; | |
• | ownership of intellectual property; | |
• | taxes; | |
• | employment matters; | |
• | transactions with affiliates and employees; | |
• | insurance coverage; | |
• | material contracts; | |
• | compliance with laws, including local PRC laws and those relating to foreign corrupt practices and money laundering; | |
• | brokers and finders; | |
• | representations regarding matters related to the Office of Foreign Assets Control of the U.S. Treasury Department; and | |
• | environmental matters. |
• | capital structure; | |
• | proper corporate organization and similar corporate matters; | |
• | authorization, execution, delivery and enforceability of the share exchange agreement and other transaction documents; | |
• | absence of conflicts with the organizational documents, material contracts and material permits of Ideation; |
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• | required consents and approvals; | |
• | SEC filings; | |
• | internal accounting controls; | |
• | absence of certain changes or events; | |
• | absence of undisclosed liabilities; | |
• | absence of litigation; | |
• | compliance with laws, including the Sarbanes-Oxley Act of 2002 and foreign corrupt practices and money laundering; | |
• | brokers and finders; | |
• | minute books; | |
• | votes required by the Ideation board of directors and stockholders; | |
• | quotation of securities on NYSE Amex; | |
• | information with respect to the trust account; | |
• | transactions with affiliates and employees; | |
• | material contracts; and | |
• | taxes. |
• | amend their respective organizational documents; | |
• | change any method of accounting or accounting principles or practices, except as required by U.S. GAAP or applicable law; | |
• | declare or pay dividends or alter their capital structure; | |
• | enter into, violate, amend or otherwise modify or waive any material contracts, other than in the ordinary course of business; | |
• | issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of their capital stock or securities convertible into or exchangeable for their capital stock, or pledge or encumber any securities of any SM Cayman group company; | |
• | transfer or license intellectual property; | |
• | sell, lease (other than in the ordinary course of business), license or otherwise dispose of or encumber properties or assets that are material, individually or in the aggregate, to its business; |
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• | incur or guarantee any indebtedness in excess of $1,000,000 in aggregate (other than in connection with the transactions contemplated by the share exchange agreement), or mortgage, pledge or grant a security interest in any material asset of any SM Cayman group company; | |
• | pay, discharge or satisfy any claims, liabilities or obligations in excess of $1,000,000, other than in the ordinary course of business or with respect to certain acquisition agreements, certain liabilities reflected or reserved against in the SM Cayman financial statements or the transactions contemplated by the share exchange agreement; | |
• | make any capital expenditures, additions or improvements, except in the ordinary course of business not exceeding $1,000,000; | |
• | acquire any business or assets, which are material, individually or in aggregate, to their business; | |
• | except as required to comply with applicable law and except for pre-existing agreements, (a) take any action with respect to any employment, severance, retirement, retention, incentive or similar agreement for the benefit of any current or former director, or executive officer or any collective bargaining agreement, (b) increase in any material respect the compensation or fringe benefits of, or pay any bonus to, any director or executive officer, (c) materially amend or accelerate the payment, right to payment or vesting of any compensation or benefits, (d) pay any material benefit not provided for as of the date of the share exchange agreement under any benefit plan, or (e) grant any awards under any compensation plan or benefit plan, or remove the existing restrictions in any such plans; | |
• | open or close any facility or office except in the ordinary course of business; | |
• | make or change any material tax election, adopt or change any accounting method in respect of taxes, file any tax return or any amendment to a tax return, enter into any closing agreement, settle any claim or assessment in respect of taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of taxes; | |
• | initiate, compromise or settle any material litigation or arbitration proceedings relating to an amount in excess of $1,000,000; | |
• | make any loans, advances or capital contributions, except for advances for travel and other normal business expenses in the ordinary course of business; | |
• | except for ordinary compensation and benefits and except for pre-existing agreements, make any payments or series of payments in excess of $10,000 to any officers, directors, employees or shareholders; | |
• | enter into any material contract or other transaction with any affiliate of an SM Cayman company, except in connection with the transactions contemplated by the share exchange agreement; and | |
• | except as required by applicable law or generally accepted accounting principles of the United States, revalue a material amount of the assets of any SM Cayman company. |
• | amend its organizational documents; | |
• | change any method of accounting or accounting principles or practices, except as required by U.S. GAAP or applicable law; | |
• | fail to timely file or furnish any SEC reports; |
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• | declare or pay any dividends, make any distributions or alter its capital structure; | |
• | sell, lease, license or otherwise dispose of or encumber any material properties or assets; | |
• | enter into, violate, amend or otherwise modify or waive any material term of any material contract, other than in the ordinary course of business; | |
• | issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into or exchangeable for its capital stock, or pledge or encumber any securities of ID Arizona; | |
• | incur or guarantee any indebtedness in excess of $250,000 in the aggregate (other than in connection with the transactions contemplated by the share exchange agreement), or mortgage, pledge or grant a security interest in any material asset of Ideation or ID Arizona; | |
• | pay, discharge or satisfy any claims, liabilities or obligations in excess of $250,000, other than in the ordinary course of business, with respect to any liabilities reflected or reserved against in the Ideation financial statements, or in connection with the transactions contemplated by the share exchange agreement; | |
• | make any capital expenditures, additions or improvements; | |
• | acquire any business or assets, which are material, individually or in the aggregate, to its business, or any equity securities of any corporation or business organization; | |
• | make or change any material tax election, adopt or change any accounting method in respect of taxes, file any tax return or any amendment to a tax return, enter into any closing agreement, settle any claim or assessment in respect of taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of taxes; | |
• | initiate, compromise or settle any material litigation or arbitration proceedings; and | |
• | enter into any material contract or other transaction with any affiliate of Ideation, except in connection with the transactions contemplated by the share exchange agreement. |
• | the SM Cayman preferred shareholders and SM Cayman to convert all preferred shares of SM Cayman into an aggregate of 69,532,866 ordinary shares of SM Cayman, prior to the closing of the business combination; | |
• | prior to the closing of the business combination, (a) each of the SM entities to, and each of the SM Cayman shareholders to use commercially reasonable efforts to, cause the relevant SM Cayman group companies to: (i) register with the competent PRC State Administration of Industry and Commerce the equity pledge set forth in the Equity Pledge Agreement dated September 10, 2007 among Jieli Consulting, Jingli Shanghai and its shareholders; and (ii) amend the power of attorney dated September 10, 2007 by the shareholders of Jieli Consulting to provide Jieli Consulting with the right to change the agent under such power of attorney, (b) each of SM entities and each of the SM Cayman shareholders to use commercially reasonable efforts to amend each acquisition agreement for each subsidiary of Jingli Shanghai to provide that following the closing (A) up to 75% of the earn-out or other contingent payment due thereunder with respect to 2010 may be paid, at the option of ID Cayman, in equity securities of ID Cayman, and (B) in all other instances, all earn-outs or other contingent payments will be made in cash, provided that all such amendments shall be approved by Ideation prior to the execution thereof, (c) Ms. Qinying Liu and Ms. Le Yang to use commercially reasonable efforts to complete the Circular No. 75 registration with the local branch of the PRC State Administration of Foreign Exchange with respect to Ms. Liu and Ms. Yang through the closing of SM Cayman’s sale of Series C preferred shares; and (d) all amounts owing by Ms. Liu and Ms. Yang to |
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SM Cayman shall have been repaid in accordance with a repayment agreement dated as of June 23, 2009 among SM Cayman, Ms. Liu and Ms. Yang. |
• | the SearchMedia entities and Ideation to use commercially reasonable efforts to give or obtain all necessary approvals from and notices to governmental authorities and other third parties that are required for the consummation of the transactions contemplated by the share exchange agreement, subject to certain limitations; | |
• | the protection of confidential information of the parties subject to certain exceptions as required by law, regulation or legal or administrative process, and, subject to the confidentiality requirements, the provision of reasonable access to information; | |
• | the parties to supplement or amend their respective disclosure schedules, as of the date of the closing of the business combination, with respect to any matter that has resulted in or could reasonably be expected to result in a breach of any representation or warranty made by them in the share exchange agreement; | |
• | Ideation and the SM entities to cooperate in the preparation of any press release or public announcement related to the share exchange agreement or related transactions; | |
• | the SearchMedia parties waive all right, title, interest or claim of any kind against the trust account that they may have in the future and will not seek recourse against the trust account for any reason; | |
• | for a period of 18 months after the closing of the business combination, the SearchMedia shareholders to hold in strict confidence, and not disclose, unless required by applicable law, or misuse in any way all confidential information relating to SM Cayman and its subsidiaries and affiliates; | |
• | for a period of 18 months after the closing of the business combination, the SearchMedia shareholders (other than Deutsche Bank) not to directly or indirectly (a) solicit any employee of ID Cayman or any of the SM Cayman group companies at the vice president level or above or (b) hire any employee of ID Cayman or any of the SM Cayman group companies at the vice president level or above; | |
• | Ideation to prepare, file and mail this proxy statement/prospectus and to hold a stockholder meeting to approve the transactions contemplated by the share exchange agreement and to agree to provide SearchMedia with any correspondence received from or to be sent to the SEC and allow SearchMedia the opportunity to review and comment on any proposed responses thereto; | |
• | ID Arizona or ID Cayman to adopt appropriate board resolutions so that any acquisitions of ID Cayman shares resulting from the transactions contemplated by the share exchange agreement by an individual who is subject or will be subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 is exempt under Rule 16b-3 under the Exchange Act; | |
• | the SearchMedia parties to use commercially reasonable efforts to provide any information required under applicable law for inclusion in the proxy statement/prospectus, and any such information so provided shall not contain, at the time such proxy statement/prospectus is filed with the SEC or becomes effective under the Securities Act, any untrue statement of material fact nor omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading; | |
• | Ideation and the SearchMedia parties to use commercially reasonable efforts to fulfill the closing conditions in the share exchange agreement; | |
• | Ideation and the SearchMedia entities to (and the SearchMedia entities to cause the SM Cayman group companies to) timely file all tax returns and other documents required to be filed with applicable governmental authorities, and to pay all taxes due on such returns; | |
• | Ideation and the SearchMedia entities to provide prompt written notice to the other party of any event or development that occurs that is of a nature that, individually or in the aggregate, would have or |
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reasonably be expected to have a material adverse effect on the disclosing party, or would require any amendment or supplement to this proxy statement/prospectus; |
• | Ideation to ensure that the ID Cayman ordinary shares to be issued to the SearchMedia shareholders (including ID Cayman ordinary shares issued upon the exercise of the warrants received by certain SearchMedia warrantholders at the closing of the business combination) will be duly authorized, validly issued, fully paid and nonassessable; and | |
• | the delivery of certain financial statements by each of the SearchMedia entities and the SM Cayman shareholders which will show that the net income and EBITDA set forth in the financial statements for the 2008 fiscal year shall not be less than $15,297,000 and $30,218,000, respectively, and in the financial statements for the first quarter of 2009 shall not be less than $5,085,000 and $9,513,000, respectively. | |
• | the Ideation parties and the SM Cayman entities have agreed to use commercially reasonable efforts to reduce the expenses incurred by each such group, respectively, by $2,000,000. |
• | relating to an acquisition proposal, which means the acquisition of any shares, registered capital or other equity securities of any of the SM Cayman group companies or any assets of any of the SM Cayman group companies other than sales of assets in the ordinary course of business; | |
• | to reach any agreement or understanding for, or otherwise attempt to consummate, any acquisition proposal with any of the SM Cayman group companiesand/or any SearchMedia shareholders; | |
• | to participate in discussions or negotiations with or to furnish or cause to be furnished any information with respect to the SM Cayman group companies or afford access to the assets and properties or books and records of the SM Cayman group companies to any person whom any of the SM Group companies knows or has reason to believe is in the process of considering any acquisition proposal relating to the SM Cayman group companies; | |
• | to facilitate any effort or attempt by any person to do or seek any of the foregoing; or | |
• | to take any other action that is inconsistent with the transactions contemplated by the share exchange agreement and that has the primary effect of avoiding the closing of the share exchange agreement. |
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(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
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• | the representations and warranties of the Ideation parties on one hand and the SearchMedia parties on the other hand being true and correct as of the closing, except where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had or would not reasonably be expected to have a material adverse effect on such parties, and all covenants contained in the share exchange agreement have been materially complied with by such party and the delivery by Ideation and the SearchMedia parties to each other of a certificate to such effect; | |
• | no action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted by any governmental authorities to restrain, modify or prevent the carrying out of the transactions contemplated by the share exchange agreement; and | |
• | no injunction or other order issued by any governmental authority or court of competent jurisdiction prohibiting the consummation of such transactions. |
• | there shall have been no material adverse effect with respect to Ideation since September 30, 2008; | |
• | the receipt of necessary consents, authorizations and approvals by Ideation stockholders and third parties and the completion of necessary proceedings; | |
• | the resignation of those officers and directors who are not continuing as officers and directors of ID Cayman, together with a written release from each such director and officer that such person has no claim for employment or other compensation in any form from Ideation, except for any reimbursement of outstanding expenses existing as of the date of such resignation; | |
• | SearchMedia shall have received legal opinions customary for transactions of this nature, from counsel to the Ideation parties; | |
• | Ideation shall have given instructions to the trustee of the trust account to have the monies in the trust account disbursed immediately upon the closing of the business combination; | |
• | Ideation shall have filed all reports and other documents required to be filed by Ideation under the U.S. federal securities laws through the closing date of the share exchange agreement; and | |
• | SearchMedia shall have received investor representation letters executed by each affiliate of Ideation who will receive ID Cayman shares at the closing in respect of certain SM Cayman promissory notes or SM Cayman securities held by it. Those affiliates who will receive ID Cayman shares are Frost Gamma Investments Trust (an affiliate of Dr. Phillip Frost), Robert N. Fried and Rao Uppaluri. |
• | there shall have been no material adverse effect with respect to SearchMedia since June 30, 2008; | |
• | the receipt of necessary consents, authorizations and approvals by Ideation stockholders and third parties and the completion of necessary proceedings; | |
• | Ideation shall have received legal opinions customary for transactions of this nature, from counsel to SearchMedia; |
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• | Ideation shall have received investor representation letters executed by the shareholders and warrantholders of SM Cayman and holders of certain convertible promissory notes (other than from holders who are affiliates of Ideation); | |
• | the conversion of the preferred shares of SM Cayman to ordinary shares of SM Cayman shall have occurred; | |
• | each of Qinying Liu, Garbo Lee and Jennifer Huang shall have continued to serve in the same position at SM Cayman or the other SM Cayman group companies as such person was serving as of the date of the share exchange agreement, or in another senior management capacity; and | |
• | the delivery of certain financial statements by each of the SM Entities and the SM Cayman shareholders which will show that the adjusted net income and EBITDA set forth in the financial statements for the 2008 fiscal year shall not be less than $15,297,000 and $30,218,000, respectively, and in the financial statements for the first quarter of 2009 shall not be less than $5,085,000 and $9,513,000, respectively. |
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• | mutual written consent of SM Cayman and Ideation; | |
• | either Ideation or the SM Cayman shareholders’ representatives, if the closing has not occurred by (a) October 30, 2009 or (b) such other date as may be mutually agreed to; | |
• | the SM Cayman shareholders’ representatives, if there has been a breach by Ideation of any representation, warranty, covenant or agreement contained in the share exchange agreement which has prevented the satisfaction of the conditions to the obligations of the SearchMedia parties under the share exchange agreement (which is deemed to have occurred if there is a material breach of the sponsor purchase commitment covenants of The Frost Group, LLC or the covenants of Ideation with respect to purchases, and forward contracts to purchase, shares of Ideation common stock) and the |
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violation or breach has not been waived by such representatives or cured by Ideation within 30 days after written notice from the SM Cayman shareholders’ representatives; |
• | Ideation, if there has been a breach by the SearchMedia parties of any representation, warranty, covenant or agreement contained in the share exchange agreement which has prevented the satisfaction of the conditions to the obligations of Ideation under the share exchange agreement and such violation or breach has not been waived by Ideation or cured by the SearchMedia parties within 30 days after written notice from Ideation; | |
• | the SM Cayman shareholders’ representatives or Ideation, if the Ideation board of directors fails to recommend or withdraws or modifies in a manner adverse to the SearchMedia parties its approval or recommendation of the share exchange agreement and the transactions contemplated under the share exchange agreement; | |
• | either Ideation or the SM Cayman shareholders’ representatives, if the redomestication and the business combination are not approved by Ideation stockholders or if holders of 30% or more of Ideation’s common stock issued in connection with Ideation’s IPO vote against the business combination and exercise their right to convert their shares of common stock into cash from the trust account; and | |
• | either Ideation or the SM Cayman shareholders’ representatives, if a court of competent jurisdiction or other governmental authority has issued a final, non-appealable order or injunction or taken any other action to permanently restrain, enjoin or prohibit the redomestication or the business combination. |
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• | acknowledgment of the transfer of the SM Cayman Series C preferred shares owned by Gentfull Investment Limited and Gavast Estates Limited to Vervain Equity Investment Limited and Sun Hing Associates Limited, respectively, their affiliates and the joinder of such transferees to the share exchange agreement; | |
• | the elimination of a potential obligation of ID Cayman to issue Series A preferred shares in connection with the closing, but continuing to provide for the issuance of a warrant to acquire 0.25 of an ID Cayman ordinary share, regardless of the amount in the trust account after closing, for each ID Cayman ordinary share issued to or acquired by those investors who hold SM Cayman interim notes that converted to ID Cayman ordinary shares at closingand/or ID Cayman ordinary shares acquired in connection with the Sponsor Purchase Commitment Amount; | |
• | the imposition of one-yearlock-up restrictions with respect to the ID Cayman shares underlying ID Cayman restricted share awards and options; | |
• | an additional covenant requiring the repayment of certain loans owed by Qinying Liu and Le Yang to SM Cayman prior to closing. Ms. Liu and Ms. Yang have agreed to repay an aggregate of RMB 4,289,889 owed by them to SM Cayman prior to the closing of the business combination. They |
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may do so in cash or by surrendering a number of ordinary shares of SM Cayman owned by them prior to closing equal in value to such amount; |
• | an increase of the board of directors of ID Cayman after the closing to ten (10) members, adding one director to be appointed by the Ideation representative and requiring certain independence and citizenship requirements as set forth elsewhere in this proxy statement/prospectus; | |
• | the amendment of the sponsor purchase commitment of The Frost Group, LLC to allow for certain warrant exercises, effective immediately after the closing, to be counted toward the satisfaction of the Sponsor Purchase Commitment Amount; | |
• | the addition of Ideation stockholder approval of the Ideation charter amendment (and a corresponding amendment to the charter of ID Arizona) as a condition to the closing of the business combination; | |
• | the extension of the end date by which the business combination must be consummated to October 30, 2009 from September 30, 2009; | |
• | technical corrections to the definition of “adjusted net income”; | |
• | the amendment of Schedules B and C to the share exchange agreement to reflect the transfers by Gentfull Investment Limited and Gavast Estates Limited and certain transfers by and among SM Cayman shareholders and correct some rounding errors; and | |
• | the amendment of the Memorandum and Articles of Association of ID Cayman, Exhibit A to the share exchange agreement, to eliminate the designation of the ID Cayman Series A preferred shares. |
(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
• | the amendment of Schedule B and Schedule C to the share exchange agreement to reflect the proportional repurchases of approximately 3,000,000 SM Cayman ordinary, Series B preferred and Series C preferred shares from SM Cayman shareholders and issuances of approximately 3,000,000 options under the SM Share Incentive Plan to employees of SM Cayman and its subsidiaries; | |
• | the exclusion of any compensation charges attributable to the above repurchases and issuances from the definition of “adjusted net income;” | |
• | the amendment and restatement of theLock-Up Agreements, which areExhibit F-1 and F-2 to the share exchange agreement providing that for Qinying Liu, Le Yang and CSV, thelock-up shall apply for 12 months after the closing of the share exchange agreement with respect to ten percent (10%) of |
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the shares or other securities received in connection with the business combination and underlying securities received in connection with the business combination, 18 months after the closing of the share exchange agreement with respect to fifteen percent (15%) of such securities, and 24 months after the closing of the share exchange agreement with respect to the remaining seventy-five percent (75%) of such securities, provided that with respect to CSV, thislock-up shall apply only to shares acquired by CSV in exchange for SM Cayman ordinary shares held by it immediately prior to the closing of the business combination, and not with respect to shares or other securities acquired (or underlying securities acquired) by CSV in exchange for SM Cayman warrants, SM Cayman preferred shares or other SM Cayman securities exercisable for, or convertible into, SM Cayman ordinary shares, which shares shall be subject to the samelock-up that applies to other non-management shareholders; |
• | a decrease of the board of directors of ID Cayman after the closing to eight members, subtracting one director to be appointed by each of the Ideation representative and the SM Cayman shareholders’ representatives and requiring certain independence and citizenship requirements as set forth elsewhere in this proxy statement/prospectus; | |
• | an amendment of a covenant which now requires each of the SM entities and each of the SM Cayman shareholders to use commercially reasonable efforts to amend each acquisition agreement for each subsidiary of Jingli Shanghai to provide that following the closing (i) up to 75% of the earn-out or other contingent payment due thereunder with respect to 2010 may be paid, at the option of ID Cayman, in equity securities of ID Cayman, and (ii) in all other instances, all earn-outs or other contingent payments will be made in cash, provided that all such amendments shall be approved by Ideation prior to the execution thereof; | |
• | an additional covenant requiring each of the Ideation parties, on the one hand, and the SM Cayman entities, on the other hand, to use commercially reasonable efforts prior to closing of the share exchange agreement to reduce the expenses incurred by each such group, in connection with this transaction, by $2,000,000; and | |
• | the elimination of the earn-outmake-up provision that allowed for any unearned portion of the earn-out shares to be issued if the closing price of the ID Cayman ordinary shares maintained a certain level for a consecutive thirty trading day period. |
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• | an individual citizen or resident of the United States; | |
• | a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia; | |
• | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
• | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
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• | financial institutions or financial services entities; | |
• | broker-dealers; | |
• | taxpayers who have elected mark-to-market accounting; | |
• | tax-exempt entities; | |
• | governments or agencies or instrumentalities thereof; | |
• | insurance companies; | |
• | regulated investment companies; | |
• | real estate investment trusts; | |
• | certain expatriates or former long-term residents of the United States; | |
• | persons that actually or constructively own 5% or more of Ideation’s voting shares; | |
• | persons that hold Ideation securities as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or | |
• | persons whose functional currency is not the U.S. dollar. |
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• | any gain recognized by the U.S. Holder on the sale or other disposition of its shares or warrants; and | |
• | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the shares of ID Cayman during the three preceding taxable years or, if shorter, such U.S. Holder’s holding period for the shares). |
• | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the shares or warrants; | |
• | the amount allocated to the taxable year in which the U.S. Holder recognized the gain or received the excess distribution or to any taxable year prior to the first taxable year in which ID Cayman was a PFIC will be taxed as ordinary income; | |
• | the amount allocated to other taxable years will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and | |
• | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year. |
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• | an individual is treated as owning stock owned by certain members of his or her family; | |
• | an option to acquire stock generally is treated as exercised; | |
• | a corporation is treated as owning stock owned by a 50% or greater shareholder; | |
• | a partnership is treated as owning stock owned by its partners (regardless of their percentage ownership of the partnership); and | |
• | stock owned by a partnership or a corporation is treated as owned proportionately by the owners of the entity (in the case of corporations, only if the shareholder owns 10% or more of the stock of the |
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corporation). For this rule, if an entity owns more than 50% of the total combined voting power, it is considered to own 100% of such voting power. |
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• | options to purchase ID Cayman’s ordinary shares; | |
• | restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture, restrictions on transferability and other restrictions; and | |
• | restricted share units, which represent the right to receive ID Cayman’s ordinary shares at a specified date in the future, which may be subject to forfeiture. |
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• | Outdoor billboard platform. SearchMedia operates a network of over 1,500 high-impact billboards with over 500,000 square feet of surface display area in 15 cities, including Beijing, Hong Kong, Qingdao, Shanghai, Shenyang, Shenzhen, Guangzhou, Chongqing and Chengdu. Its billboards are mostly large format billboards deployed in commercial centers and other desirable areas with heavy vehicleand/or foot traffic. SearchMedia has demonstrated its ability to acquire high-profile billboard |
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contracts with its success in 2007 in securing the billboard advertising rights at the Bund, a landmark destination in Shanghai. |
• | In-elevator platform. SearchMedia’s network of over 175,000 printed and digital poster frames delivers targeted advertising messages inside elevators to captive audiences in high-rise residential and office buildings in 57 major cities in China. The in-elevator platform targets the affluent urban population that is highly desired by advertisers and is characterized by its low cost structure and minimal capital requirements. According to the Nielsen Report, SearchMedia ranked first in market share of in-elevator advertising displays in 13 out of the 26 most affluent cities in China and ranked second in an additional nine of these cities. These 26 cities were among China’s most affluent measured by urban disposable income per capita and GDP per capita in 2007, and together accounted for 65% of all advertising expenditures on traditional media, including TV, newspaper and magazines, in China in 2007. | |
• | Subway advertising platform. SearchMedia operates a network of large-format light boxes in concourses of eight major subway lines in Shanghai. According to the Metro Authority of Shanghai, in 2008, these subway lines carried an aggregate average daily traffic of approximately three million commuters. |
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• | Large, Fast Growing Chinese Economy. China is the world’s most populous country, with a population of 1.3 billion as of the end of 2008 according to the U.S. Census Bureau. China’s gross domestic product, or GDP, grew from $1.8 trillion in 2003 to $3.2 trillion in 2007, representing a compound annual growth rate, or CAGR, of 16.0%, and is expected to reach $5.3 trillion in 2011, representing a CAGR of 13.4% from 2007 to 2011, according to ZenithOptimedia. | |
• | Urbanization Trend. China has witnessed a growing trend toward urbanization in the past decade. According to the China Statistical Yearbook, the urban population represented approximately 45% of the overall population in China as of December 31, 2007 compared to approximately 29% as of December 31, 1995. Furthermore, according to an article by Xinhua News, the official press agency of China, the urban population will represent approximately 50% of China’s total population by the end of 2010 and reach 60% of China’s total population by the end of 2020. | |
• | Increasingly Affluent Urban Population. The National Bureau of Statistics of China reported that the annual disposable income per capita in urban households increased from RMB8,472 in 2003 to RMB13,786 in 2007, representing a CAGR of 12.9%. In Beijing, Guangzhou, Shanghai and Shenzhen, where SearchMedia has major operations, annual per capita disposable income in 2007 was RMB21,989, RMB22,469, RMB23,623 and RMB24,870, respectively, representing a level significantly above the national average. |
• | Large Size and High Growth. China has the largest advertising market in Asia excluding Japan, and the fifth largest advertising market in the world, as measured by total advertising expenditure. According to ZenithOptimedia, advertising spending in China in 2007 was approximately $15.4 billion, accounting for 26.4% of the total advertising spending in Asia excluding Japan. ZenithOptimedia also projected that the advertising market in China will be one of the fastest growing advertising markets in the world in the next three years, growing at a CAGR of 9.4% from 2007 to 2011. By 2011, China is projected to account for 31.1% of the total advertising spending in Asia excluding Japan. |
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CAGR | ||||||||||||||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2007-2011 | ||||||||||||||||||||||||||||
China | 9.5 | 11.1 | 13.3 | 15.4 | 18.3 | 19.3 | 20.3 | 22.1 | 9.4 | % | ||||||||||||||||||||||||||
India | 2.6 | 3.0 | 3.6 | 4.4 | 5.2 | 5.5 | 6.0 | 6.9 | 11.9 | % | ||||||||||||||||||||||||||
Singapore | 1.3 | 1.2 | 1.3 | 1.3 | 1.4 | 1.2 | 1.2 | 1.2 | (2.0 | )% | ||||||||||||||||||||||||||
Indonesia | 1.6 | 1.8 | 2.2 | 2.6 | 3.0 | 3.3 | 3.6 | 4.1 | 12.1 | % | ||||||||||||||||||||||||||
Japan | 37.0 | 40.3 | 40.7 | 41.0 | 39.5 | 37.5 | 37.0 | 37.3 | (2.3 | )% | ||||||||||||||||||||||||||
South Korea | 8.3 | 8.6 | 9.3 | 10.0 | 9.5 | 7.6 | 8.4 | 10.6 | 1.5 | % | ||||||||||||||||||||||||||
United Kingdom | 22.8 | 23.5 | 24.0 | 25.5 | 25.0 | 22.8 | 23.3 | 24.4 | (1.1 | )% | ||||||||||||||||||||||||||
Germany | 22.2 | 23.2 | 24.7 | 25.8 | 25.3 | 23.9 | 24.4 | 25.1 | (0.7 | )% | ||||||||||||||||||||||||||
United States | 161.5 | 166.2 | 174.8 | 179.3 | 171.9 | 156.9 | 154.3 | 156.0 | (3.4 | )% | ||||||||||||||||||||||||||
Worldwide | 395.2 | 419.4 | 449.2 | 479.4 | 484.0 | 450.5 | 457.2 | 477.7 | (0.1 | )% |
• | Room for sustained growth. SearchMedia believes the advertising market in China has the potential for considerable and sustained growth due to the relatively low levels of advertising expenditure per capita and advertising expenditure as a percentage of GDP in China compared to other countries. The following table sets forth the advertising expenditure per capita and as a percentage of GDP in the countries listed below for 2007. |
Advertising Expenditure in 2007 | ||||||||
Per capita ($) | % of GDP | |||||||
China | 11.6 | 0.5 | ||||||
India | 3.7 | 0.4 | ||||||
Singapore | 298.9 | 0.8 | ||||||
Indonesia | 11.1 | 0.6 | ||||||
Japan | 320.8 | 0.9 | ||||||
South Korea | 206.7 | 1.0 | ||||||
United Kingdom | 418.8 | 0.9 | ||||||
Germany | 311.8 | 0.8 | ||||||
United States | 586.1 | 1.3 | ||||||
Worldwide | 91.3 | 0.9 |
• | Urban Concentration. Historically, advertising expenditure in China has been highly concentrated in more economically developed urban areas where income per capita is much higher than in rural areas. This trend is supported by the fact that the annual per capita disposable income in urban households in 2007 was RMB13,786, more than triple of the corresponding statistic for rural households of RMB4,140, according to China’s National Bureau of Statistics. Additionally, as of 2006, China has 30 of the 100 largest cities in the world, based on city proper data from the United Nations Statistics Division. |
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SearchMedia’s Portfolio as of July 31, 2009 | ||||||||||||||||
Population | Billboard | Elevator | Subway | |||||||||||||
(In millions) | ||||||||||||||||
Shanghai | 14.3 | ü | ü | ü | ||||||||||||
Beijing | 11.5 | ü | ü | |||||||||||||
Chongqing | 9.7 | ü | ü | |||||||||||||
Guangzhou | 8.5 | ü | ü | |||||||||||||
Wuhan | 8.3 | ü | ü | |||||||||||||
Tianjin | 7.5 | ü | ||||||||||||||
Shenzhen | 7.0 | ü | ü | |||||||||||||
Hong Kong | 6.9 | ü | ||||||||||||||
Dongguan | 6.4 | ü | ||||||||||||||
Shenyang | 5.3 | ü | ü | |||||||||||||
Xi’an | 4.5 | ü | ü | |||||||||||||
Chengdu | 4.3 | ü | ü | |||||||||||||
Nanjing | 3.6 | ü | ü | |||||||||||||
Harbin | 3.5 | ü | ||||||||||||||
Dalian | 3.2 | ü | ||||||||||||||
Changchun | 3.2 | ü | ||||||||||||||
Kunming | 3.0 | ü | ||||||||||||||
Ji’nan | 3.0 | ü | ü | |||||||||||||
Guiyang | 3.0 | ü | ||||||||||||||
Zibo | 2.8 | ü |
• | Effective and broad reach. SearchMedia believes out-of-home advertising media is typically difficult for target audiences to interrupt or selectively avoid. When appropriately positioned, out-of-home advertising offers sustained and repetitive reach to a broad audience. | |
• | Selective targeting. Out-of-home advertising can effectively target specific demographics and locations. For example, advertisers can choose to target young middle income individuals near bars and restaurants, high income individuals at golf clubs or pedestrians in close proximity to their businesses. | |
• | Captures an increasingly mobile audience. In China, factors such as increasing urbanization, increasing disposable income, longer travel time and greater travel frequency are leading to the general population’s spending a larger amount of time away from home. As a result, out-of-home advertising enjoys advantages over other popular traditional advertising, such as television or radio, which are predominantly delivered to homes. | |
• | Cost effective advertising. Out-of-home advertising is a lower cost advertising platform compared to many other forms, in particular television, radio and print media. In addition, local businesses that |
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cannot afford more costly traditional media favor out-of-home advertising since it offers greater customization on a local and segment basis. |
CAGR | ||||||||||||||||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2007-2011 | ||||||||||||||||||||||||||||
Television | 3,832 | 4,670 | 5,311 | 5,823 | 6,871 | 7,489 | 8,163 | 8,571 | 10.1 | % | ||||||||||||||||||||||||||
Radio | 433 | 511 | 752 | 826 | 991 | 1,070 | 1,124 | 1,236 | 10.6 | % | ||||||||||||||||||||||||||
Newspapers | 3,033 | 3,366 | 4,109 | 4,235 | 4,405 | 4,184 | 3,766 | 3,879 | (2.2 | )% | ||||||||||||||||||||||||||
Magazines | 267 | 327 | 317 | 348 | 383 | 363 | 327 | 360 | 0.9 | % | ||||||||||||||||||||||||||
Outdoor | 1,626 | 1,655 | 1,890 | 2,574 | 3,166 | 3,325 | 3,491 | 4,015 | 11.8 | % | ||||||||||||||||||||||||||
Internet | 308 | 535 | 927 | 1,606 | 2,490 | 2,863 | 3,436 | 4,054 | 26.0 | % | ||||||||||||||||||||||||||
Cinema | 19 | 20 | 22 | 26 | 31 | 30 | 30 | 33 | 6.1 | % | ||||||||||||||||||||||||||
Total | 9,518 | 11,084 | 13,327 | 15,438 | 18,336 | 19,325 | 20,336 | 22,148 | 9.4 | % |
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• | the respective ownership structures of Jingli Shanghai and Jieli Consulting are in compliance with current PRC laws and regulations; | |
• | each contract under Jieli Consulting’s contractual arrangements with Jingli Shanghai and its shareholders, governed by PRC laws, is valid and binding on all parties to these arrangements and do not violate current PRC laws or regulation. |
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• | In January 2008, Jingli Shanghai acquired 100% of the equity interest in Shaanxi Xinshichuang Advertising Planning Co., Ltd., a Chinese company primarily engaged in elevator advertising business; | |
• | In January 2008, Jingli Shanghai acquired 100% of the equity interest in Qingdao Kaixiang Advertising Co., Ltd., a Chinese company primarily engaged in outdoor billboard advertising business; | |
• | In January 2008, Jingli Shanghai acquired 100% of the equity interest in Shanghai Jincheng Advertising Co., Ltd., a Chinese company operating advertisings in cafeterias of office buildings; | |
• | In January 2008, Jingli Shanghai acquired 100% of the equity interest in Beijing Wanshuizhiyuan Advertising Co., Ltd., a Chinese company primarily engaged in outdoor billboard advertising business; | |
• | In January 2008, Jingli Shanghai acquired 100% of the advertising business of Shenyang Xicheng Advertising Co., Ltd., a Chinese company primarily engaged in outdoor billboard advertising business. Jingli Shanghai subsequently transferred such business and related assets into Shenyang Jingli Advertising Co., Ltd., a newly incorporated Chinese company; | |
• | In February 2008, Jingli Shanghai acquired 100% of the equity interest in Shanghai Haiya Advertising Co., Ltd., a Chinese company operating rapid transit advertising business; | |
• | In April 2008, Jingli Shanghai acquired 100% of the advertising business of Beijing Youluo Advertising Co., Ltd., a Chinese company primarily engaged in outdoor billboard advertising business. Jingli Shanghai subsequently transferred such business and related assets into Shanghai Botang Advertising Co., Ltd., a newly incorporated Chinese company; | |
• | In April 2008, Jingli Shanghai acquired 100% of the equity interest in Tianjin Shengshitongda Advertising Creativity Co., Ltd., a Chinese company operating elevator advertising business; | |
• | In April 2008, SM Cayman acquired 100% of the equity interest in Ad-Icon Company Limited, a Hong Kong company operating outdoor billboard advertising business; | |
• | In July 2008, Jingli Shanghai acquired 100% of the equity interest in Changsha Jingli Advertising Co., Ltd., a Chinese company operating elevator advertising business; | |
• | In July 2008, Jingli Shanghai acquired 100% of the equity interest in Wenzhou Rigao Advertising Co., Ltd., a Chinese company operating elevator advertising business; and | |
• | In July 2008, Jingli Shanghai acquired 100% of the equity interest in Wuxi Ruizhong Advertising Co., Ltd., a Chinese company operating elevator advertising business. |
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(1) | Jieli Investment Management Consulting (Shanghai) Co., Ltd., or Jieli Consulting, a Chinese limited liability company, 100% owned by SearchMedia International Limited. |
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(2) | Jieli Network Technology Development (Shanghai) Co., Ltd, or Jieli Network, a Chinese limited liability company, 100% owned by SearchMedia International Limited. | |
(3) | Shanghai Jingli Advertising Co., Ltd, or Jingli Shanghai, a Chinese limited liability company, 60% owned by Ms. Qinying Liu, a Chinese citizen, and 40% owned by Ms. Le Yang, a Chinese citizen. | |
(4) | Shanghai Botang Advertising Co., Ltd, or Shanghai Botang, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(5) | Shanghai Haiya Advertising Co., Ltd, or Shanghai Haiya, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(6) | Shanghai Jincheng Advertising Co., Ltd, or Shanghai Jincheng, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(7) | Beijing Wanshuizhiyuan Advertising Co., Ltd, or Beijing Wanshuizhiyuan , a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(8) | Tianjin Shengshitongda Advertising Creativity Co., Ltd, or Tianjin Shengshitongda, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(9) | Shenyang Jingli Advertising Co., Ltd., or Shenyang Jingli, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(10) | Shaanxi Xinshichuang Advertising Planning Co., Ltd., or Shaan Xi Xinshichuang, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(11) | Changsha Jingli Advertising Co., Ltd., or Changsha Jingli, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(12) | Qingdao Kaixiang Advertising Co., Ltd., or Qingdao Kaixiang, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(13) | Wenzhou Rigao Advertising Co., Ltd., or Wenzhou Rigao, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(14) | Wuxi Ruizhong Advertising Co., Ltd., or Wuxi Ruizhong, a Chinese limited liability company, 100% owned by Jingli Shanghai. | |
(15) | Great Talent Holdings Limited, or Great Talent, a company incorporated under the laws of Hong Kong, 100% owned by SearchMedia International Limited. | |
(16) | Ad-Icon Company Limited, or Ad-Icon, a company incorporated under the laws of Hong Kong, 100% owned by SearchMedia International Limited. |
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• | The shareholders of Jingli Shanghai may not change the articles of association, bylaws, registered capital or shareholding structure of Jingli Shanghai, without the prior written consent of Jieli Consulting; | |
• | Jingli Shanghai may not acquire or merge with any third parties, or invest in any third parties, without the prior written consent of Jieli Consulting; | |
• | Jingli Shanghai may not generate, delegate, guarantee for, or allow existing any indebtedness without the prior consent or confirmation of Jieli Consulting, except in the ordinary courses of business; | |
• | Jingli Shanghai may not enter into any material contracts with the contractual price exceeding RMB1.0 million without the prior written consent of Jieli Consulting, except in the ordinary courses of business; | |
• | Jingli Shanghai may not grant loans or guaranties to any third parties, without the prior written consent of Jieli Consulting; | |
• | Jingli Shanghai may not transfer, pledge, have caused any encumbrances, or otherwise dispose of any shares of Jingli Shanghai, without the prior written consent of Jieli Consulting; | |
• | Jingli Shanghai may not declare or pay any dividends without the prior written consent of Jieli Consulting; upon the request of Jieli Consulting, Jingli Shanghai shall declare and pay all distributable dividends to its shareholders; and | |
• | The shareholders of Jingli Shanghai may only appoint the persons nominated by Jieli Consulting as directors of Jingli Shanghai, upon request of Jieli Consulting. |
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* | The dots on the map indicate the 57 cities covered by SearchMedia’s network of media products. |
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• | Printed Poster Frames. SearchMedia specializes in high impact printed poster frames which are made of several materials in various sizes suitable for a wide range of display messages. SearchMedia’s printed poster frames mainly include paper, elevator door and illuminated poster frames; |
• | Paper poster framesare conventional poster frames made of paper with a visual size of 540mm by 390mm; and | |
• | Illuminated poster framesare posters encased in thin metal boxes and illuminated by LED optical fiber. The visual size of such posters is typically 540mm by 390mm. |
• | Digital poster frames. These poster frames are LCD screens with memory card slots that allow the screens to change images at regular intervals. SearchMedia’s digital poster frames change images in loops, with typically six images within each 60-second loop. The visual size of the screens is typically 405mm by 305mm. |
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• | Outdoor billboard platform. As the outdoor billboard market in China is largely fragmented with no clear nationwide leader, SearchMedia competes primarily with other local or regional outdoor billboard owners and operators. SearchMedia also competes with operators of other forms of outdoor media, including digital outdoor displays and street furniture advertising. SearchMedia does not compete with resellers of outdoor billboard advertising slots, such as Time Share Media, as these resellers also purchase advertising services from its network from time to time. |
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• | In-elevator platform. SearchMedia competes primarily with other nationwide operators of in-elevator poster frame advertising, such as Framedia. SearchMedia may face competition in individual cities from local and regional players and new entrants into the local and regional market from time to time. SearchMedia believes these local and regional operators do not have the scale and resources to pose challenge to its market position. SearchMedia believes they could be acquisition targets in SearchMedia’s expansion. SearchMedia believes that advertisers do not view SearchMedia as direct competitors of operators of other in-elevator media, such as video LCD displays. | |
�� | ||
• | Subway advertising platform. SearchMedia competes with other operators of subway advertising, such as JCDecaux. SearchMedia believes that advertisers do not view SearchMedia as direct competitors of operators of other subway media, such as in-train LCD screens. |
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• | The Catalogue for Guiding Foreign Investment in Industry (2007); | |
• | The Administrative Regulations on Foreign-invested Advertising Enterprises (2004), as amended in 2008; and | |
• | The Notice Regarding Investment in the Advertising Industry by Foreign Investors Through Equity Acquisitions (2006). |
• | SearchMedia is able to exert effective control over its consolidated PRC variable interest entities; | |
• | a substantial portion of the economic benefits of its consolidated PRC variable interest entities are transferred to SearchMedia; and | |
• | SearchMedia has an exclusive option to purchase all or part of the equity interests in its consolidated PRC variable interest entities in each case when, and to the extent, permitted by PRC law. |
• | the respective ownership structures of Jieli Consulting and Jingli Shanghai are in compliance with existing PRC laws and regulations; and | |
• | each contract under Jieli Consulting’s contractual arrangements with Jingli Shanghai and its shareholders, in each case governed by PRC law, is valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. |
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• | PRC Advertising Law (1994); | |
• | The Advertising Administrative Regulations (1987); and | |
• | The Implementing Rules for the Advertising Administrative Regulations (2004). |
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• | utilize traffic safety facilities or traffic signs; | |
• | impede the use of public facilities, traffic safety facilities or traffic signs; | |
• | obstruct commercial or public activities or create an eyesore in urban areas; | |
• | be placed in restrictive areas near government offices, cultural landmarks or historical or scenic sites; or | |
• | be placed in areas prohibited by the local governments from having outdoor advertisements. |
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• | The Company Law of the PRC (1993), as amended in 2005; | |
• | Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000; and | |
• | Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended in 2001. |
• | use of a trademark that is identical with or similar to a registered trademark in respect of the same or similar commodities without the authorization of the trademark registrant; | |
• | sale of commodities infringing upon the exclusive right to use the trademark; | |
• | counterfeiting or making, without authorization, representations of a registered trademark of another person, or sale of such representations of a registered trademark; | |
• | changing a registered trademark and selling products on which the altered registered trademark is used without the consent of the trademark registrant; and | |
• | otherwise infringing upon the exclusive right of another person to use a registered trademark. |
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• | injunctions; | |
• | requiring the infringer to take steps to mitigate the damage (i.e., publish notices in newspapers); and | |
• | damages which are measured by either the gains acquired by the infringer from the infringement, or the losses suffered by the trademark owner, including expenses incurred by the trademark owner to claim and litigate such infringement. If it is difficult to determine the gains acquired by the infringer from the infringement, or the losses suffered by the trademark owner, the court may elect to award compensation of not more than RMB500,000. |
• | prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch; | |
• | an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company, or (2) the completion of any overseas fund raising by such offshore company; and | |
• | an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or debt investment, or (5) the creation of any security interests over the relevant assets located in China. |
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• | the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like SearchMedia’s under this proxy statement/prospectus are subject to CSRC approval procedures; and | |
• | despite the above, prior approval from CSRC is not required under the new regulations for the listing and trading of ID Cayman’s shares, on NYSE Amex, unless such approval is clearly required by subsequent rules of the CSRC, because (i) SM Cayman or its wholly foreign-owned enterprise incorporated in China, Jieli Consulting, have not acquired any equity or assets of a PRC domestic company and (ii) Jieli Consulting has entered into contractual arrangements with Jingli Shanghai and its shareholders because current PRC laws and regulations require foreign investors in advertising businesses to meet certain qualifications, and SM Cayman currently does not operate a foreign-invested enterprise which is approved by competent PRC authorities to engage in advertising businesses. |
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• | Outdoor billboard platform. SearchMedia operates a network of over 1,500 high-impact billboards with over 500,000 square feet of surface display area in 15 cities, including Beijing, Hong Kong, Qingdao, Shanghai, Shenyang, Shenzhen, Guangzhou, Chongqing and Chengdu. Its billboards are mostly large-format billboards deployed in commercial centers and other desirable areas with heavy vehicleand/or foot traffic. | |
• | In-elevator platform. SearchMedia’s network of over 175,000 printed and digital poster frames delivers targeted advertising messages inside elevators to captive audiences in high-rise residential and office buildings in 57 major cities in China. | |
• | Subway advertising platform. SearchMedia operates a network of large-format light boxes in concourses of eight major subway lines in Shanghai. According to the Metro Authority of Shanghai, in 2008, these subway lines carried an aggregate average daily traffic of approximately three million commuters. |
• | SearchMedia commenced its operations in 2005 through (i) Shanghai Sige Advertising and Media Co., Ltd., or Sige, a Chinese company controlled by Ms. Qinying Liu, SM Cayman’s chairman and shareholder, (ii) Shenzhen Dale Advertising Co., Ltd., or Dale, a Chinese company owned by Ms. Le Yang, SM Cayman’s director and shareholder, and Mr. Haiyin Yang, brother of Ms. Le Yang, and (iii) Beijing Conghui Advertising Co., Ltd., or Conghui, a Chinese company controlled by a minority shareholder of SM Cayman. | |
• | On February 9, 2007, SM Cayman was incorporated in the Cayman Islands as a holding company. On June 1, 2007, SM Cayman incorporated Jieli Investment Management Consulting (Shanghai) Co., Ltd., or Jieli Consulting, as its wholly-owned subsidiary in China. |
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• | As operating an advertising network was restricted to PRC entities at the time, SM Cayman, through Jieli Consulting, entered into contractual arrangements on June 4, 2007 with each of Sige, Dale and Conghui. Pursuant to these contractual arrangements, Jieli Consulting became the primary beneficiary, bore all the economic risks and received all the economic benefits of these entities’ advertising businesses, and controlled the financing and operating affairs with respect to these businesses. In accordance with Financial Accounting Standards Board Interpretation No. 46(R) “Consolidation of Variable Interest Entities,” SearchMedia consolidated the financial statements of these entities effective from June 4, 2007. | |
• | On August 3, 2007, the legal shareholders of Sige and Dale organized Jingli Shanghai, a limited liability company incorporated in China, to assume the business of Sige, Dale and Conghui. On September 10, 2007, Jieli Consulting entered into contractual arrangements with Jingli Shanghai on terms similar to those under previous arrangements with Sige and Dale and Conghui. | |
• | On October 31, 2007, Jieli Consulting terminated the contractual arrangements with Conghui due to a difference of views on future business plans and strategies between the management of SearchMedia and Conghui. As a result, SearchMedia deconsolidated Conghui in the 2007 period and views only Sige and Dale as its predecessors. | |
• | In January, February, April, and July of 2008, SearchMedia acquired the advertising businesses of 12 entities. See “Information about SearchMedia — Corporate Organization and Operating History.” |
• | Growth of the PRC economy and the advertising industry. The growth of the PRC economy affects the size and growth rate of the advertising industry in China. As the advertising industry is typically sensitive to the general economic conditions, any slowdown in the economy, such as the recent worldwide economic downturn, could directly and adversely affect the overall advertising spending in China by multinational and domestic advertisers. The amount and timing of collection of advertising fees from advertisers may also be negatively impacted as a result, which could in turn affect SearchMedia’s liquidity and its results of operations. | |
• | Advertising spending and budget cycle of advertisers. Advertising spending and budget cycle of advertisers will affect the amount and timing of demand for SearchMedia’s service offerings. In a contracted economy, the budget size for advertising may be reduced. Advertisers may have shorter budget cycles, may contract for shorter-term advertising promotions and may seek media platform with higher average returns on their advertising spending. | |
• | Growth of out-of-home advertising as advertisers’ marketing strategy and budget.SearchMedia’s revenues depend on advertising spending budgeted by its clients for out-of-home advertising, including offerings through SearchMedia’s outdoor billboard, in-elevator and subway advertising platforms. The level of acceptance of SearchMedia’s platforms by advertisers and the value of its advertising network relative to its low cost, as perceived by SearchMedia’s advertisers, affect SearchMedia’s business growth. | |
• | Competition and pricing pressure. The level of competition in the out-of-home advertising market from existing operators and new market entrants for clients and for media assets could affect opportunities for growth, influence prices that SearchMedia could charge for its advertising services, and affect the leasing cost of advertising space. | |
• | Seasonality and One-Time Events. Advertising spending is affected by holidays and one-time events, such as the Beijing Olympic Games and the Shanghai Expo. Advertising spending for outdoor media |
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generally decreases during the Chinese New Year, which occurs in the first calendar quarter of each year, and increases in the last calendar quarter. |
• | Laws regulating advertising in the PRC. A change in PRC law or government practice regulating the advertising industry in general and SearchMedia’s service platforms in particular could affect SearchMedia’s results of operations, in terms of compliance costs and scope of advertising services offered to clients. |
• | Ability to maintain market position and expand into new cities.The market for out-of-home advertising services is relatively new and rapidly evolving, and as a multi-platform media company with a presence in 57 cities in China and Hong Kong, SearchMedia competes with different players across its platforms and cities of operation. For its in-elevator advertising platform, SearchMedia competes primarily against large regional operators and other nationwide operators. For its billboard advertising platform, SearchMedia competes against mostly local or regional outdoor billboard owners and operators, as the outdoor billboard market in China is largely fragmented. For its subway advertising platform, SearchMedia competes against other seasoned operators such as JCDecaux. See “Information About SearchMedia — Competition.” SearchMedia’s continued ability to maintain its market position is central to its ability to attract new clients, expand relationships with site owners and managers and increase its revenues. | |
• | Ability to expand client base and increase the number of advertising contracts and average revenues per contract. SearchMedia’s ability to expand client base and increase the number of advertising contracts and average revenues per contract is a key driver of its revenue growth. See “— Revenues.” SearchMedia believes its extensive advertising network across multiple media platforms allows it to act as a “one-stop shop” for advertising clients that seek nationwide distribution of advertising content across multiple advertising channels, including outdoor billboards, elevators and subway stations. | |
• | Ability to sign and extend site leases for lower rentals. SearchMedia’s ability to generate revenues and increase profitability from advertising sales depends largely on its ability to provide a large network of its media products across media platforms at desirable locations on commercially advantageous terms. The effectiveness of SearchMedia’s network also depends on the cooperation of site owners and managers to allow it to install the desired types of poster frames at the desired spots on their properties and, for in-elevator advertising, to keep the elevators in operation and accessible to the viewing public. | |
• | Ability to integrate acquired companies. SearchMedia acquired a number of advertising businesses in 2008. SearchMedia has since been integrating and centralizing the accounting, legal, human resource and administrative functions of the acquired companies. The extent to which SearchMedia will successfully integrate the acquired companies into its business, in terms of sales and marketing, client service, growth strategy and corporate culture, could impact its results of operations. | |
• | Ability to shorten accounts receivable collection period. As is consistent with the payment terms and collection practice of the advertising industry in China, the collection period of SearchMedia’s accounts receivable is relatively long, which generally range from three months to six months from the invoicing date. Relative to direct advertising clients, the collection period is longer for accounts receivable from advertising agency clients. Collections tend to concentrate at the end of calendar years. SearchMedia expects such practice to continue in the foreseeable future. The onset and deepening of recent global financial and economic crises could negatively impact the cash flows of its multinational and local clients and, in turn, the amount and timing of collection of accounts receivable from them. | |
• | Ability to cross-sell. SearchMedia’s ability to increase revenues by effectively leveraging its multi-platform advertising network will be determined by its ability to integrate its sales efforts and successfully implement cross-selling sales initiatives. |
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• | Ability to retain key employees and sales people. Recruiting and retaining a team of senior executives, key employees and sales team with industry knowledge and experience is essential to SearchMedia’s continued success. |
• | Outdoor billboard platform. SearchMedia typically signs advertising contracts with terms ranging from six to 24 months for billboard advertisements. Each contract will specify the billboard location, measurement and the price. The contract price varies substantially from contract to contract, based on the location and measurement of the billboard. Deposits or progress payments are typically required at various stages of the contract performance, such as signing of contract, confirmation of content and completion of service period. | |
• | In-elevator platform. SearchMedia typically signs advertising contracts with terms ranging from one to six months for in-elevator advertisements. Typically, SearchMedia negotiates for a contract price for covering a set of cities or districts within cities. SearchMedia may sometimes help certain clients design a detailed plan, based on the contract price and targeted demographics, with particular buildings where the advertisements will be displayed within the cities or districts specified under the contract. Progress payments are typically required at various stages of the contract performance. | |
• | Subway advertising platform. SearchMedia typically signs advertising contracts with terms ranging from one to three months for subway advertisements. The price typically consists of advertising fees and production fees for subway advertisements. Typically, the contracts specify a certain combination of subway stations and SearchMedia has the discretion to assign specific light boxes for each contract. Service payments are typically required at pre-specified dates prior to the completion of the contract. |
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For the Period from | ||||||||
February 9, 2007 to | For the Year Ended | |||||||
December 31, 2007 | December 31, 2008 | |||||||
Number of contracts* | 202 | 1,493 | ||||||
Average revenues per contract | $ | 38,752 | $ | 59,368 |
* | Number of contracts includes total number of contracts under which revenues were generated for the respective periods. |
• | Number of contracts. The number of advertising contracts SearchMedia enters into during any period is influenced by its market position and reputation. It is affected by its sales, marketing and services efforts to develop new clients and cross-sell and bundle its solutions across multiple platforms, and provide “one-stop shop,” quality and value-added services to its clients. It is also affected by the addition of network coverage, media platforms and number of displays or billboards to its network, and the introduction of new products such as the digital frames that effectively expanded the network capacity. SearchMedia believes that an increased client base, better services and expanded networks will directly affect the number of its advertising contracts. The number of SearchMedia’s advertising contracts is also driven by client-specific factors such as timing of introduction of new advertising campaigns, seasonality of clients’ operations and growth of business sectors in which its clients operate. Depending on client demand, the number of SearchMedia’s service contracts with its clients varies from period to period. The loss of, or significant reduction in, business from any major client without replacement clients could adversely impact its operating results. Conversely, the addition of a major advertising service contracts may significantly increase its revenues. | |
• | Average advertising service revenues per contract. SearchMedia’s revenues per contract are affected by factors affecting out-of-home advertising service providers generally and factors affecting SearchMedia specifically. See “— Factors Affecting SearchMedia’s Results of Operations.” As SearchMedia typically negotiates for the overall contract amount before providing an advertising plan with specific display locations, average revenues per contract are particularly affected by the acceptance of SearchMedia’s platforms as part of the marketing strategies and budgets of its clients. Average advertising services revenues per contract are also affected by its pricing policy, which is in turn affected by the level of competition, the costs that SearchMedia incurred in providing its services to the advertising clients, the quality of SearchMedia’s services, and, particularly, the perceived attractiveness or effectiveness of its media portfolio. |
For the | ||||||||||||||||
Period from | ||||||||||||||||
February 9, 2007 to | For the Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2008 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(In thousands except percentages) | ||||||||||||||||
Total revenues | 7,828 | 100.0 | 88,637 | 100.0 | ||||||||||||
Cost of revenues | (2,451 | ) | 31.3 | (46,674 | ) | 52.7 | ||||||||||
Gross profit | 5,377 | 68.7 | 41,963 | 47.3 |
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• | Outdoor billboard location cost. SearchMedia leases billboard locations from managers of commercial centers and other desirable areas of heavy vehicleand/or foot traffic. The term of a location leasing contract is generally one to five years. Under most of the leasing contracts, SearchMedia is granted a right of first refusal with respect to renewals, provided that the terms offered by SearchMedia are no less favorable than those offered by competing bidders. The lease payment periods under these contracts vary, from those on a monthly or quarterly basis to those on a semi-annual or annual basis. The lease payment for a period is typically due at the beginning of the period. | |
• | In-elevator platform location cost. SearchMedia leases elevators in both residential and commercial high-rise buildings from property developers, property management companies or homeowner associations. As of July 31, 2009, approximately 80% of the buildings in which SearchMedia had installed its poster frames were residential buildings and 20% were office buildings. SearchMedia typically enters into leasing contracts for terms from one to three years, and is usually granted a right of first refusal with respect to renewals of the contracts, provided that the terms offered by SearchMedia are no less favorable than those offered by competing bidders. SearchMedia typically makes lease payments on a quarterly basis under these contracts, with the lease payment for each quarter due at the beginning of the quarter. | |
• | Subway advertising platform location cost. Upon SearchMedia’s acquisition of Shanghai Haiya in February 2008, SearchMedia took over the operation rights for a network of light boxes in the Shanghai subway system. The payment terms for the lease contracts vary, from those on a quarterly or installment basis to those on an annual basis. The lease payment for a period is typically due at the beginning of the period. |
For the Period from | ||||||||||||||||
February 9, 2007 | For the Year Ended | |||||||||||||||
to December 31, 2007 | December 31, 2008 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(In thousands except percentages) | ||||||||||||||||
Total revenues | 7,828 | 100.0 | 88,637 | 100.0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing expenses | (293 | ) | 3.8 | (7,397 | ) | 8.4 | ||||||||||
General and administrative expenses | (2,555 | ) | 32.6 | (11,727 | ) | 13.2 | ||||||||||
Loss on deconsolidation of a variable interest entity | (358 | ) | 4.6 | – | – | |||||||||||
Total operating expenses | (3,206 | ) | 41.0 | (19,124 | ) | 21.6 |
• | Sales and marketing expenses. These consist primarily of salary, benefits and commissions for SearchMedia’s sales and marketing personnel, amortization of intangible assets related to customer |
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relationship, advertising and promotion expenses, entertainment expenses, traveling expenses and share-based compensation expenses for sales and marketing personnel. SearchMedia’s selling expenses generally correspond to the fluctuations in SearchMedia’s revenues as the sales personnel’s compensations are closely tied to their performance. SearchMedia expects to continue to incur share-based compensation expenses as it grants share optionsand/or restricted share awards to sales and marketing personnel. In addition, SearchMedia expects to incur substantial amounts of amortization expenses in the foreseeable future. See “— Amortization Expenses.” |
• | General and administrative expenses. These consist primarily of share-based compensation expenses, salary and benefits for its management and administrative personnel, office rental and utility expenses, legal and professional expenses and miscellaneous office expenses. SearchMedia expects that its general and administrative expenses will increase in absolute amount as it adds additional personnel and incur additional costs related to the growth of its business. It also expects to incur additional general and administrative expenses as a result of this business combination and its becoming a subsidiary of a listed public company in the U.S. upon completion of this transaction. SearchMedia expects to continue to incur share-based compensation expenses as it grants share options and restricted share awards to its management and administrative personnel. |
Fair Value of | Fair | |||||||||||||||||||||||||||
Number of | Purchase | Option/ | Value of | |||||||||||||||||||||||||
Restricted | Price/ | Restricted | Ordinary | |||||||||||||||||||||||||
Number of | Share | Exercise | Share Awards at | Shares | Intrinsic | Type of | ||||||||||||||||||||||
Grant Date | Options | Awards | Price ($) | Grant Date ($) | ($) | Value ($) | Valuation | |||||||||||||||||||||
January 2008 | 4,880,000 | – | 0.001-2.63 | 0.08 to 0.43 | 0.43 | 0 – 0.43 | Retrospective | |||||||||||||||||||||
February 2008 | 40,000 | – | 2.63 | 0.15 | 0.48 | 0 | Retrospective | |||||||||||||||||||||
April 2008 | 3,020,000 | – | 0.0001-3.0 | 0.13 to 0.39 | 0.39 | 0 – 0.39 | Retrospective | |||||||||||||||||||||
July 2008 | 900,000 | – | 2.63-3.0 | 0.12 to 0.13 | 0.41 | 0 | Retrospective | |||||||||||||||||||||
July 2009 | 1,650,000 | – | 0.5323 | 0.13 to 0.15 | 0.26 | 0 | Retrospective | |||||||||||||||||||||
January 2008 | – | 1,054,000 | – | 0.38 | 0.43 | 0.43 | Retrospective | |||||||||||||||||||||
February 2008 | – | 1,460,000 | – | 0.40 | 0.48 | 0.48 | Retrospective | |||||||||||||||||||||
April 2008 | – | 49,000 | – | 0.32 | 0.39 | 0.39 | Retrospective | |||||||||||||||||||||
July 2008 | – | 1,304,000 | – | 0.33 to 0.35 | 0.41 | 0.41 | Retrospective |
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January 2008 | February 2008 | April 2008 | July 2008 | July 2009 | ||||||
Risk-free rate of return | 5.31% | 5.02% | 5.27% | 5.59% | 4.49% | |||||
Expected term | 7.7 to 10.0 years | 8.0 years | 6.5 to 10.0 years | 8.3 to 8.5 years | 6.0 to 6.1 years | |||||
Expected volatility | 44.69% | 58.75% | 59.63% | 57.77% | 72.82% | |||||
Expected dividend yield | 0% | 0% | 0% | 0% | 0% |
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2009 | $ | 2,974,000 | ||
2010 | $ | 1,735,000 | ||
2011 | $ | 505,000 | ||
2012 | $ | 21,000 |
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For the Period from | ||||||||
February 9, 2007 to | For the Year | |||||||
December 31, 2007 | Ended December 31, 2008 | |||||||
($ in thousands) | ||||||||
Beginning allowance for doubtful accounts | — | 160 | ||||||
Additions charged to bad debt expense | 160 | 1,309 | ||||||
Uncollectible amounts written off | — | — | ||||||
Ending allowance for doubtful accounts | 160 | 1,469 | ||||||
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Predecessors | |||||||||||||||||||||||||
Sige | Dale | SearchMedia | |||||||||||||||||||||||
January 1, | January 1, | January 1, | January 1, | February 9, | January 1, | ||||||||||||||||||||
2006 to | 2007 to | 2006 to | 2007 to | 2007 to | 2008 to | ||||||||||||||||||||
December 31, | June 3, | December 31, | June 3, | December 31, | December 31, | ||||||||||||||||||||
2006 | 2007 | 2006 | 2007 | 2007 | 2008 | ||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||
Advertising service revenues | 1,424 | 599 | 1,104 | 745 | 7,828 | 88,637 | |||||||||||||||||||
Cost of revenues(1)(2) | (622 | ) | (369 | ) | (387 | ) | (214 | ) | (2,451 | ) | (46,674 | ) | |||||||||||||
Gross profit | 802 | 230 | 717 | 531 | 5,377 | 41,963 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||
Sales and marketing(1)(2) | (36 | ) | (25 | ) | (176 | ) | (105 | ) | (293 | ) | (7,397 | ) | |||||||||||||
General and administrative(2) | (145 | ) | (129 | ) | (172 | ) | (140 | ) | (2,555 | ) | (11,727 | ) | |||||||||||||
Loss on deconsolidation of variable interest entity | — | — | — | — | (358 | ) | — | ||||||||||||||||||
Total operating expenses | (181 | ) | (154 | ) | (348 | ) | (245 | ) | (3,206 | ) | (19,124 | ) | |||||||||||||
Income from operations | 621 | 76 | 369 | 286 | 2,171 | 22,839 | |||||||||||||||||||
Interest income | — | — | — | — | 5 | 131 | |||||||||||||||||||
Interest expense | — | — | — | — | (43 | ) | (8,922 | ) | |||||||||||||||||
Decrease in fair value of note warrant liability | — | — | — | — | — | 482 | |||||||||||||||||||
Loss on extinguishment of notes | — | — | — | — | — | (3,218 | ) | ||||||||||||||||||
Foreign currency exchange loss, net | — | — | — | — | (35 | ) | (167 | ) | |||||||||||||||||
Income before income taxes | 621 | 76 | 369 | 286 | 2,098 | 11,145 | |||||||||||||||||||
Income taxes expenses | (15 | ) | (21 | ) | (36 | ) | (43 | ) | (850 | ) | (6,802 | ) | |||||||||||||
Net income (loss) | 606 | 55 | 333 | 243 | 1,248 | 4,343 | |||||||||||||||||||
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Predecessors | |||||||||||||||||||||||||
Sige | Dale | SearchMedia | |||||||||||||||||||||||
January 1, | January 1, | January 1, | January 1, | February 9, | January 1, | ||||||||||||||||||||
2006 to | 2007 to | 2006 to | 2007 to | 2007 to | 2008 to | ||||||||||||||||||||
December 31, | June 3, | December 31, | June 3, | December 31, | December 31, | ||||||||||||||||||||
2006 | 2007 | 2006 | 2007 | 2007 | 2008 | ||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||
(1) Include amortization expenses of intangibles as follows | |||||||||||||||||||||||||
Cost of revenues | — | — | — | — | 132 | 1,756 | |||||||||||||||||||
Sales and marketing | — | — | — | — | 86 | 1,709 | |||||||||||||||||||
(2) Include share-based compensation expenses as follows | |||||||||||||||||||||||||
Cost of revenues | — | — | — | — | — | 56 | |||||||||||||||||||
Sales and marketing | — | — | — | — | — | 68 | |||||||||||||||||||
General and administrative | — | — | — | — | — | 2,230 |
• | Sales and marketing expenses. The sales and marketing expenses increased from $0.3 million, or 9.1% of total operating expenses, for the period from February 9, 2007 to December 31, 2007, to $7.4 million, or 38.7% of the total operating expenses for the year ended December 31, 2008. The $0.3 million in sales and marketing expense for the period from February 9, 2007 to December 31, 2007 primarily consisted of amortization of intangible assets relating to lease agreements of $0.1 million, and expenses of $0.1 million for marketing and promotion, whereas the $7.4 million in |
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sales and marketing expense for the year ended December 31, 2008 primarily consisted of expenses of $2.9 million for marketing and promotion, amortization of intangible assets relating to customer relationship of $1.7 million and sales commissions of $1.1 million. Thus, the increase in sales and marketing expenses was primarily due to increased staff costs associated with the expansion of SearchMedia’s sales force as its markets and revenues grew. |
• | General and administrative expenses. The general and administrative expenses increased from $2.6 million, or 79.7% of total operating expenses for the period from February 9, 2007 to December 31, 2007, to $11.7 million, or 61.3% of the total operating expenses for the year ended December 31, 2008. The $2.6 million in general and administrative expense for the period from February 9, 2007 to December 31, 2007 primarily consisted of salaries and benefits for the management and administrative personnel of $1.2 million, traveling and entertainment expenses of $0.6 million and bad debt expense of $0.3 million, whereas the $11.7 million in general and administrative expense for the year ended December 31, 2008 primarily consisted of salaries and benefits for the management and administrative personnel of $3.1 million, share-based compensation of $2.2 million, rental and utility expenses of $1.7 million and bad debt expense of $1.3 million. Thus, the increase was primarily as a result of increased staff costs associated with new hire of senior administrative managers and also share-based compensation granted to management and administrative personnel. | |
• | Loss on deconsolidation of a variable interest entity. There was a loss on deconsolidation of a variable interest entity of $0.4 million for the period from February 9, 2007 to December 31, 2007, compared to $nil for the year ended December 31, 2008. This loss was recorded as a result of termination of the contractual arrangements between Jieli Consulting and Conghui in October 2007, and represented the carrying value of net assets deconsolidated. |
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• | Sales and marketing expenses. Sige’s sales and marketing expenses decreased from $36,000, or 19.9% as a percentage of total operating expenses in 2006, to $25,000, or 16.2% as a percentage of total operating expenses for the period from January 1, 2007 to June 3, 2007. The decrease in sales and marketing expenses as a percentage of total operating expenses was mainly due to less promotion expenses in the 2007 period. | |
• | General and administrative expenses. Sige’s general and administrative expenses decreased from $145,000 in 2006 to $129,000 for the period from January 1, 2007 to June 3, 2007. General and administrative expenses as a percentage of total operating expenses increased from 80.1% in 2006 to 83.8% for the period from January 1, 2007 to June 3, 2007. This increase in general and administrative expenses as a percentage of total operating expenses was mainly due to increased staff costs associated with recruitment of administrative personnel in the 2007 period. |
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• | Sales and marketing expenses. Dale’s sales and marketing expenses decreased from $176,000, or 50.6% as a percentage of total operating expenses in 2006, to $105,000, or 42.9% as a percentage of total operating expenses for the period from January 1, 2007 to June 3, 2007. The decrease in sales and marketing expenses as a percentage of total operating expenses was mainly due to less promotion expenses in the 2007 period. | |
• | General and administrative expenses. Dale’s general and administrative expenses decreased from $172,000 in 2006 to $140,000 for the period from January 1, 2007 to June 3, 2007. General and administrative expenses as a percentage of total operating expenses increased from 49.4% in 2006 to 57.1% for the period from January 1, 2007 to June 3, 2007. This increase in general and administrative expenses as a percentage of total operating expenses was mainly due to increased staff costs associated with recruitment of administrative personnel in the 2007 period. |
For the period from | ||||||||
February 9, 2007 to | For the Year | |||||||
December 31, | Ended December 31, | |||||||
2007 | 2008 | |||||||
($ in thousands) | ||||||||
Net cash used in operating activities | (1,665 | ) | (3,722 | ) | ||||
Net cash used in investing activities | (6,370 | ) | (22,286 | ) | ||||
Net cash provided by financing activities | 14,365 | 25,033 | ||||||
Net increase (decrease) in cash | 6,333 | (618 | ) | |||||
Cash at beginning of period | – | 6,333 | ||||||
Cash at end of period | 6,333 | 5,715 |
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Payment Due by Period | ||||||||||||||||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Short-term debt obligations (including interest obligations)(1) | 16,856 | 16,856 | – | – | – | |||||||||||||||
Operating lease obligations(2) | 43,795 | 26,717 | 17,051 | 27 | – | |||||||||||||||
Purchase obligations(3) | 903 | 903 | – | – | – | |||||||||||||||
Total | 61,554 | 44,476 | 17,051 | 27 | – |
(1) | As of December 31, 2008, the short-term debt obligation was primarily attributed to a short-term bank loan of US$36,000, unsecured promissory notes of US$16,700,000 and an unsecured loan of US$120,000 . | |
(2) | Includes lease obligations for SearchMedia’s office premises and display locations. | |
(3) | Includes obligations to purchase advertising display equipment. |
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(1) | vote those shares either for or against the business combination; | |
(2) | affirmatively request conversion of those shares; and | |
(3) | follow the other conversion procedures set forth in the section titled “The Ideation Special Meeting — Conversion Procedures.” |
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• | may significantly reduce the equity interest of its stockholders; | |
• | may subordinate the rights of holders of common stock if Ideation issues preferred stock with rights senior to those afforded to its common stock; | |
• | will likely cause a change in control if a substantial number of its shares of common stock are issued, which may affect, among other things, its ability to use its net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of its present officers and directors; and | |
• | may adversely affect prevailing market prices for its common stock. |
• | default and foreclosure on its assets if its operating revenues after a business combination are insufficient to pay its debt obligations; | |
• | acceleration of its obligations to repay the indebtedness even if Ideation has made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and Ideation breaches any such covenant without a waiver or renegotiation of that covenant; | |
• | its immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and | |
• | its inability to obtain additional financing, if necessary, if the debt security contains covenants restricting its ability to obtain additional financing while such security is outstanding. |
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JP Morgan, Treasury money market fund, held in trust | $ | 23,821,673 | ||
Treasury bills, maturing January 8, 2009, held in trust, FMV | $ | 54,993,327 | ||
Total interest received to date | $ | 1,955,154 | ||
Less total interest disbursed to it for working capital through December 31, 2008 | $ | (882,663 | ) | |
Less total taxes paid through December 31, 2008 | $ | (967,337 | ) | |
Total funds held in Trust Account at FMV at December 31, 2008 | $ | 78,920,154 |
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• | Acquisition costs will be generally expensed as incurred; |
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• | Noncontrolling interests (formerly known as “minority interests” — see SFAS 160 discussion below) will be valued at fair value at the acquisition date; | |
• | Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; | |
• | In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; | |
• | Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and | |
• | Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect future income tax expense. |
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Directors and Executive Officers | Age | Position/Title | ||||
Qinying Liu | 46 | Chairman | ||||
Robert Fried | 48 | Executive Director | ||||
Steven D. Rubin | 49 | Executive Director | ||||
Earl Yen | 42 | Independent Director | ||||
Jianzhong Qu | 34 | Independent Director | ||||
Larry Lu | 48 | Independent Director | ||||
Glenn Halpryn | 48 | Independent Director | ||||
Chi-Chuan Chen | 51 | Independent Director | ||||
Garbo Lee | 51 | President | ||||
Jennifer Huang | 34 | Chief Operating Officer | ||||
Andrew Gormley | 35 | Executive Vice President |
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• | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in itsForm 10-K; | |
• | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of its financial statements; | |
• | discussing with management major risk assessments and risk management policies; | |
• | monitoring the independence of the independent auditor; | |
• | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; | |
• | reviewing and approving all related-party transactions in its business combination; | |
• | inquiring and discussing with management our compliance with applicable laws and regulations; | |
• | pre-approving all audit services and permitted non-audit services to be performed by its independent auditor, including the fees and terms of the services to be performed; | |
• | appointing or replacing the independent auditor; | |
• | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and | |
• | establishing procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies. |
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Number of | Number of | |||||||
Name | Initial Shares | Insider Warrants | ||||||
Frost Gamma Investments Trust(1) | 1,359,000 | 1,320,000 | ||||||
Robert N. Fried | 617,500 | 550,000 | ||||||
Rao Uppaluri | 154,500 | 150,000 | ||||||
Steven D. Rubin | 154,500 | 150,000 | ||||||
Jane Hsiao | 154,500 | 150,000 | ||||||
Thomas E. Beier | 10,000 | 5,000 | ||||||
Shawn Gold | 10,000 | 5,000 | ||||||
David H. Moskowitz | 10,000 | 5,000 | ||||||
Thomas H. Baer | 10,000 | 5,000 | ||||||
Jarl Mohn | 10,000 | 30,000 | ||||||
Nautilus Trust dtd 9/10/99(2) | 10,000 | 30,000 | ||||||
Total | 2,500,000 | 2,400,000 | ||||||
(1) | The beneficiary of Frost Gamma Investments Trust is an entity controlled by Dr. Phillip Frost, M.D. | |
(2) | Nautilus Trust dtd 9/10/99 is the grantor trust of Barry A. Porter. |
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• | None of Ideation’s officers and directors are required to commit any specified amount of time to the company’s affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities. | |
• | Members of Ideation’s management team and its directors may become aware of business opportunities that may be appropriate for presentation to Ideation as well as the other entities with which they are or |
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may be affiliated. Due to affiliations with other companies, members of Ideation’s management team and its directors may have fiduciary obligations to present potential business opportunities to those entities prior to presenting them to Ideation which could cause conflicts of interest. Accordingly, members of Ideation’s management team and Ideation’s directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented. For example, Dr. Frost, Dr. Uppaluri and Mr. Rubin have fiduciary obligations that arise as a result of their affiliation with The Frost Group and Opko Health, Inc. While neither The Frost Group nor Opko Health, Inc. presently intends to make acquisitions in the digital media sector, to the extent that Ideation considers a business combination outside of the digital media sector, it may compete with The Frost Group or Opko Health, Inc. in pursuing a business combination. Additionally, Dr. Frost owns an equity interest in the general partner and in the limited partnership of Peregrine VC Investments II, a private venture capital fund based in Israel that invests primarily in early-stage Israeli technology companies, The Florida Value Fund LLLP, a private equity fund focused on mid-market companies in the State of Florida, and Calex Equity Partners, LP, an equity fund with a value orientation. The investment focus of Peregrine VC Investments II is on acquiring non-controlling interests of companies, and the targeted aggregate capital of such fund is $20 million. The investments of The Florida Value Fund LLLP range between $1 million and $4 million per company in the form of either equity or mezzanine debt. The investment focus of Calex Equity Partners, L.P. is to maximize total returns by taking long and short non-controlling positions in primarily equity securities of U.S. and foreign public companies. Accordingly, based on the investment criteria of Peregrine VC Investments II, The Florida Value Fund LLLP and Calex Equity Partners, LP, Ideation does not expect to compete with those funds in our search for a target business or businesses. In addition, Mr. Fried has fiduciary duties to Fried Films. Fried Films only acquires motion picture screenplays, and, as a result, Ideation does not expect to compete with such company in its search for a target business or businesses. For a description of the existing affiliations of Ideation’s management team and its directors, please see the section of Ideation’s latest Annual Report onForm 10-K titled “Directors, Executive Officers and Corporate Governance.” |
• | Ideation’s officers, directors and special advisors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by Ideation. Additionally, Ideation’s officers, directors and special advisors may organize, promote or become involved with other blank check companies, including blank check companies with a focus on the digital media sector, either before or after Ideation’s consummation of a business combination. | |
• | The initial shares and insider warrants owned by Ideation’s initial stockholders, which includes our officers, directors and special advisors, will be released from escrow only if a business combination is successfully completed. In addition, the insider warrants purchased by Ideation’s initial stockholders and any warrants which Ideation’s initial stockholders may purchase in this offering or in the aftermarket will expire worthless if an initial business combination is not consummated. Additionally, Ideation’s initial stockholders will not receive liquidation distributions with respect to any of their initial shares. For the foregoing reasons, the Ideation board of directors may have a conflict of interest in determining whether a particular target business is appropriate for Ideation and its stockholders. | |
• | Ideation’s officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors were included by a target business as a condition to any agreement with respect to an initial business combination. Additionally, Ideation’s officers and directors may enter into employment or consulting agreements with Ideation in connection with a business combination pursuant to which they may be entitled to compensation for any services provided following such business combination. The personal and financial interests of Ideation’s officers and directors may influence their motivation in identifying and selecting a target business. | |
• | The ability of the holders of Ideation’s insider warrants to exercise the insider warrants on a cashless basis if Ideation calls such warrants for redemption may cause a conflict of interest in determining when to call the warrants for redemption as they would potentially be able to avoid any negative price |
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pressure on the price of the warrants and common stock due to the redemption through a cashless exercise. |
• | Ideation’s initial stockholders, officers, directors and special advisors may purchase shares of common stock in the open market. If they did, they would be entitled to vote such shares as they choose on a proposal to approve a business combination. | |
• | Ideation’s special advisors have no fiduciary obligations to Ideation. Therefore, they have no obligation to present business opportunities to Ideation at all and will only do so if they believe it will not violate any fiduciary obligations they have. | |
• | Immediately prior to the closing of the business combination, The Frost Group, LLC and its affiliates and other non-affiliates who acquired (or will acquire at or after the closing) shares in satisfaction of the Sponsor Purchase Commitment Amount shall be issued a warrant to purchase 0.25 of an ID Cayman share for each such share purchased. The exercise price per whole ID Cayman share underlying such warrants shall be $7.8815, and the aggregate number of shares underlying such warrants issued to any one holder shall be rounded up to the nearest whole share. Such issuance shall be conditioned upon the execution and delivery by such holder of a purchase agreement including customary registration rights. | |
• | On March 19, 2009, SearchMedia received interim financing of $1.75 million from Frost Gamma Investments Trust, Robert Fried, Rao Uppaluri, and others, and interim financing of $1.75 million from CSV and members of SearchMedia’s management team. This financing was requested by SearchMedia in order to fund working capital until the closing of the transactions contemplated by the share exchange agreement. The affiliates of Ideation set forth above participated in such financing in order to show support for the transactions contemplated by the share exchange agreement. Each interim note accrues interest at a rate of 12% per annum, which rate shall increase to 20% per annum after the maturity date of such note. Each note shall mature upon the earliest of: (i) the closing of a Series D financing by SM Cayman, (ii) the closing of the transactions contemplated by the share exchange agreement, and (iii) the termination of the share exchange agreement. At the closing of the business combination, the principal amount outstanding under certain promissory notes issued to each of Frost Gamma Investments Trust and certain other investors shall be converted into (1) a number of ordinary shares of ID Cayman calculated by dividing such holder’s outstanding principal amount by $7.8815, rounding up to the nearest whole share, and (2) a number of warrants to purchase 0.25 of an ordinary share of ID Cayman, at an exercise price per such ordinary share of $7.8815, equal to such number of ID Cayman ordinary shares, rounded up to the nearest whole share. | |
• | Ideation has entered into a letter agreement with the Converting Noteholders and The Frost Group, LLC. Pursuant to the letter agreement, if at any time during the two years following the closing of the business combination, ID Cayman issues any preferred shares or other equity securities (including securities convertible into or exchangeable for preferred shares or other equity securities), the parties to the letter agreement will have the right to exchange, for such securities, any ordinary shares of ID Cayman acquired by them as a result of: |
(1) | conversion of an interim note from SM Cayman or the Linden Note; | |
(2) | warrant exercises to satisfy the Sponsor Purchase Commitment Amount; or | |
(3) | open market purchases or new issuances of Ideation shares to satisfy the Sponsor Purchase Commitment Amount, |
• | The corporation could financially undertake the opportunity; |
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• | the opportunity is within the corporation’s line of business; and | |
• | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
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• | options to purchase SM Cayman’s ordinary shares; | |
• | restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture, restrictions on transferability and other restrictions; and | |
• | restricted share units, which represent the right to receive SM Cayman’s ordinary shares at a specified date in the future, which may be subject to forfeiture. |
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• | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; | |
• | each of our officers and directors; and | |
• | all our officers and directors as a group. |
Amount and Nature of | Approximate Percentage of | |||||||||||
Name and Address of Beneficial Owner(2) | Beneficial Ownership(1)(3) | Outstanding Common Stock | ||||||||||
Executive Officers and Directors | ||||||||||||
Dr. Phillip Frost, M.D.(4)(5) | 2,034,900 | 16.3 | % | |||||||||
Robert N. Fried(5) | 620,500 | 5.0 | % | |||||||||
Rao Uppaluri(5) | 159,500 | 1.3 | % | |||||||||
Steven D. Rubin(5) | 157,500 | 1.3 | % | |||||||||
Thomas E. Beier(5) | 10,000 | * | ||||||||||
Shawn Gold(5) | 10,000 | * | ||||||||||
David H. Moskowitz(5) | 10,000 | * | ||||||||||
Glenn Halpryn(5) | 0 | * | ||||||||||
All executive officers and directors as a group (8 individuals) | 3,002,400 | 24.0 | % | |||||||||
5% Holders | ||||||||||||
Frost Gamma Investments Trust(6) | 2,034,900 | 16.3 | % | |||||||||
HBK Investments L.P.(7) | 1,249,984 | 10.0 | % | |||||||||
Kenneth J. Abdalla(8) | 675,700 | 5.4 | % | |||||||||
Jonathan M. Glaser(9) | 655,000 | 5.2 | % |
* | less than 1% | |
(1) | Includes shares of common stock which the person has the right to acquire within 60 days of September 28, 2009. | |
(2) | Unless otherwise noted, the business address of each of the following is 1105 N. Market Street, Suite 1300, Wilmington, DE 19801. | |
(3) | Does not reflect 2,400,000 shares of common stock issuable upon exercise of warrants held by certain of our initial stockholders, and additional warrants accumulated by initial stockholders in open market purchases, which are not exercisable until the completion of a business combination. | |
(4) | The number of shares beneficially owned by Dr. Frost includes shares of common stock beneficially owned by Frost Gamma Investments Trust, of which Frost Gamma Limited Partnership is the sole and exclusive beneficiary. Dr. Frost is one of two limited partners of Frost Gamma Limited Partnership. The general partner of Frost Gamma Limited Partnership is Frost Gamma, Inc. and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation. |
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(5) | Includes additional common shares accumulated by initial stockholders in open market purchases; however, warrants accumulated in open market purchases have been excluded. | |
(6) | The business address of Frost Gamma Investments Trust is 4400 Biscayne Blvd., Suite 1500, Miami, Florida 33137. Frost Gamma Limited Partnership is the sole and exclusive beneficiary of Frost Gamma Investments Trust. Dr. Frost is one of two limited partners of Frost Gamma Limited Partnership. The general partner of Frost Gamma Limited Partnership is Frost Gamma, Inc. and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation. | |
(7) | HBK Investments L.P. has delegated discretion to vote and dispose of the securities to HBK Services LLC, or HBK Services. HBK Services may, from time to time, delegate discretion to vote and dispose of certain of the securities to HBK New York LLC, a Delaware limited liability company, HBK Virginia LLC, a Delaware limited liability company, HBK Europe Management LLP, a limited liability partnership organized under the laws of the United Kingdom, and/or HBK Hong Kong Ltd., a corporation organized under the laws of Hong Kong, or collectively, the Subadvisors. Each of HBK Services and the Subadvisors is under common control with HBK Investments L.P. The Subadvisors expressly declare that the filing of this statement on Schedule 13G shall not be construed as an admission that they are, for the purpose of Section 13(d) or 13(g) of the Securities Exchange Act of 1934, beneficial owners of the securities. | |
Jamiel A. Akhtar, Richard L. Booth, David C. Haley, Lawrence H. Lebowitz and William E. Rose are each managing members, or collectively, the Members, of HBK Management LLC. The Members expressly declare that the filing of this statement on Schedule 13G shall not be construed as an admission that they are, for the purpose of Section 13(d) or 13(g) of the Securities Exchange Act of 1934, beneficial owners of the securities. | ||
The business address of HBK Investments L.P. is 300 Crescent Court, Suite 700, Dallas, Texas 75201. | ||
The foregoing information is derived from a Schedule 13G/A filed with the SEC on January 18, 2008. | ||
(8) | Based on Schedule 13D filed with the SEC on May 15, 2009, the aggregate amount of common stock beneficially owned by the reporting person includes: (a) 371,500 shares held by Malibu Partners LLC and (b) 304,200 shares held by Broad Beach Partners LLC. Kenneth J. Abdalla is the managing member of Malibu Partners LLC and has voting and dispositive power with respect to all the shares. The address of this reporting person is 15332 Antioch Street #528, Pacific Palisades, CA 90272. | |
(9) | Pacific Asset Management, LLC, or PAM, and JMG Capital Management, LLC, or JMG LLC, are investment advisers whose clients have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the common stock. No client separately holds more than five percent of the outstanding common stock. PAM is the investment adviser to an investment fund and Pacific Capital Management, Inc., or PCM, is a member of PAM. Mr. Glaser, Mr. David and Mr. Richter are control persons of PCM and PAM. JMG LLC is the investment adviser and general partner of an investment limited partnership and JMG Capital Management, Inc., or JMG Inc., is a member of JMG LLC. Mr. Glaser is the control person of JMG Inc. and JMG LLC. | |
The business address of JMG LLC, JMG Inc. and Mr. Glaser is 11601 Wilshire Boulevard, Suite 2180, Los Angeles, CA 90025. The business address of PAM, PCM, Mr. David and Mr. Richter is 100 Drakes Landing, Suite 207, Greenbrae, CA 94904. The foregoing information is derived from a Schedule 13G filed with the SEC on February 17, 2009. |
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Percentage of Class | ||||||||||||
of Ordinary Shares | ||||||||||||
Ordinary Shares | Beneficially | |||||||||||
Beneficial Owner(1) | Beneficially Owned | Owned (%)(2) | ||||||||||
Executive Officers and Directors | ||||||||||||
Qinying Liu(3) | 14,224,653 | 14.4 | % | |||||||||
Le Yang(4) | 14,224,653 | 14.4 | % | |||||||||
Earl Yen(5) | 20,010,307 | 20.3 | % | |||||||||
Tommy Cheung | — | — | ||||||||||
Garbo Lee(6) | * | * | ||||||||||
Jennifer Huang(7) | * | * | ||||||||||
Andrew Gormley | — | — | ||||||||||
All Executive Officers and Directors as a Group | 48,459,613 | 49.1 | % | |||||||||
Principal Shareholders: | ||||||||||||
Deutsche Bank A.G., HK Branch(8) | 31,753,771 | 32.2 | % | |||||||||
China Seed Ventures, L.P.(5) | 20,010,307 | 20.3 | % | |||||||||
Qinying Liu(3) | 14,224,653 | 14.4 | % | |||||||||
Le Yang(4) | 14,224,653 | 14.4 | % | |||||||||
Sun Hing Associates Limited(9) | 12,348,688 | 12.5 | % | |||||||||
Vervain Equity Investment(10) | 5,292,293 | 5.4 | % |
* | Less than 1%. |
(1) | Except as otherwise indicated or in cases in which spouses share authority under applicable law, SM Cayman believes that each shareholder identified in the table directly owns, and has sole voting and investment power with respect to, all ordinary shares shown as beneficially owned by such shareholder. Beneficial ownership is calculated pursuant to Rule 13d-3(d)(1) under the Exchange Act. | |
(2) | Applicable percentage ownership is based on 98,652,365 ordinary shares of SM Cayman outstanding as of July 14, 2009. | |
(3) | Excludes 600,000 ordinary shares issuable upon exercise of options held by Mr. Guojun Liang, Ms. Liu’s husband. The business address of Ms. Liu is 4B, Ying Long Building 1358 Yan An Road West, Shanghai 200052, People’s Republic of China. | |
(4) | The business address of Ms. Yang is 4B, Ying Long Building 1358 Yan An Road West, Shanghai 200052, People’s Republic of China. | |
(5) | Represents 1,386,528 ordinary shares, and 18,623,779 ordinary shares issuable upon conversion of all the 10,000,000 Series A, 909,091 Series B and 7,714,688 Series C preferred shares, held by China Seed Venture Management Limited as the general partner for and on behalf of China Seed Ventures, L.P., a Cayman Islands exempted limited partnership, with the business address at Room 104 Building 18, No. 800 Huashan Road, Shanghai, China. China Seed Ventures Management Limited is a Cayman Islands limited company. China Seed Ventures Management Limited, is controlled by Earl Yen, Ralph Ungermann, and Michael Liao. Accordingly, Mr. Yen has shared voting and dispositive power over all the shares held by China Seed Ventures Management Limited as the general partner of China Seed Ventures, L.P. As a result of the foregoing, Mr. Yen is deemed to be the beneficial owner of 20,010,307 ordinary shares of SM Cayman. Mr. Yen disclaims beneficial ownership of these 20,010,307 ordinary shares except to the extent of his pecuniary interest therein. The address for these management is |
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Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands. | ||
(6) | Represents ordinary shares issuable upon exercise of options held by Ms. Garbo Lee within 60 days after the date of this proxy statement/prospectus. The Business address of Ms. Lee is 4B, Ying Long Building 1358 Yan An Road West, Shanghai 200052, People’s Republic of China. | |
(7) | Represents ordinary shares issuable upon exercise of restricted share awards held by Ms. Jennifer Huang within 60 days after the date of this proxy statement/prospectus. The business address of Ms. Huang is 4B, Ying Long Building 1358 Yan An Road West, Shanghai 200052, People’s Republic of China. | |
(8) | Represents ordinary shares issuable upon conversion of all of the 31,753,771 Series B preferred shares held by Deutsche Bank A.G., acting through its Hong Kong Branch, with its registered office at 48/F Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Deutsche Bank AG is listed on the New York Stock Exchange. | |
(9) | Represents 12,348,688 ordinary shares issuable upon conversion of all the 12,348,688 Series C preferred shares, held by Sun Hing Associates Limited, a limited liability company incorporated in British Virgin Islands, with the registered address at PO Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Sun Hing Associates Limited is wholly owned and controlled by Chen Ding Hwa. | |
(10) | Represents 5,292,293 ordinary shares issuable upon conversion of all the 5,292,293 Series C preferred shares, held by Vervain Equity Investment Limited, a limited liability company incorporated in British Virgin Islands, with the registered address at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Vervain Equity Investment Limited is wholly owned and controlled by Chen Wei Wei Vivian. |
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Percentage of Class | Percentage of Class | |||||||||||||||
Ordinary | of Ordinary Shares | Ordinary | of Ordinary Shares | |||||||||||||
Shares Beneficially | Beneficially | Shares Beneficially | Beneficially | |||||||||||||
Owned-Assuming No | Owned-Assuming No | Owned-Assuming All | Owned-Assuming All | |||||||||||||
Earn-Out Shares | Earn-Out Shares | Earn-Out Shares | Earn-Out Shares | |||||||||||||
Beneficial Owner | Issued | Issued (%) | Issued(4) | Issued (%) | ||||||||||||
Officers and Directors | ||||||||||||||||
Dr. Phillip Frost, M.D.(1) | 2,256,939 | 26.9 | % | 2,256,939 | 12.2 | % | ||||||||||
Robert N. Fried | 620,500 | 7.4 | % | 620,500 | 3.3 | % | ||||||||||
Qinying Liu(2)(3) | 967,040 | 11.5 | % | 2,161,641 | 11.7 | % | ||||||||||
Le Yang(3) | 967,040 | 11.5 | % | 2,161,641 | 11.7 | % | ||||||||||
Rao Uppaluri | 159,500 | 1.9 | % | 159,500 | * | |||||||||||
Steven D. Rubin | 157,500 | 1.9 | % | 157,500 | * | |||||||||||
Xuebao Yang(3) | 6,344 | * | 9,121 | * | ||||||||||||
Jianhai Huang(3) | 6,344 | * | 9,121 | |||||||||||||
Jianxun Wang | 53,895 | * | 53,895 | * | ||||||||||||
Min Wu(3) | 6,344 | * | 9,121 | * | ||||||||||||
All directors and officers as a group (8 persons) | 5,201,446 | 61.2 | % | 7,598,979 | 38.9 | % | ||||||||||
5% Holders | ||||||||||||||||
Dr. Phillip Frost, M.D. | 2,256,939 | 26.9 | % | 2,256,939 | 12.2 | % | ||||||||||
Deutsche Bank AG, HK Branch | 2,144,568 | 25.6 | % | 5,121,963 | 27.6 | % | ||||||||||
China Seed Ventures, L.P.(3) | 1,541,765 | 18.4 | % | 4,279,961 | 23.1 | % | ||||||||||
HBK Investments | 1,249,984 | 14.9 | % | 1,249,984 | 6.7 | % | ||||||||||
Linden Ventures II(3) | 1,268,795 | 15.1 | % | 1,761,091 | 9.5 | % | ||||||||||
Qinying Liu(2)(3) | 967,040 | 11.5 | % | 2,161,641 | 11.7 | % | ||||||||||
Le Yang(3) | 967,040 | 11.5 | % | 2,161,641 | 11.7 | % | ||||||||||
Sun Hing Associates Ltd | 833,999 | 10.0 | % | 1,868,644 | 10.1 | % |
* | The person beneficially owns less than 1% of ID Cayman’s outstanding common shares | |
(1) | Includes ordinary shares issuable upon conversion of the interim notes. | |
(2) | Excludes 600,000 ordinary shares issuable to Mrs. Liu’s husband converted at the exchange ratio (0.0675374). | |
(3) | Includes shares issuable upon conversion of the interim notes. | |
(4) | Earn-out shares based upon fully diluted ownership, inclusive of warrants. |
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• | in whole and not in part, | |
• | at a price of $0.01 per warrant, | |
• | upon not less than 30 days’ prior written notice of redemption, and | |
• | if, and only if, the last sale price of the common stock equals or exceeds $11.50 per share (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the common stock) for any 20 trading days within a 30 trading day period ending three business days before Ideation sends the notice of redemption, |
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1105 N. Market Street, Suite 1300
Wilmington, DE 19801
(310) 694-8150
invest@ideationacquisition.com
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(a development stage company)
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-19 | ||||
F-20 | ||||
F-21 | ||||
F-22 | ||||
F-23 |
F-36 | ||||
F-37 | ||||
F-38 | ||||
F-39 | ||||
F-40 | ||||
F-41 |
F-80 | ||||
F-81 | ||||
F-82 | ||||
F-83 | ||||
F-84 | ||||
F-85 |
F-1
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F-91 | ||||
F-92 | ||||
F-93 | ||||
F-94 | ||||
F-95 | ||||
F-96 |
F-2
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F-3
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(a corporation in the development stage)
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 308,874 | $ | 124,139 | ||||
Interest receivable | 1,208 | 291,835 | ||||||
Income taxes receivable | 124,191 | — | ||||||
Franchise taxes receivable | 121,000 | — | ||||||
Other current assets | 41,699 | 49,256 | ||||||
Total current assets | 596,972 | 465,230 | ||||||
Investments held in Trust Account — Restricted | ||||||||
U. S. Treasury Securities, at amortized cost | 54,993,327 | |||||||
Money Market Funds, at fair value | 23,821,673 | 78,815,000 | ||||||
Deferred tax asset | 440,759 | — | ||||||
Total assets | $ | 79,852,731 | $ | 79,280,230 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accrued expenses | $ | 507,626 | $ | 26,721 | ||||
Income taxes payable | — | 74,244 | ||||||
Franchise taxes payable | — | 68,666 | ||||||
Total current liabilities | 507,626 | 169,631 | ||||||
Long-term liability | ||||||||
Deferred underwriters’ fee | 2,730,000 | 2,730,000 | ||||||
Common stock subject to possible redemption (2,999,999 shares at December 31, 2008 and 2007 at redemption value of $7.88 per share) | 23,639,992 | 23,639,992 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized; none issued | — | — | ||||||
Common Stock, $0.0001 par value, 50,000,000 shares authorized, 12,500,000 shares issued and outstanding including 2,999,999 shares subject to possible redemption, at December 31, 2008 and 2007 | 1,250 | 1,250 | ||||||
Additional paid-in capital | 52,595,237 | 52,595,237 | ||||||
Income accumulated during the development stage | 378,626 | 144,120 | ||||||
Total stockholders’ equity | 52,975,113 | 52,740,607 | ||||||
Total liabilities and stockholders’ equity | $ | 79,852,731 | $ | 79,280,230 | ||||
F-4
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(a corporation in the development stage)
Period from June 1, | Period from June 1, | |||||||||||
For The Year Ended | 2007 (Inception) to | 2007 (Inception) to | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2008 | ||||||||||
Revenue | $ | — | $ | — | $ | — | ||||||
Formation and operating costs | 1,281,810 | 100,877 | 1,382,687 | |||||||||
Loss from operations | (1,281,810 | ) | (100,877 | ) | (1,382,687 | ) | ||||||
Interest income | 1,615,947 | 340,417 | 1,956,364 | |||||||||
Income before provision for income taxes | 334,137 | 239,540 | 573,677 | |||||||||
Provision (benefit) for income taxes | ||||||||||||
Current | 540,390 | 95,420 | 635,810 | |||||||||
Deferred | (440,759 | ) | (440,759 | ) | ||||||||
Total provision (benefit) for income taxes | 99,631 | 95,420 | 195,051 | |||||||||
Net income | $ | 234,506 | $ | 144,120 | $ | 378,626 | ||||||
Maximum number of share subject to possible redemption: | — | — | ||||||||||
Weighted average number of shares, basic and diluted | 2,999,999 | 522,000 | 2,104,711 | |||||||||
Income per share amount, basic and diluted | $ | — | $ | — | $ | — | ||||||
Weighted average number of common share outstanding (not subject to possible redemption): | ||||||||||||
Basic | 9,500,001 | 3,664,000 | 7,351,725 | |||||||||
Diluted | 11,559,332 | 3,897,000 | 9,405,885 | |||||||||
Income per share amount: | ||||||||||||
Basic | $ | 0.03 | $ | 0.04 | $ | 0.05 | ||||||
Diluted | $ | 0.02 | $ | 0.04 | $ | 0.04 |
F-5
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(a corporation in the development stage)
June 1, 2007 (Inception) to December 31, 2008
Income | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | During the | Total | ||||||||||||||||||
Common Stock | Paid-in | Development | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Stage | Equity | ||||||||||||||||
Common shares issued to founders on June 1, 2007 at $.01 per share | 2,500,000 | $ | 250 | $ | 24,750 | $ | — | $ | 25,000 | |||||||||||
Sale of 2,400,000 warrants at $1 per warrant to initial stockholders | — | — | 2,400,000 | — | 2,400,000 | |||||||||||||||
Sale of 10,000,000 units through public offering, net of underwriter’s discount and offering expenses, at $8 per unit (including 2,999,999 shares subject to possible redemption) | 10,000,000 | 1,000 | 73,810,479 | — | 73,811,479 | |||||||||||||||
Proceeds subject to possible redemption, 2,999,999 shares | (23,639,992 | ) | — | (23,639,992 | ) | |||||||||||||||
Net income for the period | — | — | — | 144,120 | 144,120 | |||||||||||||||
Balances at December 31, 2007 | 12,500,000 | $ | 1,250 | $ | 52,595,237 | $ | 144,120 | $ | 52,740,607 | |||||||||||
Net income | 234,506 | 234,506 | ||||||||||||||||||
Balances at December 31, 2008 | $ | 12,500,000 | $ | 1,250 | $ | 52,595,237 | $ | 378,626 | $ | 52,975,113 | ||||||||||
F-6
Table of Contents
(a corporation in the development stage)
Period from June 1, | ||||||||||||
2007 | Period from June 1, | |||||||||||
For The Year Ended | (Inception) to | 2007 (Inception) to | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 234,506 | $ | 144,120 | $ | 378,626 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Deferred income tax benefit | (440,759 | ) | (440,759 | ) | ||||||||
Change in operating assets and liabilities: | ||||||||||||
Interest receivable | 290,627 | (291,835 | ) | (1,208 | ) | |||||||
Income taxes receivable | (124,191 | ) | (124,191 | ) | ||||||||
Franchise taxes receivable | (121,000 | ) | (121,000 | ) | ||||||||
Other current assets | 7,557 | (49,256 | ) | (41,699 | ) | |||||||
Accrued expenses | 480,905 | 26,721 | 507,626 | |||||||||
Income taxes payable | (74,244 | ) | 74,244 | — | ||||||||
Franchise taxes payable | (68,666 | ) | 68,666 | — | ||||||||
Net cash provided by (used in) operating activities | 184,735 | (27,340 | ) | 157,395 | ||||||||
Net cash used in investing activities: | ||||||||||||
Investments inTrust Account- Restricted | — | (78,815,000 | ) | (78,815,000 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from notes payable to stockholders | — | 200,000 | 200,000 | |||||||||
Proceeds from common shares issued to founders | — | 25,000 | 25,000 | |||||||||
Proceeds from public offering | — | 80,000,000 | 80,000,000 | |||||||||
Proceeds from issuance of insider warrants | — | 2,400,000 | 2,400,000 | |||||||||
Repayment of notes payable to stockholders | — | (200,000 | ) | (200,000 | ) | |||||||
Payment of underwriters’ discount and offering costs | — | (3,458,521 | ) | (3,458,521 | ) | |||||||
Net cash provided by financing activities | — | 78,966,479 | 78,966,479 | |||||||||
Net increase in cash and cash equivalents | 184,735 | 124,139 | 308,874 | |||||||||
Cash and cash equivalents, beginning of period | 124,139 | — | — | |||||||||
Cash and cash equivalents, end of period | $ | 308,874 | $ | 124,139 | $ | 308,874 | ||||||
Supplemental disclosure of non-cash financing activities: | ||||||||||||
Deferred offering costs | $ | — | $ | 2,730,000 | $ | 2,730,000 | ||||||
Supplemental disclosure of cash paid during the year for: | ||||||||||||
Income taxes | $ | 967,337 | $ | — | $ | 967,337 |
F-7
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
Note 1 — | Organization and Nature of Business Operations |
F-8
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Note 2 — | Summary of Significant Accounting Policies |
F-9
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
F-10
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
• | Acquisition costs will be generally expensed as incurred; | |
• | Noncontrolling interests (formerly known as “minority interests” — see SFAS 160 discussion below) will be valued at fair value at the acquisition date; | |
• | Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; | |
• | In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; |
F-11
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
• | Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and | |
• | Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect future income tax expense. |
Note 3 — | Initial Public Offering |
F-12
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Note 4 — | Related Party Transactions |
F-13
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Note 5 — | Income taxes |
F-14
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Period from June 1, | Period from June 1, | |||||||||||
For The Year Ended | 2007 (Inception) to | 2007 (Inception) to | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2008 | ||||||||||
Current Tax Provision | ||||||||||||
Federal | $ | 561,565 | $ | 74,245 | $ | 635,810 | ||||||
State | (21,175 | ) | 21,175 | — | ||||||||
Total Current | 540,390 | 95,420 | 635,810 | |||||||||
Deferred Tax Provision: | ||||||||||||
Federal | (440,759 | ) | — | (440,759 | ) | |||||||
State | — | — | — | |||||||||
Total Deferred | $ | (440,759 | ) | $ | — | $ | (440,759 | ) | ||||
Total provision for income taxes | $ | 99,631 | $ | 95,420 | $ | 195,051 | ||||||
Period from June 1, | Period from June 1, | |||||||||||
For The Year Ended | 2007 (Inception) to | 2007 (Inception) to | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2008 | ||||||||||
Provision at statutory rate | $ | 120,806 | $ | 74,245 | $ | 195,051 | ||||||
State tax refund and other | (21,175 | ) | 21,175 | — | ||||||||
Provision for income taxes | $ | 99,631 | $ | 95,420 | $ | 195,051 | ||||||
Note 6 — | Investment in Trust Account; Marketable Securities |
F-15
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Gross | ||||||||||||
Carrying | unrealized | |||||||||||
amount | holding gains | Fair value | ||||||||||
Held-to-maturity: | ||||||||||||
U. S. Treasury securities | $ | 54,993,327 | $ | 6,673 | $ | 55,000,000 |
Note 7 — | Fair Value Measurements |
Significant | ||||||||||||||||
Fair Value at | Quoted Prices in | Significant Other | Unobservable | |||||||||||||
December 31, | Active Markets | Observable Inputs | Inputs | |||||||||||||
Description | 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Money Market funds held in the Trust Account | 23.8 | 23.8 | ||||||||||||||
Total | $ | 23.8 | $ | 23.8 | $ | — | $ | — | ||||||||
Note 8 — | Commitments and contingencies |
F-16
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Note 9 — | Going concern issues arising from the requirements of our certificate of incorporation |
F-17
Table of Contents
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Note 10 — | Preferred stock |
F-18
Table of Contents
(a corporation in the development stage)
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 96,489 | $ | 308,874 | ||||
Interest receivable | — | 1,208 | ||||||
Income taxes receivable | 19,805 | 124,191 | ||||||
Franchise taxes receivable | 121,000 | 121,000 | ||||||
Other current assets | 53,309 | 41,699 | ||||||
Total current assets | 290,603 | 596,972 | ||||||
Investments held in Trust Account — Restricted | ||||||||
U. S. Treasury Securities, at amortized cost | 75,016,874 | 54,993,327 | ||||||
U.S. Treasury Mutual Funds, at fair value | 3,798,126 | 23,821,673 | ||||||
Deferred tax asset | 387,570 | 440,759 | ||||||
Total assets | $ | 79,493,173 | $ | 79,852,731 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities, accrued expenses | $ | 1,537,296 | $ | 507,626 | ||||
Long-term liability — deferred underwriters’ fee | 2,730,000 | 2,730,000 | ||||||
Common stock subject to possible redemption (2,999,999 shares at June 30, 2009 and December 31, 2008, respectively, at redemption value of $7.88 per share) | 23,639,992 | 23,639,992 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized; none issued | — | — | ||||||
Common Stock, $0.0001 par value, 50,000,000 shares authorized, 12,500,000 shares issued and outstanding including 2,999,999 shares subject to possible redemption, at June 30, 2009 and December 31, 2008, respectively | 1,250 | 1,250 | ||||||
Additional paid-in capital | 52,595,237 | 52,595,237 | ||||||
Retained earnings (deficit, accumulated during the development stage) | (1,010,602 | ) | 378,626 | |||||
Total stockholders’ equity | 51,585,885 | 52,975,113 | ||||||
Total liabilities and stockholders’ equity | $ | 79,493,173 | $ | 79,852,731 | ||||
F-19
Table of Contents
(a corporation in the development stage)
For The Three | For The Three | For The Six | For The Six | For The Period June 1, | ||||||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | 2007 (Inception) to | ||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Formation and operating costs | 474,295 | 114,306 | 1,381,860 | 286,079 | 2,764,547 | |||||||||||||||
Loss from operations | (474,295 | ) | (114,306 | ) | (1,381,860 | ) | (286,079 | ) | (2,764,547 | ) | ||||||||||
Interest income | 19,052 | 438,450 | 30,207 | 1,124,459 | 1,986,571 | |||||||||||||||
(Loss) income before (benefit) provision for income taxes | (455,243 | ) | 324,144 | (1,351,653 | ) | 838,380 | (777,976 | ) | ||||||||||||
Provision (benefit) for income taxes | ||||||||||||||||||||
Current | (4,606 | ) | 174,654 | (15,614 | ) | 469,188 | 620,196 | |||||||||||||
Deferred | (49,371 | ) | (45,533 | ) | 53,189 | (135,224 | ) | (387,570 | ) | |||||||||||
Total provision (benefit) for income taxes | (53,977 | ) | 129,121 | 37,575 | 333,964 | 232,626 | ||||||||||||||
Net income (loss) | $ | (401,266 | ) | $ | 195,023 | $ | (1,389,228 | ) | $ | 504,416 | $ | (1,010,602 | ) | |||||||
Maximum number of share subject to possible redemption: | ||||||||||||||||||||
Weighted average number of shares, basic and diluted | 2,999,999 | 2,999,999 | 2,999,999 | 2,999,999 | 2,319,628 | |||||||||||||||
Earnings (loss) per share amount, basic and diluted | $ | (0 | ) | $ | 0 | $ | (0 | ) | $ | 0 | $ | (0 | ) | |||||||
Weighted average number of common share outstanding (not subject to possible redemption): | ||||||||||||||||||||
Basic | 9,500,001 | 9,500,001 | 9,500,001 | 9,500,001 | 7,862,681 | |||||||||||||||
Diluted | 9,500,001 | 11,623,758 | 9,500,001 | 11,559,844 | 7,862,681 | |||||||||||||||
Earnings (loss) per share amount: | ||||||||||||||||||||
Basic | $ | (0.04 | ) | $ | 0.02 | $ | (0.15 | ) | $ | 0.05 | $ | (0.13 | ) | |||||||
Diluted | $ | (0.04 | ) | $ | 0.02 | $ | (0.15 | ) | $ | 0.04 | $ | (0.13 | ) |
F-20
Table of Contents
(a corporation in the development stage)
For the Period June 1, 2007 (Inception) to June 30, 2009
Retained | ||||||||||||||||||||
Earnings | ||||||||||||||||||||
(Deficit- | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | During the | Total | ||||||||||||||||||
Common Stock | Paid-in | Development | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Stage) | Equity | ||||||||||||||||
Common shares issued to founders on June 1, 2007 at $.01 per share | 2,500,000 | $ | 250 | $ | 24,750 | $ | — | $ | 25,000 | |||||||||||
Sale of 2,400,000 warrants at $1 per warrant to initial stockholders | — | — | 2,400,000 | — | 2,400,000 | |||||||||||||||
Sale of 10,000,000 units through public offering, net of underwriter’s discount and offering expenses, at $8 per unit (including 2,999,999 shares subject to possible redemption) | 10,000,000 | 1,000 | 73,810,479 | — | 73,811,479 | |||||||||||||||
Proceeds subject to possible redemption, 2,999,999 shares | (23,639,992 | ) | — | (23,639,992 | ) | |||||||||||||||
Net income for the period | — | — | — | 144,120 | 144,120 | |||||||||||||||
Balances at December 31, 2007 | $ | 12,500,000 | $ | 1,250 | $ | 52,595,237 | $ | 144,120 | $ | 52,740,607 | ||||||||||
Net income for the period | 234,506 | 234,506 | ||||||||||||||||||
Balances at December 31, 2008 | $ | 12,500,000 | $ | 1,250 | $ | 52,595,237 | $ | 378,626 | $ | 52,975,113 | ||||||||||
Net loss for the period (unaudited) | (1,389,228 | ) | (1,389,228 | ) | ||||||||||||||||
Balances at June 30, 2009 (unaudited) | $ | 12,500,000 | $ | 1,250 | $ | 52,595,237 | $ | (1,010,602 | ) | $ | 51,585,885 | |||||||||
F-21
Table of Contents
(a corporation in the development stage)
For The Six | For The Six | For The Period June 1, | ||||||||||
Months Ended | Months Ended | 2007 (Inception) to | ||||||||||
June 30, | June 30, | June 30, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
(Unaudited) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | (1,389,228 | ) | $ | 504,416 | $ | (1,010,602 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Deferred income tax (benefit) | 53,189 | (135,224 | ) | (387,570 | ) | |||||||
Change in operating assets and liabilities: | ||||||||||||
Interest receivable | — | 155,560 | ||||||||||
Income taxes receivable | 104,386 | (92,690 | ) | (19,805 | ) | |||||||
Franchise taxes receivable | — | (30,702 | ) | (121,000 | ) | |||||||
Other current assets | (11,610 | ) | (12,384 | ) | (53,309 | ) | ||||||
Accrued expenses | 1,029,670 | 24,036 | 1,537,296 | |||||||||
Income taxes payable | — | (74,244 | ) | — | ||||||||
Franchise taxes payable | — | (68,666 | ) | — | ||||||||
Net cash provided by (used in) operating activities | (212,385 | ) | 270,102 | (54,990 | ) | |||||||
Cash used in investing activities: | ||||||||||||
Investments in Trust Account — Restricted | — | — | (78,815,000 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from notes payable to stockholders | — | — | 200,000 | |||||||||
Proceeds from common shares issued to founders | — | — | 25,000 | |||||||||
Proceeds from public offering | — | — | 80,000,000 | |||||||||
Proceeds from issuance of insider warrants | — | — | 2,400,000 | |||||||||
Repayment of notes payable to stockholders | — | — | (200,000 | ) | ||||||||
Payment of underwriters’ discount and offering costs | — | — | (3,458,521 | ) | ||||||||
Net cash provided by financing | — | — | 78,966,479 | |||||||||
Net (decrease) increase in cash and cash equivalents | (212,385 | ) | 270,102 | 96,489 | ||||||||
Cash and cash equivalents, beginning of period | 308,874 | 124,139 | — | |||||||||
Cash and cash equivalents, end of period | $ | 96,489 | $ | 394,241 | $ | 96,489 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for income and franchise taxes | $ | 76,133 | $ | 685,000 | $ | 1,078,470 | ||||||
Cash refund received for income taxes | $ | (120,000 | ) | $ | — | $ | (155,000 | ) | ||||
Supplemental schedule of non-cash financing activities: | ||||||||||||
Deferred offering costs | $ | — | $ | — | $ | 2,730,000 |
F-22
Table of Contents
(a corporation in the development stage)
(unaudited)
Note 1 — | Organization and Nature of Business Operations |
F-23
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 2 — | Summary of Significant Accounting Policies |
F-24
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
F-25
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
F-26
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 3 — | Initial Public Offering |
F-27
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 4 — | Related Party Transactions |
F-28
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
F-29
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 5 — | Income taxes |
F-30
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
For The Three | For The Three | For The Six | For The Six | For The Period June 1, | ||||||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | 2007 (Inception) to | ||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
Current Tax (Benefit) Provision | ||||||||||||||||||||
Federal | $ | (4,606 | ) | $ | 135,895 | $ | (15,615 | ) | $ | 365,066 | $ | 620,196 | ||||||||
State | — | 38,759 | — | 104,122 | — | |||||||||||||||
Total Current | (4,606 | ) | 174,654 | (15,615 | ) | 469,188 | 620,196 | |||||||||||||
Deferred Tax (Benefit) Provision: | ||||||||||||||||||||
Federal | (49,371 | ) | (35,428 | ) | 53,189 | (105,215 | ) | (387,570 | ) | |||||||||||
State | — | (10,105 | ) | — | (30,009 | ) | — | |||||||||||||
Total Deferred | $ | (49,371 | ) | $ | (45,533 | ) | $ | 53,189 | $ | (135,224 | ) | $ | (387,570 | ) | ||||||
Total Provision | $ | (53,977 | ) | $ | 129,121 | $ | 37,574 | $ | 333,964 | $ | 232,626 | |||||||||
For The Three | For The Three | For The Six | For The Six | For The Period June 1, | ||||||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | 2007 (Inception) to | ||||||||||||||||
June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||
(Benefit) Provision at statutory rate | $ | (154,783 | ) | $ | 100,467 | $ | (459,562 | ) | $ | 259,851 | $ | (264,510 | ) | |||||||
Permanent Differences | 100,806 | — | 497,136 | — | 497,136 | |||||||||||||||
State taxes, net of federal benefit | — | 28,654 | — | 74,113 | — | |||||||||||||||
(Benefit) Provision for income taxes | $ | (53,977 | ) | $ | 129,121 | $ | 37,574 | $ | 333,964 | $ | 232,626 | |||||||||
Note 6 — | Investment held in Trust Account; U.S. Treasury Securities |
F-31
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Gross | ||||||||||||
unrealized | ||||||||||||
Carrying | holding gains | |||||||||||
amount | (Losses) | Fair value | ||||||||||
Held-to-maturity: | ||||||||||||
U.S. Treasury securities held in Trust Account | $ | 75,016,874 | $ | (625 | ) | $ | 75,016,249 |
Gross | ||||||||||||
unrealized | ||||||||||||
Carrying | holding gains | |||||||||||
amount | (Losses) | Fair value | ||||||||||
Held-to-maturity: | ||||||||||||
U.S. Treasury securities held in Trust Account | $ | 54,993,327 | $ | 6,673 | $ | 55,000,000 |
Note 7 — | Fair Value Measurements |
F-32
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Significant | ||||||||||||||||
Quoted Prices in | Significant Other | Unobservable | ||||||||||||||
June 30, | Active Markets | Observable Inputs | Inputs | |||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
(Unaudited) | ||||||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury Mutual Funds, at fair value, held in Trust Account | $ | 3.8 | $ | 3.8 | $ | — | $ | — | ||||||||
Significant | ||||||||||||||||
Quoted Prices in | Significant Other | Unobservable | ||||||||||||||
December 31, | Active Markets | Observable Inputs | Inputs | |||||||||||||
Description | 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury Mutual Funds, a fair value, held in Trust Account | $ | 23.8 | $ | 23.8 | $ | — | $ | — | ||||||||
Note 8 — | Commitments and contingencies |
F-33
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 9 — | Preferred stock |
Note 10 — | Agreement and Plan of Merger |
F-34
Table of Contents
(a corporation in the development stage)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS — (Continued)
(unaudited)
Note 11 — | Going concern issues arising from the requirements of our certificate of incorporation |
F-35
Table of Contents
F-36
Table of Contents
December 31, | December 31, | |||||||||||
2007 | 2008 | |||||||||||
Note | US$ | US$ | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash | 6,333 | 5,715 | ||||||||||
Restricted bank deposit | 2 | (d) | 4,000 | — | ||||||||
Accounts receivable, net of allowance for doubtful accounts | 4 | 4,820 | 37,008 | |||||||||
Amounts due from related parties | 11 | 311 | 11,493 | |||||||||
Prepaid expenses and other current assets | 5 | 1,398 | 11,944 | |||||||||
Deferred tax assets | 15 | — | 580 | |||||||||
Total current assets | 16,862 | 66,740 | ||||||||||
Rental deposits | 163 | 169 | ||||||||||
Property and equipment, net | 6 | 4,389 | 7,255 | |||||||||
Deposits for acquisitions | 2,290 | 6,229 | ||||||||||
Intangible assets, net | 7 | 81 | 5,235 | |||||||||
Goodwill | 7 | 444 | 26,148 | |||||||||
Deferred tax assets | 15 | 6 | — | |||||||||
Total assets | 24,235 | 111,776 | ||||||||||
Liabilities, redeemable convertible preferred shares and shareholders’ (deficit)/equity | ||||||||||||
Current liabilities: | ||||||||||||
Short-term borrowings | 8 | 2,084 | 1,856 | |||||||||
Promissory notes | 9 | — | 15,000 | |||||||||
Accounts payable | 499 | 8,701 | ||||||||||
Accrued expenses and other payables | 10 | 1,383 | 13,218 | |||||||||
Acquisition consideration payable | — | 15,203 | ||||||||||
Amounts due to related parties | 11 | — | 717 | |||||||||
Deferred revenue | 236 | 3,301 | ||||||||||
Income taxes payable | 971 | 9,787 | ||||||||||
Total current liabilities | 5,173 | 67,783 | ||||||||||
Deferred tax liabilities | 15 | 19 | 1,297 | |||||||||
Total liabilities | 5,192 | 69,080 | ||||||||||
Series B redeemable convertible preferred shares: US$0.0001 par value; 36,363,635 shares authorized, issued and outstanding as of December 31, 2007 and 2008 (Redemption value US$32,364) | 12 | (b) | 19,734 | 24,906 | ||||||||
Series C redeemable convertible preferred shares: US$0.0001 par value; nil share authorized, issued and outstanding as of December 31, 2007 and 40,000,000 shares authorized, 4,845,276 shares issued and outstanding as of December 31, 2008 (Redemption value US$13,975) | 9 , 12 | (c) | — | 12,918 | ||||||||
Shareholders’ (deficit)/equity: | ||||||||||||
Series A convertible preferred shares: US$0.0001 par value; 20,000,000 shares authorized, 10,000,000 shares issued and outstanding as of December 31, 2007 and 2008 | 12 | (a) | 722 | 722 | ||||||||
Ordinary shares: US$0.0001 par value; 443,636,365 shares authorized, 32,119,500 shares issued and outstanding as of December 31, 2007 and 2008 | 13 | 3 | 3 | |||||||||
Additional paid-in capital | — | 2,083 | ||||||||||
Accumulated other comprehensive income | 309 | 2,064 | ||||||||||
(Accumulated deficit)/retained earnings | (1,725 | ) | — | |||||||||
Total shareholders’ (deficit)/equity | (691 | ) | 4,872 | |||||||||
Commitments and contingencies | 18 | |||||||||||
Total liabilities, redeemable convertible preferred shares and shareholders’ (deficit)/equity | 24,235 | 111,776 | ||||||||||
F-37
Table of Contents
Period from February 9, | ||||||||||||
2007 (date of | ||||||||||||
inception) through | Year ended | |||||||||||
December 31, | December 31, | |||||||||||
2007 | 2008 | |||||||||||
Note | US$ | US$ | ||||||||||
Advertising service revenues | 11 | (a) | 7,828 | 88,637 | ||||||||
Cost of revenues | (2,451 | ) | (46,674 | ) | ||||||||
Gross profit | 5,377 | 41,963 | ||||||||||
Sales and marketing expenses | (293 | ) | (7,397 | ) | ||||||||
General and administrative expenses | (2,555 | ) | (11,727 | ) | ||||||||
Loss on deconsolidation of a variable interest entity | 1 | (b) | (358 | ) | — | |||||||
Income from operations | 2,171 | 22,839 | ||||||||||
Interest income | 5 | 131 | ||||||||||
Interest expense | 14 | (43 | ) | (8,922 | ) | |||||||
Decrease in fair value of Note Warrant liability | 9 | — | 482 | |||||||||
Loss on extinguishment of the Notes | 9 | — | (3,218 | ) | ||||||||
Foreign currency exchange loss, net | (35 | ) | (167 | ) | ||||||||
Income before income taxes | 2,098 | 11,145 | ||||||||||
Income tax expense | 15 | (850 | ) | (6,802 | ) | |||||||
Net income | 1,248 | 4,343 | ||||||||||
F-38
Table of Contents
Series A convertible | Accumulated | |||||||||||||||||||||||||||||||||||||||
Ordinary shares | preferred shares | Additional | other | (Accumulated | Total | |||||||||||||||||||||||||||||||||||
Number of | Number of | paid-in | comprehensive | deficit)/retained | shareholders’ | Comprehensive | ||||||||||||||||||||||||||||||||||
shares | Amount | shares | Amount | capital | income | earnings | (deficit)/equity | income | ||||||||||||||||||||||||||||||||
Note | US$ | US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||||||||||||
Balance as of February 9, 2007 (date of inception) | — | — | — | �� | — | — | — | — | — | |||||||||||||||||||||||||||||||
Issuance of ordinary shares to the respective owners of Sige, Dale and Conghui | 1 | (b) | 39,900,000 | 4 | — | — | 1,205 | — | — | 1,209 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 1,248 | 1,248 | 1,248 | |||||||||||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | — | — | — | 309 | — | 309 | 309 | |||||||||||||||||||||||||||||||
Comprehensive income | 1,557 | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of ordinary shares | 13 | (7,780,500 | ) | (1 | ) | — | — | (235 | ) | — | (2,876 | ) | (3,112 | ) | ||||||||||||||||||||||||||
Issuance of Series A convertible preferred shares and warrants, net of issuance costs of US$85 | 12 | (a) | — | — | 10,000,000 | 722 | 193 | — | — | 915 | ||||||||||||||||||||||||||||||
Issuance of warrants in connection with issuance of Series B redeemable convertible preferred shares, net of issuance costs of US$32 | 12 | (b) | — | — | — | — | 386 | — | — | 386 | ||||||||||||||||||||||||||||||
Accretion to Series B redeemable convertible preferred shares redemption value | 12 | (b) | — | — | — | — | (1,549 | ) | — | (97 | ) | (1,646 | ) | |||||||||||||||||||||||||||
Balance as of December 31, 2007 | 32,119,500 | 3 | 10,000,000 | 722 | — | 309 | (1,725 | ) | (691 | ) | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 4,343 | 4,343 | 4,343 | |||||||||||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | — | — | — | 1,755 | — | 1,755 | 1,755 | |||||||||||||||||||||||||||||||
Comprehensive income | 6,098 | |||||||||||||||||||||||||||||||||||||||
Convertible note beneficial conversion feature | 9 | — | — | — | — | 5,100 | — | — | 5,100 | |||||||||||||||||||||||||||||||
Extinguishment of the Notes | 9 | (1,182 | ) | (1,182 | ) | |||||||||||||||||||||||||||||||||||
Accretion to Series B redeemable convertible preferred shares redemption value | 12 | (b) | — | — | — | — | (2,554 | ) | — | (2,618 | ) | (5,172 | ) | |||||||||||||||||||||||||||
Accretion to Series C redeemable convertible preferred shares redemption value | 12 | (c) | — | — | — | — | (1,635 | ) | — | — | (1,635 | ) | ||||||||||||||||||||||||||||
Share-based compensation | 16 | — | — | — | — | 2,354 | — | — | 2,354 | |||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | 32,119,500 | 3 | 10,000,000 | 722 | 2,083 | 2,064 | — | 4,872 | ||||||||||||||||||||||||||||||||
F-39
Table of Contents
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Net income | 1,248 | 4,343 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization of property and equipment | 108 | 1,188 | ||||||
Amortization of intangible assets | 218 | 3,465 | ||||||
Share-based compensation | — | 2,354 | ||||||
Amortization of discount on convertible promissory notes | — | 7,200 | ||||||
Deferred tax benefit | (65 | ) | (1,414 | ) | ||||
Loss on deconsolidation of a variable interest entity | 358 | — | ||||||
Decrease in fair value of Note Warrant liability | — | (482 | ) | |||||
Loss on extinguishment of the Notes | — | 3,218 | ||||||
Changes in operating assets and liabilities, net of effect of consolidation of Sige, Dale and Conghui and deconsolidation of Conghui for 2007 and net of effect of acquisitions for 2008: | ||||||||
Accounts receivable | (4,165 | ) | (30,026 | ) | ||||
Prepaid expenses, rental deposits and other current assets | (1,476 | ) | (7,713 | ) | ||||
Amounts due from related parties | 13 | (11,472 | ) | |||||
Accounts payable | 357 | 7,171 | ||||||
Accrued expenses and other payables | 793 | 8,548 | ||||||
Amounts due to related parties | — | (44 | ) | |||||
Deferred revenue | 124 | 1,977 | ||||||
Income taxes payable | 822 | 7,965 | ||||||
Net cash used in operating activities | (1,665 | ) | (3,722 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (4,328 | ) | (3,410 | ) | ||||
Amounts due from related parties | — | (195 | ) | |||||
Cash acquired upon the consolidation of Sige, Dale and Conghui | 328 | — | ||||||
Cash disposed upon the deconsolidation of Conghui | (80 | ) | — | |||||
Cash paid for acquisitions, net of cash acquired | (2,290 | ) | (18,681 | ) | ||||
Net cash used in investing activities | (6,370 | ) | (22,286 | ) | ||||
Cash flows from financing activities | ||||||||
(Increase)/decrease in restricted bank deposit | (4,000 | ) | 4,000 | |||||
Proceeds from short-term borrowings | 3,428 | 1,856 | ||||||
Repayment of short-term borrowings | (1,344 | ) | (2,084 | ) | ||||
Proceeds from issuance of ordinary shares | 4 | — | ||||||
Payment for repurchase of ordinary shares | (3,112 | ) | — | |||||
Proceeds from issuance of Series A convertible preferred shares and warrants, net of issuance costs of US$85 paid | 915 | — | ||||||
Proceeds from issuance of Series B redeemable convertible preferred shares and warrants, net of issuance costs of US$1,526 paid | 18,474 | — | ||||||
Proceeds from issuance of Series C redeemable convertible preferred shares, net of issuance costs of US$739 paid | — | 9,261 | ||||||
Proceeds from issuance of convertible promissory notes and warrants | — | 12,000 | ||||||
Net cash provided by financing activities | 14,365 | 25,033 | ||||||
Effect of foreign currency exchange rate changes on cash | 3 | 357 | ||||||
Net increase/(decrease) in cash | 6,333 | (618 | ) | |||||
Cash at beginning of period/year | — | 6,333 | ||||||
Cash at end of period/year | 6,333 | 5,715 | ||||||
Supplemental cash flow information: | ||||||||
Interest paid | 20 | 57 | ||||||
Income tax paid | 14 | 251 | ||||||
Non-cash investing transactions: | ||||||||
Acquisition consideration payable | — | 15,203 | ||||||
Payable in connection with purchase of property and equipment | — | 44 | ||||||
Non-cash financing transactions: | ||||||||
Issuance costs payable in respect of Series C redeemable convertible preferred shares | — | 98 |
F-40
Table of Contents
1. | Principal activities, organization and basis of presentation |
(a) | Principal activities |
(b) | Organization and basis of presentation |
F-41
Table of Contents
Sige | Dale | Conghui | Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Cash | 18 | 147 | 163 | 328 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 194 | 335 | 254 | 783 | ||||||||||||
Prepaid expenses and other current assets | 8 | 84 | 416 | 508 | ||||||||||||
Amounts due from related parties | 87 | 221 | 281 | 589 | ||||||||||||
Equipment | 18 | 4 | 14 | 36 | ||||||||||||
Customer relationship | 52 | 5 | 32 | 89 | ||||||||||||
Lease agreements | 160 | 15 | 70 | 245 | ||||||||||||
Deferred tax assets | — | 7 | — | 7 | ||||||||||||
Total tangible and intangible assets acquired | 537 | 818 | 1,230 | 2,585 | ||||||||||||
Accounts payable | (28 | ) | (81 | ) | (29 | ) | (138 | ) | ||||||||
Accrued expenses and other payables | (284 | ) | (181 | ) | (395 | ) | (860 | ) | ||||||||
Deferred revenue | (80 | ) | (20 | ) | (17 | ) | (117 | ) | ||||||||
Income taxes payable | (16 | ) | (74 | ) | (498 | ) | (588 | ) | ||||||||
Deferred tax liabilities | (65 | ) | (4 | ) | (32 | ) | (101 | ) | ||||||||
Total liabilities assumed | (473 | ) | (360 | ) | (971 | ) | (1,804 | ) | ||||||||
Goodwill | 424 | — | — | 424 | ||||||||||||
Fair value of consideration | 488 | 458 | 259 | 1,205 | ||||||||||||
F-42
Table of Contents
US$ | ||||
Cash | 80 | |||
Accounts receivable, net of allowance for doubtful accounts | 323 | |||
Prepaid expenses and other current assets | 486 | |||
Amounts due from related parties | 282 | |||
Equipment, net | 11 | |||
Customer relationship | 5 | |||
Lease agreements | 40 | |||
Accounts payable | (29 | ) | ||
Accrued expenses and other payables | (329 | ) | ||
Deferred revenue | (17 | ) | ||
Income taxes payable | (481 | ) | ||
Deferred tax liabilities | (13 | ) | ||
Net assets deconsolidated | 358 | |||
Name of entity | Place of incorporation | |
Shanghai Jincheng Advertising Co., Ltd. | PRC | |
Shaanxi Xinshichuang Advertising Planning Co., Ltd. | PRC | |
Beijing Wanshuizhiyuan Advertising Co., Ltd. | PRC | |
Shenyang Xicheng Advertising Co., Ltd. | PRC | |
Qingdao Kaixiang Advertising Co., Ltd. | PRC | |
Shanghai Haiya Advertising Co., Ltd. | PRC | |
Tianjin Shengshitongda Advertising Creativity Co., Ltd. | PRC | |
Beijing Youluo Advertising Co., Ltd. | PRC | |
Ad-Icon Company Limited | HKSAR | |
Changsha Jingli Advertising Co., Ltd. | PRC | |
Wenzhou Rigao Advertising Co., Ltd. | PRC | |
Wuxi Ruizhong Advertising Co., Ltd. | PRC |
F-43
Table of Contents
F-44
Table of Contents
(c) | Significant concentrations and risks |
2. | Summary of significant accounting policies |
(a) | Principles of consolidation |
(b) | Use of estimates |
(c) | Foreign currency transactions and translation |
F-45
Table of Contents
(d) | Cash and restricted bank deposit |
December 31, | ||||||||||||||||
2007 | 2008 | |||||||||||||||
Original currency | US$ equivalent | Original currency | US$ equivalent | |||||||||||||
Cash held in the PRC | RMB19,152 | 2,627 | RMB37,952 | 5,553 | ||||||||||||
US$ | 518 | 518 | US$ | 2 | 2 | |||||||||||
Cash held in the HKSAR | US$ | 3,188 | 3,188 | US$ | 17 | 17 | ||||||||||
HK$ | 1,111 | 143 | ||||||||||||||
Restricted bank deposit held in the HKSAR | US$ | 4,000 | 4,000 | — | — |
(e) | Accounts receivable |
F-46
Table of Contents
(f) | Long-lived assets |
Leasehold improvements | Over the remaining term of the lease ranging from 1 to 3 years | |||
Advertisement display equipment | 3 to 5 years | |||
Furniture, fixtures and office equipment | 5 years | |||
Motor vehicles | 5 years |
F-47
Table of Contents
(g) | Income taxes |
(h) | Revenue recognition |
F-48
Table of Contents
(i) | Cost of revenues |
(j) | Operating leases |
(k) | Advertising expenses |
(l) | Retirement and other postretirement benefits |
F-49
Table of Contents
(m) | Share-based payments |
(n) | Commitments and contingencies |
(o) | Segment reporting |
(p) | Recently issued accounting standards |
F-50
Table of Contents
3. | Acquisitions |
(a) | Shanghai Jincheng Advertising Co., Ltd. (“Shanghai Jincheng”) |
US$ | ||||
Cash | 2 | |||
Prepaid expenses and other current assets | 12 | |||
Equipment | 9 | |||
Customer relationship (average amortization period: 1 year) | 2 | |||
Lease agreements (average amortization period: 3 years) | 85 | |||
Total tangible and intangible assets acquired | 110 | |||
Accounts payable | (15 | ) | ||
Accrued expenses and other payables | (2 | ) | ||
Deferred revenue | (5 | ) | ||
Income taxes payable | (111 | ) | ||
Deferred tax liabilities | (22 | ) | ||
Total liabilities assumed | (155 | ) | ||
Goodwill | 1,005 | |||
Total consideration | 960 | |||
(b) | Shaanxi Xinshichuang Advertising Planning Co., Ltd. (“Shaanxi Xinshichuang”) |
F-51
Table of Contents
US$ | ||||
Cash | 57 | |||
Accounts receivable, net of allowance for doubtful accounts | 193 | |||
Prepaid expenses and other current assets | 59 | |||
Equipment | 20 | |||
Customer relationship (average amortization period: 1 year) | 7 | |||
Lease agreements (average amortization period: 2 years) | 143 | |||
Total tangible and intangible assets acquired | 479 | |||
Accounts payable | (2 | ) | ||
Accrued expenses and other payables | (57 | ) | ||
Income taxes payable | (260 | ) | ||
Deferred tax liabilities | (37 | ) | ||
Total liabilities assumed | (356 | ) | ||
Goodwill | 1,560 | |||
Total consideration | 1,683 | |||
(c) | Beijing Wanshuizhiyuan Advertising Co., Ltd. (“Beijing Wanshuizhiyuan”), Shenyang Xicheng Advertising Co., Ltd. (“Shenyang Xicheng”) and Qingdao Kaixiang Advertising Co., Ltd. (“Qingdao Kaixiang”) |
F-52
Table of Contents
Beijing | ||||||||||||||||
Wanshuizhiyuan | Shenyang Xicheng | Qingdao Kaixiang | ||||||||||||||
US$ | US$ | US$ | ||||||||||||||
Cash | 472 | 190 | 19 | |||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 165 | 136 | 430 | |||||||||||||
Prepaid expenses and other current assets | 75 | 24 | 281 | |||||||||||||
Amounts due from related parties | 7 | 119 | 4 | |||||||||||||
Equipment | – | 3 | 72 | |||||||||||||
Customer relationship (average amortization period: 1-3 years) | 181 | 623 | 122 | |||||||||||||
Lease agreements (average amortization period: 2-3 years) | 200 | 737 | 239 | |||||||||||||
Accounts payable | (176 | ) | (91 | ) | (246 | ) | ||||||||||
Accrued expenses and other payables | (40 | ) | (37 | ) | (3 | ) | ||||||||||
Deferred revenue | (323 | ) | (92 | ) | (220 | ) | ||||||||||
Amounts due to related parties | – | – | (233 | ) | ||||||||||||
Income taxes payable | (114 | ) | (38 | ) | (21 | ) | ||||||||||
Deferred tax liabilities | (95 | ) | (340 | ) | (90 | ) | ||||||||||
Fair value of identifiable net assets | 352 | 1,234 | 354 | |||||||||||||
(d) | Shanghai Haiya Advertising Co., Ltd. (“Shanghai Haiya”) |
F-53
Table of Contents
US$ | ||||
Cash | 12 | |||
Accounts receivable, net of allowance for doubtful accounts | 77 | |||
Prepaid expenses and other current assets | 287 | |||
Amounts due from related parties | 75 | |||
Equipment | 15 | |||
Deferred tax assets | 10 | |||
Customer relationship (average amortization period: 2 years) | 27 | |||
Lease agreements (average amortization period: 4 years) | 958 | |||
Accounts payable | (112 | ) | ||
Accrued expenses and other payables | (10 | ) | ||
Deferred revenue | (103 | ) | ||
Amounts due to related parties | (418 | ) | ||
Deferred tax liabilities | (246 | ) | ||
Fair value of identifiable net assets | 572 | |||
(e) | Tianjin Shengshitongda Advertising Creativity Co., Ltd. (“Tianjin Shengshitongda”) |
F-54
Table of Contents
US$ | ||||
Cash | 19 | |||
Prepaid expenses and other current assets | 9 | |||
Customer relationship (average amortization period: 1 year) | 2 | |||
Lease agreements (average amortization period: 2 years) | 17 | |||
Accounts payable | (16 | ) | ||
Accrued expenses and other payables | (5 | ) | ||
Deferred tax liabilities | (5 | ) | ||
Fair value of identifiable net assets | 21 | |||
(f) | Beijing Youluo Advertising Co., Ltd. (“Beijing Youluo”) |
US$ | ||||
Cash | 71 | |||
Equipment | 70 | |||
Customer relationship (average amortization period: 2 years) | 1,564 | |||
Lease agreements (average amortization period: 3 years) | 2,692 | |||
Accrued expenses and other payables | (18 | ) | ||
Deferred tax liabilities | (1,064 | ) | ||
Fair value of identifiable net assets | 3,315 | |||
F-55
Table of Contents
(g) | Ad-Icon Company Limited (“Ad-Icon”) |
US$ | ||||
Cash | 25 | |||
Accounts receivable, net of allowance for doubtful accounts | 129 | |||
Prepaid expenses and other current assets | 227 | |||
Amounts due from related parties | 70 | |||
Equipment | 10 | |||
Customer relationship (average amortization period: 2 years) | 148 | |||
Lease agreements (average amortization period: 2 years) | 104 | |||
Accounts payable | (61 | ) | ||
Accrued expenses and other payables | (2 | ) | ||
Deferred revenue | (143 | ) | ||
Amounts due to related parties | (211 | ) | ||
Income taxes payable | (35 | ) | ||
Deferred tax liabilities | (42 | ) | ||
Fair value of identifiable net assets | 219 | |||
(h) | Changsha Jingli Advertising Co., Ltd. (“Changsha Jingli”), Wenzhou Rigao Advertising Co., Ltd. (“Wenzhou Rigao”) and Wuxi Ruizhong Advertising Co., Ltd. (“Wuxi Ruizhong”) |
F-56
Table of Contents
Changsha | Wenzhou | Wuxi | ||||||||||
Jingli | Rigao | Ruizhong | ||||||||||
US$ | US$ | US$ | ||||||||||
Cash | – | 25 | 31 | |||||||||
Accounts receivable, net of allowance for doubtful accounts | 119 | 36 | 89 | |||||||||
Prepaid expenses and other current assets | 73 | 9 | 51 | |||||||||
Equipment | – | 41 | 28 | |||||||||
Customer relationship (average amortization period: 1 year) | 20 | 98 | 31 | |||||||||
Lease agreements (average amortization period: 2-3 years) | 36 | 144 | 168 | |||||||||
Accounts payable | (12 | ) | (116 | ) | (14 | ) | ||||||
Amounts due to related parties | (11 | ) | – | (2 | ) | |||||||
Accrued expenses and other payables | (6 | ) | (23 | ) | (60 | ) | ||||||
Deferred revenue | – | (66 | ) | (44 | ) | |||||||
Income taxes payable | – | – | (46 | ) | ||||||||
Deferred tax liabilities | (14 | ) | (61 | ) | (50 | ) | ||||||
Fair value of identifiable net assets | 205 | 87 | 182 | |||||||||
(i) | Unaudited pro forma financial information |
F-57
Table of Contents
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Advertising service revenues | 20,030 | 95,093 | ||||||
Income from operations | 900 | 24,354 | ||||||
Net income | 491 | 5,444 |
4. | Accounts receivable, net of allowance for doubtful accounts |
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Accounts receivable | 4,980 | 38,477 | ||||||
Less: allowance for doubtful accounts | (160 | ) | (1,469 | ) | ||||
Accounts receivable, net | 4,820 | 37,008 | ||||||
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Beginning allowance for doubtful accounts | – | 160 | ||||||
Additions charged to bad debt expense | 160 | 1,309 | ||||||
Ending allowance for doubtful accounts | 160 | 1,469 | ||||||
5. | Prepaid expenses and other current assets |
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Prepaid rent | 760 | 7,426 | ||||||
Other prepaid expenses | 441 | 3,224 | ||||||
Rental deposits and other receivables | 197 | 1,294 | ||||||
Total prepaid expenses and other current assets | 1,398 | 11,944 | ||||||
F-58
Table of Contents
6. | Property and equipment, net |
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Leasehold improvements | 68 | 216 | ||||||
Advertising display equipment | 4,128 | 6,839 | ||||||
Furniture, fixtures and office equipment | 170 | 979 | ||||||
Motor vehicles | 146 | 563 | ||||||
Total cost of property and equipment | 4,512 | 8,597 | ||||||
Less: accumulated depreciation and amortization | (123 | ) | (1,342 | ) | ||||
Total property and equipment, net | 4,389 | 7,255 | ||||||
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Cost of revenues | 78 | 986 | ||||||
General and administrative expenses | 30 | 202 | ||||||
Total amortization | 108 | 1,188 | ||||||
7. | Goodwill and other intangible assets |
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Beginning balance of goodwill | – | 444 | ||||||
Recognized upon consolidation of Sige (note 1(b)) | 424 | – | ||||||
Recognized upon acquisitions of Shanghai Jincheng and Shaanxi Xinshichuang (notes 3(a) and(b)) | – | 2,565 | ||||||
Recognized upon resolution of contingent consideration of Beijing Wanshuizhiyuan, Shenyang Xicheng and Qingdao Kaixiang (note 3(c)) | – | 23,105 | ||||||
Foreign currency exchange translation | 20 | 34 | ||||||
Ending balance of goodwill | 444 | 26,148 | ||||||
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Weighted average | December 31, | December 31, | ||||||||||
amortization period | 2007 | 2008 | ||||||||||
US$ | US$ | |||||||||||
Gross amount | ||||||||||||
Customer relationship | 1-3 years | 60 | 2,991 | |||||||||
Lease agreements | 1-4 years | 183 | 5,927 | |||||||||
243 | 8,918 | |||||||||||
Accumulated amortization | ||||||||||||
Customer relationship | (60 | ) | (1,795 | ) | ||||||||
Lease agreements | (102 | ) | (1,888 | ) | ||||||||
(162 | ) | (3,683 | ) | |||||||||
Net intangible assets | 81 | 5,235 | ||||||||||
Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Cost of revenues | 132 | 1,756 | ||||||
Sales and marketing expenses | 86 | 1,709 | ||||||
Total amortization | 218 | 3,465 | ||||||
US$ | ||||
2009 | 2,974 | |||
2010 | 1,735 | |||
2011 | 505 | |||
2012 | 21 | |||
5,235 | ||||
8. | Short-term borrowings |
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9. | Promissory notes and warrants |
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10. | Accrued expenses and other payables |
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Accrued payroll and staff benefits | 399 | 742 | ||||||
Business tax and surcharges payable | 805 | 5,971 | ||||||
Note Warrant liability | – | 1,618 | ||||||
Other accrued liabilities | 179 | 4,887 | ||||||
Total accrued expenses and other payables | 1,383 | 13,218 | ||||||
11. | Related party transactions and balances |
(a) | Related party transactions |
Period from | ||||||||||||||||
February 9, | ||||||||||||||||
2007 (date of | ||||||||||||||||
inception) through | Year ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2008 | |||||||||||||||
Note | US$ | US$ | ||||||||||||||
Revenue from provision of advertising services | (i | ) | – | 7,040 | ||||||||||||
Expenses for leases of advertising space | (ii | ) | – | 4,148 | ||||||||||||
(i) | Represents amounts received / receivable from affiliated entities of senior management personnel of certain companies acquired by Jingli (see note 3), for provision of advertising services to these entities. The transactions are conducted on terms comparable to the terms of transactions with third parties. | |
(ii) | Represents amounts paid / payable to affiliated entities of senior management personnel of certain companies acquired by Jingli (see note 3), for leases of advertising spaces from these entities. The transactions are conducted on terms comparable to the terms of transactions with third parties. |
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(b) | Amounts due from / to related parties are analyzed as follows: |
December 31, | December 31, | |||||||||||
2007 | 2008 | |||||||||||
Note | US$ | US$ | ||||||||||
Customer payments collected on behalf of the Group | (i | ) | 311 | 7,418 | ||||||||
Receivables for provision of advertising services | (ii | ) | – | 3,738 | ||||||||
Advances to senior management personnel | (iii | ) | – | 337 | ||||||||
Due from related parties | 311 | 11,493 | ||||||||||
Operating expenses paid on behalf of the Group | (iv | ) | – | 227 | ||||||||
Payables for the lease of advertising space | (v | ) | – | 490 | ||||||||
Due to related parties | – | 717 | ||||||||||
(i) | Represents customer payments collected by the Company’s shareholders and senior management personnel of Jingli’s acquired subsidiaries on behalf of the Group companies which had not been remitted to the Group companies as of the balance sheet date. During the year ended December 31, 2008, certain customers remitted cash to individual shareholders of the Company and senior management personnel of certain subsidiaries of the Company to settle the amounts they owed to the Group. The amounts received by the shareholders and the senior management personnel are repaid back to the Group on a periodic basis and 75% of the outstanding balance as of December 31, 2008 has been repaid to the Group by June 30, 2009. The remaining balance is expected to be repaid to the Group within 2009. | |
(ii) | Represents amount receivable from affiliated companies of certain companies acquired by Jingli (see note 3) for advertising services provided by the Group to these entities as described in note 11(a)(i) above. These amounts are repayable in accordance with normal payment terms with other unrelated customers. | |
(iii) | Represents the advances made by the Group to the senior management personnel of certain companies acquired by Jingli (see note 3). The amounts are interest free and are expected to be settled within 12 months from the balance sheet date and are secured by the contingent purchase price payable of certain companies acquired by Jingli (see note 3) to the previous owners of the acquired companies. | |
(iv) | Represents operating expenses paid by the senior management personnel of certain companies acquired by Jingli (see note 3) on behalf of the Group. The amounts are interest free, unsecured and have no fixed terms of repayment. The balance as of December 31, 2008 is expected to be settled within 12 months from the balance sheet date. | |
(v) | Represents operating lease payments payable to affiliated companies of certain companies acquired by Jingli (see note 3) for leases of advertising space as described in note 11(a)(ii) above. The amounts are repayable in accordance with normal payment terms with other unrelated advertising space suppliers. |
12. | Convertible Preferred Shares and Warrants |
(a) | Series A Convertible Preferred Shares and Warrants |
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(b) | Series B Redeemable Convertible Preferred Shares and Warrants |
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(c) | Series C Redeemable Convertible Preferred Shares |
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13. | Ordinary shares |
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14. | Interest expense |
Period from February 9, | ||||||||||||
2007 (date of | ||||||||||||
inception) through | Year ended | |||||||||||
December 31, | December 31, | |||||||||||
2007 | 2008 | |||||||||||
US$ | US$ | |||||||||||
Bank loan interest | 43 | 35 | ||||||||||
Convertible promissory notes interest | – | 720 | ||||||||||
Interest on New Note, First Interim Notes and short-term loan from a third party lender | – | 618 | ||||||||||
Amortization of convertible promissory notes issuance costs | – | 349 | ||||||||||
Amortization of convertible promissory notes discount | – | 7,200 | ||||||||||
Total interest expense | 43 | 8,922 | ||||||||||
15. | Income taxes |
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Period from February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Current tax | ||||||||
- PRC | 915 | 8,146 | ||||||
- HK | – | 70 | ||||||
Deferred tax | ||||||||
- PRC | (65 | ) | (1,293 | ) | ||||
- HK | – | (121 | ) | |||||
Total income tax expense | 850 | 6,802 | ||||||
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Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Computed expected tax expense | 692 | 2,787 | ||||||
Tax benefit of Special Concessionary Tax Rate on income of Sige | (198 | ) | – | |||||
Effect of differential preferential tax rate on income of Dale | (46 | ) | – | |||||
Effect of differential tax rate on income of Ad-Icon | – | (28 | ) | |||||
Effect of non-PRC entity (the Company) not subject to income tax | 5 | 3,594 | ||||||
Non-deductible loss on deconsolidation of a variable interest entity | 118 | – | ||||||
Non-deductible expenses (note(i)) | 126 | 541 | ||||||
Change in valuation allowance | 153 | (92 | ) | |||||
Actual income tax expense | 850 | 6,802 | ||||||
(i): | Non-deductible expenses primarily represent entertainment expenses in excess of statutory limits for tax purpose. |
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Deferred tax assets: | ||||||||
Non-current | ||||||||
- Property and equipment | 6 | – | ||||||
- Tax loss carryforwards of a subsidiary | 153 | 61 | ||||||
Current | ||||||||
- Allowance for doubtful accounts | – | 311 | ||||||
- Accrued expenses | – | 269 | ||||||
Total gross deferred tax assets | 159 | 641 | ||||||
Valuation allowance | (153 | ) | (61 | ) | ||||
Deferred tax assets | 6 | 580 | ||||||
Deferred tax liabilities — non-current: | ||||||||
Intangible assets | (19 | ) | (1,297 | ) | ||||
Net deferred tax liability | (13 | ) | (717 | ) | ||||
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16. | Share-based payments |
(a) | Share options |
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No. of | Grant-date | Expected | Expected | |||||||||||||||||||||||||
options | fair value | Aggregate | life | Expected | dividend | Risk-free | ||||||||||||||||||||||
Grant date | granted | per option | fair value | (years) | volatility | yield | interest rate | |||||||||||||||||||||
January 2008 | 4,880,000 | US$ | 0.08 to US$0.43 | US$ | 1,792 | 7.7 to 10.0 | 44.69 | % | 0 | % | 5.31 | % | ||||||||||||||||
February 2008 | 40,000 | US$ | 0.15 | US$ | 6 | 8.0 | 58.75 | % | 0 | % | 5.02 | % | ||||||||||||||||
April 2008 | 3,020,000 | US$ | 0.12 to US$0.39 | US$ | 746 | 6.5 to 10.0 | 59.63 | % | 0 | % | 5.27 | % | ||||||||||||||||
July 2008 | 900,000 | US$ | 0.12 | US$ | 110 | 8.3 to 8.5 | 57.77 | % | 0 | % | 5.59 | % |
Number of | Weighted average | Weighted average | ||||||||||
options | exercise price per share | remaining contractual term | ||||||||||
Balance as of January 1, 2008 | – | – | – | |||||||||
Granted during the year | 8,840,000 | – | – | |||||||||
Balance as of December 31, 2008 | 8,840,000 | US$ | 0.79 | 9.1 years | ||||||||
(b) | Restricted share units |
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Number of | Weighted average | |||||||||||
restricted share | remaining | |||||||||||
unit granted | Grant-date fair value | contractual term | ||||||||||
Balance as of January 1, 2008 | – | – | – | |||||||||
Granted during the year | 3,867,000 | – | – | |||||||||
Balance as of December 31, 2008 | 3,867,000 | US$ | 1,450 | 9.2 years | ||||||||
17. | Statutory reserve |
18. | Commitments and contingencies |
(a) | Operating lease commitments |
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Period from | ||||||||
February 9, | ||||||||
2007 (date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Cost of revenues | 1,371 | 37,768 | ||||||
General and administrative expenses | 147 | 1,018 | ||||||
Total rental expenses | 1,518 | 38,786 | ||||||
US$ | ||||
2009 | 26,717 | |||
2010 | 10,900 | |||
2011 | 4,852 | |||
2012 | 1,299 | |||
Thereafter | 27 | |||
43,795 | ||||
(b) | Capital commitments |
19. | Fair value of financial instruments |
20. | SearchMedia International Limited (Parent Company) |
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December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Cash | 3,696 | 17 | ||||||
Restricted bank deposit | 4,000 | – | ||||||
Amounts due from related parties | 65 | 13,425 | ||||||
Prepaid expenses and other current assets | 4 | 1,844 | ||||||
Equity investments | 11,278 | 48,652 | ||||||
Total assets | 19,043 | 63,938 | ||||||
Short-term borrowings | – | 1,820 | ||||||
Promissory notes | – | 15,000 | ||||||
Accrued expenses and other payables | – | 4,422 | ||||||
Total liabilities | – | 21,242 | ||||||
Series B redeemable convertible preferred shares | 19,734 | 24,906 | ||||||
Series C redeemable convertible preferred shares | – | 12,918 | ||||||
Total shareholder’s (deficit)/equity | (691 | ) | 4,872 | |||||
Liabilities, redeemable convertible preferred shares and shareholders’ (deficit)/equity | 19,043 | 63,938 | ||||||
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Period from February 9, | ||||||||
2007 (date of | ||||||||
inception) to | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Cost of revenues | – | (56 | ) | |||||
Sales and marketing expenses | – | (68 | ) | |||||
General and administrative expenses | (18 | ) | (2,725 | ) | ||||
Interest income | 2 | 97 | ||||||
Interest expense | – | (8,887 | ) | |||||
Decrease in fair value of Note Warrant liability | – | 482 | ||||||
Loss on extinguishment of the Notes | – | (3,218 | ) | |||||
Loss before equity in earnings from subsidiaries and consolidated VIEs | (16 | ) | (14,375 | ) | ||||
Equity in earnings of subsidiaries and consolidated VIEs | 1,264 | 18,718 | ||||||
Net income | 1,248 | 4,343 | ||||||
Period from | ||||||||
February 9, | ||||||||
2007 | ||||||||
(date of | ||||||||
inception) through | Year ended | |||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Net cash used in operating activities | (84 | ) | (499 | ) | ||||
Net cash used in investing activities | (12,500 | ) | (30,261 | ) | ||||
Net cash provided by financing activities | 16,280 | 27,081 | ||||||
Net increase/(decrease) in cash | 3,696 | (3,679 | ) | |||||
21. | Subsequent events |
(a) | Share incentive plan |
(b) | Loan financing in March 2009 |
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(c) | Amendment of the effective conversion price of Series C Shares and issuance of additional Series C Shares |
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December 31, | June 3, | |||||||||||
2006 | 2007 | |||||||||||
Note | US$ | US$ | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash | 15 | 18 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of nil and nil as of December 31, 2006 and June 3, 2007, respectively | 3 | 65 | 194 | |||||||||
Amount due from an affiliated company | 7 | — | 87 | |||||||||
Prepaid expenses and deposits | 8 | 8 | ||||||||||
Total current assets | 88 | 307 | ||||||||||
Office equipment, net | 4 | 20 | 18 | |||||||||
Total assets | 108 | 325 | ||||||||||
Liabilities and owner’s equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | 21 | 28 | ||||||||||
Accrued expenses and other payables | 5 | 193 | 284 | |||||||||
Deferred revenue | 34 | 80 | ||||||||||
Income taxes payable | — | 16 | ||||||||||
Total liabilities | 248 | 408 | ||||||||||
Owner’s deficit: | ||||||||||||
Contributed capital | 242 | 242 | ||||||||||
Statutory surplus reserve | 8 | 98 | 98 | |||||||||
Accumulated other comprehensive income | 13 | 15 | ||||||||||
Accumulated deficit | (493 | ) | (438 | ) | ||||||||
Total owner’s deficit | (140 | ) | (83 | ) | ||||||||
Commitments and contingencies | 9 | |||||||||||
Total liabilities and owner’s deficit | 108 | 325 | ||||||||||
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Period from | ||||||||||||
Year Ended | January 1, 2007 | |||||||||||
December 31, | through | |||||||||||
2006 | June 3, 2007 | |||||||||||
Note | US$ | US$ | ||||||||||
Advertising service revenues | 1,424 | 599 | ||||||||||
Cost of revenues | (622 | ) | (369 | ) | ||||||||
Gross profit | 802 | 230 | ||||||||||
Sales and marketing expenses | (36 | ) | (25 | ) | ||||||||
General and administrative expenses | (145 | ) | (129 | ) | ||||||||
Income before income taxes | 621 | 76 | ||||||||||
Income tax expense | 6 | (15 | ) | (21 | ) | |||||||
Net income | 606 | 55 | ||||||||||
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Accumulated | ||||||||||||||||||||||||||||
Statutory | other | |||||||||||||||||||||||||||
Contributed | surplus | comprehensive | Accumulated | Total owner’s | Comprehensive | |||||||||||||||||||||||
capital | reserve | income | deficit | deficit | income | |||||||||||||||||||||||
Note | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Balance as of January 1, 2006 | 242 | 40 | 9 | (338 | ) | (47 | ) | |||||||||||||||||||||
Net income | — | — | — | 606 | 606 | 606 | ||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | 4 | — | 4 | 4 | ||||||||||||||||||||||
Comprehensive income | 610 | |||||||||||||||||||||||||||
Appropriations to statutory surplus reserve | 8 | — | 58 | — | (58 | ) | — | |||||||||||||||||||||
Distributions to owner | — | — | — | (703 | ) | (703 | ) | |||||||||||||||||||||
Balance as of December 31, 2006 | 242 | 98 | 13 | (493 | ) | (140 | ) | |||||||||||||||||||||
Net income | — | — | — | 55 | 55 | 55 | ||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | 2 | — | 2 | 2 | ||||||||||||||||||||||
Comprehensive income | 57 | |||||||||||||||||||||||||||
Balance as of June 3, 2007 | 242 | 98 | 15 | (438 | ) | (83 | ) | |||||||||||||||||||||
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Period from | ||||||||
January 1, 2007 | ||||||||
Year Ended | through | |||||||
December 31, 2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Net income | 606 | 55 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 5 | 2 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 199 | (126 | ) | |||||
Amount due from owner | 62 | — | ||||||
Prepaid expenses and deposits | (1 | ) | — | |||||
Accounts payable | (123 | ) | 7 | |||||
Accrued expenses and other payables | 105 | 88 | ||||||
Deferred revenue | (156 | ) | 45 | |||||
Income taxes payable | — | 17 | ||||||
Net cash provided by operating activities | 697 | 88 | ||||||
Cash flows from investing activities | ||||||||
Amount due from an affiliated company | — | (86 | ) | |||||
Net cash used in investing activities | — | (86 | ) | |||||
Cash flows from financing activities | ||||||||
Distributions to owner | (703 | ) | — | |||||
Net cash used in financing activities | (703 | ) | — | |||||
Effect of foreign currency exchange rate changes on cash | 1 | 1 | ||||||
Net (decrease) increase in cash | (5 | ) | 3 | |||||
Cash at beginning of year / period | 20 | 15 | ||||||
Cash at end of year / period | 15 | 18 | ||||||
Supplemental cash flow information: | ||||||||
Income tax paid | 15 | 5 |
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1. | Organization, principal activities and basis of presentation |
(a) | Organization and principal activities |
(b) | Basis of presentation |
2. | Summary of significant accounting policies |
(a) | Use of estimates |
(b) | Foreign currency transactions and translation |
(c) | Accounts receivable |
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(d) | Long-lived assets |
(e) | Income taxes |
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(f) | Revenue recognition |
(g) | Cost of revenues |
(h) | Operating leases |
(i) | Retirement and other post retirement benefits |
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(j) | Commitments and contingencies |
3. | Accounts receivable, net |
4. | Office equipment, net |
December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
Cost | 28 | 28 | ||||||
Less: accumulated depreciation | (8 | ) | (10 | ) | ||||
Net | 20 | 18 | ||||||
5. | Accrued expenses and other payables |
December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
Accrued payroll and staff benefits | 29 | 34 | ||||||
Business tax and surcharges payable | 157 | 193 | ||||||
Other accrued expenses | 7 | 57 | ||||||
Total accrued expenses and other payables | 193 | 284 | ||||||
6. | Income taxes |
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Period from | ||||||||
Year Ended | January 1, 2007 | |||||||
December 31, | through | |||||||
2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Computed expected tax expense | 205 | 25 | ||||||
Tax benefit of the Special Concessionary Tax Rate | (190 | ) | (4 | ) | ||||
Actual income tax expense | 15 | 21 | ||||||
7. | Amount due from an affiliated company |
8. | Statutory surplus reserve |
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9. | Operating lease commitments |
Period from | ||||||||
Year Ended | January 1, 2007 | |||||||
December 31, | through | |||||||
2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Cost of revenues | 402 | 337 | ||||||
General and administrative expenses | 23 | 9 | ||||||
Total rental expenses | 425 | 346 | ||||||
December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
2007 | 443 | 212 | ||||||
2008 | 50 | 50 | ||||||
2009 | 4 | 4 | ||||||
497 | 266 | |||||||
10. | Subsequent event |
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(Amounts in thousands)
December 31, | June 3, | |||||||||||
2006 | 2007 | |||||||||||
Note | US$ | US$ | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash | 187 | 147 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts | 3 | 214 | 335 | |||||||||
Amounts due from related parties | 7 | 77 | 221 | |||||||||
Prepaid expenses | 92 | 84 | ||||||||||
Total current assets | 570 | 787 | ||||||||||
Equipment, net | 4 | 12 | 43 | |||||||||
Total assets | 582 | 830 | ||||||||||
Liabilities and owner’s equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | 41 | 81 | ||||||||||
Accrued expenses and other payables | 5 | 138 | 181 | |||||||||
Deferred revenue | 115 | 20 | ||||||||||
Income taxes payable | 36 | 74 | ||||||||||
Total liabilities | 330 | 356 | ||||||||||
Owner’s equity: | ||||||||||||
Contributed capital | 121 | 121 | ||||||||||
Statutory surplus reserve | 8 | 44 | 44 | |||||||||
Accumulated other comprehensive income | 10 | 24 | ||||||||||
Retained earnings | 77 | 285 | ||||||||||
Total owner’s equity | 252 | 474 | ||||||||||
Commitments and contingencies | 9 | |||||||||||
Total liabilities and owner’s equity | 582 | 830 | ||||||||||
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(Amounts in thousands)
Period from January 1, | ||||||||||||
Year Ended | 2007 through | |||||||||||
December 31, 2006 | June 3, 2007 | |||||||||||
Note | US$ | US$ | ||||||||||
Advertising service revenues | 1,104 | 745 | ||||||||||
Cost of revenues | (387 | ) | (214 | ) | ||||||||
Gross profit | 717 | 531 | ||||||||||
Sales and marketing expenses | (176 | ) | (105 | ) | ||||||||
General and administrative expenses | (172 | ) | (140 | ) | ||||||||
Income before income taxes | 369 | 286 | ||||||||||
Income tax expense | 6 | (36 | ) | (43 | ) | |||||||
Net income | 333 | 243 | ||||||||||
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(Amounts in thousands)
Accumulated | ||||||||||||||||||||||||||||
Statutory | other | |||||||||||||||||||||||||||
Contributed | surplus | comprehensive | Retained | Total owner’s | Comprehensive | |||||||||||||||||||||||
capital | reserve | income | earnings | equity | income | |||||||||||||||||||||||
Note | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Balance as of January 1, 2006 | 121 | 11 | 3 | — | 135 | |||||||||||||||||||||||
Net income | — | — | — | 333 | 333 | 333 | ||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | 7 | — | 7 | 7 | ||||||||||||||||||||||
Comprehensive income | 340 | |||||||||||||||||||||||||||
Appropriations to statutory surplus reserve | 8 | — | 33 | — | (33 | ) | — | |||||||||||||||||||||
Distributions to owner | — | — | — | (223 | ) | (223 | ) | |||||||||||||||||||||
Balance as of December 31, 2006 | 121 | 44 | 10 | 77 | 252 | |||||||||||||||||||||||
Net income | — | — | — | 243 | 243 | 243 | ||||||||||||||||||||||
Foreign currency exchange translation adjustment | — | — | 14 | — | 14 | 14 | ||||||||||||||||||||||
Comprehensive income | 257 | |||||||||||||||||||||||||||
Distributions to owner | — | — | — | (35 | ) | (35 | ) | |||||||||||||||||||||
Balance as of June 3, 2007 | 121 | 44 | 24 | 285 | 474 | |||||||||||||||||||||||
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(Amounts in thousands)
Period from January 1, | ||||||||
Year Ended | 2007 through | |||||||
December 31, 2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Net income | 333 | 243 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2 | 2 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 24 | (109 | ) | |||||
Amounts due from related parties | (43 | ) | — | |||||
Prepaid expenses | (89 | ) | 12 | |||||
Accounts payable | 5 | 39 | ||||||
Accrued expenses and other payables | 63 | 39 | ||||||
Deferred revenue | 63 | (97 | ) | |||||
Income taxes payable | 36 | 37 | ||||||
Net cash provided by operating activities | 394 | 166 | ||||||
Cash flows from investing activities | ||||||||
Purchase of equipment | (7 | ) | (33 | ) | ||||
Amounts due from related parties | — | (142 | ) | |||||
Net cash used in investing activities | (7 | ) | (175 | ) | ||||
Cash flows from financing activities | ||||||||
Distributions to owner | (287 | ) | (35 | ) | ||||
Net cash used in financing activities | (287 | ) | (35 | ) | ||||
Effect of foreign currency exchange rate changes on cash | 5 | 4 | ||||||
Net increase (decrease) in cash | 105 | (40 | ) | |||||
Cash at beginning of year / period | 82 | 187 | ||||||
Cash at end of year/ period | 187 | 147 | ||||||
Supplemental cash flow information: | ||||||||
Income tax paid | — | 5 |
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1. | Organization, principal activities and basis of presentation |
(a) | Organization and principal activities |
(b) | Basis of presentation |
2. | Summary of significant accounting policies |
(a) | Use of estimates |
(b) | Foreign currency transactions and translation |
(c) | Accounts receivable |
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(d) | Long-lived assets |
(e) | Income taxes |
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(f) | Revenue recognition |
(g) | Cost of revenues |
(h) | Operating leases |
(i) | Retirement and other post retirement benefits |
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(j) | Commitments and contingencies |
3. | Accounts receivable, net |
December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
Accounts receivable | 217 | 338 | ||||||
Less: allowance for doubtful accounts | (3 | ) | (3 | ) | ||||
Accounts receivable, net | 214 | 335 | ||||||
Period from | ||||||||
Year Ended | January 1, 2007 | |||||||
December 31, | through | |||||||
2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Beginning allowance for doubtful accounts | — | 3 | ||||||
Additions charged to bad debt expense | 3 | — | ||||||
Ending allowance for doubtful accounts | 3 | 3 | ||||||
4. | Equipment, net |
December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
Office equipment | 14 | 14 | ||||||
Motor vehicle | — | 33 | ||||||
Total cost | 14 | 47 | ||||||
Less: accumulated depreciation | (2 | ) | (4 | ) | ||||
Net | 12 | 43 | ||||||
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5. | Accrued expenses and other payables |
December 31, | June 3, | |||||||
2006 | �� | 2007 | ||||||
US$ | US$ | |||||||
Accrued payroll and staff benefits | 50 | 46 | ||||||
Business tax and surcharges payable | 87 | 133 | ||||||
Other payables | 1 | 2 | ||||||
Total accrued expenses and other payables | 138 | 181 | ||||||
6. | Income taxes |
Period from | ||||||||
Year Ended | January 1, 2007 | |||||||
December 31, | through | |||||||
2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Computed expected tax expense | 122 | 94 | ||||||
Effect of differential preferential tax rate | (96 | ) | (51 | ) | ||||
Non-deductible entertainment expenses | 10 | — | ||||||
Actual income tax expense | 36 | 43 | ||||||
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7. | Amounts due from related parties |
8. | Statutory surplus reserve |
9. | Operating lease commitments |
Period from | ||||||||
Year Ended | January 1, 2007 | |||||||
December 31, | through | |||||||
2006 | June 3, 2007 | |||||||
US$ | US$ | |||||||
Cost of revenues | 275 | 158 | ||||||
General and administrative expenses | 40 | 12 | ||||||
Total rental expenses | 315 | 170 | ||||||
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December 31, | June 3, | |||||||
2006 | 2007 | |||||||
US$ | US$ | |||||||
2007 | 351 | 212 | ||||||
2008 | 178 | 215 | ||||||
2009 | 52 | 66 | ||||||
2010 | 8 | 10 | ||||||
2011 | 1 | 1 | ||||||
590 | 504 | |||||||
10. | Subsequent event |
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BY AND AMONG
IDEATION ACQUISITION CORP.
ID ARIZONA CORP.
SEARCHMEDIA INTERNATIONAL LIMITED
SHANGHAI JINGLI ADVERTISING CO., LTD.
THE SUBSIDIARIES OF SEARCHMEDIA INTERNATIONAL LIMITED NAMED HEREIN
THE SHAREHOLDERS AND WARRANTHOLDERS OF SEARCHMEDIA
INTERNATIONAL LIMITED NAMED HEREIN
THE SM SHAREHOLDERS’ REPRESENTATIVES AND
THE OTHER PARTIES NAMED HEREIN
Dated: March 31, 2009
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ARTICLE I | The Merger | A-1-2 | ||||||
Section 1.1 | The Merger | A-1-2 | ||||||
Section 1.2 | Filing of Certificate of Ownership and Merger; Merger Effective Time | A-1-2 | ||||||
ARTICLE II | Conversion | A-1-3 | ||||||
Section 2.1 | The Conversion | A-1-3 | ||||||
Section 2.2 | Registration by Way of Continuation; Conversion Effective Time | A-1-3 | ||||||
ARTICLE III | Charter Documents, Directors and Officers of Surviving Corporation and ID Cayman | A-1-3 | ||||||
Section 3.1 | Articles of Incorporation of Surviving Corporation | A-1-3 | ||||||
Section 3.2 | Bylaws of Surviving Corporation | A-1-3 | ||||||
Section 3.3 | Directors of Surviving Corporation | A-1-3 | ||||||
Section 3.4 | Officers of Surviving Corporation | A-1-3 | ||||||
Section 3.5 | Memorandum and Articles of Association of ID Cayman | A-1-3 | ||||||
Section 3.6 | Directors of ID Cayman | A-1-3 | ||||||
Section 3.7 | Officers of ID Cayman | A-1-4 | ||||||
ARTICLE IV | Conversion and Exchange of Securities | A-1-4 | ||||||
Section 4.1 | Conversion of Stock in the Merger | A-1-4 | ||||||
Section 4.2 | Conversion of Securities in the Conversion | A-1-4 | ||||||
Section 4.3 | Certificates Representing Ideation Securities | A-1-4 | ||||||
Section 4.4 | Effect of the Conversion | A-1-6 | ||||||
ARTICLE V | Share Exchange | A-1-6 | ||||||
Section 5.1 | Share Exchange | A-1-6 | ||||||
Section 5.2 | Equity Payment | A-1-8 | ||||||
Section 5.3 | SM Option, SM Restricted Shares and SM Warrant Exercises/Vesting | A-1-9 | ||||||
Section 5.4 | Adjustments to Shares | A-1-10 | ||||||
Section 5.5 | No Fractional Shares | A-1-10 | ||||||
ARTICLE VI | The Closing | A-1-10 | ||||||
Section 6.1 | Closing | A-1-10 | ||||||
Section 6.2 | Deliveries of the Parties | A-1-10 | ||||||
Section 6.3 | Additional Agreements | A-1-11 | ||||||
Section 6.4 | Further Assurances | A-1-11 | ||||||
ARTICLE VII | Representations and Warranties of SM Parties | A-1-11 | ||||||
Section 7.1 | SM Shares | A-1-11 | ||||||
Section 7.2 | Organization and Standing | A-1-12 | ||||||
Section 7.3 | Authority; Execution and Delivery; Enforceability | A-1-12 | ||||||
Section 7.4 | Subsidiaries and Other Group Companies | A-1-13 | ||||||
Section 7.5 | No Conflicts | A-1-14 | ||||||
Section 7.6 | Consents and Approvals | A-1-14 | ||||||
Section 7.7 | Financial Statements | A-1-15 | ||||||
Section 7.8 | Absence of Certain Changes or Events | A-1-15 | ||||||
Section 7.9 | No Undisclosed Liabilities | A-1-17 | ||||||
Section 7.10 | Litigation | A-1-17 | ||||||
Section 7.11 | Licenses, Permits, Etc | A-1-17 | ||||||
Section 7.12 | Title to Properties | A-1-17 |
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Section 7.13 | Intellectual Property | A-1-18 | ||||||
Section 7.14 | Taxes | A-1-18 | ||||||
Section 7.15 | Employment Matters | A-1-19 | ||||||
Section 7.16 | Transactions With Affiliates and Employees | A-1-19 | ||||||
Section 7.17 | Insurance | A-1-20 | ||||||
Section 7.18 | Material Contracts | A-1-20 | ||||||
Section 7.19 | Compliance with Applicable Laws | A-1-20 | ||||||
Section 7.20 | Foreign Corrupt Practices | A-1-21 | ||||||
Section 7.21 | Brokers | A-1-21 | ||||||
Section 7.22 | OFAC | A-1-21 | ||||||
Section 7.23 | Additional PRC Representations and Warranties | A-1-21 | ||||||
Section 7.24 | Environmental Matters | A-1-22 | ||||||
Section 7.25 | Restrictions on Business Activities | A-1-22 | ||||||
Section 7.26 | Investment Company | A-1-22 | ||||||
ARTICLE VIII | Representations and Warranties of Ideation | A-1-22 | ||||||
Section 8.1 | Capital Structure | A-1-22 | ||||||
Section 8.2 | Organization and Standing | A-1-23 | ||||||
Section 8.3 | Authority; Execution and Delivery; Enforceability | A-1-23 | ||||||
Section 8.4 | No Subsidiaries or Equity Interests | A-1-23 | ||||||
Section 8.5 | No Conflicts | A-1-23 | ||||||
Section 8.6 | Consents and Approvals | A-1-24 | ||||||
Section 8.7 | SEC Documents | A-1-24 | ||||||
Section 8.8 | Internal Accounting Controls | A-1-24 | ||||||
Section 8.9 | Absence of Certain Changes or Events | A-1-25 | ||||||
Section 8.10 | Undisclosed Liabilities | A-1-25 | ||||||
Section 8.11 | Litigation | A-1-25 | ||||||
Section 8.12 | Compliance with Applicable Laws | A-1-25 | ||||||
Section 8.13 | Sarbanes-Oxley Act of 2002 | A-1-26 | ||||||
Section 8.14 | Broker’s and Finders’ Fees | A-1-26 | ||||||
Section 8.15 | Minute Books | A-1-26 | ||||||
Section 8.16 | Board Approval | A-1-26 | ||||||
Section 8.17 | Required Vote | A-1-26 | ||||||
Section 8.18 | AMEX Listing | A-1-26 | ||||||
Section 8.19 | Trust Account | A-1-27 | ||||||
Section 8.20 | Transactions With Affiliates and Employees | A-1-27 | ||||||
Section 8.21 | Material Contracts | A-1-27 | ||||||
Section 8.22 | Taxes | A-1-27 | ||||||
ARTICLE IX | Conduct Prior To The Closing | A-1-28 | ||||||
Section 9.1 | Covenants of SM Parties | A-1-28 | ||||||
Section 9.2 | Covenants of Ideation | A-1-30 | ||||||
Section 9.3 | Conversion of SM Cayman Securities | A-1-32 | ||||||
Section 9.4 | No Securities Transactions | A-1-32 | ||||||
Section 9.5 | Other Pre-Closing Covenants | A-1-32 | ||||||
ARTICLE X | Covenants of the SM Parties | A-1-32 | ||||||
Section 10.1 | Access to Information | A-1-32 |
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Section 10.2 | Exclusivity; No Other Negotiations | A-1-33 | ||||||
Section 10.3 | Further Assurances | A-1-33 | ||||||
Section 10.4 | Disclosure of Certain Matters | A-1-34 | ||||||
Section 10.5 | Regulatory and Other Authorizations; Notices and Consents | A-1-34 | ||||||
Section 10.6 | Related Tax | A-1-34 | ||||||
Section 10.7 | Proxy Statement/Prospectus | A-1-34 | ||||||
Section 10.8 | No Claim Against Trust Account | A-1-35 | ||||||
Section 10.9 | Restrictive Covenants | A-1-35 | ||||||
ARTICLE XI | Covenants of Ideation | A-1-36 | ||||||
Section 11.1 | Proxy Statement/Prospectus Filing, SEC Filings and Special Meeting | A-1-36 | ||||||
Section 11.2 | Further Assurances | A-1-37 | ||||||
Section 11.3 | Disclosure of Certain Matters | A-1-37 | ||||||
Section 11.4 | Regulatory and Other Authorizations; Notices and Consents | A-1-37 | ||||||
Section 11.5 | Exclusivity; No Other Negotiations | A-1-37 | ||||||
Section 11.6 | Related Tax | A-1-37 | ||||||
Section 11.7 | Valid Issuance of ID Cayman Shares | A-1-37 | ||||||
ARTICLE XII | Additional Agreements and Covenants | A-1-38 | ||||||
Section 12.1 | Disclosure Schedules | A-1-38 | ||||||
Section 12.2 | Confidentiality | A-1-38 | ||||||
Section 12.3 | Public Announcements | A-1-38 | ||||||
Section 12.4 | Board Composition | A-1-38 | ||||||
Section 12.5 | Fees and Expenses | A-1-39 | ||||||
Section 12.6 | Director and Officer Insurance | A-1-39 | ||||||
Section 12.7 | Tax Elections | A-1-39 | ||||||
Section 12.8 | Exemption of Transaction | A-1-39 | ||||||
Section 12.9 | Series D Financing | A-1-39 | ||||||
Section 12.10 | Covenants of the Frost Group | A-1-39 | ||||||
ARTICLE XIII | Conditions to Closing | A-1-42 | ||||||
Section 13.1 | SM Parties Conditions Precedent | A-1-42 | ||||||
Section 13.2 | Ideation Conditions Precedent | A-1-43 | ||||||
ARTICLE XIV | Indemnification | A-1-45 | ||||||
Section 14.1 | Survival | A-1-45 | ||||||
Section 14.2 | Indemnification by the SM Shareholders and Linden Ventures | A-1-45 | ||||||
Section 14.3 | Indemnification by Ideation | A-1-46 | ||||||
Section 14.4 | Limitations on Indemnity | A-1-46 | ||||||
Section 14.5 | Defense of Third Party Claims | A-1-47 | ||||||
Section 14.6 | Tax Benefits; Reserves; Insurance | A-1-48 | ||||||
Section 14.7 | Limitation on Recourse; No Third Party Beneficiaries | A-1-48 | ||||||
ARTICLE XV | Termination | A-1-48 | ||||||
Section 15.1 | Methods of Termination | A-1-48 | ||||||
Section 15.2 | Effect of Termination | A-1-49 | ||||||
Section 15.3 | Reimbursement of Fees and Expenses | A-1-49 | ||||||
ARTICLE XVI | Miscellaneous | A-1-50 | ||||||
Section 16.1 | Notices | A-1-50 | ||||||
Section 16.2 | Amendments; Waivers; No Additional Consideration | A-1-51 |
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Section 16.3 | Withholding Rights | A-1-51 | ||||||
Section 16.4 | Estimates, Projections and Forecasts | A-1-51 | ||||||
Section 16.5 | SM Shareholders’ Representatives | A-1-51 | ||||||
Section 16.6 | Interpretation | A-1-53 | ||||||
Section 16.7 | Severability | A-1-53 | ||||||
Section 16.8 | Counterparts; Facsimile Execution | A-1-53 | ||||||
Section 16.9 | Entire Agreement; Third-Party Beneficiaries | A-1-53 | ||||||
Section 16.10 | Governing Law | A-1-54 | ||||||
Section 16.11 | Dispute Resolution | A-1-54 | ||||||
Section 16.12 | Assignment | A-1-54 | ||||||
Section 16.13 | Governing Language | A-1-54 | ||||||
Section 16.14 | Liability Not Affected by Knowledge or Waiver | A-1-54 | ||||||
Section 16.15 | Exhibits and Schedules | A-1-54 |
ANNEX | ||||||||
ANNEX A | Definitions | |||||||
EXHIBITS | ||||||||
EXHIBIT A | Memorandum and Articles of Association of SearchMedia Holdings Limited | |||||||
EXHIBIT B | Form of New Warrant | |||||||
EXHIBIT C | Forms of Ideation Legal Opinions | |||||||
C-1 Form of Delaware Opinion | ||||||||
C-2 Form of Arizona Opinion | ||||||||
C-3 Form of Cayman Islands Opinion | ||||||||
EXHIBIT D | Forms of SM Legal Opinions | |||||||
D-1 Form of PRC Opinion | ||||||||
D-2 Form of Cayman Islands Opinion | ||||||||
EXHIBIT E | Investor Representation Letter | |||||||
EXHIBIT F-1 | Form ofLock-Up Agreement | |||||||
EXHIBIT F-2 | Form of ManagementLock-Up Agreement | |||||||
EXHIBIT G | Form of Registration Rights Agreement | |||||||
EXHIBIT H | Form of Voting Agreement | |||||||
SCHEDULES | ||||||||
SCHEDULE A | SM Entities | |||||||
SCHEDULE B | SM Share Ownership | |||||||
SCHEDULE B-1 | Other SM Share Ownership | |||||||
SCHEDULE C | Share Allocation | |||||||
SCHEDULE D | SM Disclosure Schedule | |||||||
SCHEDULE E | Ideation Disclosure Schedule | |||||||
SCHEDULE 9.6 | Other Pre-Closing Covenants | |||||||
SCHEDULE 13.1(q) | Ideation Required Consents | |||||||
SCHEDULE 13.2(m) | SearchMedia Required Consents |
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Earn-Out Shares | = | (FY2009 Adjusted Net Income - $25.7 million) $12.7 million | x | Maximum Earn-Out Shares |
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One SE Third Avenue, 25th Floor
Miami, Florida 33131
Attention: Teddy D. Klinghoffer, Esq.
Facsimile:(305) 374-5095
41/F One Exchange Square
8 Connaught Place
Central, Hong Kong
Attention: David T. Zhang, Esq.
Telephone: (852) 2522 7886
Facsimile: (852) 2522 7006
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By: | /s/ Robert Fried |
Title: | President |
Address: | 1990 S. Bundy Drive, Suite 620 |
By: | /s/ Robert Fried |
Title: | President |
Address: | 1990 S. Bundy Drive, Suite 620 |
By: | /s/ Steven D. Rubin |
Address: | 4400 Biscayne Blvd., 15th Floor |
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By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
SIGNATURE PAGE FOR THE SM ENTITIES CONTINUES ON NEXT PAGE]
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By: | /s/ Jianhai Huang |
Address: | c/o 4B, Yinglong Building |
By: | /s/ Qinying Liu |
Address: | c/o 4B, Yinglong Building |
By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
SIGNATURE PAGE FOR THE SM SHAREHOLDERS AND SM WARRANTHOLDERS FOLLOWS]
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Address: | Room 4B, Yinglong Building |
Facsimile: | +86(21) 6283-0552 |
Address: | Room 4B, Yinglong Building |
Facsimile: | +86(21) 6283-0552 |
SHAREHOLDERS AND SM WARRANTHOLDERS CONTINUES ON NEXT PAGE]
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By: | /s/ Earl Ching-Hwa Yen |
Address: | Rm. 104, Bldg.18 |
SHAREHOLDERS AND SM WARRANTHOLDERS CONTINUES ON NEXT PAGE]
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By: | /s/ Tom Cheung |
Title: | Managing Director |
By: | /s/ Stephen Lau |
Address: | 56/F, Cheung Kong Center |
Attention: | GME Complex Equities |
SHAREHOLDERS AND SM WARRANTHOLDERS CONTINUES ON NEXT PAGE]
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By: | /s/ Mong Cheuk Wai |
Title: | Director |
By: | /s/ Au Hoi Lam Gladys |
Address: | 9/F., Central Building, 3 Pedder Street, Central, Hong Kong |
By: | /s/ Wong Ken Lum |
Title: | Director |
By: | /s/ Yu Kim Po |
Address: | 9/F., Central Building, 3 Pedder Street, Central, Hong Kong |
By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
WARRANTHOLDERS CONTINUES ON NEXT PAGE]
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By: | /s/ Craig Jarvis |
Title: | Authorized Signatory |
Address: | c/o Linden Advisors LP, 590 Madison Ave., 15th Floor, New York NY 10022, USA Facsimile: +1(646) 840-3625 |
SHAREHOLDERS’ REPRESENTATIVES ON NEXT PAGE]
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By: | /s/ Qinying Liu |
Address: | Room 4B, Yinglong Building |
By: | /s/ Earl Ching-Hwa Yen |
Address: | Rm 104, Bldg. 18 |
By: | /s/ Tommy Cheung |
Address: | 56/F, Cheung Kong Center |
By: | /s/ Stephen Lau |
Address: | 56/F Cheung Kong Center |
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Number of SM | Percentage | |||||||
SM Shareholder | Shares Held** | Ownership Interest | ||||||
Deutsche Bank AG | 32,727,272 | 32.2 | % | |||||
China Seed Ventures | 20,623,780 | 20.3 | % | |||||
Qinying Liu | 15,159,500 | 14.9 | % | |||||
Le Yang | 14,162,000 | 13.9 | % | |||||
Gavast Estates | 12,727,273 | 12.5 | % | |||||
Gentfull Investment | 5,454,544 | 5.4 | % | |||||
Total Signing | 100,854,369 | 99.2 | % | |||||
Jianxun Wang(1) | 798,000 | 0.8 | % | |||||
Total | 101,652,369 | 100.0 | % |
* | Does not reflect outstanding options issued under the ESOP. | |
** | Reflects the number of SM Ordinary Shares held by each SM Shareholder after giving effect to the Preferred Conversion. | |
(1) | Non-signing shareholder. |
Number of SM | ||||
Shares Underlying | ||||
SM Warrantholder | Warrants | |||
China Seed Ventures | 12,670,568 | |||
Linden Ventures II | 5,875,637 | |||
Deutsche Bank AG | 3,794,546 | |||
Qinying Liu | 33,142 | |||
Le Yang | 33,142 | |||
Xuebao Yang | 33,142 | |||
Jianhai Huang | 33,142 | |||
Min Wu | 33,142 | |||
Total | 22,506,461 |
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Number of SM | Percentage | |||||||
SM Shareholder | Shares Held** | Ownership Interest | ||||||
Jianxun Wang | 798,000 | 0.8 | % |
* | Does not reflect outstanding options issued under the ESOP. | |
** | Reflects the number of SM Ordinary Shares held by the Non-signing SM Shareholder after giving effect to the Preferred Conversion. |
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Initial | Earn-out Shares | |||||||
SM Shareholder | Share Payment | Percentage | ||||||
Deutsche Bank AG | 2,210,316 | 26.36 | % | |||||
China Seed Ventures | 1,392,877 | 16.61 | % | |||||
Qinying Liu | 1,023,834 | 12.21 | % | |||||
Le Yang | 956,465 | 11.41 | % | |||||
Gavast Estates | 859,568 | 10.25 | % | |||||
Gentfull Investment | 368,386 | 4.39 | % | |||||
Total Signing | 6,811,446 | 81.23 | % | |||||
Jianxun Wang(1) | 53,895 | 0.64 | % | |||||
Total Shareholders | 6,865,341 | 81.87 | % |
Number of ID | ||||||||||||
Cayman Shares | Earn-out Shares | |||||||||||
SM Warrantholder | Underlying Warrants | Exercise Price | Percentage | |||||||||
China Seed Ventures — Series A | 675,375 | $ | 1.48 | 8.05 | % | |||||||
China Seed Ventures — Series B | 33,769 | $ | 8.14 | 0.40 | % | |||||||
China Seed Ventures — Series C | 79,443 | $ | 6.51 | 0.95 | % | |||||||
China Seed Ventures — DB Transferred | 67,152 | $ | 0.0001 | 0.80 | % | |||||||
Linden Ventures II | 396,826 | $ | 6.30 | 4.73 | % | |||||||
Deutsche Bank AG | 256,274 | $ | 8.14 | 3.06 | % | |||||||
Qinying Liu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Le Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Xuebao Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Jianhai Huang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Min Wu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Total Warrantholders | 1,520,034 | 18.13 | % |
(1) | Non-signing shareholder. |
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• | Completion of registration with the Shanghai Branch of SAFE by the PRC resident shareholders of SM Cayman, with respect to the issuance of Series C Preferred by SM Cayman, the acquisition of Ad-Icon Company Limited by SM Cayman and the incorporation of Great Talent Holding Limited. | |
• | The written consent of DB, pursuant to the Fourth Amended and Restated Memorandum and Articles of Association of SM Cayman (as amended on March 28, 2009) and the Amended and Restated Shareholders Agreement of SM Cayman dated March 23, 2009. | |
• | Approval of the execution of the Agreement and the consummation of the Transactions by the board of directors and the shareholders of SM Cayman pursuant to the provisions of the Fourth Amended and Restated Memorandum and Articles of Association of SM Cayman (as amended on March 28, 2009) and the Amended and Restated Shareholders Agreement of SM Cayman dated March 23, 2009. |
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Schedule A | List of SM Entities | |
Schedule B | SM Cayman Share Ownership and SM Cayman Warrant Ownership | |
Schedule B-1 | Other SM Cayman Share Ownership | |
Schedule C | ID Cayman Share Allocation Among SM Cayman Shareholders and | |
SM Cayman Warrantholders | ||
Schedule D | SM Cayman Disclosure Schedules: | |
Section 7.1(a) — Shares | ||
Section 7.1(b) — Capital Structure | ||
Section 7.4(a) — Subsidiaries | ||
Section 7.4(b) — Registered Capital of Jingli Shanghai | ||
Section 7.4(c) — Subsidiaries of Jingli Shanghai | ||
Section 7.4(d) — Registered Capital of Group Companies | ||
Section 7.5 — No Conflicts | ||
Section 7.6 — Consents and Approvals | ||
Section 7.8(a) — Consents and Approvals | ||
Section 7.8(c) — Absence of Certain Changes or Events | ||
Section 7.8(d) — Absence of Certain Changes or Events | ||
Section 7.8(i) — Absence of Certain Changes or Events | ||
Section 7.8(j) — Absence of Certain Changes or Events | ||
Section 7.9 — No Undisclosed Liabilities | ||
Section 7.10 — Litigation | ||
Section 7.11 — Licenses, Permits, Etc. | ||
Section 7.12(a) — Real Property | ||
Section 7.13 — Intellectual Property | ||
Section 7.14(b) — Taxes | ||
Section 7.15(a) — Benefit Plans | ||
Section 7.16 — Transactions With Affiliates and Employees | ||
Section 7.18(a) — Material Contracts | ||
Section 7.18(b) — Material Contracts | ||
Section 7.21 — Brokers | ||
Section 7.23 — Additional PRC Representations and Warranties | ||
Section 9.1(a) — Covenants of SM Parties | ||
Section 9.1(d) — Covenants of SM Parties | ||
Section 9.l(e) — Covenants of SM Parties | ||
Section 9.1(k) — Covenants of SM Parties | ||
Schedule E | Ideation Disclosure Schedules: | |
Section 8.1(a) — Capital Structure | ||
Section 8.1(b) — Capital Structure | ||
Section 8.1(c) — Capital Structure | ||
Section 8.1(d) — Capital Structure | ||
Section 8.5 — No Conflicts | ||
Section 8.14 — Broker’s and Finder’s Fees | ||
Section 8.18 — AMEX Listing | ||
Section 8.21(a) — Material Contracts | ||
Section 8.22(b) — Taxes | ||
Section 9.2 — Covenants of Ideation | ||
Schedule 9.5 | Other Pre-Closing Covenants | |
Schedule 13.1(q) | Ideation Required Consents | |
Schedule 13.2(m) | SM Parties Required Consents |
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By: | /s/ Steven D. Rubin |
Title: | Secretary |
Address: | 1990 S. Bundy Drive, Suite 620 |
Facsimile: | (310) 861-5454 |
Address: | Room 4B, Yinglong Building |
Facsimile: | +86(21) 6283-0552 |
Address: | Rm. 104, Bldg.18 |
Facsimile: | +86(21) 6225-8573 |
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DB REPRESENTATIVE: |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
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AGREEMENT AND PLAN OF MERGER, CONVERSION AND SHARE EXCHANGE
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By: | /s/ Steven D. Rubin |
Title: | Secretary |
Address: | 1990 S. Bundy Drive, Suite 620 |
Facsimile: | (310) 861-5454 |
By: | /s/ Steven D. Rubin |
Title: | Secretary |
Address: | 1990 S. Bundy Drive, Suite 620 |
Facsimile: | (310) 861-5454 |
Address: | Room 4B, Yinglong Building |
Facsimile: | +86(21) 6283-0552 |
Address: | Rm. 104, Bldg.18 |
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Facsimile: | +86(21) 6225-8573 |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
By: | /s/ Craig Jarvis |
Title: Authorized Signatory |
Address: | c/o Linden Advisors LP, |
Facsimile: | +1(646) 840-3625 |
Address: | 9/F Central Building, 3 Pedder Street, Central, Hong Kong |
Facsimile: |
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VERVAIN EQUITY INVESTMENT LIMITED for and on behalf of Vervain Equity Investment Limited |
Name: | Karen Cheung Authorized Signature(s) and Peh Jefferson Tun Lu |
Address: | 9/F Central Building, 3 Pedder Street, Central, Hong Kong |
Facsimile: |
By: | /s/ Steven D. Rubin |
Address: |
Facsimile: |
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Number of SM | Percentage | |||||||
SM Shareholder | Shares Held** | Ownership Interest | ||||||
Deutsche Bank AG | 32,727,272 | 32.2 | % | |||||
China Seed Ventures | 20,623,779 | 20.3 | % | |||||
Qinying Liu | 14,660,750 | *** | 14.4 | % | ||||
Le Yang | 14,660,750 | *** | 14.4 | % | ||||
Sun Hing Associates Ltd. | 12,727,272 | 12.5 | % | |||||
Vervain Equity Investment | 5,454,543 | 5.4 | % | |||||
Total Signing | 100,854,366 | 99.2 | % | |||||
Jianxun Wang(1) | 798,000 | 0.8 | % | |||||
Total | 101,652,366 | 100.0 | % |
* | Does not reflect outstanding options issued under the ESOP. | |
** | Reflects the number of SM Ordinary Shares held by each SM Shareholder after giving effect to the Preferred Conversion. | |
*** | Subject to reduction for any share repurchases by SM Cayman pursuant to that certain Repayment Agreement dated as of June 23, 2009 among SM Cayman, Qinying Liu and Le Yang. | |
(1) | Non-signing shareholder. |
Number of SM | ||||
Shares Underlying | ||||
SM Warrantholder | Warrants | |||
China Seed Ventures | 12,670,568 | |||
Linden Ventures II | 5,875,639 | |||
Deutsche Bank AG | 3,782,000 | |||
Qinying Liu | 33,142 | |||
Le Yang | 33,142 | |||
Xuebao Yang | 33,142 | |||
Jianhai Huang | 33,142 | |||
Min Wu | 33,142 | |||
Total | 22,493,917 |
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Initial | Earn-out Shares | |||||||
SM Shareholder | Share Payment | Percentage | ||||||
Deutsche Bank AG | 2,210,316 | 26.36 | % | |||||
China Seed Ventures | 1,392,877 | 16.61 | % | |||||
Qinying Liu | 990,149 | * | 11.81 | % | ||||
Le Yang | 990,149 | * | 11.81 | % | ||||
Sun Hing Associates | 859,567 | 10.25 | % | |||||
Vervain Equity Investment | 368,386 | 4.39 | % | |||||
Total Signing | 6,811,444 | 81.23 | % | |||||
Jianxun Wang(1) | 53,895 | 0.64 | % | |||||
Total Shareholders | 6,865,339 | 81.87 | % |
* | Subject to reduction for any share repurchases by SM Cayman pursuant to that certain Repayment Agreement dated as of June 23, 2009 among SM Cayman, Qinying Liu and Le Yang. Any such reduction shall be calculated by subtracting (i) the number of SM Cayman ordinary shares so repurchased multiplied by 0.0675374 from (ii) the number of ID Cayman shares set forth on this Schedule next to such person’s name. |
Number of ID | ||||||||||||
Cayman Shares | ||||||||||||
Underlying | Exercise | Earn-out Shares | ||||||||||
SM Warrantholder | Warrants | Price | Percentage | |||||||||
China Seed Ventures — Series A | 675,374 | $ | 1.48 | 8.06 | % | |||||||
China Seed Ventures — Series B | 33,769 | $ | 8.14 | 0.40 | % | |||||||
China Seed Ventures — Series C | 79,443 | $ | 6.51 | 0.95 | % | |||||||
China Seed Ventures — DB Transferred | 67,152 | $ | 0.0001 | 0.80 | % | |||||||
Linden Ventures II | 396,826 | $ | 6.30 | 4.73 | % | |||||||
Deutsche Bank AG | 255,427 | $ | 8.14 | 3.05 | % | |||||||
Qinying Liu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Le Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Xuebao Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Jianhai Huang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Min Wu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Total Warrantholders | 1,519,186 | 18.14 | % |
(1) | Non-signing shareholder. |
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[SEE ANNEX B]
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TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IDEATION ACQUISITION CORP.
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By: |
Title: | President and Chief Executive Officer |
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AGREEMENT AND PLAN OF MERGER, CONVERSION AND SHARE EXCHANGE
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By: | /s/ Robert N. Fried |
Title: | President and Chief Executive Officer |
Address: | 1990 S. Bundy Drive, Suite 620 |
Facsimile: | (310) 861-5454 |
By: | /s/ Robert N. Fried |
Title: | President and Chief Executive Officer |
Address: | 1990��S. Bundy Drive, Suite 620 |
Facsimile: | (310) 861-5454 |
Address: | Room 4B, Yinglong Building |
Facsimile: | +86(21) 6283-0552 |
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CSV REPRESENTATIVE: |
Address: | Rm. 104, Bldg.18 |
Facsimile: | +86(21) 6225-8573 |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
Address: | 56/F, Cheung Kong Center |
Facsimile: | +8522203-8304 |
By: | /s/ Craig Jarvis |
Title: | Authorized Signatory |
Address: | c/o Linden Advisors LP, |
New York, NY 10022, USA
Facsimile: | +1(646) 840-3625 |
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Number of SM | Percentage | |||||||
SM Shareholder | Shares Held** | Ownership Interest | ||||||
Deutsche Bank AG | 31,753,771 | 32.19 | % | |||||
China Seed Ventures | 20,010,307 | 20.28 | % | |||||
Qinying Liu | 14,224,653 | *** | 14.42 | % | ||||
Le Yang | 14,224,653 | *** | 14.42 | % | ||||
Sun Hing Associates Ltd. | 12,348,688 | 12.52 | % | |||||
Vervain Equity Investment | 5,292,293 | 5.36 | % | |||||
Total Signing | 97,854,365 | 99.19 | % | |||||
Jianxun Wang(1) | 798,000 | 0.81 | % | |||||
Total | 98,652,365 | 100.00 | % | |||||
* | Does not reflect outstanding options issued under the ESOP. | |
** | Reflects the number of SM Ordinary Shares held by each SM Shareholder after giving effect to the Preferred Conversion. | |
*** | Subject to reduction for any share repurchases by SM Cayman pursuant to that certain Repayment Agreement dated as of June 23, 2009 among SM Cayman, Qinying Liu and Le Yang. | |
(1) | Non-signing shareholder. |
Number of SM | ||||
Shares Underlying | ||||
SM Warrantholder | Warrants | |||
China Seed Ventures | 12,670,568 | |||
Linden Ventures II | 5,875,639 | |||
Deutsche Bank AG | 3,782,000 | |||
Qinying Liu | 33,142 | |||
Le Yang | 33,142 | |||
Xuebao Yang | 33,142 | |||
Jianhai Huang | 33,142 | |||
Min Wu | 33,142 | |||
Total | 22,493,917 | |||
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Initial | Earn-out Shares | |||||||
SM Shareholder | Share Payment | Percentage | ||||||
Deutsche Bank AG | 2,144,568 | 26.21 | % | |||||
China Seed Ventures | 1,351,445 | 16.52 | % | |||||
Qinying Liu | 960,696 | * | 11.74 | % | ||||
Le Yang | 960,696 | * | 11.74 | % | ||||
Sun Hing Associates | 833,999 | 10.19 | % | |||||
Vervain Equity Investment | 357,428 | 4.37 | % | |||||
Total Signing | 6,608,832 | 80.77 | % | |||||
Jianxun Wang(1) | 53,895 | 0.66 | % | |||||
Total Shareholders | 6,662,727 | 81.43 | % | |||||
* | Subject to reduction for any share repurchases by SM Cayman pursuant to that certain Repayment Agreement dated as of June 23, 2009 among SM Cayman, Qinying Liu and Le Yang. Any such reduction shall be calculated by subtracting (i) the number of SM Cayman ordinary shares so repurchased multiplied by 0.0675374 from (ii) the number of ID Cayman shares set forth on this Schedule next to such person’s name. |
Number of ID | ||||||||||||
Cayman Shares | ||||||||||||
Underlying | Exercise | Earn-out Shares | ||||||||||
SM Warrantholder | Warrants | Price | Percentage | |||||||||
China Seed Ventures — Series A | 675,374 | $ | 1.48 | 8.25 | % | |||||||
China Seed Ventures — Series B | 33,769 | $ | 8.14 | 0.41 | % | |||||||
China Seed Ventures — Series C | 79,443 | $ | 6.51 | 0.97 | % | |||||||
China Seed Ventures — DB Transferred | 67,152 | $ | 0.0001 | 0.82 | % | |||||||
Linden Ventures II | 396,826 | $ | 6.30 | 4.85 | % | |||||||
Deutsche Bank AG | 255,427 | $ | 8.14 | 3.12 | % | |||||||
Qinying Liu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Le Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Xuebao Yang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Jianhai Huang | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Min Wu | 2,239 | $ | 0.0001 | 0.03 | % | |||||||
Total Warrantholders | 1,519,186 | 18.57 | % | |||||||||
(1) | Non-signing shareholder. |
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By: |
Print Name: |
Print Title (if applicable): |
Name of Entity (if applicable): |
Address: |
Date: |
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By: |
Print Name: |
Print Title (if applicable): |
Name of Entity (if applicable): |
Address: |
Date: |
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OF
SEARCHMEDIA HOLDINGS LIMITED
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ASSOCIATION
OF
SEARCHMEDIA HOLDINGS LIMITED
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OF
SEARCHMEDIA HOLDINGS LIMITED
Affiliate | means, with respect to any given Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person and, where the given Person is an individual, the spouse, parent, sibling, or child thereof; | |
Agreement and Plan of Merger, Conversion andShare Exchange | means, the Agreement and Plan of Merger, Conversion and Share Exchange dated as of March 31, 2009, among Ideation Acquisition Corp., ID Arizona Corp., and each of the other parties thereto, as amended; | |
Applicable Law | means, with respect to any Person, any and all provisions of any constitution, treaty, statute, law, regulation, ordinance, code, rule, judgment, rule of common law, order, decree, award, injunction, governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any governmental authority, whether in effect as of the date hereof or thereafter and in each case as amended, applicable to such Person or its subsidiaries or their respective assets; | |
Articles | means these Articles of Association (including any appendix, annex, schedule and exhibit attached hereto) as originally framed or as from time to time altered by Special Resolution; | |
Auditors | means the Persons for the time being performing the duties of auditors of the Company; | |
Board of DirectorsorBoard | means the board of directors of the Company; | |
Business | means out-of-home advertising and media-related business, including in-elevator advertising; | |
Business Day | means a day, excluding a Saturday, Sunday, legal holiday or other day on which banks are required to be closed in the PRC, Hong Kong or New York; | |
Change of Control | means any: (a) merger, consolidation, business combination or similar transaction involving the Company in which any of the outstanding voting securities of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the voting securities of the Company outstanding immediately prior to such transaction are converted into or exchanged for voting securities of the surviving or |
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transferee Person that constitute a majority of the outstanding shares of voting securities of such surviving or transferee Person (immediately after giving effect to such issuance); (b) sale, lease or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture, or otherwise of assets of the Company or any of its Subsidiaries or controlled Affiliates representing all or substantially all of the consolidated assets of the Company and its Subsidiaries and controlled Affiliates; (c) issuance, sale or other disposition of (including by way of share exchange, joint venture, or any similar transaction by either the Company or its shareholders) securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for such securities) representing 50% or more of the voting power of the Company; provided, that any acquisition of securities directly from the Company that the independent Directors determine is primarily for the purposes of raising financing for the Company will not be taken into account when determining if a Change in Control has occurred under this clause (c); (d) transaction in which any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined inRule 13d-3 of the Exchange Act) of securities of the Company representing 50% or more of the outstanding voting capital of the Company; provided, that any acquisition of securities directly from the Company that the independent Directors determine is primarily for the purposes of raising financing for the Company will not be taken into account when determining if a Change in Control has occurred under this clause (d); and (e) any combination of the foregoing. | ||
Class | means any class or classes of Shares as may from time to time be issued by the Company; | |
Closing Price | means the closing sale price or, if no closing sale price is reported, the last reported sale price of the Ordinary Shares on the NYSE Amex on such date. If the Ordinary Shares are not traded on the NYSE Amex on any date of determination, the closing price of the Ordinary Shares on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Ordinary Shares are so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Ordinary Shares are so listed or quoted, or if the Ordinary Shares are not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Ordinary Shares in the over-the-counter market as reported by Pink Sheets LLC or similar organization, or, if that bid price is not available, the market price of the Ordinary Shares on that date as determined by a nationally recognized investment banking firm retained by the Company for this purpose. | |
Company | means SearchMedia International Limited; | |
Company Securities | means any outstanding Securities issued by the Company; |
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Constitutional Documents | means, with respect to any Person, the certificate of incorporation, by-laws, memorandum of association, articles of association, or similar constitutive documents for such Person; | |
Control | means, when used with respect to any Person, the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” have meanings correlative to the foregoing. Without limiting the foregoing, a Person shall be deemed Controlled by another Person if such other Person, directly or indirectly, owns or has the power to direct the voting of more than fifty percent (50%) of the outstanding share capital or other ownership interest having voting power to elect directors, managers or trustees of such Person; | |
Convertible Security | means, with respect to any specified Person, evidence of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for any shares or other units in the share capital or other ownership interest of such specified Person, however described and whether voting or non-voting; | |
Designated Stock Exchange | the Global Market of The Nasdaq Stock Market, the New York Stock Exchange, NYSE Amex or any other internationally recognized stock exchange where the Company’s securities are traded; | |
Directors | means the directors for the time being of the Company; | |
Encumbrance | means (i) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, title retention, security interest or other third party rights of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including without limitation any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect substantially similar to the granting of security under Applicable Law, (ii) any lease, sub-lease, occupancy agreement, easement or covenant granting a right of use or occupancy to any Person, (iii) any proxy, power of attorney, voting trust agreement, interest, option, right of first offer, right of pre-emption negotiation or refusal or transfer restriction in favour of any Person and (iv) any adverse claim as to title, possession or use; | |
Equity Security | means, with respect to any specified Person, any shares, registered capital or other units in the share capital or other ownership interest of such specified Person, however described and whether voting or non-voting, all Convertible Securities and all Option Securities of such specified Person; | |
Exchange Act | means the Securities Exchange Act of 1934, as amended; | |
Group Companies | means the Company, the PRC Entity and all Subsidiaries of the foregoing (including without limitation the WFOEs); a “Group Company” means any of the Group Companies; | |
HK Subs | means Great Talent Holdings Limited, a Hong Kong company and Ad-icon Company Limited, a Hong Kong company; |
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Issued Shares | means all issued and outstanding Equity Securities in the Company assuming the exercise of all options and the conversion or exchange of all convertible or exchangeable Equity Securities; | |
Liquidation Event | shall bear the meaning as ascribed to it in Article 135(a); | |
Member | means a person who is registered in the register of members of the Company as being a holder of Shares in the Company and includes each subscriber to the Memorandum of Association pending entry into the register of members of certain of such subscribers; | |
Memorandum of Association | means the memorandum of association of the Company in force and effect, as amended and restated from time to time; | |
Option Security | means, with respect to any specified Person, all options, warrants, instruments and other rights and agreements (including without limitation any preemptive rights or rights of first refusal) to subscribe for, purchase or otherwise acquire any shares or other units in the share capital or other ownership interest of such specified Person, however described and whether voting or non-voting, or any Convertible Securities of such specified Person; | |
Ordinary Resolution | means a resolution: | |
(a) passed by a simple majority of votes cast by such Members on an as-if converted basis as, being entitled to do so, vote in person or, in the case of any Member being an organization, by its duly authorised representative or, where proxies are allowed, by proxy at a general meeting of the Company; or | ||
(b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is executed; | ||
Ordinary Shareholders | means the Members registered from time to time as holders of Ordinary Shares in the register of Members of the Company; | |
Ordinary Shares | means the ordinary Shares in the capital of the Company, par value of US$0.0001 per share, with the rights and privileges as set out in these Articles; | |
Paid-up | meanspaid-up and/or credited aspaid-up; | |
Person | means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity (including, without limitation, any unincorporated joint venture and whether or not having separate legal personality); | |
PRC | means the People’s Republic of China, but solely for the purposes of these Articles, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and the islands of Taiwan; | |
PRC Entity | means Shanghai Jingli Advertising Co., Ltd., , a limited liability company organized under the laws of the People’s Republic of China; |
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Related Party | means any of the officers, directors, supervisory board members, or holders of Equity Securities of any Group Company or any Affiliates of any of the foregoing; | |
RMB | means Renminbi, the lawful currency of the PRC; | |
Seal | means the common seal of the Company and includes every duplicate seal; | |
Secretary | includes an Assistant Secretary and any individual appointed to perform the duties of Secretary of the Company; | |
Securities | with respect to any Person, means Equity Securities and debt securities, including without limitation bonds, notes and debentures, of whatever kind of such Person, whether readily marketable or not; | |
Securities Act | means the U.S. Securities Act of 1933, as amended from time to time; | |
Share | means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share; | |
Shareholders | means, as of any time, any Ordinary Shareholders and any holders of any other Equity Securities of the Company; | |
Special Resolution | means a resolution: | |
(a) passed by a majority of not less than two-thirds of such Members on an as-if converted basis as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Member is entitled; or | ||
(b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed; | ||
Statute | means the Companies Law (2007 Revision) of the Cayman Islands as amended and every statutory modification or re-enactment thereof for the time being in force; | |
Subsidiary | means with respect to any specified Person, any other Person (other than a natural Person) Controlled by such specified Person. For the avoidance of doubt, the PRC Entity or any of the Subsidiaries of the PRC Entity shall not be deemed to be a Subsidiary of the Company; | |
Trading Day | means, for purposes of determining a Closing Price per Ordinary Share, a Business Day on which the Designated Stock Exchange is scheduled to be open for business; | |
US$ | means United States dollars, the lawful currency of the U.S.; |
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US GAAP | means the generally accepted accounting principles in the United States; | |
WFOEorWFOEs | means Jieli Investment Management Consulting (Shanghai) Co., Ltd. and Jieli Network Technology Development (Shanghai) Co., Ltd., both wholly foreign owned enterprises established by the Company in Shanghai, PRC under the laws of the PRC; | |
writtenandin writing | include all modes of representing or reproducing words in visible form in the English language. |
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OF REGISTERED OFFICE & ALTERATION OF CAPITAL
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Warrant No. | Date of Issuance: , 200 |
WARRANT TO PURCHASE
ORDINARY SHARES
OF
SEARCHMEDIA HOLDINGS LIMITED
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X = | Y (A - B) | |
A |
Where | X = | The number of Ordinary Shares to be issued to the Registered Holder. | ||
Y = | The number of Ordinary Shares purchasable under this Warrant (at the date of such calculation). | |||
A = | The fair market value of one Ordinary Share (at the date of such calculation). | |||
B = | The Exercise Price (as adjusted to the date of such calculation). |
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By: |
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Signature: |
Name (print): |
Title (if applic.): |
Company (if applic.): |
Name of Assignee | Address/Facsimile Number | No. of Shares |
Dated: | Signature: | |
|
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OF
ID ARIZONA CORP.,
an Arizona corporation
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By: | /s/ Robert N. Fried |
Title: | Incorporator |
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1. | REPRESENTATIONS AND WARRANTIES. |
2. | SHARES SUBJECT TO AGREEMENT |
3. | OBLIGATIONS TO VOTE VOTING SHARES FOR SPECIFIC NOMINEE |
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4. | OBLIGATIONS TO VOTE VOTING SHARES FOR REMOVAL OF DIRECTOR; FILLING VACANCIES |
5. | COVENANT TO VOTE |
6. | ADDITIONAL SHARES |
7. | TRANSFER RESTRICTIONS |
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8. | TERMINATION |
9. | GENERAL PROVISIONS |
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1. | Registration Rights. |
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2. | General Provisions. |
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SIGNATURE PAGE FOR THE SHAREHOLDERS FOLLOWS]
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September 29, 2009
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TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IDEATION ACQUISITION CORP.
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By: |
Title: | President and Chief Executive Officer |
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1990 S. Bundy Drive, Suite 620
Los Angeles, CA 90025
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By: | /s/ Robert N. Fried |
Title: | President and Chief Executive |
By: | /s/ Phillip Frost |
Title: | Trustee |
By: | /s/ Steven D. Rubin |
Title: | Member |
By: | /s/ Craig Jarvis |
Title: | Authorized Signatory |
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By: | /s/ Earl Ching-Hwa Yen |
By: | /s/ Kerry Propper |
Title: |
By: | /s/ Glenn Halpryn |
Title: | Managing Member |
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CERTIFICATE OF AMENDMENT
TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IDEATION ACQUISITION CORP.
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By: |
Title: | President and Chief Executive Officer |
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