Filed Pursuant to Rule 424(b)(5)
Registration No. 333-161724
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 16, 2009)
Xinhua Sports & Entertainment Limited
5,514,705 American
Depositary Shares Representing 11,029,410 Class A Common Shares
Series A Warrants to Purchase 3,860,293 Class A Common Shares
Series B Warrants to Purchase 11,029,410 Class A Common Shares
We
are offering 5,514,705 American depositary shares, or ADSs,
representing 11,029,410 class
A common shares, Series A warrants to purchase up to 3,860,293 class A common
shares, and Series B warrants to purchase up to 11,029,410 class A
common shares, of Xinhua Sports & Entertainment Limited, or XSEL, directly to investors pursuant to this
prospectus supplement and the accompanying prospectus. The offer price of the ADSs is $1.36 per ADS.
For each 0.5 ADSs purchased investors will receive a Series A warrant
exercisable for 0.35 class A common
shares at an initial exercise price of $0.975 per
share and a Series B warrant exercisable for one class A common
share at an initial exercise price equal to $0.68 per share.
Our ADSs are listed on the NASDAQ Global Market under the symbol XSEL. The last reported
sale price of the ADSs on October 23, 2009 was $1.73 per ADS.
We have retained Rodman & Renshaw, LLC to act as our exclusive placement agent in connection
with this offering. The placement agent is not purchasing or selling any ADSs or warrants pursuant
to this prospectus supplement or the accompanying prospectus, and is not required to place any
specific number or dollar amount of the ADSs or warrants offered in this offering, but will use its
reasonable best efforts to place the ADSs and warrants.
Investing in our securities involves a high degree of risk. You should read this prospectus
supplement and the accompanying prospectus carefully before you make your investment decision. See
Risk Factors beginning on page S-8 of this prospectus supplement, page 20 of the accompanying
prospectus, as well as the documents we file with the Securities and Exchange Commission that are
incorporated by reference therein for more information.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or
disapproved of these securities or passed upon the accuracy or adequacy of this prospectus
supplement or the accompanying prospectus. Any representation to the contrary is a criminal
offense.
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Per ADS
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Total
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Offer price
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$
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1.36
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$
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7,500,000
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Placement agents fees
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$
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0.06
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$
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337,500
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Proceeds, before expenses, to XSEL*
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$
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1.30
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$
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7,162,500
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*
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excluding the proceeds, if any, from the exercise of warrants
issued in this offering.
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We expect that delivery of the ADSs and warrants being offered pursuant to this prospectus
supplement and the accompanying prospectus will be made on or about October 29, 2009.
Prospectus Supplement dated October 26, 2009
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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Page
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ii
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S-1
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S-3
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S-5
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S-8
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S-10
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S-11
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S-12
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S-14
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S-15
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S-16
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S-17
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S-18
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S-19
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S-20
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S-21
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S-22
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PROSPECTUS
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1
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2
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4
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5
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7
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12
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20
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21
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24
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32
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39
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41
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45
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46
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46
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i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document comprises two parts. The first part is this prospectus supplement, which
describes the specific terms of this offering and also adds to and updates information contained in
the accompanying prospectus. The second part, the accompanying prospectus, gives more general
information, some of which may not apply to this offering. If the description of the offering
varies between this prospectus supplement and the accompanying prospectus, you should rely on the
information contained in this prospectus supplement. However, if any statement in one of these
documents is inconsistent with a statement in another document having a later date for example,
a document incorporated by reference in the accompanying prospectus the statement in the
document having the later date modifies or supersedes the earlier statement.
You should rely only on the information contained in or incorporated by reference into this
prospectus supplement and the accompanying prospectus. No dealer, salesperson or other person is
authorized to give any information or to represent anything not contained in this prospectus
supplement or the accompanying prospectus. You must not rely on any unauthorized information or
representations. The information contained in or incorporated by reference into this prospectus
supplement and the accompanying prospectus is accurate only as of the respective dates thereof,
regardless of the time of delivery of this prospectus supplement and the accompanying prospectus,
or of any sale of ADSs and warrants. This prospectus supplement is an offer to sell only the ADSs
and warrants offered hereby, but only under circumstances and in jurisdictions where it is lawful
to do so.
In this prospectus supplement, unless otherwise indicated,
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we, us, our company, our and XSEL refer to Xinhua Sports & Entertainment
Limited, a Cayman Islands company, formerly known as Xinhua Finance Media Limited, and
its subsidiaries, including direct subsidiaries and affiliated entities;
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ADSs refer to our American depositary shares, each of which represents two class A
common shares, and ADRs refer to the American depositary receipts that evidence our
ADSs;
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China or PRC refers to the Peoples Republic of China, and solely for the
purpose of this registration statement, excluding Taiwan, Hong Kong and Macau;
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RMB or Renminbi refers to the legal currency of China; $, dollars, US$ or
U.S. dollars refers to the legal currency of the United States; and HK$ refers to
the legal currency of Hong Kong; and
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shares, common shares and class A common shares refer to our class A common
shares.
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ii
PROSPECTUS SUPPLEMENT SUMMARY
This prospectus supplement summary highlights selected information included elsewhere in or
incorporated by reference into this prospectus supplement and the accompanying prospectus and does
not contain all the information that you should consider before making an investment decision. You
should read this entire prospectus supplement and the accompanying prospectus carefully, including
the Risk Factors sections and the financial statements and related notes and other information
incorporated by reference, before making an investment decision.
Overview of Our Business
We are a leading media group in China with a focus on sports and entertainment. Catering to a
vast audience of young and upwardly mobile consumers, we believe we are well-positioned in China
with our unique content and access. Through our key international partnerships, we are able to
offer our target audience the content they demandpremium sports and quality entertainment.
Through our Chinese partnerships, we are able to deliver this content across a broad range of
platforms, including television, the Internet, mobile phones and other multimedia assets in China.
We have developed an integrated platform of advertising resources across television, the
Internet, mobile phones, radio, newspapers, magazines, university campuses and other media outlets.
Through these outlets, we provide a total solution empowering clients at every stage of the media
process linking advertisers with Chinas young and upwardly mobile demographic to reach the desired
audience in China.
We were incorporated on November 7, 2005 in the Cayman Islands. We have grown significantly
since our inception, primarily through the acquisition of assets, businesses and the development of
distribution rights. In February 2009, we changed our name from Xinhua Finance Media Limited to
Xinhua Sports & Entertainment Limited, following shareholder approval obtained on January 15,
2009, to sharpen our focus on sports and entertainment media. We changed our trading symbol on the
NASDAQ Global Market to XSEL on March 2, 2009. As we extend our focus to sports and
entertainment media, we anticipate our coverage of finance, and our finance media business, to
decrease over time.
Our business operates across three groups:
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Broadcast, which refers to the sale of advertising and the production of content for
and the distribution of our programming through television and radio channels, as well
as the new media mobile value-added services we provide to mobile phone users in China.
Our media platforms include two free to air channels which broadcast throughout China.
Our Broadcast Group also produces the popular television shows
Fight Weekend
,
The
Scene
and the
Fortune China
series. We have exclusive China media rights for the UEFA
Europa League during the 2009 to 2012 period, and, through our equity investment in
Hong Kong based All Sports Network (ASN), we have exclusive distribution rights via
mobile, television, the Internet and radio for ASNs content in China, which includes
the National Collegiate Athletic Association (NCAA), the National Hockey League,
extreme sports, motor racing and other top quality sports programming. With our
business partners, we are acquiring the rights to provide consulting and advisory
services for four premium tier digital pay television channels to tap into the rapidly
growing digital Chinese television market;
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Print, which refers to our exclusive rights to sell advertising for and provide
management and information consulting services to the
Economic Observer
; and
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Advertising, which refers to online advertising sales, our provision of
below-the-line marketing services and our research services for products,
advertisements and markets.
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We generate revenue principally by producing and selling advertising time and space on
broadcast and print distribution platforms and outdoor billboards, selling produced television
programs and by providing advertising services.
S-1
Corporate Information
Our principal executive offices are located at 2201, Tower D, Central International Trade
Center, 6A Jian Wai Avenue, Chaoyang District, Beijing 100022, Peoples Republic of China. Our
telephone number at this address is 86-10-8567-6000. Our registered office in the Cayman Islands
is at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KYI-1111, Cayman Islands. Our agent
for service of process in the United States is Law Debenture Corporate Services Inc., located at
400 Madison Avenue, 4th Floor, New York, New York 10017.
Investor inquiries should be directed to us at the address and telephone number of our
principal executive offices set forth above. Our website is
http://www.xsel.com/en
. The information
contained on our website does not form part of this prospectus supplement or the accompanying
prospectus.
S-2
THE OFFERING
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ADSs offered by us in this offering
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5,514,705 ADSs.
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Class A common shares to be
outstanding after this offering
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175,666,050 class A common shares.
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The ADSs
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Each ADS represents two class A common shares,
par value $0.001 per share.
The depositary will be the holder of the class A
common shares underlying the ADSs and you will
have the rights of an ADS holder as provided in
the deposit agreement among us, the depositary
and owners and beneficial owners of ADSs from
time to time.
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You may surrender your ADSs to the depositary to
withdraw the class A common shares underlying
your ADSs. The depositary will charge you a fee
for such an exchange.
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We may amend or terminate the deposit agreement
for any reason without your consent. If an
amendment becomes effective, you will be bound
by the deposit agreement as amended if you
continue to hold your ADSs.
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To better understand the terms of the ADSs, you
should carefully read the Description of
American Depositary Shares section of the
accompanying prospectus. We also encourage you
to read the deposit agreement, which is filed as
Exhibit 4.3 to our F-1 registration statement
(File No. 333-140808), initially filed with the
SEC on February 21, 2007, as amended.
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Depositary
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The Bank of New York Mellon.
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Warrants
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For every 0.5 ADSs purchased, we
will issue a Series A warrant
to the investors to purchase 0.35 class A
common shares and a Series B warrant to purchase one class A common
share. This prospectus supplement and
the accompanying prospectus also pertain to the
offering of the class A common shares issuable
upon exercise of the Series A and Series B warrants. No investor will
subscribe for fractional ADSs in this offering.
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Warrant exercise price
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The Series A warrants will be exercisable at an initial
exercise price of $0.975 per class A common
share. The Series B warrants will be exercisable at an initial
exercise price equal to $0.68 per class A common share.
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Warrant exercisability and expiration
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The Series A warrants are exercisable at
any time, commencing six months after the closing date, and expire on
the five year anniversary of this date. The Series B warrants are
exercisable at any time, commencing on the closing date, and expire on
the six month anniversary of this date.
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Use of proceeds
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We estimate that the net proceeds from the sale
of securities offered pursuant to this
prospectus, excluding the proceeds, if any, from
the exercise of warrants issued in this
offering, will be approximately $6.8 million,
after deducting the placement agents fees and
estimated aggregate offering expenses payable by
us. Based on the initial exercise prices, we
estimate the net proceeds from the exercise of the Series A
warrants issued in this offering will be approximately $3.6 million, and the net proceeds from the
exercise of the Series B warrants issued in this offering will be
approximately $7.1 million. To the extent any warrants are exercised on a cashless basis we will not receive any proceeds as a result
of such exercise. We
intend to use the net proceeds we receive from
this
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S-3
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offering for working capital purposes.
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See Use of Proceeds for additional information.
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Risk factors
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See Risk Factors and other information
included in this prospectus supplement, the
accompanying prospectus and the documents
incorporated by reference in this prospectus
supplement, as such factors may be amended,
updated or modified periodically in our reports
filed with the Securities and Exchange
Commission, or the SEC, for a discussion of
factors you should carefully consider before
deciding to invest in the ADSs and the warrants.
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NASDAQ Global Market trading symbol
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XSEL.
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S-4
RECENT DEVELOPMENTS
The following tables present summary consolidated financial information of our company.
The summary unaudited condensed consolidated statement of operations data for the six months
ended June 30, 2008 and 2009, and the summary unaudited condensed consolidated balance sheet data
as of June 30, 2009 are derived from our consolidated financial information contained in our
current reports on Form 6-K filed with the SEC on October 20, 2009, which have been incorporated
by reference herein, and have been prepared on the same basis as our audited consolidated financial
statements included in our annual report on Form 20-F for the year ended December 31, 2008, other
than the amounts in relation to noncontrolling interest, formerly referred to as minority interest,
which have been reclassified in accordance with FASB Statement No. 160, Noncontrolling Interests
in Consolidated Financial Statementsan amendment of ARB No. 51, which was adopted by us on
January 1, 2009, and the classification of Shanghai Hyperlink Market Research Co. Ltd., or
Hyperlink, as a discontinued operation because of our decision in 2009 to dispose of that entity.
The unaudited financial information includes all adjustments, consisting only of normal and
recurring adjustments, that we consider necessary for a fair presentation of our financial position
and operating results for the periods presented.
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Six Months
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Six Months
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Ended
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Ended
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June 30, 2008
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June 30, 2009
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(In thousands, except per share data)
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Net revenues:
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Advertising services
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$
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45,165
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$
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35,409
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Content production
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3,461
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1,086
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Advertising sales
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33,746
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26,555
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Publishing services
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311
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233
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Total net revenues
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82,683
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63,283
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Cost of revenues:
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Advertising services
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33,206
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25,287
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Content production
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1,503
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582
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Advertising sales
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14,797
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18,718
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Publishing services
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549
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424
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Total cost of revenues
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50,055
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45,011
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Operating expenses:
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Selling and distribution
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10,582
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6,812
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General and administrative
(1)
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24,465
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13,024
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Total operating expenses
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35,047
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19,836
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Other operating income
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7
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1,928
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Income (loss) from continuing operations
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(2,412
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)
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364
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Other expenses, net
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(1,967
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)
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(5,173
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Provision for income taxes
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3,200
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682
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Net loss from continuing operations
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(7,579
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)
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(5,491
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)
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Discontinued operations:
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Income from discontinued operations
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517
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90
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Provision for income taxes
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129
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51
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Discontinued operations, net of taxes
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388
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39
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Net loss
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$
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(7,191
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)
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$
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(5,452
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)
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Net income (loss) attributable to non-controlling interests
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326
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(167
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)
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Net loss attributable to XSEL
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$
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(7,517
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)
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$
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(5,285
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)
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Dividends declared to redeemable convertible preferred shares
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800
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1,280
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Net loss attributable to holders of common shares
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$
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(8,317
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)
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$
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(6,565
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)
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Net loss per share:
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Basic and diluted from continuing operations
class A common shares
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$
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(0.06
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)
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$
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(0.04
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)
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S-5
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Six Months
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Six Months
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Ended
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Ended
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June 30, 2008
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June 30, 2009
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(In thousands, except per share data)
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Basic and diluted from continuing operations
class B common shares
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$
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(0.06
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)
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$
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N/A
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Basic and diluted from discontinued operations
class A common shares
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$
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0.00
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$
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0.00
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Basic and diluted from discontinued operations
class B common shares
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$
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0.00
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$
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N/A
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Shares used in computation:
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Basic class A common shares
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83,023
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151,520
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Basic class B common shares
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50,055
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N/A
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Diluted class A common shares
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83,023
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151,520
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Diluted class B common shares
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50,055
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N/A
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(1)
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Includes share-based compensation expenses of $6.7 million and $1.4 million for the six
months ended June 30, 2008 and 2009, respectively.
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As of
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December 31,
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June 30,
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2008
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2009
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(In thousands, except per share data)
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Balance sheet data:
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Assets:
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Current assets:
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Cash and cash equivalents
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$
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54,088.8
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32,329.3
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Short term deposit
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2,940.1
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29.1
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Restricted cash
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37,510.0
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|
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37,920.0
|
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Accounts receivable, net of allowance for
doubtful debts
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44,762.9
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|
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35,422.3
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Deposits for program advertising right
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2,125.3
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2,566.5
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Prepaid advertising program space and airtime
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198.9
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2,308.3
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Prepaid expenses
|
|
|
3,053.1
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|
|
|
8,442.2
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Amounts due from related parties, current
portion
|
|
|
6,547.6
|
|
|
|
13,893.9
|
|
Consideration receivable from disposal of
subsidiaries
|
|
|
36,970.6
|
|
|
|
45,640.0
|
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Deferred tax assets, current portion
|
|
|
1,042.4
|
|
|
|
986.2
|
|
Assets held for sale
|
|
|
|
|
|
|
7,846.2
|
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Other current assets
|
|
|
4,259.1
|
|
|
|
4,769.9
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|
|
|
|
|
|
Total current assets
|
|
|
193,498.8
|
|
|
|
192,153.9
|
|
Television program and film right, net
|
|
|
|
|
|
|
13,685.6
|
|
Property and equipment, net
|
|
|
6,590.8
|
|
|
|
6,043.2
|
|
License agreements, net
|
|
|
99,148.0
|
|
|
|
185,870.5
|
|
Exclusive advertising agreement, net
Economic Observer Advertising
|
|
|
74,267.2
|
|
|
|
73,540.4
|
|
Other intangible assets, net
|
|
|
27,113.4
|
|
|
|
25,077.8
|
|
Goodwill
|
|
|
46,992.7
|
|
|
|
68,827.5
|
|
Investment
|
|
|
13,508.2
|
|
|
|
13,508.2
|
|
Deposit for investment
|
|
|
14,174.6
|
|
|
|
14,536.9
|
|
Deferred tax assets, non-current
|
|
|
|
|
|
|
390.3
|
|
Consideration receivable from disposal of
subsidiaries
|
|
|
28,285.0
|
|
|
|
26,249.6
|
|
S-6
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
Amounts due from a related party, non-current
portion
|
|
|
1,506.1
|
|
|
|
1,223.3
|
|
Other long term assets
|
|
|
3,165.5
|
|
|
|
8,112.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,250.3
|
|
|
|
629,220.1
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Mezzanine Equity and Total Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
5,375.3
|
|
|
|
15,666.9
|
|
Accrued expenses and other payables
|
|
|
42,243.3
|
|
|
|
44,935.6
|
|
Amounts due to Parent and its affiliates
|
|
|
1,131.0
|
|
|
|
|
|
Amounts due to other related parties
|
|
|
2,215.1
|
|
|
|
8,572.0
|
|
Long term payables, current portion
|
|
|
10,363.8
|
|
|
|
14,742.8
|
|
Bank borrowings
|
|
|
36,374.2
|
|
|
|
42,705.9
|
|
Current income taxes payable
|
|
|
8,571.8
|
|
|
|
6,840.0
|
|
Liabilities held for sale
|
|
|
|
|
|
|
1,129.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
106,274.5
|
|
|
|
134,592.8
|
|
Deferred tax liabilities
|
|
|
31,679.5
|
|
|
|
35,509.1
|
|
Convertible loan
|
|
|
33,200.0
|
|
|
|
57,122.2
|
|
Consideration payables
|
|
|
|
|
|
|
5,819.7
|
|
Long term payables, non-current portion
|
|
|
68,305.5
|
|
|
|
127,887.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
239,459.5
|
|
|
|
360,931.1
|
|
|
|
|
|
|
|
|
|
|
Contingencies
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares
(par value $0.001; 320,000 as of December 31,
2008 and 345,600 June 30, 2009 shares authorized;
314,000 as of December 31, 2008 and 326,400 as of
June 30, 2009 shares issued and outstanding;
liquidation value of $65,920,000 as of June 30,
2009)
|
|
|
30,605.6
|
|
|
|
31,845.6
|
|
XSEL shareholders equity:
|
|
|
|
|
|
|
|
|
Class A common shares (par value $0.001;
343,822,874 as of December 31, 2008 and June 30,
2009 shares authorized; 146,914,667 as of
December 31, 2008 and 152,028,667 as of June 30,
2009 shares issued and outstanding)
|
|
|
104.3
|
|
|
|
109.4
|
|
Additional paid-in capital
|
|
|
481,319.6
|
|
|
|
485,416.9
|
|
Treasury Stock
|
|
|
(1.3
|
)
|
|
|
(0.3
|
)
|
Accumulated deficit
|
|
|
(252,968.4
|
)
|
|
|
(259,533.0
|
)
|
Accumulated other comprehensive income
|
|
|
7,165.8
|
|
|
|
6,610.6
|
|
|
|
|
|
|
|
|
Total
|
|
|
235,620.0
|
|
|
|
232,603.6
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
2,565.2
|
|
|
|
3,839.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
238,185.2
|
|
|
|
236,443.4
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and total equity
|
|
|
508,250.3
|
|
|
|
629,220.1
|
|
|
|
|
|
|
|
|
S-7
RISK FACTORS
You should carefully consider the risks described below, as well as the other information
included or incorporated by reference in this prospectus supplement and the accompanying prospectus
before you decide to buy our securities. The risks described below are not the only risks facing
us. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial may also materially and adversely affect our business operations. Any of the following
risks could materially adversely affect our business, financial condition or results of operations.
In such case, you may lose all or part of your original investment.
Risks Related to Our Company and Our Industry
For a full description of the risks associated with our business, please see the risk factors
set forth under the heading Item 3D. Risk Factors in our annual report on Form 20-F for the year
ended December 31, 2008, which is incorporated by reference in this prospectus supplement.
Risks Related to This Offering
The market price for our ADSs may be volatile.
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations
in response to factors including the following:
|
|
announcements of technological or competitive developments;
|
|
|
|
regulatory developments in our target markets affecting us, our customers or our
competitors;
|
|
|
|
announcements of studies and reports relating to the circulation, ratings, audience or
readership size or composition, quality or effectiveness of our and our strategic partners
products and services or those of our competitors;
|
|
|
|
actual or anticipated fluctuations in our quarterly operating results;
|
|
|
|
changes in financial estimates by securities research analysts;
|
|
|
|
changes in the economic performance or market valuations of other media and advertising
companies;
|
|
|
|
addition or departure of our executive officers and key personnel;
|
|
|
|
fluctuations in the exchange rates between the U.S. dollar and RMB;
|
|
|
|
release or expiration of lock-up or other transfer restrictions on our outstanding ADSs;
and
|
|
|
|
sales or perceived sales of additional ADSs.
|
In addition, the securities markets have from time to time experienced significant price and
volume fluctuations that are not related to the operating performance of particular companies.
These market fluctuations may also have a material adverse effect on the market price of our ADSs.
Our quarterly and half-year operating results may fluctuate from period to period in the future.
Our quarterly and half-year operating results may fluctuate from period to period based on the
seasonality of industry demand. For example, our revenues may fluctuate significantly based on
the seasonality of consumer spending and corresponding advertising trends. Revenues for our
business
are driven largely by advertising and sponsorship across all our operating groups and media
platforms, which subject us to the seasonal effects of Chinas advertising industry. Furthermore,
our business has been impacted by global economic conditions and a corresponding decrease in global
advertising spending. As a result, you may not be able to rely on period to period comparisons of
our operating results as an indication of our future performance. Furthermore, the results for the
quarterly and half-year results may not be indicative of our full-year results.
We may issue additional ADSs, other equity, equity-linked or debt securities, which may materially
and adversely affect the price of our ADSs. Hedging activities may depress the trading price of our
ADSs.
S-8
We require a significant amount of cash to fund our operations and currently have a
significant amount of debt outstanding. We may issue additional equity, equity-linked or debt
securities for a number of reasons, including to finance our operations and business strategy, to
satisfy our obligations for the repayment of existing indebtedness, or for other reasons. Any
future issuances of equity securities or equity-linked securities could substantially dilute your
interests and may materially adversely affect the price of our ADSs. We cannot predict the timing
or size of any future issuances or sales of equity, equity-linked or debt securities, or the
effect, if any, that such issuances or sales, including the sale of the ADSs and warrants in this
offering, may have on the market price of our ADSs. Market conditions could require us to accept
less favorable terms for the issuance of our securities in the future. Further, the price of our
ADSs could also be affected by possible sales of our ADSs by investors who view our outstanding
convertible notes as a more attractive means of equity participation in our company and by hedging
or arbitrage trading activity that involves our ADSs. For more information on our capital
requirements, please see We may need additional capital to finance future acquisitions and we may
not be able to obtain it. and We have substantial indebtedness and may incur substantial
additional indebtedness in the future, which could adversely affect our financial health and our
ability to generate sufficient cash to satisfy our outstanding and future debt obligations. in
Item 3D. Risk Factors in our annual report on Form 20-F for the year ended December 31, 2008.
Our ADSs were recently at risk for delisting from the Nasdaq Global Market. Delisting could
adversely affect the liquidity of our ADSs and the market price of our ADSs could decrease, and our
ability to obtain adequate financing for the continuation of our operations would be substantially
impaired.
Our ADSs are currently listed on the Nasdaq Global Market. The Nasdaq Stock Market LLC, or
Nasdaq, has minimum requirements that a company must meet in order to remain listed on the Nasdaq
Global Market. These requirements include maintaining a minimum closing bid price of $1.00 per
share. Although the closing bid price of our ADSs on October 23,
2009 was $1.73 per ADS, the
closing bid price of our ADSs was below $1.00 per ADS from January through July of 2009. These
requirements also include maintaining a minimum market value of publicly held shares, and, as of
October 23, 2009, we met this minimum requirement. Although Nasdaq previously temporarily
suspended the minimum closing bid price and minimum market value of publicly held shares
requirements, they were reinstated on August 3, 2009. There can be no assurance that we will
continue to meet these requirements in the future. If our ADSs are delisted, the liquidity of our
ADSs would be adversely affected, the market price of our ADSs could further decrease, and our
ability to obtain adequate financing for the continuation of our operations would be substantially
impaired. Delisting may also cause us to default under a credit agreement we entered into in
October 2008, which could have a material adverse effect on our financial condition, results of
operations or cash flow from operations.
Our management has broad discretion over the use of proceeds from this offering.
Our management has significant flexibility in applying the proceeds that we receive from this
offering. Although we intend to use the proceeds from this offering for working capital purposes,
our board of directors retains significant discretion with respect to the use of proceeds. The
proceeds of this offering may be used in a manner that does not generate favorable returns.
Substantial future sales or perceived sales of our ADSs in the public market could cause the price
of our ADSs to decline.
Sales of our ADSs in the public market after this offering, or the perception that these sales
could occur, could cause the market price of our ADSs to decline. Upon completion of this
offering, we will have 175,066,050 class A common shares outstanding,
including 91,709,964 class A
common shares represented by ADSs (or 186,695,460 class A common shares
outstanding, including 102,739,374 class A common
shares represented by 51,369,687 ADSs, if the investors
exercise their Series B warrants in full, on a cash basis for ADSs; or
190,555,752 class A common shares outstanding, including
106,599,666 class A common shares represented by
53,299,833 ADSs, if the investors exercise their Series A
and Series B warrants in full, on a cash basis for ADSs). All ADSs and warrants sold in this offering will be freely
transferable without restriction or additional registration under the Securities Act of 1933, as
amended.
S-9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, and the accompanying prospectus supplement and the documents incorporated by
reference herein and therein contain statements of a forward-looking nature. These statements are
made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of
1995. You can identify these forward-looking statements by terminology such as may, will,
expect, anticipate, future, forecast, intend, plan, predict, propose, potential,
continue, believe, estimate, is/are likely to, or the negative of these terms, and other
similar expressions. We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. These
forward-looking statements include:
|
|
our goals and strategies;
|
|
|
|
our plans to expand our business to sharpen our focus on sports and entertainment;
|
|
|
|
our future business development, financial condition and results of operations;
|
|
|
|
projected revenues, profits, earnings and other estimated financial information;
|
|
|
|
our plans to expand our Internet presence, and expand into new media, such as broadband
wireless and Internet television;
|
|
|
|
the growth or acceptance of our integrated platform;
|
|
|
|
our plans to identify and create new advertising networks that target specific consumer
demographics;
|
|
|
|
competition in the PRC media and advertising industries; and
|
|
|
|
the expected growth in advertising spending levels.
|
We would like to caution you not to place undue reliance on these statements, and you should
read these statements in conjunction with the risk factors set forth under the heading Risk
Factors in this prospectus for a more complete discussion of the risks of an investment in our
securities. These risks are not exhaustive. We operate in an emerging and evolving environment. New
risk factors emerge from time to time and it is impossible for our management to predict all risk
factors, nor can we assess the impact of all risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement. The forward-looking statements included in this
prospectus or incorporated by reference into this prospectus are made only as of the date of this
prospectus or the date of the incorporated document, and we do not undertake any obligation to
update the forward-looking statements except as required under applicable law.
S-10
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the securities offered pursuant to this
prospectus supplement, excluding the proceeds, if any, from the exercise of warrants issued in this
offering, will be approximately
$6.8 million, based on the assumed
offering price of $1.36, after
deducting the placement agents fees and estimated offering expenses payable by us. Based on the
initial exercise prices, we estimate the net proceeds from the exercise
of the Series A warrants issued in this
offering will be approximately $3.6 million and the net
proceeds from the exercise of the Series B warrants issued in
this offering will be approximately $7.1 million. To the extent any warrants are exercised on a cashless basis we will not receive any proceeds as a result
of such exercise.
We intend to use the net proceeds we receive from this offering for working capital purposes.
We will not use any proceeds for the satisfaction of any portion of our debt (other than payment of
trade payables in the ordinary course of our business and prior practices), the redemption of any
of our class A common shares (or any securities that would entitle the holder to acquire class A
common shares) or the settlement of any outstanding litigation.
Pending the use of the net proceeds, we intend to invest the net proceeds in a variety of
capital preservation instruments, including short term, investment
grade, interest-bearing
instruments.
S-11
DESCRIPTION OF SECURITIES WE ARE OFFERING
In
this offering, we are offering
5,514,705 ADSs
at an offer price of $1.36 per
ADS, Series A warrants to purchase up to 3,860,293 class A common shares at an initial exercise price
of $0.975 per share and Series B warrants to purchase up to 11,029,410 class A common shares at an initial exercise price equal to
$0.68 per share. This prospectus supplement, the accompanying prospectus and the F-3 registration
statement initially filed on September 4, 2009 (File No. 333-161724) also pertain to the offering
of our class A common shares upon exercise, if any, of the Series A
or the Series B warrants.
The ADSs and warrants offered in this offering will be issued pursuant to a securities
purchase agreement between the purchasers and us. You should review a
copy of the form of securities purchase agreement, the form of Series
A warrant and the form of Series B warrant, each of which
have been filed by us as an exhibit to a Current Report on Form 6-K filed with the SEC in connection with this offering, for a complete description of the
terms and conditions applicable to the securities offered.
This description of the securities we are
offering in this prospectus supplement is qualified in its entirety by reference to the warrants.
Common Shares and ADSs
The material terms and provisions of our class A common shares and each other class of our
securities which qualifies or limits our class A common shares are described under the caption
Description of Share Capital, starting on page 24 of the accompanying prospectus. The material
terms and provisions of our ADSs are described under the caption Description of American
Depositary Shares, starting on page 32 of the accompanying prospectus.
Series A Warrants
The
following is a brief summary of the Series A warrants and is subject in all respects to the
provisions contained in the Series A warrants.
Exercisability.
Holders may exercise warrants at any
time, commencing six months after the closing date, up to
the close of business on the five year anniversary of this date. The warrants are exercisable, at the option of each
holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by
payment in full for the number of our class A common shares purchased upon such exercise (except in
the case of a cashless exercise discussed below). Each holder has the right,
subject to the terms of the warrant and the deposit agreement among us, The Bank of New York
Mellon, and the holders from time to time of the American depositary receipts evidencing the ADSs,
to direct us to procure that the class A common shares deliverable upon exercise of the warrants be
deposited with the depositary for the issuance of ADSs. The holder of warrants does not have the
right to exercise any portion of the warrant if the holder would beneficially own in excess of 4.9%
of our class A common shares outstanding immediately after giving effect to such exercise. This
percentage may, however, be raised or lowered to an amount not to exceed 9.99% at the option of the
holder upon at least 61 days prior notice from the holder to us.
Cashless Exercise.
If at the time of exercise of the warrant there is no effective
registration statement registering, or the prospectus contained therein is not available for, the
issuance of the class A common shares issuable upon exercise, and there is no effective
registration statement covering the resale of such class A common shares by the holder (or the
prospectus contained therein is not available for use), the holder may, at its option, exercise its
warrants, in whole or in part, on a cashless basis. When exercised on a cashless basis, a portion
of the warrant is cancelled in payment of the purchase price payable in respect of the number of
our class A common shares purchasable upon such exercise.
Exercise Price.
The initial exercise price of class A common shares purchasable upon exercise of
the warrants is $0.975 per share. The exercise price and the number of shares issuable upon
exercise of the warrants is subject to appropriate adjustment in the event of certain dilutive
issuances affecting our class A common shares, as well as share dividends, share splits, share
combinations or reclassifications affecting our class A common shares, and also upon any
distributions of indebtedness or assets, including cash, or certain securities to the holders of
our class A common shares.
Transferability
. The warrants may be transferred at the option of the holder upon surrender of
the warrants with the appropriate instruments of transfer. The warrants are not transferable to
our affiliates.
S-12
Fundamental Transactions
. If we consummate any fundamental transaction,
as described in the warrants and generally including any consolidation or merger into another
corporation, the sale of all or substantially all of our assets, or another transaction in which
our class A common shares are converted into or exchanged for other securities or other
consideration, the holder of warrants will thereafter receive upon exercise of the warrants the
securities or other consideration to which a holder of the number of class A common shares then
deliverable upon the exercise or conversion of such warrants would have been entitled upon such
consolidation, merger or other transaction. In addition, in the event
of a fundamental transaction that (i) is an all cash transaction,
(ii) is a Rule 13e-3 transaction as defined in Rule 13e-3 under
the Securities Exchange Act of 1934, as amended or (iii) involves an
entity not traded on a national securities exchange, we or any
successor entity will pay at the holder's option, exercisable at any
time concurrently with or within 30 days following the consummation
of the transaction, an amount of cash equal to the value of the
unexercised warrants held by such holder as determined in accordance
with the Black-Scholes option pricing formula.
Exchange Listing.
We do not plan on making an application to list the warrants on the Nasdaq
Global Market, any other national securities exchange or other nationally recognized trading
system.
Rights as Shareholder.
Except by virtue of such holders ownership of our class A common
shares, the holders of the warrants do not have the rights or privileges of holders of our class A
common shares, including any voting rights, until they exercise their warrants.
Fractional Shares.
No fractional class A common shares will be issued upon the exercise of the
warrants. Rather, at our election a cash adjustment may be paid with respect to such fraction or
the number of class A shares to be issued will be rounded down to the nearest whole number.
Series
B Warrants
The
following is a brief summary of the Series B warrants and is subject in all respects to the
provisions contained in the Series B warrants.
Exercisability.
Holders may exercise warrants at any time, commencing on the
closing date, up to
the close of business on the six month anniversary of this date. The warrants are exercisable, at the option of each
holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by
payment in full for the number of our class A common shares purchased upon such exercise (except in
the case of a cashless exercise discussed below). Each holder has the right,
subject to the terms of the warrant and the deposit agreement among us, The Bank of New York
Mellon, and the holders from time to time of the American depositary receipts evidencing the ADSs,
to direct us to procure that the class A common shares deliverable upon exercise of the warrants be
deposited with the depositary for the issuance of ADSs. The holder of warrants does not have the
right to exercise any portion of the warrant if the holder would beneficially own in excess of 4.9%
of our class A common shares outstanding immediately after giving effect to such exercise. This
percentage may, however, be raised or lowered to an amount not to exceed 9.99% at the option of the
holder upon at least 61 days prior notice from the holder to us.
Cashless Exercise.
If at the time of exercise of the warrant there is no effective
registration statement registering, or the prospectus contained therein is not available for, the
issuance of the class A common shares issuable upon exercise, and there is no effective
registration statement covering the resale of such class A common shares by the holder (or the
prospectus contained therein is not available for use), the holder may, at its option, exercise its
warrants, in whole or in part, on a cashless basis. When exercised on a cashless basis, a portion
of the warrant is cancelled in payment of the purchase price payable in respect of the number of
our class A common shares purchasable upon such exercise.
Exercise Price.
The initial exercise price of class A common shares purchasable upon exercise
of the warrants is $0.68 per share. The exercise price and the number of shares issuable upon exercise
of the warrants is subject to appropriate adjustment in the event of share dividends, share splits,
share combinations or reclassifications affecting our class A common shares,
and also upon any distributions of indebtedness or assets, including cash, or certain securities to
the holders of our class A common shares.
Transferability
. The warrants may be transferred at the option of the holder upon surrender of
the warrants with the appropriate instruments of transfer. The warrants are not transferable to
our affiliates.
Fundamental Transactions
. If we consummate any fundamental transaction,
as described in the warrants and generally including any consolidation or merger into another
corporation, the sale of all or substantially all of our assets, or another transaction in which
our class A common shares are converted into or exchanged for other securities or other
consideration, the holder of warrants will thereafter receive upon exercise of the warrants the
securities or other consideration to which a holder of the number of class A common shares then
deliverable upon the exercise or conversion of such warrants would have been entitled upon such
consolidation, merger or other transaction.
Exchange Listing.
We do not plan on making an application to list the warrants on the Nasdaq
Global Market, any other national securities exchange or other nationally recognized trading
system.
Rights as Shareholder.
Except by virtue of such holders ownership of our class A common
shares, the holders of the warrants do not have the rights or privileges of holders of our class A
common shares, including any voting rights, until they exercise their warrants.
Fractional Shares.
No fractional class A common shares will be issued upon the exercise of the
warrants. Rather, at our election a cash adjustment may be paid with respect to such fraction or
the number of class A shares to be issued will be rounded down to the nearest whole number.
S-13
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2009:
|
|
on an actual basis;
|
|
|
|
on an as adjusted basis to give effect to the completion of this offering, assuming we
sell 5,514,705 ADSs, Series A warrants to purchase up to
3,860,293 class A common shares and Series B warrants to
purchase up to 11,209,410 class A common shares, after deducting the placement agents fees and
estimated aggregate offering expenses payable by us;
|
|
|
|
on an as further adjusted basis to give effect to the completion of this offering as described
above and to give effect to the exercise of the Series B warrants in full, on a cash basis; and
|
|
|
|
on an as further adjusted basis to give effect to the completion of this offering as described above
and to give effect to the exercise of the Series A and Series B warrants in full, on a cash basis.
|
You should read this table together with our financial statements and the related notes, the
information under Operating and Financial Review and Prospects included in our annual report on
Form 20-F for the year ended December 31, 2008, as amended, and the information under Recent
Developments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
Actual
|
|
As adjusted
|
|
As
further
adjusted
for exercise of
Series B warrants
|
|
As
further
adjusted
for exercise of
Series A and
Series B warrants
|
|
|
(in thousands)
|
Convertible loan
|
|
|
57,122.2
|
|
|
|
57,122.2
|
|
|
|
57,122.2
|
|
|
|
57,122.2
|
|
Long-term payables, non-current portion
|
|
|
127,887.3
|
|
|
|
127,887.3
|
|
|
|
127,887.3
|
|
|
|
127,887.3
|
|
Consideration payable
|
|
|
5,819.7
|
|
|
|
5,819.7
|
|
|
|
5,819.7
|
|
|
|
5,819.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible
preferred shares, par value $0.001,
345,600 shares authorized; 326,400
shares issued and outstanding
|
|
|
31,845.6
|
|
|
|
31,845.6
|
|
|
|
31,845.6
|
|
|
|
31,845.6
|
|
XSEL shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common shares par value $0.001, 343,822,874
shares authorized, 152,028,667 shares
issued and
outstanding
|
|
|
109.4
|
|
|
|
120.4
|
|
|
|
131.4
|
|
|
|
135.3
|
|
Treasury stock
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Additional
paid-in capital
|
|
|
485,416.9
|
|
|
|
492,215.3
|
|
|
|
499,329.3
|
|
|
|
502,901.1
|
|
Retained earnings (accumulated deficit)
|
|
|
(259,533.0
|
)
|
|
|
(259,533.0
|
)
|
|
|
(259,533.0
|
)
|
|
|
(259,533.0
|
)
|
Accumulated other comprehensive income
|
|
|
6,610.6
|
|
|
|
6,610.6
|
|
|
|
6,610.6
|
|
|
|
6,610.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
232,603.6
|
|
|
|
239,413.0
|
|
|
|
246,538.0
|
|
|
|
250,113.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
3,839.8
|
|
|
|
3,839.8
|
|
|
|
3,839.8
|
|
|
|
3,839.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
236,443.4
|
|
|
|
243,252.8
|
|
|
|
250,377.8
|
|
|
|
253,953.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
459,118.2
|
|
|
|
465,927.6
|
|
|
|
473,052.6
|
|
|
|
476,628.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Except as disclosed above, there have been no material changes to our capitalization since
June 30, 2009.
S-14
DIVIDEND POLICY
We have never declared or paid any dividends on our common shares, nor do we have any present
plan to pay any cash dividends on our ADSs in the foreseeable future. We currently intend to retain
most of our available funds and any future earnings to operate and expand our business. We have,
however, paid dividends to the holder of our series A convertible preferred shares of approximately
$7.5 million, $1.3 million and $0 million for the years ended December 31, 2006, 2007 and 2008,
respectively. We discontinued these dividends upon conversion of the series A convertible preferred
shares. The terms of the convertible loan facility from affiliates of Patriarch Partners Agency
Services, LLC, which we entered into in October 2008, preclude us from paying any dividends on our
common shares.
Holders of our series B convertible preferred shares are entitled to dividends at 8.0% per
annum of the stated value of such series B convertible preferred shares, payable at each fiscal
quarter in cash or stock at our option. We have issued an aggregate
of 39,200 Series B
convertible preferred shares as dividends to the holder of such shares as of the date of this
prospectus supplement.
As we are a holding company, we may rely on dividends paid to us by our wholly-owned
subsidiaries Upper Step Holdings Limited, Accord Group Investments
Limited, XSEL
Advertising, Profitown, East Alliance Limited and Small World Television, all of which are British
Virgin Islands business companies, by our wholly-owned subsidiaries EconWorld Media, Singshine
Marketing and Xinhua Sports & Entertainment (HK) Limited, all of which are Hong Kong companies, and
by our indirect subsidiary Xinhua Media Entertainment in which we hold a 75% interest, a Cayman
Islands company, for our cash requirements, including the funds necessary to pay dividends and
other cash distributions to our shareholders, service any debt we may incur and pay our operating
expenses.
In the British Virgin Islands, the payment of dividends is subject to limitations. A British
Virgin Islands business company that prior to January 1, 2007 existed as an international business
company is permitted to declare and pay dividends only out of surplus, meaning the excess, if any,
at the time of the determination, of the total assets of the company over the sum of its total
liabilities, as shown in the books of account, plus its capital. In addition, such company may not
declare or pay a dividend unless the directors of the company determine that immediately after the
payment of the dividend the company will be able to satisfy its liabilities as they become due in
the ordinary course of its business and the realizable value of the assets of the company will not
be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of
account, and its capital.
In Hong Kong, the payment of dividends is also subject to limitations. Dividends may only be
distributed out of accumulated, realized profits less accumulated, realized losses. Accumulated,
realized profits must not have been previously distributed or capitalized. Accumulated, realized
losses do not include those previously written off in a reduction or reorganization of capital.
In the Cayman Islands, the payment of dividends is also subject to limitations. Dividends may
only be distributed out of profits, or out of a companys share premium account, subject to the
company being able to pay its debts as they fall due in the ordinary course of business.
If we are allowed to declare and pay dividends, the form, frequency and amount will depend
upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the board of directors may deem
relevant. Cash dividends on our ADSs, if any, will be paid in U.S. dollars.
S-15
EXCHANGE RATE INFORMATION
Our business is primarily conducted in China and substantially all of our revenues are
denominated in RMB. However, periodic reports made to shareholders will include current period
amounts translated into U.S. dollars using the then current exchange rates, for the convenience of
readers. The conversion of RMB into U.S. dollars in this prospectus supplement is based on the
noon buying rate in The City of New York for cable transfers of RMB as certified for customs
purposes by the Federal Reserve Bank of New York. We make no representation that any RMB or U.S.
dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may
be, at any particular rate, or at all. The PRC government imposes control over its foreign
currency reserves in part through direct regulation of the conversion of RMB into foreign exchange
and through restrictions on foreign trade. On October 16, 2009, the
noon buying rate was RMB 6.8266 to $1.00.
The following table sets forth information concerning exchange rates between the RMB and the
U.S. dollar for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noon Buying Rate
|
|
|
Period
|
|
|
|
|
|
|
Period
|
|
End
|
|
Average(1)
|
|
Low
|
|
High
|
2004
|
|
|
8.2765
|
|
|
|
8.2768
|
|
|
|
8.2774
|
|
|
|
8.2764
|
|
2005
|
|
|
8.0702
|
|
|
|
8.1826
|
|
|
|
8.2765
|
|
|
|
8.0702
|
|
2006
|
|
|
7.8041
|
|
|
|
7.9579
|
|
|
|
8.0702
|
|
|
|
7.8041
|
|
2007
|
|
|
7.2946
|
|
|
|
7.5806
|
|
|
|
7.8127
|
|
|
|
7.2946
|
|
2008
|
|
|
6.8225
|
|
|
|
6.9193
|
|
|
|
7.2946
|
|
|
|
6.7800
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
|
|
|
6.8180
|
|
|
|
6.8306
|
|
|
|
6.8361
|
|
|
|
6.8180
|
|
May
|
|
|
6.8278
|
|
|
|
6.8235
|
|
|
|
6.8326
|
|
|
|
6.8176
|
|
June
|
|
|
6.8302
|
|
|
|
6.8334
|
|
|
|
6.8371
|
|
|
|
6.8264
|
|
July
|
|
|
6.8319
|
|
|
|
6.8317
|
|
|
|
6.8342
|
|
|
|
6.8300
|
|
August
|
|
|
6.8299
|
|
|
|
6.8323
|
|
|
|
6.8358
|
|
|
|
6.8299
|
|
September
|
|
|
6.8262
|
|
|
|
6.8277
|
|
|
|
6.8303
|
|
|
|
6.8247
|
|
October
(through October 16)
|
|
|
6.8266
|
|
|
|
6.8261
|
|
|
|
6.8270
|
|
|
|
6.8248
|
|
|
|
|
(1)
|
|
Annual averages are calculated from month-end rates. Monthly averages
are calculated using the average of the daily rates during the
relevant period.
|
S-16
MARKET PRICE INFORMATION FOR OUR AMERICAN DEPOSITARY SHARES
Our ADSs, each representing two class A common shares, have been listed on the NASDAQ Global
Market since March 9, 2007. Our ADSs traded under the symbol XFML through March 2, 2009, and are
now traded under the symbol XSEL.
The following table provides the high and low trading prices for our ADSs on the NASDAQ Global
Market for (1) the years 2007 and 2008, (2) each of the past eight quarters, and (3) each of the
past six months.
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
High
|
|
Low
|
Annual High and Low
|
|
|
|
|
|
|
|
|
2007 (from March 9, 2007)
|
|
$
|
13.00
|
|
|
$
|
5.06
|
|
2008
|
|
|
6.28
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
Quarterly Highs and Lows
|
|
|
|
|
|
|
|
|
Third Quarter of 2007
|
|
|
10.18
|
|
|
|
5.06
|
|
First Quarter of 2008
|
|
|
6.28
|
|
|
|
2.02
|
|
Second Quarter of 2008
|
|
|
4.40
|
|
|
|
2.11
|
|
Third Quarter of 2008
|
|
|
3.07
|
|
|
|
1.22
|
|
Fourth Quarter of 2008
|
|
|
1.59
|
|
|
|
0.31
|
|
First Quarter of 2009
|
|
|
0.79
|
|
|
|
0.22
|
|
Second Quarter of 2009
|
|
|
1.00
|
|
|
|
0.45
|
|
Third Quarter of 2009
|
|
|
1.98
|
|
|
|
0.79
|
|
|
|
|
|
|
|
|
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
April 2009
|
|
|
0.62
|
|
|
|
0.45
|
|
May 2009
|
|
|
1.06
|
|
|
|
0.57
|
|
June 2009
|
|
|
1.00
|
|
|
|
0.67
|
|
July 2009
|
|
|
1.34
|
|
|
|
0.79
|
|
August 2009
|
|
|
1.91
|
|
|
|
1.21
|
|
September 2009
|
|
|
1.98
|
|
|
|
1.45
|
|
October 2009 (through October 23)
|
|
|
1.81
|
|
|
|
1.56
|
|
On October 23, 2009, the last reported sale price of our ADSs on the NASDAQ Global Market
was $1.73 per ADS.
S-17
PLAN OF DISTRIBUTION
We are offering the ADSs and warrants through Rodman & Renshaw, LLC as our exclusive placement
agent. Subject to the terms and conditions contained in the placement
agent agreement, dated September 4,
2009, Rodman & Renshaw, LLC has agreed to act as our exclusive placement agent for the
sale of 5,514,705 ADSs,
Series A warrants to purchase up to 3,860,293 class A
common shares and Series B warrants to purchase up to 11,029,410 class A
common shares.
The placement agent is not purchasing
or selling any ADSs or warrants by this prospectus supplement or the accompanying prospectus, nor
is the placement agent required to arrange for the purchase or sale of any specific number or
dollar amount of ADSs or warrants, but has agreed to use its reasonable best efforts to arrange for
the sale of the ADSs and warrants.
The placement agent agreement provides that the obligations of the placement agent and the
investors are subject to certain conditions precedent, including the absence of any material
adverse change in our business and the receipt of a legal opinion and other letters and
certificates.
Confirmations and definitive prospectuses will be distributed to all investors who agree to
purchase the ADSs and warrants, informing investors of the closing date as to such ADSs and
warrants. We currently anticipate that closing of the sale of the ADSs and warrants will take place on or about
October 29, 2009. Investors will also be informed of the date and
manner in which they must transmit the purchase price for their ADSs and warrants.
On the scheduled closing date, the following will occur:
|
|
|
we will receive funds in the amount of the aggregate purchase
price for 5,514,705 ADSs; and
|
|
|
|
|
Rodman & Renshaw, LLC will receive the placement agents fee in accordance with
the terms of the placement agent agreement.
|
We will pay the placement agent an aggregate cash commission equal to 4.5% of the gross
proceeds of the sale of ADSs and warrants in the offering. We will also pay the placement agent a
cash fee in connection with the receipt by us of any proceeds from the exercise of the Series A or
Series B warrants sold in this offering that are solicited by the placement agent, equal to 5% of the aggregate cash
exercise price received by us upon any such exercise, subject to reduction to whatever extent
necessary to comply with FINRA Rule 5110. We will also reimburse the placement agent for certain
expenses incurred by it in connection with this offering, including legal fees, in the amount of
0.8% of gross offering proceeds, but in no event more than $50,000. In no event will the total
amount of compensation paid to the placement agent and other securities brokers and dealers upon
completion of this offering exceed 8% of the gross proceeds of this offering. The estimated
offering expenses payable by us, in addition to the placement
agents fee of $337,500, are approximately
$353,000, which includes legal, accounting and printing costs and various other fees associated with
registering and listing the ADSs. After deducting certain fees due to the placement agent and our
estimated offering expenses, we expect the net proceeds from this
offering to be approximately $6.8 million.
We have agreed to indemnify the placement agent against liabilities arising out of its
activities pursuant to the placement agent agreement. We have also agreed to contribute to payments
the placement agent may be required to make in respect of such liabilities.
The placement agent agreement has been filed by us as an exhibit to a Current Report on Form 6-K filed with the SEC in connection with this offering.
The transfer agent for our ADSs to be issued in this offering is Codan Trust Company (Cayman) Limited, an affiliate company of Conyers Dill & Pearman.
Our ADSs are traded on the NASDAQ Global Market under the symbol XSEL.
S-18
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file reports and other information with the SEC. You may read and copy any document that we
file at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site at
http://www.sec.gov
, from which
interested persons can electronically access our SEC filings, including the registration statement
of which this prospectus supplement forms a part, and the exhibits and schedules thereto.
S-19
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with them. This means
that we can disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this prospectus supplement and
should be read with the same care.
Any reports filed by us with the SEC after the date of this prospectus supplement and before
the date that the offering by means of this prospectus supplement is terminated will automatically
update and, where applicable, supersede any information contained in this prospectus supplement or
incorporated by reference in this prospectus supplement. This means that you must look at all of
the SEC filings that we incorporate by reference to determine if any of the statements in this
prospectus supplement or in any documents previously incorporated by reference have been modified
or superseded. We incorporate by reference into this prospectus supplement the following documents
filed with the SEC:
|
|
|
our annual report on Form 20-F for the fiscal year ended December 31, 2008, filed
with the SEC on April 30, 2009 and Amendment No. 1 thereto, filed with the SEC on May
29, 2009;
|
|
|
|
|
our current report on Form 6-K, filed with the SEC on May 13, 2009;
|
|
|
|
|
our current report on Form 6-K, filed with the SEC on August 13, 2009;
|
|
|
|
|
our current report on Form 6-K, filed with the SEC on October 20, 2009;
|
|
|
|
|
our current report on Form 6-K, filed with the SEC on October
26, 2009, which includes a copy of the form of securities purchase agreement, the form of Series
A warrants, the form of Series B warrants, and the placement agent agreement between us and Rodman & Renshaw, LLC;
|
|
|
|
|
all subsequent reports on Form 20-F and any report on Form 6-K that so indicates it
is being incorporated by reference that we file with the SEC on or after the date
hereof and until the termination or completion of the offering by means of this
prospectus supplement.
|
We will provide at no cost to each person, including any beneficial owner, to whom this
prospectus supplement and the accompanying prospectus is delivered, upon oral or written request of
such person, a copy of any or all of the reports or documents that have been incorporated by
reference in this prospectus supplement and the accompanying prospectus, but not delivered
therewith. Requests for such copies should be directed to:
2201, Tower D, Central International Trade Center
6A Jian Wai Avenue, Chaoyang District
Beijing, 100022
Peoples Republic of China
(86 10) 8567-6000
Attention: Chief Financial Officer
Exhibits to the filings will not be sent, however, unless those exhibits have specifically
been incorporated by reference into this prospectus supplement and the accompanying prospectus.
These documents may also be accessed through our website at
http://www.xsel.com/en
or as described
under the heading Where You Can Find More Information About Us, above. The information contained
in, or that can be accessed through, our website is not a part of this prospectus supplement or the
accompanying prospectus.
S-20
EXPENSES
The following table sets forth the aggregate expenses to be paid by us in connection with this
offering. All amounts shown are estimates, except for the SEC registration fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
5,580
|
|
FINRA filing fee
|
|
|
10,500
|
|
NASDAQ supplemental listing fee
|
|
|
5,000
|
|
Audit fees and expenses
|
|
|
60,000
|
|
Legal fees and expenses
|
|
|
165,000
|
|
Printing costs
|
|
|
57,000
|
|
Miscellaneous
|
|
|
50,000
|
|
|
|
|
|
Total
|
|
$
|
353,080
|
|
|
|
|
|
S-21
LEGAL MATTERS
The validity of the class A common shares issuable upon exercise of the warrants and the class
A common shares represented by the ADSs offered in this offering, and certain other legal matters
as to Cayman Islands law will be passed upon for us by Conyers Dill & Pearman. Certain legal
matters as to United States federal securities and New York state law will be passed upon for us by
Latham & Watkins.
S-22
PROSPECTUS
Class A Common Shares
Preferred Shares
Warrants
Xinhua Sports & Entertainment Limited
We may offer and sell to the public from time to time the securities in any combination in one
or more offerings. The securities offered by this prospectus will have an aggregate offering price
of up to $100,000,000. The class A common shares may be represented by our American Depositary
Shares, or ADSs. Our ADSs, each of which represents two class A common shares, are listed on the
Nasdaq Global Market under the symbol XSEL.
When we offer the securities pursuant to this prospectus, we will provide specific terms of
the offering in supplements to this prospectus. You should carefully read this prospectus and any
supplement before you invest in any of the securities.
The securities offered by this prospectus and any prospectus supplement may be offered
directly to investors or through underwriters, dealers or other agents on a continuous or delayed
basis. If any underwriters, dealers or agents are involved in the sale of any of the securities,
their names, and any applicable purchase price, fee, commission or discount arrangements between or
among them, will be set forth, or will be calculable from the information set forth, in the
applicable prospectus supplement.
See Risk Factors beginning on page 20 of this prospectus to read about the risks you should
consider before buying the securities.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or completeness of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is September 16, 2009.
TABLE OF CONTENTS
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1
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2
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2
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4
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5
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7
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12
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20
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21
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22
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24
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32
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39
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41
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43
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45
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46
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46
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ABOUT THIS PROSPECTUS
You should read this prospectus with the additional information described under the heading
Where You Can Find More Information About Us and Incorporation of Documents by Reference.
In this prospectus, unless otherwise indicated or unless the context otherwise requires:
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we, us, our company, our and XSEL refer to Xinhua Sports & Entertainment
Limited, a Cayman Islands company, formerly known as Xinhua Finance Media Limited, and
its subsidiaries, including direct subsidiaries and affiliated entities;
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ADSs refer to our American depositary shares, each of which represents two class A
common shares, and ADRs refer to the American depositary receipts that evidence our
ADSs;
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China or PRC refers to the Peoples Republic of China, and solely for the
purpose of this registration statement, excluding Taiwan, Hong Kong and Macau;
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RMB or Renminbi refers to the legal currency of China; $, dollars, US$ or
U.S. dollars refers to the legal currency of the United States; and HK$ refers to
the legal currency of Hong Kong; and
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shares or common shares refers to our class A common shares.
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This prospectus is part of a registration statement that we filed with the United States
Securities and Exchange Commission, or the SEC, using a shelf registration process. Under this
shelf registration process, we may sell the securities described in this prospectus in one or more
offerings. This prospectus only provides you with a general description of the securities we are
registering. Each time we sell securities pursuant to the registration statement, we will provide,
if required, a prospectus supplement to this prospectus that contains specific information about
the terms of that offering. The prospectus supplement may also add, update or change information
contained in this prospectus. If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the prospectus supplement. Before
purchasing any securities, you should carefully read both this prospectus and any supplement,
together with the additional information described under the heading Where You Can Find More
Information and Incorporation of Certain Documents by Reference.
You should rely only on the information contained or incorporated by reference in this
prospectus, a prospectus supplement or any amendment. We have not authorized any other person to
provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We will not make an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus and the applicable supplement to this prospectus is accurate as of the
date on its respective cover, and that any information incorporated by reference is accurate only
as of the date of the document incorporated by reference, unless we indicate otherwise. Our
business, financial condition, results of operations and prospects may have changed since those
dates.
1
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file reports and other information with the SEC. Information filed with the SEC by us can
be inspected and copied at the Public Reference Room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of this information by mail from the Public
Reference Section of the SEC at prescribed rates. Further information on the operation of the
SECs Public Reference Room in Washington, D.C. can be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information
statements and other information about issuers, such as us, who file electronically with the SEC.
The address of that site is http://www.sec.gov.
Our website address is http://www.xsel.com. The information on our website, however, is not,
and should not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are part of a registration statement that we
filed with the SEC and do not contain all of the information in the registration statement. The
full registration statement may be obtained from the SEC or us, as indicated below. Forms of
documents establishing the terms of the offered shares are filed as exhibits to the registration
statement. Statements in this prospectus or any prospectus supplement about these documents are
summaries and each statement is qualified in all respects by reference to the document to which it
refers. You should refer to the actual documents for a more complete description of the relevant
matters. You may inspect a copy of the registration statement at the SECs Public Reference Room
in Washington, D.C., as well as through the SECs website.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with it. This means
that we can disclose important information to you by referring you to those documents. Each
document incorporated by reference is current only as of the date of such document, and the
incorporation by reference of such documents shall not create any implication that there has been
no change in our affairs since the date thereof or that the information contained therein is
current as of any time subsequent to its date. The information incorporated by reference is
considered to be a part of this prospectus and should be read with the same care. When we update
the information contained in documents that have been incorporated by reference by making future
filings with the SEC, the information incorporated by reference in this prospectus is considered to
be automatically updated and superseded. In other words, in the case of a conflict or
inconsistency between information contained in this prospectus and information incorporated by
reference into this prospectus, you should rely on the information contained in the document that
is filed later.
We incorporate by reference the documents listed below:
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Our annual report on Form 20-F for the fiscal year ended December 31, 2008, filed
with the SEC on April 30, 2009 and amended and filed on May 29, 2009;
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Our current report on Form 6-K, filed with the SEC on May 13, 2009;
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Our current report on Form 6-K, filed with the SEC on August 13, 2009;
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The Description of Securities contained in our Registration Statement on Form 8-A
filed on March 8, 2007 pursuant to Section 12(g) of the Exchange Act, together with all
amendments and reports filed for the purpose of updating that description; and
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With respect to each offering of securities under this prospectus, all annual
reports on Form 20-F and any amendment thereto and any report on Form 6-K that so
indicates it is being incorporated by reference, in each case, that we file or furnish
with the SEC on or after the date on which the registration statement is first filed
with the SEC and until the termination or completion of that offering under this
prospectus.
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2
Our annual report on Form 20-F for the fiscal year ended December 31, 2008, as amended, filed
on April 30, 2009, contains a description of our business and audited consolidated financial
statements with a report by our independent registered accounting firm. These financial statements
are prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP.
Unless expressly incorporated by reference, nothing in this prospectus shall be deemed to
incorporate by reference information furnished to, but not filed with, the SEC. Copies of all
documents incorporated by reference in this prospectus, other than exhibits to those documents
unless such exhibits are specifically incorporated by reference in this prospectus, will be
provided at no cost to each person, including any beneficial owner, who receives a copy of this
prospectus on the written or oral request of that person made to:
Xinhua Sports & Entertainment Limited
Room 2201, Tower D
Central International Trade Center
6A Jian Wai Avenue
Chaoyang District, Beijing 100022
Peoples Republic of China
(86 10) 8567 6000
Attention: Investor Relations Department
You should rely only on the information that we incorporate by reference or provide in this
prospectus. We have not authorized anyone to provide you with different information. We are not
making any offer to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should not assume that the information contained or incorporated in this prospectus
by reference is accurate as of any date other than the date of the document containing the
information.
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents incorporated by
reference contain statements of a forward-looking nature. These statements are made under the
safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can
identify these forward-looking statements by terminology such as may, will, expect,
anticipate, future, forecast, intend, plan, predict, propose, potential,
continue, believe, estimate, is/are likely to, or the negative of these terms, and other
similar expressions. We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. These
forward-looking statements include:
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our goals and strategies;
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our plans to expand our business to sharpen our focus on sports and entertainment;
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our future business development, financial condition and results of operations;
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projected revenues, profits, earnings and other estimated financial information;
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our plans to expand our Internet presence, and expand into new media, such as
broadband wireless and Internet television;
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the growth or acceptance of our integrated platform;
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our plans to identify and create new advertising networks that target specific
consumer demographics;
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competition in the PRC media and advertising industries; and
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the expected growth in advertising spending levels.
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We would like to caution you not to place undue reliance on these statements, and you should
read these statements in conjunction with the risk factors set forth under the heading Risk
Factors in this prospectus for a more complete discussion of the risks of an investment in our
securities. These risks are not exhaustive. We operate in an emerging and evolving environment.
New risk factors emerge from time to time and it is impossible for our management to predict all
risk factors, nor can we assess the impact of all risk factors on our business or the extent to
which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statement. The forward-looking statements included in this
prospectus or incorporated by reference into this prospectus are made only as of the date of this
prospectus or the date of the incorporated document, and we do not undertake any obligation to
update the forward-looking statements except as required under applicable law.
4
OUR COMPANY
We are a leading media group in China with a focus on sports and entertainment. Catering to a
vast audience of young and upwardly mobile consumers, we believe we are well-positioned in China
with our unique content and access. Through our key international partnerships, we are able to
offer our target audience the content they demandpremium sports and quality entertainment.
Through our Chinese partnerships, we are able to deliver this content across a broad range of
platforms, including television, the Internet, mobile phones and other multimedia assets in China.
We have developed an integrated platform of advertising resources across television, the
Internet, mobile phones, radio, newspapers, magazines, university campuses and other media outlets.
Through these outlets, we provide a total solution empowering clients at every stage of the media
process linking advertisers with Chinas young and upwardly mobile demographic to reach the desired
audience in China.
We were incorporated on November 7, 2005 in the Cayman Islands. We have grown significantly
since our inception, primarily through the acquisition of assets, businesses and the development of
distribution rights. In February 2009, we changed our name from Xinhua Finance Media Limited to
Xinhua Sports & Entertainment Limited, following shareholder approval obtained on January 15,
2009, to sharpen our focus on sports and entertainment media. We changed our trading symbol on the
NASDAQ Global Market to XSEL on March 2, 2009. As we extend our focus to sports and
entertainment media, we anticipate our coverage of finance, and our finance media business, to
decrease over time.
Our business operates across three groups:
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Broadcast, which refers to the sale of advertising and the production of content for
and the distribution of our programming through television and radio channels, as well
as the new media mobile value-added services we provide to mobile phone users in China.
Our media platforms include two free to air channels which broadcast throughout China.
Our Broadcast Group also produces the popular television shows
Fight Weekend
,
The
Scene
and the
Fortune China
series. We have exclusive China media rights for the UEFA
Europa League during the 2009 to 2012 period, and, through our equity investment in
Hong Kong based All Sports Network (ASN), we have exclusive distribution rights via
mobile, television, the Internet and radio for ASNs content in China, which includes
the National Collegiate Athletic Association (NCAA), the National Hockey League,
extreme sports, motor racing and other top quality sports programming. With our
business partners, we are acquiring the rights to provide consulting and advisory
services for four premium tier digital pay television channels to tap into the rapidly
growing digital Chinese television market;
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Print, which refers to our exclusive rights to sell advertising for and provide
management and information consulting services to the
Economic Observer
; and
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Advertising, which refers to online advertising sales, our provision of
below-the-line marketing services and our research services for products,
advertisements and markets.
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We generate revenue principally by producing and selling advertising time and space on
broadcast and print distribution platforms and outdoor billboards, selling produced television
programs and by providing advertising services.
On March 14, 2007, we completed our initial public offering, in which we issued and sold
17,307,923 ADSs, representing 34,615,846 of our class A common shares, and certain of our then
shareholders sold 5,769,000 ADSs, representing 11,538,000 of our class A common shares, in each
case at an offering price of $13.00 per ADS.
Our principal executive offices are located at 2201, Tower D, Central International Trade
Center, 6A Jian Wai Avenue, Chaoyang District, Beijing 100022, Peoples Republic of China. Our
telephone number at this address is 86-10-8567-6000. Our registered office in the Cayman Islands
is at Cricket Square, Hutchins Drive, PO
5
Box 2681, Grand Cayman KYI-1111, Cayman Islands. Our agent for service of process in the United
States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New
York, New York 10017.
6
RECENT DEVELOPMENTS
The following tables present summary consolidated financial information of our company.
The summary unaudited condensed consolidated statement of operations data for the three months
ended June 30, 2009, March 31, 2009, June 30, 2008, and March 31 2008, and the summary unaudited
condensed consolidated balance sheet data as of June 30, 2009 and March 31, 2009, are derived from
our earnings releases contained in our current reports on Form 6-K filed with the SEC on May 13,
2009 and August 13, 2009, and have been prepared on the same basis as our audited consolidated
financial statements included in our annual report on Form 20-F for the year ended December 31,
2008, other than the amounts in relation to noncontrolling interest, formerly referred to as
minority interest, which have been reclassified in accordance with FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51
,
which
was adopted by us on January 1, 2009, and the classification of Shanghai Hyperlink Market Research
Co. Ltd., or Hyperlink, as a discontinued operation because of our decision in 2009 to dispose of
that entity. The unaudited financial information includes all adjustments, consisting only of
normal and recurring adjustments, that we consider necessary for a fair presentation of our
financial position and operating results for the periods presented.
Condensed Consolidated Statement of Operations
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3 months
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3 months
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3 months
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3 months
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ended
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ended
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ended
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ended
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June 30,
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March 31,
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June 30,
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March 31,
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(In U.S. Dollars)
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2009
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2009
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2008
(1)
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2008
(1)
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Net revenues:
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Advertising services
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$
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21,166,243
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$
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14,242,940
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$
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25,221,780
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$
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19,943,125
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Content production
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207,980
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|
|
878,214
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|
|
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2,888,164
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|
|
573,453
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|
Advertising sales
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|
17,300,285
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|
|
9,254,766
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|
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19,006,987
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14,738,927
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Publishing services
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133,522
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99,112
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108,924
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201,224
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Total net revenues
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38,808,030
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24,475,032
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47,225,855
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35,456,729
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Cost of revenues:
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|
|
|
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|
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Advertising services
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15,261,154
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10,026,073
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|
|
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17,988,473
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|
|
|
15,217,489
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Content production
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|
249,872
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|
|
|
332,172
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|
|
|
1,060,419
|
|
|
|
442,057
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|
Advertising sales
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|
13,204,429
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|
|
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5,513,330
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|
|
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7,644,880
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7,152,328
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Publishing services
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221,450
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|
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202,596
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|
|
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254,844
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294,292
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Total cost of revenues
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28,936,905
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16,074,171
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26,948,616
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|
|
23,106,166
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Operating expenses:
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Selling and distribution
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3,538,980
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3,272,562
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5,495,696
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|
|
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5,086,801
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|
General and administrative
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|
5,609,771
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|
|
|
7,414,066
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|
|
|
10,816,544
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|
|
|
13,648,209
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|
|
|
|
|
|
|
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|
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Total operating expenses
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|
9,148,751
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|
|
|
10,686,628
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|
|
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16,312,240
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|
|
18,735,010
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other operating income
|
|
|
1,515,604
|
|
|
|
412,148
|
|
|
|
7,220
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Operating income (loss) from continuing operations
|
|
|
2,237,978
|
|
|
|
(1,873,619
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)
|
|
|
3,972,219
|
|
|
|
(6,384,447
|
)
|
Other expenses
|
|
|
3,984,469
|
|
|
|
1,188,780
|
|
|
|
1,138,945
|
|
|
|
828,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before provision
for income taxes
|
|
|
(1,746,491
|
)
|
|
|
(3,062,399
|
)
|
|
|
2,833,274
|
|
|
|
(7,212,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
298,022
|
|
|
|
383,662
|
|
|
|
1,874,756
|
|
|
|
1,324,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(2,044,513
|
)
|
|
|
(3,446,061
|
)
|
|
|
958,518
|
|
|
|
(8,537,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
58,566
|
|
|
|
31,728
|
|
|
|
289,702
|
|
|
|
227,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
28,961
|
|
|
|
22,224
|
|
|
|
114,341
|
|
|
|
15,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of taxes
|
|
|
29,605
|
|
|
|
9,504
|
|
|
|
175,361
|
|
|
|
212,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,014,908
|
)
|
|
|
(3,436,557
|
)
|
|
|
1,133,879
|
|
|
|
(8,324,999
|
)
|
Net income (loss) attributable to non-controlling interests
|
|
|
135,029
|
|
|
|
(301,920
|
)
|
|
|
370,913
|
|
|
|
(44,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to XSEL
|
|
|
(2,149,937
|
)
|
|
|
(3,134,637
|
)
|
|
|
762,966
|
|
|
|
(8,280,170
|
)
|
Dividend declared on Series B redeemable convertible
preferred shares
|
|
|
640,000
|
|
|
|
640,000
|
|
|
|
600,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to holders of common shares
|
|
$
|
(2,789,937
|
)
|
|
$
|
(3,774,637
|
)
|
|
$
|
162,966
|
|
|
$
|
(8,480,170
|
)
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months
|
|
|
3 months
|
|
|
3 months
|
|
|
3 months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
March 31,
|
|
(In U.S. Dollars)
|
|
2009
|
|
|
2009
|
|
|
2008
(1)
|
|
|
2008
(1)
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted from continuing operations Class A
Common shares
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.07
|
)
|
Basic and diluted from continuing operations Class B
Common shares
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.00
|
|
|
|
(0.07
|
)
|
Basic and diluted from discontinued operations Class A
Common shares
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Basic and diluted from discontinued operations Class B
Common shares
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Common shares
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
0.00
|
|
|
|
(0.07
|
)
|
Basic and diluted from continuing operations American
Depositary Shares
|
|
|
(0.04
|
)
|
|
|
(0.05
|
)
|
|
|
0.00
|
|
|
|
(0.13
|
)
|
Basic and diluted from discontinued operations American
Depositary Shares
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted American Depositary Shares
|
|
$
|
(0.04
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.13
|
)
|
|
|
|
(1)
|
|
Amounts in relation to noncontrolling interest, formerly named minority interest, for the
three-month periods ended June 30, 2008 and March 31, 2008 have been reclassified in
accordance with FASB Statement No. 160, Noncontrolling Interest in Consolidated Financial
Statementsan amendment of ARB No. 51, which we adopted on January 1, 2009. In addition, on
March 13, 2009, we entered into a conditional agreement to sell the entire equity interest in
Hyperlink. The historical results of Hyperlink were reported as discontinued operations for
all interim periods in 2009.
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
(In U.S. dollars)
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,329,314
|
|
|
$
|
59,274,949
|
|
Short term deposit
|
|
|
29,054
|
|
|
|
1,453,398
|
|
Restricted cash
|
|
|
37,920,000
|
|
|
|
37,610,000
|
|
Accounts receivable, net of allowance for doubtful debts
|
|
|
35,422,320
|
|
|
|
33,575,134
|
|
Prepaid program expenses
|
|
|
4,874,817
|
|
|
|
3,140,071
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
45,640,000
|
|
|
|
43,754,392
|
|
Other current assets
|
|
|
28,092,141
|
|
|
|
24,349,090
|
|
Assets held for sale
|
|
|
7,846,238
|
|
|
|
8,575,780
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
192,153,884
|
|
|
|
211,732,814
|
|
|
|
|
|
|
|
|
Television program and film right, net
|
|
|
13,685,624
|
|
|
|
|
|
Property and equipment, net
|
|
|
6,043,153
|
|
|
|
6,297,263
|
|
Intangible assets, net
|
|
|
284,488,653
|
|
|
|
197,727,546
|
|
Goodwill
|
|
|
68,827,539
|
|
|
|
42,688,899
|
|
Investment
|
|
|
13,508,239
|
|
|
|
13,508,239
|
|
Deposits for investments
|
|
|
14,536,860
|
|
|
|
24,382,361
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
26,249,648
|
|
|
|
28,285,035
|
|
Other long-term assets
|
|
|
9,726,480
|
|
|
|
6,686,206
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
629,220,080
|
|
|
$
|
531,308,363
|
|
|
|
|
|
|
|
|
Liabilities, mezzanine equity and total equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank borrowings
|
|
$
|
42,705,865
|
|
|
$
|
42,486,592
|
|
Other current liabilities
|
|
|
90,757,246
|
|
|
|
63,529,480
|
|
Liabilities held for sale
|
|
|
1,129,607
|
|
|
|
1,893,487
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
134,592,718
|
|
|
|
107,909,559
|
|
Deferred tax liabilities
|
|
|
35,509,083
|
|
|
|
31,559,100
|
|
Long-term liabilities, non-current portion
|
|
|
190,829,286
|
|
|
|
121,164,687
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
360,931,087
|
|
|
|
260,633,346
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares
|
|
|
31,845,591
|
|
|
|
31,205,591
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Class A common shares
|
|
|
109,416
|
|
|
|
109,388
|
|
Additional paid-in capital
|
|
|
485,416,625
|
|
|
|
486,691,163
|
|
Accumulated deficits
|
|
|
(259,533,013
|
)
|
|
|
(256,743,071
|
)
|
8
|
|
|
|
|
|
|
|
|
(In U.S. dollars)
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
6,610,529
|
|
|
|
7,135,231
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
232,603,557
|
|
|
|
237,192,711
|
|
Non-controlling interests
|
|
|
3,839,845
|
|
|
|
2,276,715
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
236,443,402
|
|
|
|
239,469,426
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and total equity
|
|
$
|
629,220,080
|
|
|
$
|
531,308,363
|
|
|
|
|
|
|
|
|
Summary Financial Data for the Three Years Ended December 31, 2008
The summary consolidated statement of operations data for the years ended December 31, 2008,
2007 and 2006 and the consolidated balance sheet data as of December 31, 2008 and 2007 have been
derived from our audited consolidated financial statements contained in our annual report on Form
20-F for the year ended December 31, 2008. Those financial statements did not reflect:
|
1.
|
|
the adoption on January 1, 2009 of FASB Statement No. 160, Non-controlling
Interests in Consolidated Financial Statementsan amendment of ARB No. 51; and
|
|
|
2.
|
|
the classification of Hyperlink as a discontinued operation because Hyperlink
did not as of December 31, 2008 meet the definition of an asset group held for sale in
accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets
.
|
Therefore, the summary consolidated financial data have not been prepared on the same basis as
the unaudited consolidated financial information data as of June 30, 2009 and March 31, 2009 and
for the three months ended June 30, 2009, March 31, 2009, June 30, 2008 and March 31, 2008 included
above.
In our Unaudited Pro forma Condensed Financial Information included elsewhere in this filing,
we show the effects on our historical financial statements as of and for the three years ended
December 31, 2008 of treating Hyperlink as a discontinued operation in those financial statements.
The summary consolidated financial data should be read in conjunction with those financial
statements and the accompanying notes and Item 5B. Operating and Financial Review and Prospects
included in our annual report on Form 20-F for the year ended December 31, 2008, which is
incorporated by reference in the prospectus. Our consolidated annual financial statements were
prepared and presented in accordance with U.S. GAAP. The historical results are not necessarily
indicative of results to be expected in any future period.
Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
(In U.S. Dollars, except for share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
$
|
107,891,719
|
|
|
$
|
86,681,143
|
|
|
$
|
44,861,952
|
|
Content production
|
|
|
12,371,911
|
|
|
|
7,680,580
|
|
|
|
6,545,148
|
|
Advertising sales
|
|
|
65,355,685
|
|
|
|
39,281,540
|
|
|
|
6,691,543
|
|
Publishing services
|
|
|
411,637
|
|
|
|
1,195,427
|
|
|
|
867,789
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
186,030,952
|
|
|
|
134,838,690
|
|
|
|
58,966,432
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
74,735,032
|
|
|
|
58,047,996
|
|
|
|
27,653,769
|
|
Content production
|
|
|
7,521,948
|
|
|
|
3,707,062
|
|
|
|
2,829,311
|
|
Advertising sales
|
|
|
30,756,279
|
|
|
|
19,490,013
|
|
|
|
1,912,260
|
|
Publishing services
|
|
|
1,479,005
|
|
|
|
854,020
|
|
|
|
1,386,162
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
114,492,264
|
|
|
|
82,099,091
|
|
|
|
33,781,502
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
22,945,933
|
|
|
|
14,876,682
|
|
|
|
5,276,751
|
|
General and administrative
|
|
|
52,068,821
|
|
|
|
24,348,827
|
|
|
|
12,840,202
|
|
Impairment loss on goodwill
|
|
|
180,841,091
|
|
|
|
|
|
|
|
|
|
Impairment loss on intangible assets
|
|
|
25,562,095
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
(In U.S. Dollars, except for share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
10,427,114
|
|
|
|
|
|
|
|
|
|
Impairment loss on promissory note and accrued interest income
|
|
|
8,521,483
|
|
|
|
|
|
|
|
|
|
Loss on disposal of subsidiaries
|
|
|
4,720,705
|
|
|
|
|
|
|
|
|
|
Impairment loss on capitalized content production costs
|
|
|
3,085,850
|
|
|
|
|
|
|
|
|
|
Impairment loss on property and equipment
|
|
|
2,438,818
|
|
|
|
|
|
|
|
|
|
Provision for amount due from related party
|
|
|
1,721,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
312,333,216
|
|
|
|
39,225,509
|
|
|
|
18,116,953
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
1,499,381
|
|
|
|
2,261,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(239,295,147
|
)
|
|
|
15,775,878
|
|
|
|
7,067,977
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,077,229
|
)
|
|
|
(6,627,685
|
)
|
|
|
(2,618,398
|
)
|
Interest income
|
|
|
1,738,282
|
|
|
|
6,264,103
|
|
|
|
1,743,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on principal protected note
|
|
|
(24,909,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on other investments
|
|
|
(1,333,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
1,703,693
|
|
|
|
(22,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes, equity in loss of an
investment and minority interest
|
|
|
(271,877,089
|
)
|
|
|
17,115,989
|
|
|
|
6,170,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes (tax benefit)
|
|
|
2,354,442
|
|
|
|
(12,225,650
|
)
|
|
|
1,069,537
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before minority interest and equity in loss of an
investment
|
|
|
(274,231,531
|
)
|
|
|
29,341,639
|
|
|
|
5,100,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest, net of taxes
|
|
|
640,468
|
|
|
|
1,302,634
|
|
|
|
1,704,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of an investment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
52,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(274,871,999
|
)
|
|
$
|
28,039,005
|
|
|
$
|
3,344,291
|
|
Deemed dividends on redeemable convertible preferred shares
|
|
|
|
|
|
|
|
|
|
|
(2,157,301
|
)
|
Dividends declared on redeemable convertible preferred shares
|
|
|
|
|
|
|
(1,338,333
|
)
|
|
|
(5,335,000
|
)
|
Dividends declared on series B redeemable convertible preferred shares
|
|
|
(2,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to holders of common shares
|
|
$
|
(276,871,999
|
)
|
|
$
|
26,700,672
|
|
|
$
|
(4,148,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.23
|
|
|
$
|
(0.08
|
)
|
Basic Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.23
|
|
|
$
|
(0.08
|
)
|
Diluted Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.08
|
)
|
Diluted Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
|
85,926,895
|
|
|
|
66,165,765
|
|
|
|
5,084,366
|
|
Basic Class B common shares
|
|
|
49,917,482
|
|
|
|
50,054,618
|
|
|
|
44,693,266
|
|
Diluted Class A common shares
|
|
|
85,926,895
|
|
|
|
86,314,773
|
|
|
|
5,084,366
|
|
Diluted Class B common shares
|
|
|
49,917,482
|
|
|
|
50,054,618
|
|
|
|
44,693,266
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
54,088,842
|
|
|
$
|
44,436,087
|
|
Short term deposit
|
|
|
2,940,051
|
|
|
|
|
|
Restricted cash
|
|
|
37,510,000
|
|
|
|
47,252,191
|
|
Accounts
receivable, net of allowance for doubtful debts of $9,169,667 in
2008 and
$301,217 in 2007
|
|
|
44,762,902
|
|
|
|
45,706,766
|
|
Deposits for program advertising right
|
|
|
2,125,330
|
|
|
|
6,752
|
|
Prepaid advertising program space and airtime
|
|
|
198,923
|
|
|
|
5,382,498
|
|
Prepaid expenses
|
|
|
3,053,099
|
|
|
|
2,777,025
|
|
|
|
|
|
|
|
|
|
|
Amounts due from related parties, current portion
|
|
|
6,547,636
|
|
|
|
7,389,211
|
|
Promissory note receivable- related party, current portion
|
|
|
|
|
|
|
722,038
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
36,970,590
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, current portion
|
|
|
1,042,379
|
|
|
|
22,634
|
|
Other current assets
|
|
|
4,259,056
|
|
|
|
5,361,890
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
193,498,808
|
|
|
|
159,057,092
|
|
Capitalized content production cost, net
|
|
|
|
|
|
|
8,855,896
|
|
Property and equipment, net
|
|
|
6,590,790
|
|
|
|
9,191,959
|
|
License agreements, net
|
|
|
99,148,017
|
|
|
|
98,490,161
|
|
Exclusive advertising agreement, net- Economic Observer Advertising
|
|
|
74,267,216
|
|
|
|
71,886,011
|
|
Other intangible assets, net
|
|
|
27,113,350
|
|
|
|
63,129,741
|
|
Goodwill
|
|
|
46,992,724
|
|
|
|
180,125,488
|
|
Investment
|
|
|
13,508,239
|
|
|
|
500,000
|
|
Deposits for acquisitions of subsidiaries
|
|
|
|
|
|
|
25,634,000
|
|
Deposit for investment
|
|
|
14,174,566
|
|
|
|
|
|
Deferred tax assets, non-current portion
|
|
|
|
|
|
|
94,598
|
|
Principal protected note
|
|
|
|
|
|
|
24,909,929
|
|
Promissory note receivable- related party, non-current portion
|
|
|
|
|
|
|
7,900,000
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
28,285,035
|
|
|
|
|
|
Amounts due from a related party, non-current portion
|
|
|
1,506,137
|
|
|
|
|
|
Other long term assets
|
|
|
3,165,454
|
|
|
|
1,027,338
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,250,336
|
|
|
$
|
650,802,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Mezzanine Equity and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,375,281
|
|
|
$
|
8,126,537
|
|
Accrued expense and other payables
|
|
|
42,243,279
|
|
|
|
19,201,194
|
|
Amounts due to Parent and its affiliates
|
|
|
1,131,050
|
|
|
|
5,251,224
|
|
Amounts due to other related parties
|
|
|
2,215,122
|
|
|
|
602,698
|
|
Capital lease obligations, current portion
|
|
|
|
|
|
|
188,590
|
|
Long term payables, current portion
|
|
|
10,363,762
|
|
|
|
4,564,177
|
|
Bank overdraft
|
|
|
|
|
|
|
960,157
|
|
Bank borrowings, current portion
|
|
|
36,374,198
|
|
|
|
33,780,188
|
|
Income tax payable
|
|
|
8,571,848
|
|
|
|
6,538,946
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
106,274,540
|
|
|
|
79,213,711
|
|
Deferred tax liabilities
|
|
|
31,679,491
|
|
|
|
37,741,579
|
|
Convertible loan
|
|
|
33,200,000
|
|
|
|
|
|
Bank borrowings, non-current portion
|
|
|
|
|
|
|
75,436
|
|
Long term payables, non-current portion
|
|
|
68,305,496
|
|
|
|
65,066,299
|
|
Capital lease obligations, non-current portion
|
|
|
|
|
|
|
8,875
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
239,459,527
|
|
|
|
182,105,900
|
|
|
|
|
|
|
|
|
Commitments and contingency
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
2,565,177
|
|
|
|
2,060,745
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares (stated value $100; 320,000
shares authorized; 314,000 issued and outstanding as of December 31, 2008;
liquidation value of $63,400,000 as of December 31, 2008)
|
|
|
30,605,591
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Class A common shares and non-vested shares (par value $0.001; 143,822,874
as of December 31, 2007 and 343,822,874 as of December 31, 2008 shares
authorized; 90,061,269 as of December 31, 2007 and 146,914,667 as of
December 31, 2008 shares issued and outstanding)
|
|
|
104,302
|
|
|
|
90,061
|
|
Class B common shares (par value $0.001; 50,054,619 as of December 31, 2007
and December 31, 2008 shares authorized; 50,054,618 as of December 31, 2007
and nil as of December 31, 2008 shares issued and outstanding)
|
|
|
|
|
|
|
7,442
|
|
Treasury stock (800,000 and 1,310,000 shares as of December 31, 2007 and
2008, respectively)
|
|
|
(1,310
|
)
|
|
|
(800
|
)
|
Additional paid-in capital
|
|
|
481,319,655
|
|
|
|
439,517,774
|
|
(Accumulated
deficit) retained
earnings
|
|
|
(252,968,439
|
)
|
|
|
23,903,560
|
|
Accumulated other comprehensive income
|
|
|
7,165,833
|
|
|
|
3,117,531
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
235,620,041
|
|
|
|
466,635,568
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, mezzanine equity and shareholders equity
|
|
$
|
508,250,336
|
|
|
$
|
650,802,213
|
|
|
|
|
|
|
|
|
11
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Convey
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information
On December 31, 2008, we entered into an agreement with Pariya Holdings Limited, or Pariya,
for the disposal of 85% of our ownership interest in Xinhua Finance Media (Convey) Ltd., or Convey,
in which we acquired a 100% equity interest on July 2, 2007. The disposition of Convey was
completed on December 31, 2008, and did not meet the definition of discontinued operations as at
that date in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets
due to our continuing involvement in Convey.
We prepared the following unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 2008 to illustrate the estimated effects on our consolidated
results of operations of the disposition of our 85% ownership interest in Convey in December 2008.
The following unaudited pro forma condensed consolidated financial information is derived from the
historical financial statements of our company and Convey after giving effect to the pro forma
adjustments described in the accompanying note. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 2008 present adjustments as if the disposal
had been consummated on January 1, 2008. The preparation of the unaudited pro forma condensed
consolidated statement of operations appearing below is based on financial statements prepared in
accordance with U.S. GAAP. We did not prepare an unaudited pro forma condensed consolidated balance
sheet because our audited consolidated balance sheet as of December 31, 2008 already reflected the
disposition of Convey.
The unaudited pro forma condensed consolidated statement of operations should be read in
conjunction with Item 5. Operating and Financial Review and Prospects in our annual report on
Form 20-F for the fiscal year ended December 31, 2008, as well as Note 6 and Note 28 to our audited
consolidated financial statements contained in our annual report on Form 20-F for the fiscal year
ended December 31, 2008, which is incorporated by reference into this prospectus.
The unaudited pro forma condensed consolidated financial information is not intended to show
how the consolidated companies would have actually performed if the event described above had in
fact occurred on the date assumed or to project the results of operations or financial position for
any future date or period. We have included in the unaudited pro forma condensed consolidated
financial information all the adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the operating results in the historical period.
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
|
|
|
|
|
|
|
Limited (For the
|
|
|
Pro Forma
|
|
|
|
|
|
|
Year Ended
|
|
|
Adjustments
|
|
|
|
|
|
|
December 31,
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
2008)
|
|
|
Convey (1)
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
$
|
107,891,719
|
|
|
|
|
|
|
$
|
107,891,719
|
|
Content production
|
|
|
12,371,911
|
|
|
|
|
|
|
|
12,371,911
|
|
Advertising sales
|
|
|
65,355,685
|
|
|
$
|
(21,419,543
|
)
|
|
|
43,936,142
|
|
Publishing services
|
|
|
411,637
|
|
|
|
|
|
|
|
411,637
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
186,030,952
|
|
|
|
(21,419,543
|
)
|
|
|
164,611,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
74,735,032
|
|
|
|
179,327
|
|
|
|
74,914,359
|
|
Content production
|
|
|
7,521,948
|
|
|
|
|
|
|
|
7,521,948
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
|
|
|
|
|
|
|
Limited (For the
|
|
|
Pro Forma
|
|
|
|
|
|
|
Year Ended
|
|
|
Adjustments
|
|
|
|
|
|
|
December 31,
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
2008)
|
|
|
Convey (1)
|
|
|
Pro Forma
|
|
Advertising sales
|
|
|
30,756,279
|
|
|
|
(9,135,844
|
)
|
|
|
21,620,435
|
|
Publishing services
|
|
|
1,479,005
|
|
|
|
|
|
|
|
1,479,005
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
114,492,264
|
|
|
|
(8,956,517
|
)
|
|
|
105,535,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
22,945,933
|
|
|
|
(1,479,612
|
)
|
|
|
21,466,321
|
|
General and administrative
|
|
|
52,068,821
|
|
|
|
(1,548,541
|
)
|
|
|
50,520,280
|
|
Impairment loss on goodwill
|
|
|
180,841,091
|
|
|
|
|
|
|
|
180,841,091
|
|
Impairment loss on intangible assets
|
|
|
25,562,095
|
|
|
|
|
|
|
|
25,562,095
|
|
Provision for doubtful debts
|
|
|
10,427,114
|
|
|
|
(1,086,754
|
)
|
|
|
9,340,360
|
|
Impairment loss on promissory note
|
|
|
8,521,483
|
|
|
|
|
|
|
|
8,521,483
|
|
Loss on disposal of subsidiaries
|
|
|
4,720,705
|
|
|
|
(4,720,705
|
)
|
|
|
|
|
Impairment loss on capitalized content production costs
|
|
|
3,085,850
|
|
|
|
|
|
|
|
3,085,850
|
|
Impairment loss on property and equipment
|
|
|
2,438,818
|
|
|
|
|
|
|
|
2,438,818
|
|
Provision for amount due from a related party
|
|
|
1,721,306
|
|
|
|
|
|
|
|
1,721,306
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
312,333,216
|
|
|
|
(8,835,612
|
)
|
|
|
303,497,604
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
1,499,381
|
|
|
|
(7,710
|
)
|
|
|
1,491,671
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(239,295,147
|
)
|
|
|
(3,635,124
|
)
|
|
|
(242,930,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,077,229
|
)
|
|
|
60,589
|
|
|
|
(8,016,640
|
)
|
Interest income
|
|
|
1,738,282
|
|
|
|
(9,122
|
)
|
|
|
1,729,160
|
|
Impairment loss on principal protected note
|
|
|
(24,909,929
|
)
|
|
|
|
|
|
|
(24,909,929
|
)
|
Impairment loss on other investments
|
|
|
(1,333,066
|
)
|
|
|
833,066
|
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(271,877,089
|
)
|
|
|
(2,750,591
|
)
|
|
|
(274,627,680
|
)
|
Provision for income taxes
|
|
|
2,354,442
|
|
|
|
(1,706,594
|
)
|
|
|
647,848
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before minority interest and equity in loss of
an investment
|
|
|
(274,231,531
|
)
|
|
|
(1,043,997
|
)
|
|
|
(275,275,528
|
)
|
Minority interest, net of taxes
|
|
|
640,468
|
|
|
|
|
|
|
|
640,468
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(274,871,999
|
)
|
|
$
|
(1,043,997
|
)
|
|
$
|
(275,915,996
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to holders of common shares
|
|
$
|
(276,871,999
|
)
|
|
$
|
(1,043,997
|
)
|
|
$
|
(277,915,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.05
|
)
|
Basic Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.05
|
)
|
Diluted Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.05
|
)
|
Diluted Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.05
|
)
|
Weighted average number of common shares used in
computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
|
85,926,895
|
|
|
|
|
|
|
|
85,926,895
|
|
Basic Class B common shares
|
|
|
49,917,482
|
|
|
|
|
|
|
|
49,917,482
|
|
Diluted Class A common shares
|
|
|
85,926,895
|
|
|
|
|
|
|
|
85,926,895
|
|
Diluted Class B common shares
|
|
|
49,917,482
|
|
|
|
|
|
|
|
49,917,482
|
|
|
|
|
(1)
|
|
The pro forma adjustments reflect the reversal of loss on disposal of Convey of $4,720,705
and exclusion of income and expenses attributable to Convey for the year ended December 31,
2008.
|
Hyperlink
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information
On March 13, 2009, we entered into a conditional agreement to sell the entire equity interest
in Hyperlink. In our earnings release for the first quarter of 2009, we began to separately report
the results of Hyperlink as discontinued operations in accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
13
We prepared the following unaudited pro forma condensed consolidated statement of operations
for the years ended December 31, 2006, 2007 and 2008 to illustrate the estimated effects on our
consolidated income from continuing operations as if Hyperlink had been reflected as a discontinued
operation in our annual historical financial statements for all periods presented. We prepared the
unaudited pro forma condensed consolidated balance sheet as of December 31, 2008 to illustrate the
effects on the assets and liabilities held for sale as if Hyperlink had been treated as a
discontinued operation as of January 1, 2008. The following unaudited pro forma condensed
consolidated financial information is derived from the historical financial statements of our
company and Hyperlink after giving effect to the pro forma adjustments described in the
accompanying notes. The preparation of the unaudited pro forma condensed consolidated statement of
operations and balance sheet appearing below is based on financial statements prepared in
accordance with U.S. GAAP.
The unaudited pro forma condensed consolidated financial information should be read in
conjunction with Item 5. Operating and Financial Review and Prospects in our annual report on
Form 20-F for the fiscal year ended December 31, 2008, as well as Note 6 and Note 35 to our audited
consolidated financial statements contained in our annual report on Form 20-F for the fiscal year
ended December 31, 2008, which is incorporated by reference into this prospectus.
The unaudited pro forma condensed consolidated financial information is not intended to show
how the consolidated companies would have actually performed if the event described above had in
fact occurred on the date assumed or to project the results of operations or financial position for
any future date or period. We have included in the unaudited pro forma condensed consolidated
financial information all the adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the operating results in the historical period.
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Pro Forma
|
|
|
|
|
|
|
Limited (For the Year
|
|
|
Adjustments
|
|
|
|
|
|
|
Ended
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
December 31, 2008)
|
|
|
Hyperlink (1)
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
$
|
107,891,719
|
|
|
$
|
(5,917,989
|
)
|
|
$
|
101,973,730
|
|
Content production
|
|
|
12,371,911
|
|
|
|
|
|
|
|
12,371,911
|
|
Advertising sales
|
|
|
65,355,685
|
|
|
|
|
|
|
|
65,355,685
|
|
Publishing services
|
|
|
411,637
|
|
|
|
|
|
|
|
411,637
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
186,030,952
|
|
|
|
(5,917,989
|
)
|
|
|
180,112,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
74,735,032
|
|
|
|
(2,787,757
|
)
|
|
|
71,947,275
|
|
Content production
|
|
|
7,521,948
|
|
|
|
|
|
|
|
7,521,948
|
|
Advertising sales
|
|
|
30,756,279
|
|
|
|
|
|
|
|
30,756,279
|
|
Publishing services
|
|
|
1,479,005
|
|
|
|
|
|
|
|
1,479,005
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
114,492,264
|
|
|
|
(2,787,757
|
)
|
|
|
111,704,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
22,945,933
|
|
|
|
(231,455
|
)
|
|
|
22,714,478
|
|
General and administrative
|
|
|
52,068,821
|
|
|
|
(2,351,772
|
)
|
|
|
49,717,049
|
|
Impairment loss on goodwill
|
|
|
180,841,091
|
|
|
|
(2,623,432
|
)
|
|
|
178,217,659
|
|
Impairment loss on intangible assets
|
|
|
25,562,095
|
|
|
|
(334,479
|
)
|
|
|
25,227,616
|
|
Provision for doubtful debts
|
|
|
10,427,114
|
|
|
|
|
|
|
|
10,427,114
|
|
Impairment loss on promissory note
|
|
|
8,521,483
|
|
|
|
|
|
|
|
8,521,483
|
|
Loss on disposal of subsidiaries
|
|
|
4,720,705
|
|
|
|
|
|
|
|
4,720,705
|
|
Impairment loss on capitalized content production costs
|
|
|
3,085,850
|
|
|
|
|
|
|
|
3,085,850
|
|
Impairment loss on property and equipment
|
|
|
2,438,818
|
|
|
|
|
|
|
|
2,438,818
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Pro Forma
|
|
|
|
|
|
|
Limited (For the Year
|
|
|
Adjustments
|
|
|
|
|
|
|
Ended
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
December 31, 2008)
|
|
|
Hyperlink (1)
|
|
|
Pro Forma
|
|
Provision for amount due from a related party
|
|
|
1,721,306
|
|
|
|
|
|
|
|
1,721,306
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
312,333,216
|
|
|
|
(5,541,138
|
)
|
|
|
306,792,078
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
1,499,381
|
|
|
|
(105,217
|
)
|
|
|
1,394,164
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(239,295,147
|
)
|
|
|
2,305,689
|
|
|
|
(236,989,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,077,229
|
)
|
|
|
|
|
|
|
(8,077,229
|
)
|
Interest income
|
|
|
1,738,282
|
|
|
|
(21,961
|
)
|
|
|
1,716,321
|
|
Impairment loss on principal protected note
|
|
|
(24,909,929
|
)
|
|
|
|
|
|
|
(24,909,929
|
)
|
Impairment loss on other investments
|
|
|
(1,333,066
|
)
|
|
|
|
|
|
|
(1,333,066
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(271,877,089
|
)
|
|
|
2,283,728
|
|
|
|
(269,593,361
|
)
|
Provision for income taxes
|
|
|
2,354,442
|
|
|
|
(96,640
|
)
|
|
|
2,257,802
|
|
|
|
|
|
|
|
|
|
|
Net loss before minority interest and equity in loss of an investment
|
|
|
(274,231,531
|
)
|
|
|
2,380,368
|
|
|
|
(271,851,163
|
)
|
Minority interest, net of taxes
|
|
|
640,468
|
|
|
|
|
|
|
|
640,468
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(274,871,999
|
)
|
|
$
|
2,380,368
|
|
|
$
|
(272,491,631
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
$
|
(2,380,368
|
)
|
|
$
|
(2,380,368
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(274,871,999
|
)
|
|
|
|
|
|
$
|
(274,871,999
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to holders of common shares
|
|
$
|
(276,871,999
|
)
|
|
|
|
|
|
$
|
(276,871,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.02
|
)
|
Basic Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.02
|
)
|
Diluted Class A common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.02
|
)
|
Diluted Class B common shares
|
|
$
|
(2.04
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Basic Class B common shares
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted Class A common shares
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted Class B common shares
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
|
85,926,895
|
|
|
|
|
|
|
|
85,926,895
|
|
Basic Class B common shares
|
|
|
49,917,482
|
|
|
|
|
|
|
|
49,917,482
|
|
Diluted Class A common shares
|
|
|
85,926,895
|
|
|
|
|
|
|
|
85,926,895
|
|
Diluted Class B common shares
|
|
|
49,917,482
|
|
|
|
|
|
|
|
49,917,482
|
|
|
|
|
(1)
|
|
The adjustments reflect the exclusion of income and expenses attributable to
Hyperlink for the respective years ended December 31, 2008, 2007 and 2006
|
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
Entertainment
|
|
|
|
|
|
|
Limited (For the
|
|
Pro Forma
|
|
|
|
|
Year Ended
|
|
Adjustments
|
|
|
|
|
December 31,
|
|
related to
|
|
|
(In U.S. dollars, except for share data)
|
|
2007)
|
|
Hyperlink (1)
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
$
|
86,681,143
|
|
|
$
|
(5,046,006
|
)
|
|
$
|
81,635,137
|
|
Content production
|
|
|
7,680,580
|
|
|
|
|
|
|
|
7,680,580
|
|
Advertising sales
|
|
|
39,281,540
|
|
|
|
|
|
|
|
39,281,540
|
|
Publishing services
|
|
|
1,195,427
|
|
|
|
|
|
|
|
1,195,427
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
134,838,690
|
|
|
|
(5,046,006
|
)
|
|
|
129,792,684
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
Entertainment
|
|
|
|
|
|
|
Limited (For the
|
|
Pro Forma
|
|
|
|
|
Year Ended
|
|
Adjustments
|
|
|
|
|
December 31,
|
|
related to
|
|
|
(In U.S. dollars, except for share data)
|
|
2007)
|
|
Hyperlink (1)
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
58,047,996
|
|
|
|
(2,712,535
|
)
|
|
|
55,335,461
|
|
Content production
|
|
|
3,707,062
|
|
|
|
|
|
|
|
3,707,062
|
|
Advertising sales
|
|
|
19,490,013
|
|
|
|
|
|
|
|
19,490,013
|
|
Publishing services
|
|
|
854,020
|
|
|
|
|
|
|
|
854,020
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
82,099,091
|
|
|
|
(2,712,535
|
)
|
|
|
79,386,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
14,876,682
|
|
|
|
(219,271
|
)
|
|
|
14,657,411
|
|
General and administrative
|
|
|
24,348,827
|
|
|
|
(1,259,697
|
)
|
|
|
23,089,130
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
39,225,509
|
|
|
|
(1,478,968
|
)
|
|
|
37,746,541
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
2,261,788
|
|
|
|
|
|
|
|
2,261,788
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
15,775,878
|
|
|
|
(854,503
|
)
|
|
|
14,921,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(6,627,685
|
)
|
|
|
492
|
|
|
|
(6,627,193
|
)
|
Interest income
|
|
|
6,264,103
|
|
|
|
(722
|
)
|
|
|
6,263,381
|
|
Other (expense) income, net
|
|
|
1,703,693
|
|
|
|
(14,317
|
)
|
|
|
1,689,376
|
|
|
|
|
|
|
|
|
|
|
Profit before provision for income taxes
|
|
|
17,115,989
|
|
|
|
(869,050
|
)
|
|
|
16,246,939
|
|
Provision for income taxes
|
|
|
(12,225,650
|
)
|
|
|
(429,763
|
)
|
|
|
(12,655,413
|
)
|
|
|
|
|
|
|
|
|
|
Net profit before minority interest and equity in loss of an
investment
|
|
|
29,341,639
|
|
|
|
(439,287
|
)
|
|
|
28,902,352
|
|
Minority interest, net of taxes
|
|
|
1,302,634
|
|
|
|
|
|
|
|
1,302,634
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
28,039,005
|
|
|
$
|
(439,287
|
)
|
|
$
|
27,599,718
|
|
Net income from discontinued operations
|
|
|
|
|
|
$
|
439,287
|
|
|
$
|
439,287
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,039,005
|
|
|
|
|
|
|
$
|
28,039,005
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to holders of common shares
|
|
$
|
26,700,672
|
|
|
|
|
|
|
$
|
26,700,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
0.23
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.23
|
|
Basic Class B common shares
|
|
$
|
0.23
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.23
|
|
Diluted Class A common shares
|
|
$
|
0.21
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.21
|
|
Diluted Class B common shares
|
|
$
|
0.21
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Basic Class B common shares
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Diluted Class A common shares
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Diluted Class B common shares
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
|
66,165,765
|
|
|
|
|
|
|
|
66,165,765
|
|
Basic Class B common shares
|
|
|
50,054,618
|
|
|
|
|
|
|
|
50,054,618
|
|
Diluted Class A common shares
|
|
|
86,314,773
|
|
|
|
|
|
|
|
86,314,773
|
|
Diluted Class B common shares
|
|
|
50,054,618
|
|
|
|
|
|
|
|
50,054,618
|
|
|
|
|
(1)
|
|
The adjustments reflect the exclusion of income and expenses attributable to
Hyperlink for the respective years ended December 31, 2008, 2007 and 2006
|
16
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
|
|
|
|
|
|
|
Limited (For the
|
|
|
Pro Forma
|
|
|
|
|
|
|
Year Ended
|
|
|
Adjustments
|
|
|
|
|
|
|
December 31,
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
2006)
|
|
|
Hyperlink (1)
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
$
|
44,861,952
|
|
|
$
|
(1,802,660
|
)
|
|
$
|
43,059,292
|
|
Content production
|
|
|
6,545,148
|
|
|
|
|
|
|
|
6,545,148
|
|
Advertising sales
|
|
|
6,691,543
|
|
|
|
|
|
|
|
6,691,543
|
|
Publishing services
|
|
|
867,789
|
|
|
|
|
|
|
|
867,789
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
58,966,432
|
|
|
|
(1,802,660
|
)
|
|
|
57,163,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
27,653,769
|
|
|
|
(862,014
|
)
|
|
|
26,791,755
|
|
Content production
|
|
|
2,829,311
|
|
|
|
|
|
|
|
2,829,311
|
|
Advertising sales
|
|
|
1,912,260
|
|
|
|
|
|
|
|
1,912,260
|
|
Publishing services
|
|
|
1,386,162
|
|
|
|
|
|
|
|
1,386,162
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
33,781,502
|
|
|
|
(862,014
|
)
|
|
|
32,919,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
5,276,751
|
|
|
|
(185,295
|
)
|
|
|
5,091,456
|
|
General and administrative
|
|
|
12,840,202
|
|
|
|
(141,353
|
)
|
|
|
12,698,849
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,116,953
|
|
|
|
(326,648
|
)
|
|
|
17,790,305
|
|
|
|
|
|
|
|
|
|
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
7,067,977
|
|
|
|
(613,998
|
)
|
|
|
6,453,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,618,398
|
)
|
|
|
|
|
|
|
(2,618,398
|
)
|
Interest income
|
|
|
1,743,368
|
|
|
|
(1,801
|
)
|
|
|
1,741,567
|
|
Other (expense) income, net
|
|
|
(22,621
|
)
|
|
|
3,554
|
|
|
|
(19,067
|
)
|
|
|
|
|
|
|
|
|
|
Profit before provision for income taxes
|
|
|
6,170,326
|
|
|
|
(612,245
|
)
|
|
|
5,558,081
|
|
Provision for income taxes
|
|
|
1,069,537
|
|
|
|
(189,829
|
)
|
|
|
879,708
|
|
|
|
|
|
|
|
|
|
|
Net profit before minority interest and equity in loss of an
investment
|
|
|
5,100,789
|
|
|
|
(422,416
|
)
|
|
|
4,678,373
|
|
Minority interest, net of taxes
|
|
|
1,704,287
|
|
|
|
(66,129
|
)
|
|
|
1,638,158
|
|
Equity in loss of an investment, net of taxes
|
|
|
52,211
|
|
|
|
|
|
|
|
52,211
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
3,344,291
|
|
|
$
|
(356,287
|
)
|
|
$
|
2,988,004
|
|
Net income from discontinuing operations
|
|
|
|
|
|
$
|
356,287
|
|
|
$
|
356,287
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,344,291
|
|
|
|
|
|
|
$
|
3,344,291
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to holders of common shares
|
|
$
|
(4,148,010
|
)
|
|
|
|
|
|
$
|
(4,148,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.09
|
)
|
Basic Class B common shares
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.09
|
)
|
Diluted Class A common shares
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.09
|
)
|
Diluted Class B common shares
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Basic Class B common shares
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Diluted Class A common shares
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Diluted Class B common shares
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Class A common shares
|
|
|
5,084,366
|
|
|
|
|
|
|
|
5,084,366
|
|
Basic Class B common shares
|
|
|
44,693,266
|
|
|
|
|
|
|
|
44,693,266
|
|
Diluted Class A common shares
|
|
|
5,084,366
|
|
|
|
|
|
|
|
5,084,366
|
|
Diluted Class B common shares
|
|
|
44,693,266
|
|
|
|
|
|
|
|
44,693,266
|
|
|
|
|
(1)
|
|
The adjustments reflect the exclusion of income and expenses attributable to Hyperlink for
the respective years ended December 31, 2008, 2007 and 2006.
|
17
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Pro Forma
|
|
|
|
|
|
|
Limited (As Of
|
|
|
Adjustments
|
|
|
|
|
|
|
December 31,
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
2008)
|
|
|
Hyperlink (1)
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
54,088,842
|
|
|
$
|
(1,047,314
|
)
|
|
$
|
53,041,528
|
|
Short term deposit
|
|
|
2,940,051
|
|
|
|
|
|
|
|
2,940,051
|
|
Restricted cash
|
|
|
37,510,000
|
|
|
|
|
|
|
|
37,510,000
|
|
Accounts receivable, net of allowance for doubtful debts of
$301,217 in 2007 and $9,169,667 in 2008
|
|
|
44,762,902
|
|
|
|
(1,148,504
|
)
|
|
|
43,614,398
|
|
Deposits for program advertising right
|
|
|
2,125,330
|
|
|
|
|
|
|
|
2,125,330
|
|
Prepaid advertising program space and airtime
|
|
|
198,923
|
|
|
|
|
|
|
|
198,923
|
|
Prepaid expenses
|
|
|
3,053,099
|
|
|
|
(5,556
|
)
|
|
|
3,047,543
|
|
Amounts due from related parties, current portion
|
|
|
6,547,636
|
|
|
|
|
|
|
|
6,547,636
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
36,970,590
|
|
|
|
|
|
|
|
36,970,590
|
|
Deferred tax assets, current portion
|
|
|
1,042,379
|
|
|
|
|
|
|
|
1,042,379
|
|
Other current assets
|
|
|
4,259,056
|
|
|
|
(113,773
|
)
|
|
|
4,145,283
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
193,498,808
|
|
|
|
(2,315,147
|
)
|
|
|
191,183,661
|
|
Property and equipment, net
|
|
|
6,590,790
|
|
|
|
(288,353
|
)
|
|
|
6,302,437
|
|
License agreements, net
|
|
|
99,148,017
|
|
|
|
|
|
|
|
99,148,017
|
|
Exclusive advertising agreement, net- Economic Observer Advertising
|
|
|
74,267,216
|
|
|
|
|
|
|
|
74,267,216
|
|
Other intangible assets, net
|
|
|
27,113,350
|
|
|
|
|
|
|
|
27,113,350
|
|
Goodwill
|
|
|
46,992,724
|
|
|
|
(4,303,825
|
)
|
|
|
42,688,899
|
|
Investment
|
|
|
13,508,239
|
|
|
|
|
|
|
|
13,508,239
|
|
Deposit for investment
|
|
|
14,174,566
|
|
|
|
|
|
|
|
14,174,566
|
|
Consideration receivable from disposal of subsidiaries
|
|
|
28,285,035
|
|
|
|
|
|
|
|
28,285,035
|
|
Amounts due from a related party, non-current portion
|
|
|
1,506,137
|
|
|
|
|
|
|
|
1,506,137
|
|
Other long term assets
|
|
|
3,165,454
|
|
|
|
|
|
|
|
3,165,454
|
|
Assets held for sale
|
|
|
|
|
|
|
6,907,325
|
|
|
|
6,907,325
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,250,336
|
|
|
$
|
|
|
|
$
|
508,250,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Mezzanine Equity and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,375,281
|
|
|
$
|
(372,441
|
)
|
|
$
|
5,002,840
|
|
Accrued expense and other payables
|
|
|
42,243,279
|
|
|
|
(1,140,530
|
)
|
|
|
41,102,749
|
|
Amounts due to Parent and its affiliates
|
|
|
1,131,050
|
|
|
|
|
|
|
|
1,131,050
|
|
Amounts due to other related parties
|
|
|
2,215,122
|
|
|
|
|
|
|
|
2,215,122
|
|
Long term payables, current portion
|
|
|
10,363,762
|
|
|
|
|
|
|
|
10,363,762
|
|
Bank borrowings, current portion
|
|
|
36,374,198
|
|
|
|
|
|
|
|
36,374,198
|
|
Income tax payable
|
|
|
8,571,848
|
|
|
|
(858,545
|
)
|
|
|
7,713,303
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
106,274,540
|
|
|
|
(2,371,516
|
)
|
|
|
103,903,024
|
|
Deferred tax liabilities
|
|
|
31,679,491
|
|
|
|
|
|
|
|
31,679,491
|
|
Convertible loan
|
|
|
33,200,000
|
|
|
|
|
|
|
|
33,200,000
|
|
Long term payables, non-current portion
|
|
|
68,305,496
|
|
|
|
|
|
|
|
68,305,496
|
|
Liabilities held for sale
|
|
|
|
|
|
|
2,371,516
|
|
|
|
2,371,516
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
239,459,527
|
|
|
|
|
|
|
|
239,459,527
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
2,565,177
|
|
|
|
|
|
|
|
2,565,177
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares (stated value
$100; 320,000 shares authorized; 314,000 issued and outstanding
as of December 31, 2008; liquidation value of $63,400,000 as of
December 31, 2008
|
|
|
30,605,591
|
|
|
|
|
|
|
|
30,605,591
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common shares and non-vested shares (par value $0.001;
143,822,874 as of December 31, 2007 and 343,822,874 as of
December 31, 2008 shares authorized; 90,061,269 as of December
31, 2007 and 146,914,667 as of December 31, 2008 shares issued
and outstanding)
|
|
|
104,302
|
|
|
|
|
|
|
|
104,302
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinhua Sports &
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
Pro Forma
|
|
|
|
|
|
|
Limited (As Of
|
|
|
Adjustments
|
|
|
|
|
|
|
December 31,
|
|
|
related to
|
|
|
|
|
(In U.S. dollars, except for share data)
|
|
2008)
|
|
|
Hyperlink (1)
|
|
|
Pro Forma
|
|
Treasury stock (800,000 and 1,310,000 shares as of December 31,
2007 and 2008 respectively)
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
(1,310
|
)
|
Additional paid-in capital
|
|
|
481,319,655
|
|
|
|
|
|
|
|
481,319,655
|
|
Retained earnings (accumulated deficit)
|
|
|
(252,968,439
|
)
|
|
|
|
|
|
|
(252,968,439
|
)
|
Accumulated other comprehensive income
|
|
|
7,165,833
|
|
|
|
|
|
|
|
7,165,833
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
235,620,041
|
|
|
|
|
|
|
|
235,620,041
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interest, mezzanine equity and
shareholders equity
|
|
$
|
508,250,336
|
|
|
|
|
|
|
$
|
508,250,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The pro forma adjustments reflect the balance sheet items of Hyperlink as of December 31,
2008 as if Hyperlink was treated as a discontinued operation as of January 1, 2008.
|
19
RISK FACTORS
For a full description of the risks associated with our business, please see the risk factors
set forth under the heading Item 3D. Risk Factors in our annual report on Form 20-F for the year
ended December 31, 2008, which is incorporated by reference in this prospectus, and any
accompanying prospectus supplement subsequently filed relating to a specific offering or sale,
before investing in any securities that may be offered or sold pursuant to this prospectus.
20
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities as set forth in the
applicable prospectus supplement.
21
ENFORCEABILITY OF CIVIL LIABILITIES
We were incorporated in the Cayman Islands in order to enjoy the following benefits:
|
|
|
political and economic stability;
|
|
|
|
|
an effective judicial system;
|
|
|
|
|
a favorable tax system;
|
|
|
|
|
the absence of exchange control or currency restrictions; and
|
|
|
|
|
the availability of professional and support services.
|
However, certain disadvantages accompany incorporation in the Cayman Islands. These
disadvantages include:
|
|
|
the Cayman Islands has a less developed body of securities laws as compared to the
United States and these securities laws provide significantly less protection to
investors; and
|
|
|
|
|
Cayman Islands companies may not have standing to sue before the federal courts of
the United States.
|
Our constituent documents do not contain provisions requiring that disputes, including those
arising under the securities laws of the United States, between us, our officers, directors and
shareholders, be arbitrated.
All of our media operations are conducted in China, and substantially all of our assets are
located in China. A majority of our officers are nationals or residents of jurisdictions other
than the United States and a substantial portion of their assets are located outside the United
States. As a result, it may be difficult for a shareholder to effect service of process within the
United States upon these persons, or to enforce against us or them judgments obtained in United
States courts, including judgments predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States.
We have appointed Law Debenture Corporate Services Inc., 400 Madison Avenue, 4
th
Floor, New York, New York 10017, as our agent upon whom process may be served in any action brought
against us under the securities laws of the United States.
Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Commerce & Finance Law
Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to
whether the courts of the Cayman Islands and China, respectively, would:
|
|
|
recognize or enforce judgments of United States courts obtained against us or our
directors or officers predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States; or
|
|
|
|
|
entertain original actions brought in each respective jurisdiction against us or our
directors or officers predicated upon the securities laws of the United States or any
state in the United States.
|
Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the
federal or state courts of the United States under which a sum of money is payable, other than a
sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement
proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of
obligation.
Commerce & Finance Law Offices has further advised us that the recognition and enforcement of
foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and
enforce foreign
22
judgments in accordance with the requirements of PRC Civil Procedures Law based either on
treaties between China and the country where the judgment is made or on reciprocity between
jurisdictions.
23
DESCRIPTION OF SHARE CAPITAL
We were incorporated on November 7, 2005 in the Cayman Islands as an exempted company limited
by shares and our affairs are governed by the Companies Law, Cap. 22 (Law 3 of 1961, as
consolidated and revised) of the Cayman Islands, which is referred to as the Companies Law below.
As of the date of this prospectus, there are 343,822,874 class A common shares, 50,054,619
class B common shares, 345,600 Series B convertible preferred shares and 605,776,907 shares that
are not yet designated as to class or series, authorized, of which 152,718,667 class A common
shares and 332,800 Series B convertible preferred shares are issued and outstanding.
The following are summaries of material provisions of our amended and restated memorandum and
articles of association and the Companies Law insofar as they relate to the material terms of the
securities.
Class A Common Shares
General
. All of our outstanding class A common shares are fully paid and non-assessable.
Certificates representing the class A common shares are issued in registered form. Our
shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.
Dividends
. The holders of our class A common shares are entitled to such dividends as may be
declared by our board of directors subject to the Companies Law.
Voting Rights
. Each class A common share is entitled to one vote on all matters upon which
the class A common shares are entitled to vote. Voting at any meeting of the shareholders is by a
show of hands unless a poll is demanded. A poll may be demanded by (i) the chairman of the meeting
or (ii) at least three shareholders present in person or, in the case of a shareholder being a
corporation, by its duly authorized representative or by proxy for the time being entitled to vote
at the meeting or (iii) any shareholder or shareholders present in person or, in the case of a
shareholder being a corporation, by its duly authorized representative or by proxy and representing
not less than one tenth of the total voting rights of all shareholders having the right to vote at
the meeting or (iv) a shareholder or shareholders present in person, or in the case of a
shareholder being a corporation, by its duly authorized representative or by proxy and holding our
shares conferring a right to vote at the meeting, being shares on which an aggregate sum has been
paid equal to not less than one tenth of the total sum paid up on all shares conferring that right
or (v) if required by the rules of the designated stock exchange, by any director or directors who,
individually or collectively, hold proxies in respect of shares representing 5% or more of the
total voting rights at such meeting.
A quorum required for a meeting of shareholders consists of at least two shareholders present
in person or by proxy or, if a corporation or other non-natural person, by its duly authorized
representative. The shareholders must represent at least one-third of the total issued class A
common shares in our company. Shareholder meetings are held annually and may be convened by our
board of directors on its own initiative or upon a request to the directors by shareholders holding
in aggregate at least 10% of our voting share capital. Advance notice of at least ten days is
required for the convening of our annual general meeting and other shareholder meetings.
In order for an ordinary resolution to be passed by the shareholders the affirmative vote of a
simple majority of the votes attaching to the class A common shares must be cast in a general
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the
votes cast attaching to the class A common shares. A special resolution is required for important
matters such as a change of name. Holders of our class A common shares may effect certain changes
by ordinary resolution, including altering the amount of our authorized share capital,
consolidating and dividing all or any of our share capital into shares of a larger amount than our
existing share capital and cancelling any shares.
Transfer of Shares
. Subject to the restrictions of our amended and restated memorandum and
articles of association, as applicable, any of our shareholders may transfer all or any of his or
her class A common shares by an instrument of transfer in the usual or common form or any other
form approved by our board.
24
Our board of directors may, in its absolute discretion, decline to register any transfer of
any class A common share which is not fully paid up or on which we have a lien. Our directors may
also decline to register any transfer of any class A common share unless (i) the instrument of
transfer is lodged with us, accompanied by the certificate for the class A common shares to which
it relates and such other evidence as our board of directors may reasonably require to show the
right of the transferor to make the transfer, (ii) the instrument of transfer is in respect of only
one class of common shares, (iii) the instrument of transfer is properly stamped, if required, (iv)
in the case of a transfer to joint holders, the number of joint holders to whom the class A common
share is to be transferred does not exceed four, (v) the shares conceded are free of any lien in
favor of us or (vi) a fee of such maximum sum as the Nasdaq Global Market may determine to be
payable, or such lesser sum as our board of directors may from time to time require, is paid to us
in respect thereof.
If our directors refuse to register a transfer they shall, within two months after the date on
which the instrument of transfer was lodged, send to each of the transferor and the transferee
notice of such refusal. The registration of transfers may, on notice being given by advertisement
in one or more newspapers or by electronic means, be suspended and the register closed at such
times and for such periods as our board of directors may from time to time determine, provided,
however, that the registration of transfers shall not be suspended nor the register closed for more
than 30 days in any year.
Liquidation
. On a return of capital on winding up or otherwise (other than on conversion,
redemption or purchase of shares), assets available for distribution among the holders of class A
common shares shall be distributed among the holders of the class A common shares on a pro rata
basis. If our assets available for distribution are insufficient to repay all of the paid-up
capital, the assets will be distributed so that the losses are borne by our shareholders
proportionately.
Calls on Shares and Forfeiture of Shares
. Our board of directors may, from time to time, make
calls upon shareholders for any amounts unpaid on their shares in a notice served to such
shareholders at least 14 days prior to the specified time and place of payment. The shares that
have been called upon and remain unpaid on the specified time are subject to forfeiture.
Redemption of Shares
. Subject to the provisions of the Companies Law, we may issue shares on
terms that are subject to redemption, at our option or at the option of the holders, on such terms
and in such manner as may be determined by special resolution.
Variations of Rights of Shares
. All or any of the special rights attached to any class of
shares may, subject to the provisions of the Companies Law, be varied either with the written
consent of the holders of three-fourths of the issued shares of that class or with the sanction of
a resolution passed by holders of shares of that class.
Inspection of Books and Records
. Holders of our class A common shares will have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our
corporate records. However, we will provide our shareholders with annual audited financial
statements. See Where You Can Find More Information About Us.
Preferred Shares
Our amended and restated memorandum and articles of association provides that, subject to the
Companies Law, our articles of association and the applicable rules of Nasdaq, our authorized
unissued shares shall be at the disposal of our board of directors, which may offer, allot, grant
options over or otherwise dispose of such shares to such persons, at such times and for such
consideration and upon such terms and conditions as our board may in its absolute discretion
determine but such that no shares may be issued at a discount. In particular, our board of
directors is empowered to authorize from time to time the issuance of one or more classes or series
of preferred shares and to fix the designations, powers, preferences and relative, participating,
optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if
any, including, without limitation, the number of shares constituting each such class or series,
dividend rights, conversion rights, redemption privileges, voting powers, full or limited or no
voting powers, and liquidation preferences, and to increase or decrease the size of, any such class
or series, but not below the number of any class or series of preferred shares then outstanding, to
the extent permitted by the Companies Law.
25
The resolutions providing for the establishment of any class or series of preferred shares
may, to the extent permitted by law, provide that such class or series shall be superior to, rank
equally with, or be junior to the preferred shares of any other class or series.
Series B Convertible Preferred Stock
In February 2008, we issued 300,000 Series B convertible preferred shares to Yucaipa Global
Partnership Fund L.P., or Yucaipa, which were purchased for $30.0 million. The Series B
convertible preferred shares are a newly-created series having certain preferences, limitations and
relative rights.
The Series B convertible preferred shares are convertible into class A common shares at the
option of holders based on a conversion formula at any time after the first anniversary of the
closing of the placement which occurred on February 28, 2008, or upon the occurrence of certain
other events. The conversion rate at any time shall be determined by dividing an amount equal to
the sum of (i) the stated value per share, which is $100.00 per convertible preferred share subject
to adjustment in the event of any subdivision or combination of the outstanding preferred shares,
plus (ii) the amount of any accrued dividends per share then remaining unpaid on each convertible
preferred share being converted by the then applicable conversion price, initially equal to $3.00
per share, but subject to adjustment.
Yucaipa, as a holder of our Series B convertible preferred shares, is entitled to vote on an
as converted basis together with the holders of our class A common shares. Moreover, the
approval of the holders of a majority of the outstanding Series B convertible preferred shares is
required for certain matters, such as authorizing the issuance of any parity shares, while the
approval of the holders of a majority of the outstanding Series B convertible preferred shares and
any outstanding parity shares is required for certain other matters, such as entering into certain
transactions with shareholders or affiliates, or materially changing the scope of our business.
The Series B convertible preferred shares are entitled to quarterly preferred dividends at the rate
of 8.0% per annum payable in cash or, at our option subject to certain limitations, through the
issuance of additional convertible preferred shares. We issued a total of 32,800 additional Series
B convertible preferred shares to Yucaipa in July and October 2008 and in January, May and July
2009, as dividends. Upon any liquidation, the convertible preferred shares would be entitled to a
liquidation preference. The holders of the Series B convertible preferred shares have the right to
require that their shares be redeemed by us upon the occurrence of certain events.
In addition, pursuant to a shareholders agreement with Yucaipa, Xinhua Finance Limited, or
XFL, with which we are affiliated, is required to vote its shares in us and take certain other
actions to ensure that an individual designated by Yucaipa will remain one of our directors so long
as Yucaipa continues to hold at least 50% of the convertible preferred shares originally issued
under the share purchase agreement. The shareholders agreement also provides Yucaipa with certain
tag-along rights in connection with certain sales by XFL of class A common shares it holds in us.
Further, pursuant to a registration rights agreement dated February 28, 2008, we have granted
Yucaipa piggyback registration rights. A total of 10,000,000 class A common shares of our company
are covered by these registration rights, assuming all of the outstanding Series B convertible
preferred shares are converted, there are no accrued and unpaid dividends and the conversion price
is not adjusted.
History of Securities Issuances
The following is a summary of securities issuances by us and share transfers among our
existing shareholders.
Shares issued to XFL.
On November 7, 2005, the date of our inception, we issued one class B
common share to XFL. On January 12, 2006, we issued one additional class B common share to XFL.
These two class B common shares were subsequently divided into 1,000 class B common shares each on
March 24, 2006. On March 16, 2006, we issued 42,612,289 class B common shares to XFL, and on
September 21, 2006 we issued an additional 7,440,329 class B common shares to XFL. On December 31,
2008, the entirety of the 50,054,618 class B common shares held by XFL were converted into
50,054,618 class A common shares.
26
Convertible preferred shares and convertible debt.
We issued 16,404,926 convertible preferred
shares and debt initially convertible into 2,734,154 class A common shares to Patriarch Partners
Media Holdings, LLC, or Patriarch Partners, on March 16, 2006. On September 19, 2006, we redeemed
819,672 of these shares. On September 20, 2006, we amended the terms of our credit agreement with
Patriarch Partners so that the debt was convertible into 3,554,401 class A common shares plus class
A common shares for accrued and unpaid interest. On March 14, 2007, the convertible loan and
convertible preferred shares were converted into 3,554,401 and 15,585,254 class A common shares,
respectively.
Class A common shares to Fredy Bush.
We issued 11,050,000 class A common shares to Fredy
Bush, our Chief Executive Officer, on June 13, 2006. The shares were subject to staggered lock-up
periods ranging up to five years from the date of issuance. On November 20, 2006, Ms. Bush
transferred 635,000 of the shares that vested in 2007 to certain third parties unrelated to us,
which were subject to lock-up until January 22, 2008. On December 20, 2006, Dragon Era Group
Limited, or Dragon Era, which is owned by Ms. Bushs trust and holds the shares beneficially owned
by Ms. Bush, transferred 1,050,000 of the shares that vested in 2007 to certain third parties
unrelated to us. On September 6, 2007, a third party transferred 1,000,000 shares back to Dragon
Era. The 50,000 shares held by the other third party were subject to lock-up until January 22,
2008. On January 19, 2009 a third party transferred 5,000 shares back to Dragon Era. Of the
shares held by Dragon Era, 1,500,000 were subject to lock-up until the SECs declaration of
effectiveness of our registration statement on Form F-1, and were sold as part of our initial
public offering. An additional 40,000 class A common shares and 2,170,000 class A common shares
were subject to lock-up until January 22, 2008 and June 13, 2008, respectively and the remaining
6,655,000 class A common shares were subject to staggered lock-up periods through June 13, 2011.
Pursuant to a board resolution passed on December 17, 2008, the remaining 6,655,000 class A common
shares subject to lock-up vested as of that date. In February 2008, we granted 1,000,000
restricted share units to Fredy Bush under our employee share option and share grant plan, of which
340,000 class A common shares and 660,000 class A common shares were issued on March 31, 2008 and
February 24, 2009, respectively to the Fredy Bush Family Trust.
Private placement and share restructuring.
We issued 14,429,083 class A common shares and
4,099,968 warrants exercisable for class A common shares to various persons and entities on
September 22, 2006 and 6,532,071 class A common shares on November 1, 2006 to various persons and
entities. We issued 50,000, 546,248, 2,043,347, 3,261,670, 50,000, 300,000, 4,000,000, 4,000,000
and 260,000 class A common shares to various persons and entities on June 25, 2007, August 23,
2007, November 13, 2007, April 1, 2008, April 25, 2008, August 15, 2008, October 16, 2008, January
5, 2009 and August 12, 2009, respectively.
Options and restricted share units.
In order to attract and retain the best available
personnel for positions of substantial responsibility, provide additional incentive to employees
and promote the success of our business, in July 2006 we authorized the grant of options to
purchase a maximum of 11,727,602 shares in our company. We entered into individual option
agreements on July 11, 2006 and granted 11,198,180 options. As of the date of this prospectus,
there were 5,457,981 class A common shares issuable upon the exercise of outstanding share options
at a weighted average exercise price of $0.78 per share, and there were 3,197,025 class A common
shares available for future issuance upon the exercise of future grants under individual option
agreements. In addition, our shareholders adopted our 2007 share option plan in furtherance of the
same purposes on February 7, 2007. The maximum aggregate number of shares that may be issued
pursuant to all awards under the plan is equal to the lesser of (i) 19,530,205 class A common
shares or (ii) a lesser number of class A common shares determined by the administrator of the
plan. Pursuant to the 2007 share option plan, we have granted options to purchase an aggregate of
1,790,000 class A common shares of our company to our independent directors, an executive and a
consultant. We issued a total of 5,587,019 class A common shares in June, July and September of
2007 and April 2008 pursuant to options previously granted.
Pursuant to the plan, we also granted restricted share units representing an aggregate of
5,536,000 class A common shares to our employees in February 2008, of which 4,241,200 class A
common shares and 715,000 class A common shares were vested and lapsed, respectively, as of the
date of this prospectus. The restricted share units are subject to a two year vesting schedule and
will lapse in the event of termination of employment with us. Employees are not required to pay
for the restricted share units. In July and August 2009, we granted 180,000 class A common shares
and 250,000 class A common shares, respectively, to two executives under the plan. For a further
description, see Item 6.B. Directors, Senior Management and EmployeesCompensation of Directors
and Executive OfficersShare options of our annual report on Form 20-F for the year ended
December 31, 2008,
27
which is incorporated by reference in this prospectus, and any prospectus supplement
subsequently filed relating to a specific offering or sale.
As of the date of this prospectus, there were 1,763,334 class A common shares issuable upon
the exercise of outstanding share options under the plan at a weighted average exercise price of
$1.19 per share, and 1,326,800 class A common shares issuable upon the vesting of outstanding
restricted share units. There were also 12,515,871 class A common shares available for future
issuance upon the exercise of future grants of options and restricted share units under the plan.
Warrants to Billy Kung.
We issued 630,000 warrants exercisable for class A common shares to
Billy Kung, an independent consultant, on December 7, 2006 for consulting work carried out by him
for us. The shares are subject to a lock-up period of five years which commenced on December 21,
2006.
Warrants to Ken Chen.
We issued 221,280 warrants exercisable for class A common shares to Ken
Chen, a former employee, on January 15, 2007 as compensation for past services. These warrants
expired on March 9, 2008, and can no longer be exercised.
Initial Public Offering
. On March 14, 2007, we completed our initial public offering, in
which we issued and sold 17,307,923 ADSs, representing 34,615,846 of our class A common shares, and
certain of our then existing shareholders sold 5,769,000 ADSs, representing 11,538,000 of our class
A common shares, in each case at an offering price of $13.00 per ADS.
Share repurchase
. We repurchased a total of 5,348,890 of our class A common shares in March,
May and June 2008 pursuant to our share repurchase plan, which provides for the repurchase of up to
$50.0 million of our class A common shares of which approximately $38,489,716 is still available
for the repurchase of our shares under the plan.
Series B Convertible Preferred Shares
. In February 2008, we issued 300,000 Series B
convertible preferred shares to Yucaipa for $30.0 million. We have issued an additional 32,800
Series B convertible preferred shares as pay-in-kind dividends to Yucaipa as of the date hereof.
In connection with the acquisitions we have made, we issued 6,929,544 class A common shares to
Sino Investment Holdings Limited in September 2006, 6,532,071 class A common shares to Honour Rise
Services Limited in November 2006, a total of 100,000 shares to He Zhihao, Lu Qibo and Zhang Jingyu
in June 2007 and April 2008, 2,043,347 class A common shares to Whole Fortune Limited in November
2007, a total of 3,261,670 class A common shares to Alphawin Investments Limited, Multi Interactive
Communication Limited and Fortune Consultancy Holding Limited in April 2008 and a total of
8,000,000 class A common shares to Chung Cheng Co., Ltd. in October 2008 and January 2009.
2008 Convertible Loan Facility
. On October 21, 2008, we entered into a credit agreement with
Zohar CDO 2003-1, Limited and Zohar II 2005-1, Limited, as lenders, together with Patriarch
Partners Agency Services, LLC, as agent for the lenders. Each of the lenders and the agent are
affiliates of Patriarch Partners, one of our major shareholders. The facility is for a term of
four years and is secured by a pledge of our television assets. The amount outstanding under the
loan facility is convertible into our class A common shares at a conversion price of $1.12 per
class A common share for the period from October 21, 2009 to October 20, 2010. The conversion
price will be increased to $1.37 per class A common share for the period from October 21, 2010 to
October 20, 2011, and to $1.62 per class A common share for the period after October 21, 2012. We
also granted certain registration rights, pre-emptive rights and tag-along rights to the lenders.
As of the date of this prospectus, we have drawn down an aggregate of $57.8 million from the loan
facility.
Differences in Corporate Law
The Companies Law differs from laws applicable to United States corporations and their
shareholders. Set forth below is a summary of the significant differences between the provisions
of the Companies Law applicable to us and the laws applicable to companies incorporated in the
United States and their shareholders.
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Mergers and similar arrangements
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(a)
Scheme of Arrangement
. The Companies Law contains statutory provisions that
facilitate the reconstruction and amalgamation of companies, provided that the arrangement is
approved by a majority in number of each class of shareholders and creditors with whom the
arrangement is to be made, and who must in addition represent three-fourths in value of each such
class of shareholders or creditors, as the case may be, that are present and voting either in
person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the
meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder has the right to express to the court the view that the
transaction ought not to be approved, the court can be expected to approve the arrangement if it
determines that:
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the company is not proposing to act illegally or beyond the scope of its authority
and the statutory provisions as to majority vote have been complied with;
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the shareholders have been fairly represented at the meeting in question;
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the arrangement is such that a businessman would reasonably approve; and
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the arrangement is not one that would more properly be sanctioned under some other
provision of the Companies Law, or would amount to a fraud on the minority.
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When a take-over offer is made and accepted by holders of 90.0% of the shares within four
months, the offerer may, within a two-month period, require the holders of the remaining shares to
transfer such shares according to the terms of the offer. An objection can be made to the Grand
Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad
faith or collusion.
If the arrangement and reconstruction is thus approved, the dissenting shareholder would have
no rights comparable to appraisal rights, which would otherwise ordinarily be available to
dissenting shareholders of United States corporations, providing rights to receive payment in cash
for the judicially determined value of the shares.
(b)
Mergers and Consolidations
. Previously, Cayman Islands law did not provide for
mergers as that expression is understood under United States corporate law. However, pursuant to
the Companies (Amendment) Law, 2009 that came into force on May 11, 2009, in addition to the
existing schemes of arrangement provisions described above, a new, simpler and more cost-effective
mechanism for mergers and consolidations between Cayman Islands companies and between Cayman
companies and foreign companies has been introduced.
The procedure to effect a merger or consolidation is as follows:
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the directors of each constituent company must approve a written plan of merger or
consolidation (the Plan);
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the Plan must be authorized by each constituent company by (i) a shareholder
resolution by majority in number representing 75% in value of the shareholders voting
together as one class and (ii) if the shares to be issued to each shareholder in the
consolidated or surviving company are to have the same rights and economic value as the
shares held in the constituent company, a special resolution of the shareholders voting
together as one class. A proposed merger between a Cayman parent company and its
Cayman subsidiary or subsidiaries will not require authorization by shareholder
resolution;
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the consent of each holder of a fixed or floating security interest of a constituent
company in a proposed merger or consolidation is required unless the court (upon the
application of the constituent company that has issued the security) waives the
requirement for consent;
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the Plan must be signed by a director on behalf of each constituent company and
filed with the Registrar of Companies together with the required supporting documents;
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a certificate of merger or consolidation is issued by the Registrar of Companies
which is prima facie evidence of compliance with all statutory requirements in respect
of the merger or consolidation. All rights and property of each of the constituent
companies will then vest in the surviving or consolidated company which will also be
liable for all debts, contracts, obligations and liabilities of each constituent
company. Similarly, any existing claims, proceedings or rulings of each constituent
company will automatically be continued against the surviving or consolidated company;
and
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provision is made for a dissenting shareholder of a Cayman constituent company to be
entitled to payment of the fair value of his shares upon dissenting to the merger or
consolidation. Where the parties cannot agree on the price to be paid to the
dissenting shareholder, either party may file a petition to the court to determine the
fair value of the shares. These rights are not available where an open market exists
on a recognized stock exchange for the shares of the class held by the dissenting
shareholder.
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Shareholders suits
. Derivative actions have been brought and reported in the Cayman Islands
but were unsuccessful. In principle, we will normally be the proper plaintiff and a derivative
action may not be brought by a minority shareholder. However, based on English authorities, which
would in all likelihood be of persuasive authority in the Cayman Islands, exceptions to the
foregoing principle apply in circumstances in which:
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a company is acting or proposing to act illegally or beyond the powers defined by
law and its memorandum and articles of association;
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the act complained of, although not beyond the powers defined by law and its
memorandum and articles of association could be effected if duly authorized by more
than a simple majority vote which has not been obtained; and
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those who control the company are perpetrating a fraud on the minority.
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Indemnification
. Cayman Islands law does not limit the extent to which a companys articles
of association may provide for indemnification of officers and directors, except to the extent any
such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to
provide indemnification against civil fraud or the consequences of committing a crime.
Our amended and restated memorandum and articles of association provide for indemnification of
officers and directors for losses, damages, costs and expenses incurred in their capacity as such,
except through their own willful neglect or default.
We have entered into indemnification agreements with our directors and executive officers to
indemnify them to the fullest extent permitted by applicable law and our articles of association,
from and against all costs, charges, expenses, liabilities and losses incurred in connection with
any litigation, suit or proceeding to which such director is or is threatened to be made a party,
witness or other participant.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers or persons controlling us under the foregoing provisions, we have been
advised that in the opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and therefore is unenforceable.
Registration Rights
Patriarch Partners and its affiliates
Pursuant to an investor rights agreement dated as of March 16, 2006, or the 2006 Investor
Rights Agreement, we have granted Patriarch Partners and certain holders of our class A common
shares customary registration rights, including demand and piggyback registration rights. In
connection with the loan facility we obtained in October 2008, we entered into an investor and
registration rights agreement, or the 2008 Investor Rights
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Agreement, with the lenders, pursuant to which we granted certain registration rights,
tag-along rights and other rights to the lenders.
Set forth below is a description of the registration rights granted under the 2006 Investor
Rights Agreement and the 2008 Investor Rights Agreement:
Demand registration rights
. Under the 2006 Investor Rights Agreement, at any time commencing
180 days after the date of our initial public offering, holders of registrable securities
representing 2% of the outstanding class A common shares have the right to demand that we file a
registration statement covering the offer and sale of their securities with anticipated aggregate
proceeds in excess of $5.0 million. We are required to use our reasonable best efforts to have the
related registration statement declared effective and remain effective for 180 days or until all
the registered shares are sold to the public.
Under the 2008 Investor Rights Agreement, we are required to file with the SEC, within 180
days prior to the first date on which loans outstanding under the loan facility will be convertible
into our class A common shares, a shelf registration statement for an offering to be made on a
continuous or delayed basis covering the resale from time to time of our class A common shares by
registrable holders, which are initially the lenders. We are also required to use our reasonable
best efforts to cause such shelf registration statement to be declared effective under the
Securities Act as soon as practicable after such filing. We shall keep the shelf registration
statement current and cause it to remain effective to permit the prospectus under the shelf
registration statement or any subsequent registration statement to be usable by the registrable
securities holders until such time the registrable securities holders no longer hold any
registrable securities or all such registrable securities may be sold pursuant to Rule 144.
Piggyback registration rights.
If we propose to file a registration statement for a public
offering of our securities then we must offer holders of registrable securities under the 2006
Investor Rights Agreement or the 2008 Investor Rights Agreement an opportunity to include in the
registration all or any part of their registrable securities. We must use our reasonable best
efforts to include these shares in the registration statement.
Expenses of registration.
We will pay all expenses, other than underwriting discounts,
selling commissions and stock transfer taxes, relating to any demand, piggyback or F-3
registration, including all registration, filing and qualification fees, printer and accounting
fees, fees and disbursements of counsel for us and the reasonable fees and disbursements of one
counsel for the selling shareholders.
Yucaipa
Pursuant to a registration rights agreement dated February 28, 2008, we have granted Yucaipa
piggyback registration rights. We will pay all expenses incurred by us in effecting any
registration under the agreement, including all registration, qualification and filing fees,
printing expenses, and the expense of any special audits, as well as the reasonable fees and
disbursements of a single special legal counsel to represent the selling shareholders.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Shares
The Bank of New York Mellon, as depositary, has registered and will deliver ADSs. Each ADS
represents two class A common shares (or a right to receive two shares) deposited with the office
of The Hong Kong and Shanghai Banking Corporation Limited, as custodian for the depositary. Each
ADS will also represent any other securities, cash or other property which may be held by the
depositary. The depositarys corporate trust office at which the ADSs will be administered is
located at 101 Barclay Street, New York, New York 10286. The Bank of New York Mellons principal
executive office is located at One Wall Street, New York, New York 10286.
You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, which is a
certificate evidencing a specific number of ADSs, registered in your name, or (ii) by holding ADSs
in the Direct Registration System, or (B) indirectly through your broker or other financial
institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold
your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your
broker or other financial institution to assert the rights of ADR holders described in this
section. You should consult with your broker or financial institution to find out what those
procedures are.
The Direct Registration System, or DRS, is a system administered by DTC pursuant to which the
depositary may register the ownership of uncertificated American Depositary Shares, which ownership
shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled
thereto.
As an ADS holder, we will not treat you as one of our shareholders and you will not have
shareholder rights. Cayman Islands law governs shareholder rights. The depositary will be the
holder of the shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights.
A deposit agreement among us, the depositary and you, as an ADS holder, and the beneficial owners
of ADSs set out ADS holder rights as well as the rights and obligations of the depositary. New
York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement. For more
complete information, you should read the entire deposit agreement and the form of American
Depositary Receipt. Directions on how to obtain copies of those documents are provided in the
section of this prospectus headed Where You Can Find Additional Information.
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay to you the cash dividends or other distributions it or the
custodian receives on shares or other deposited securities, after deducting its fees and expenses.
You will receive these distributions in proportion to the number of class A common shares your ADSs
represent.
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Cash
. The depositary will convert any cash dividend or other cash distribution we
pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can
transfer the U.S. dollars to the United States. If that is not possible or if any
government approval is needed and cannot be obtained, the deposit agreement allows the
depositary to distribute the foreign currency only to those ADR holders to whom it is
possible to do so. It will hold the foreign currency it cannot convert for the account
of the ADS holders who have not been paid. It will not invest the foreign currency and
it will not be liable for any interest.
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Before making a distribution, any withholding taxes, or other governmental charges that must be
paid will be deducted. See the section of this prospectus headed Taxation. It will distribute
only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If
the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency,
you may lose some or all of the value of the distribution.
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Shares
. The depositary may distribute additional ADSs representing any shares we
distribute as a dividend or free distribution. The depositary will only distribute
whole ADSs. It will sell shares which would require it to deliver a fractional ADS and
distribute the net proceeds in the same way as it does with cash. If the depositary
does not distribute additional ADSs, the outstanding ADSs will also represent the new
shares. The depositary may sell a portion of the distributed shares sufficient to pay
its fees and expenses in connection with that distribution.
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Rights to purchase additional shares
. If we offer holders of our securities any
rights to subscribe for additional shares or any other rights, the depositary may make
these rights available to you. If the depositary decides it is not legal and practical
to make the rights available but that it is practical to sell the rights, the
depositary will use reasonable efforts to sell the rights and distribute the proceeds
in the same way as it does with cash. The depositary will allow rights that are not
distributed or sold to lapse.
In that case, you will receive no value for them
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If the depositary makes rights available to you, it will exercise the rights and purchase the
shares on your behalf. The depositary will then deposit the shares and deliver ADSs to you. The
depositary will only exercise rights if you pay the exercise price and any other charges the rights
require you to pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares
purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in
the United States. In this case, the depositary may deliver restricted depositary shares that have
the same terms as the ADRs described in this section except for changes needed to put the necessary
restrictions in place.
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Other Distributions
. The depositary will send to you anything else we distribute on
deposited securities by any means it thinks is legal, fair and practical. If it cannot
make the distribution in that way, the depositary has a choice. It may decide to sell
what we distributed and distribute the net proceeds, in the same way as it does with
cash. Or, it may decide to hold what we distributed, in which case ADSs will also
represent the newly distributed property. However, the depositary is not required to
distribute any securities (other than ADSs) to you unless it receives satisfactory
evidence from us that it is legal to make that distribution.
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The depositary is not responsible if it decides that it is unlawful or impractical to make a
distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights
or other securities under the Securities Act. We also have no obligation to take any other action
to permit the distribution of ADSs, shares, rights or anything else to ADS holders.
This means
that you may not receive the distributions we make on our shares or any value for them if it is
illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver ADSs if you or your broker deposit shares or evidence of rights to
receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the
appropriate number of ADSs in the names you request and will deliver the ADSs to, or upon the order
of, the person or persons entitled thereto.
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How do ADS holders cancel an American Depositary Share?
You may turn in your ADSs at the depositarys corporate trust office. Upon payment of its
fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees,
the depositary will deliver the shares and any other deposited securities underlying the ADSs to
you or a person you designate at the office of the custodian. Or, at your request, risk and
expense, the depositary will deliver the deposited securities at its corporate trust office, if
feasible.
How do ADS holders interchange between Certificated ADSs and Uncertificated ADSs?
You may surrender your ADR to the depositary for the purpose of exchanging your ADR for
uncertificated ADSs. The depositary will cancel that ADR and will send you a statement confirming
that you are the owner of uncertificated ADSs. Alternatively, upon receipt by the depositary of a
proper instruction from a holder of uncertificated ADSs requesting the exchange of uncertificated
ADSs for certificated ADSs, the depositary will execute and deliver to you an ADR evidencing those
ADSs.
Voting Rights
How do you vote?
ADS holders may instruct the depositary to vote the number of deposited shares their ADSs
represent. The depositary will notify ADS registered holders of shareholders meetings and arrange
to deliver our voting materials to ADS holders at our request. Those materials will describe the
matters to be voted on and explain how ADS registered holders may instruct the depositary on how to
vote. For instructions to be valid, they must reach the depositary by a date set by the
depositary.
Otherwise, you will not be able to exercise your right to vote unless you withdraw the
shares. However, you may not know about the meeting enough in advance to withdraw the shares.
The depositary will try, to the extent practical, subject to the laws of Cayman Islands and
the amended and restated memorandum and articles of association, to vote or to have its agents vote
the shares or other deposited securities as you instruct. The depositary will only vote or attempt
to vote as you instruct or as described below.
We cannot assure you that you will receive the voting materials in time to ensure that you can
instruct the depositary to vote your shares. In addition, the depositary and its agents are not
responsible for failing to carry out voting instructions or for the manner of carrying out voting
instructions.
This means that you may not be able to exercise your right to vote and there may be
nothing you can do if your shares are not voted as you requested.
If we timely asked the depositary to solicit your instructions and the depositary does not
receive voting instructions from you by the specified date, the depositary will consider you to
have authorized and directed it to give a discretionary proxy to a person designated by us to vote
the number of deposited securities represented by your ADSs. The depositary will give a
discretionary proxy in those circumstances to vote on all questions to be voted upon unless we
notify the depositary that:
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we do not wish to receive a discretionary proxy;
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we think there is substantial shareholder opposition to the particular question; or
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we think the particular question would have an adverse impact on our shareholders.
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In order to give you a reasonable opportunity to instruct the depositary as to the exercise of
voting rights relating to deposited securities, if we request the depositary to act, we will try to
give the depositary notice of any such meeting and details concerning the matters to be voted upon
at least 45 days in advance of the meeting date.
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Fees and Expenses
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Persons Depositing or Withdrawing Shares Must Pay:
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For:
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US$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
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Issuance of ADSs, including
issuances resulting from a
distribution of shares or
rights or other property
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Cancellation of ADSs for
the purpose of withdrawal,
including if the deposit
agreement terminates
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US$.02 (or less) per ADS
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Any cash distribution to you
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A fee equivalent to the fee that would be payable
if securities distributed to you had been shares
and the shares had been deposited for issuance of
ADSs
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Distribution of securities
distributed to holders of
deposited securities which
are distributed by the
depositary to ADS holders
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US$.02 (or less) per ADSs per calendar year
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Depositary services
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Registration or transfer fees
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Transfer and registration
of shares on our share
register to or from the
name of the depositary or
its agent when you deposit
or withdraw shares
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Expenses of the depositary
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Cable, telex and facsimile
transmissions (when
expressly provided in the
deposit agreement)
converting foreign currency
to U.S. dollars
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Taxes and other governmental charges the
depositary or the custodian have to pay on any
ADS or share underlying an ADS, for example,
stock transfer taxes, stamp duty or withholding
taxes
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As necessary
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Any charges incurred by the depositary or its
agents for servicing the deposited securities
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As necessary
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The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses we incur
that are related to the establishment and maintenance of the ADS program, including investor
relations expenses and Nasdaq application and listing fees. There are limits on the amount of
expenses for which the depositary will reimburse us, but the amount of reimbursement available to
us is not linked to the amounts of fees the depositary collects from investors.
The depositary collects its fees for issuance and cancellation of ADSs directly from investors
depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting
for them. The depositary also collects fees for making distributions to investors by deducting
those fees from the amounts distributed or by selling a portion of distributable property to pay
the fees. The depositary may collect its annual fee for depositary services by deduction from cash
distributions or by directly billing investors or by charging the book-entry system accounts of
participants acting for them. The depositary may generally refuse to provide fee-attracting
services until its fees for those services are paid.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on
the deposited securities represented by any of your ADSs. The depositary may refuse to register
any transfer of your ADSs or allow you to withdraw the deposited securities represented by your
ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell
deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for
any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the
number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property
remaining after it has paid the taxes.
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Reclassifications, Recapitalizations and Mergers
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If we:
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Then:
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Change the nominal or par value of our shares
Reclassify, split up or consolidate any of the
deposited securities
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The cash, shares or
other securities
received by the
depositary will become
deposited securities.
Each ADS will
automatically represent
its equal share of the
new deposited
securities.
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Distribute securities on the shares that are not
distributed to you
Recapitalize, reorganize, merge, liquidate, sell
all or substantially all of our assets, or take
any similar action
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The depositary may, and
will if we request,
distribute some or all
of the cash, shares or
other securities it
received. It may also
deliver new ADSs or ask
you to surrender your
outstanding ADSs in
exchange for new ADSs
identifying the new
deposited securities.
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Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without your
consent for any reason. If an amendment adds or increases fees or charges, except for taxes and
other governmental charges or expenses of the depositary for registration fees, facsimile costs,
delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not
become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of
the amendment.
At the time an amendment becomes effective, you are considered, by continuing to
hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as
amended.
How may the deposit agreement be terminated?
The depositary will terminate the deposit agreement at our direction by mailing a notice of
termination to the ADS holders then outstanding at least 30 days prior to the date fixed in such
notice for such termination. The depositary may also terminate the deposit agreement by mailing a
notice of termination to us and the ADS holders then outstanding if at any time 60 days shall have
expired after the depositary shall have delivered to us a written notice of its election to resign
and a successor depositary shall not have been appointed and accepted its appointment.
After termination, the depositary and its agents will do the following under the deposit
agreement but nothing else: collect distributions on the deposited securities, sell rights and
other property, and deliver shares and other deposited securities upon cancellation of ADSs. Six
months after termination, the depositary may sell any remaining deposited securities by public or
private sale. After that, the depositary will hold the money it received on the sale, as well as
any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS
holders that have not surrendered their ADSs. It will not invest the money and has no liability
for interest. The depositarys only obligations will be to account for the money and other cash.
After termination our only obligations will be to indemnify the depositary and to pay fees and
expenses of the depositary that we have agreed to pay.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of
ADSs
The deposit agreement expressly limits our obligations and the obligations of the depositary.
It also limits our liability and the liability of the depositary. We and the depositary:
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are only obligated to take the actions specifically set forth in the deposit
agreement without negligence or bad faith;
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are not liable if either of us is prevented or delayed by law or circumstances
beyond our control from performing our obligations under the deposit agreement;
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are not liable if either of us exercises discretion permitted under the deposit
agreement;
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have no obligation to become involved in a lawsuit or other proceeding related to
the ADSs or the deposit agreement on your behalf or on behalf of any other party; and
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may rely upon any documents we believe in good faith to be genuine and to have been
signed or presented by the proper party.
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In the deposit agreement, we and the depositary agree to indemnify each other under certain
circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of an ADS, make a distribution on an
ADS, or permit withdrawal of shares, the depositary may require:
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payment of stock transfer or other taxes or other governmental charges and transfer
or registration fees charged by third parties for the transfer of any shares or other
deposited securities;
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satisfactory proof of the identity and genuineness of any signature or other
information it deems necessary; and
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compliance with regulations it may establish, from time to time, consistent with the
deposit agreement, including presentation of transfer documents.
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The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the
transfer books of the depositary or our transfer books are closed or at any time if the depositary
or we think it advisable to do so.
Your Right to Receive the Shares Underlying your ADSs
You have the right to cancel your ADSs and withdraw the underlying shares at any time except:
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when temporary delays arise because: (i) the depositary has closed its transfer
books or we have closed our transfer books; (ii) the transfer of shares is blocked to
permit voting at a shareholders meeting; or (iii) we are paying a dividend on our shares;
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when you or other ADS holders seeking to withdraw shares owe money to pay fees,
taxes and similar charges; and
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when it is necessary to prohibit withdrawals in order to comply with any laws or
governmental regulations that apply to ADSs or to the withdrawal of shares or other
deposited securities.
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This right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-release of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying
shares. This is called a pre-release of the ADSs. The depositary may also deliver shares upon
cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction
has been closed out). A pre-release is closed out as soon as the underlying shares are delivered
to the depositary. The depositary may receive ADSs instead of shares to close out a pre-release.
The depositary may pre-release ADSs only under the following conditions: (1) before or at the time
of the pre-release, the person to whom the pre-release is being made represents
37
to the depositary in writing that it or its customer owns the shares or ADSs to be deposited;
(2) the pre-release is fully collateralized with cash or other collateral that the depositary
considers appropriate; and (3) the depositary must be able to close out the pre-release on not more
than five business days notice. In addition, the depositary will limit the number of ADSs that
may be outstanding at any time as a result of pre-release, although the depositary may disregard
the limit from time to time, if it is appropriate to do so.
Direct Registration System
In the Deposit Agreement, all parties to the Deposit Agreement acknowledge that the Direct
Registration System, or DRS, and Profile Modification System, or Profile, will apply to
uncertificated ADSs upon acceptance thereof to DRS by the Depository Trust Company. DRS is the
system administered by DTC pursuant to which the depositary may register the ownership of
uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the
depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows
a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register
a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that
DTC participant without receipt by the depositary of prior authorization from the ADS holder to
register such transfer.
In connection with and in accordance with the arrangements and procedures relating to
DRS/Profile, the parties to the Deposit Agreement understand that the depositary will not verify,
determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf
of an ADS holder in requesting registration of transfer and delivery described in the paragraph
above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements
under the Uniform Commercial Code). In the Deposit Agreement, the parties agree that the
depositarys reliance on and compliance with instructions received by the depositary through the
DRS/Profile System and in accordance with the Deposit Agreement, shall not constitute negligence or
bad faith on the part of the depositary.
Shareholder Communications: Inspection of Register of Holders of ADSs
The depositary will make available for your inspection at its office all communications that
it receives from us as a holder of deposited securities that we make generally available to holders
of deposited securities. The depositary will send you copies of those communications at our
request. You have a right to inspect the register of holders of ADSs, but not for the purpose of
contacting those holders about a matter unrelated to our business or the ADSs.
38
DESCRIPTION OF WARRANTS
This section describes the general terms of the warrants that we may offer and sell using this
prospectus. This prospectus and any accompanying prospectus supplement will contain the material
terms and conditions for each warrant. The accompanying prospectus supplement may add, update or
change the terms and conditions of the warrants as described in this prospectus.
General
We may issue warrants to purchase preferred shares or class A common shares (including class A
common shares represented by ADSs). Warrants may be issued independently or together with any
securities and may be attached to or separate from those securities. The warrants will be issued
directly or under warrant agreements to be entered into between us and a bank or trust company, as
warrant agent, all of which will be described in the prospectus supplement relating to the warrants
we are offering. The warrant agent will act solely as our agent in connection with the warrants
and will not have any obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants.
Equity Warrants
We may issue warrants for the purchase of our equity securities, such as our preferred shares
or class A common shares (including class A common shares represented by ADSs). As explained
below, each equity warrant will entitle its holder to purchase equity securities at an exercise
price set forth in, or to be determinable as set forth in, the related prospectus supplement.
Equity warrants may be issued separately or together with equity securities.
The equity warrants are to be issued directly or under equity warrant agreements to be entered
into between us and one or more banks or trust companies, as equity warrant agent, as will be set
forth in the prospectus supplement relating to the equity warrants being offered by the prospectus
supplement and this prospectus.
The particular terms of each issue of equity warrants, the equity warrant agreement relating
to the equity warrants and the equity warrant certificates representing equity warrants will be
described in the applicable prospectus supplement, including, as applicable:
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the title of the equity warrants;
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the initial offering price;
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the aggregate number of equity warrants and the aggregate number of shares of the
equity security purchasable upon exercise of the equity warrants;
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the currency or currency units in which the offering price, if any, and the exercise
price are payable;
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if applicable, the designation and terms of the equity securities with which the
equity warrants are issued, and the number of equity warrants issued with each equity
security;
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the date, if any, on and after which the equity warrants and the related equity
security will be separately transferable;
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if applicable, the minimum or maximum number of the equity warrants that may be
exercised at any one time;
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the date on which the right to exercise the equity warrants will commence and the
date on which the right will expire;
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if applicable, a discussion of United States federal income tax, accounting or other
considerations applicable to the equity warrants;
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39
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provisions of the equity warrants, if any;
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redemption or call provisions, if any, applicable to the equity warrants; and
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any additional terms of the equity warrants, including terms, procedures and
limitations relating to the exchange and exercise of the equity warrants.
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Holders of equity warrants will not be entitled, solely by virtue of being holders, to vote,
to consent, to receive dividends, to receive notice as shareholders with respect to any meeting of
shareholders for the election of directors or any other matter, or to exercise any rights
whatsoever as a holder of the equity securities purchasable upon exercise of the equity warrants.
40
TAXATION
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty. There are no other taxes likely to be material to the Company levied by the
Government of the Cayman Islands except for stamp duties which may be applicable on instruments
executed in, or brought within, the jurisdiction of the Cayman Islands. There are no exchange
control regulations or currency restrictions in the Cayman Islands.
Peoples Republic of China Taxation
Under the Enterprise Income Tax Law enacted by the National Peoples Congress of China and the
Implementation Regulations of the Enterprise Income Tax Law, collectively, the New EIT Law, both of
which became effective on January 1, 2008, the PRC classifies an enterprise as a resident
enterprise or a non-resident enterprise to levy enterprise income tax. A resident enterprise,
which refers to an enterprise which is established inside PRC, or which is established under the
law of a foreign country (region) but whose de facto management body is inside the PRC shall be
subject to the enterprise income tax at the rate of 25% on its global income, while non-resident
enterprises which do not have an establishment or place of business in the PRC, or which have such
establishment or place of business but the relevant income is not effectively connected with the
establishment or place of business, shall be subject to a withholding tax of 10% to the extent such
interest or dividends are derived from the PRC, unless any such non-resident enterprises
jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement.
We are a holding company incorporated in the Cayman Islands, which indirectly, through our
subsidiaries incorporated in the Cayman Islands, the British Virgin Islands and Hong Kong, holds
our equity interests in our PRC subsidiaries, and our operations are principally conducted by our
PRC subsidiaries or our affiliated entities in the PRC. Under the New EIT Law, an enterprise
established outside of the PRC with de facto management bodies within the PRC is also considered
a resident enterprise and is subject to the enterprise income tax at the rate of 25% on its global
income. De facto management bodies are defined as the bodies that have material and overall
management and control over the business, personnel, accounts and properties of the enterprise. If
the PRC tax authorities subsequently determine that we and our subsidiaries established outside of
China should be classified as a resident enterprise, then our global income including the dividends
we receive from our subsidiaries incorporated in China will be subject to the enterprise income tax
at the rate of 25%. The New EIT Law further provides that dividends distributed between qualified
resident enterprises, which means the investment income derived by a resident enterprise from
direct investment in other resident enterprises with exception of investment income from
circulating stocks issued publicly by resident enterprises and traded on stock exchanges where the
holding period is less than 12 months, shall be exempted from the enterprise income tax.
In addition, even if we and our subsidiaries established outside of China are not deemed to be
resident enterprises, we still may be regarded as non-resident enterprises, and under the New EIT
Law dividends payable by a foreign-invested enterprise in China to its foreign investor who is a
non-resident enterprise will be subject to a 10% withholding tax unless any such foreign investors
jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement. The direct shareholders of our subsidiaries incorporated in China as foreign-invested
enterprises are located in the Cayman Islands, the British Virgin Islands and Hong Kong. The
Cayman Islands and the British Virgin Islands do not have such a tax treaty with China while
according to the Mainland and Hong Kong Special Administrative Region Arrangement on Avoiding
Double Taxation or Evasion of Taxation on Income agreed between the PRC and Hong Kong in August
2006, dividends paid by a foreign-invested enterprise in China to its direct holding company in
Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor
owns directly at least 25% of the shares of the foreign-invested enterprise).
Similarly, if we are considered a PRC resident enterprise it is unclear whether the dividends
we pay with respect to our class A common shares or ADSs, or the gain any enterprise investors
incorporated outside China may realize from the transfer of our class A common shares or ADSs,
would be treated as income derived from sources within the PRC and thus be subject to the PRC
withholding tax.
41
U.S. Federal Income Taxation
For a full description of the U.S. federal income taxation issues associated with our
business, please see the description set forth under the heading Item 10E. TaxationUnited States
Federal Income Taxation in our annual report on Form 20-F for the year ended December 31, 2008,
which is incorporated by reference in this prospectus, and any accompanying prospectus supplement
subsequently filed relating to a specific offering or sale, before investing in any securities that
may be offered or sold pursuant to this prospectus.
42
PLAN OF DISTRIBUTION
We may sell or distribute the securities offered by this prospectus, from time to time, in any
combination and in one or more offerings, as follows:
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through agents;
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through dealers or underwriters for resale;
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directly to purchasers; or
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through a combination of any of these methods of sale.
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The prospectus supplement with respect to the securities to the offered may state or
supplement the terms of the offering of the securities.
In addition, we may issue the securities as a dividend or distribution or in a subscription
rights offering to our existing security holders. In some cases, we or dealers acting for us or on
our behalf may also repurchase the securities and reoffer them to the public by one or more of the
methods described above. This prospectus may be used in connection with any offering of the
securities through any of these methods or other methods described in the applicable prospectus
supplement.
Our securities by any of these methods may be sold to the public, in one or more transactions,
either:
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at a fixed price or prices, which may be changed;
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at market prices prevailing at the time of sale;
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at prices related to prevailing market prices; or
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at negotiated prices.
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Sale through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will acquire the securities for their
own account, including through underwriting, purchase, security lending or repurchase agreements
with us. The underwriters may resell the securities from time to time in one or more transactions,
including negotiated transactions. Underwriters may sell the securities in order to facilitate
transactions in any of our other securities (described in this prospectus or otherwise), including
other public or private transactions and short sales. Underwriters may offer the securities to the
public either through underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. Unless otherwise indicated in the applicable
prospectus supplement, the obligations of the underwriters to purchase the securities will be
subject to certain conditions, and the underwriters will be obligated to purchase all the offered
securities if they purchase any of them. The underwriters may change from time to time any initial
public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If dealers are used in the sale of the securities offered through this prospectus, we will
sell the securities to them as principals. They may then resell the securities to the public at
varying prices determined by the dealers at the time of resale. The applicable prospectus
supplement will include the names of the dealers and the terms of the transaction.
Direct Sales and Sales through Agents
We may sell the securities offered through this prospectus directly. In this case, no
underwriters or agents would be involved. Such securities may also be sold through agents
designated from time to time. The applicable
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prospectus supplement will name any agent involved in the offer or sale of the offered
securities and will describe any commissions payable to the agent. Unless otherwise indicated in
the applicable prospectus supplement, any agent will agree to use its commonly reasonable efforts
to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others who may be deemed to
be underwriters within the meaning of the Securities Act with respect to any sale of the
securities. The terms of any such sales will be described in the applicable prospectus supplement.
Delayed Delivery Contracts
If the applicable prospectus supplement indicates, we may authorize agents, underwriters or
dealers to solicit offers from certain types of institutions to purchase the securities at the
public offering price under delayed delivery contracts. These contracts would provide for payment
and delivery on a specified date in the future. The contracts would be subject only to those
conditions described in the prospectus supplement. The applicable prospectus supplement will
describe the commission payable for solicitation of those contracts.
Market Making, Stabilization and Other Transactions
Our ADSs representing our class A common shares are listed on the Nasdaq Global Market. Any
underwriters that we use in the sale of offered securities may make a market in such securities,
but may discontinue such market making at any time without notice.
Any underwriter may also engage in stabilizing transactions, syndicate covering transactions
and penalty bids in accordance with Regulation M under the Exchange Act. Stabilizing transactions
involve bids to purchase the underlying security in the open market for the purpose of pegging,
fixing or maintaining the price of the securities. Syndicate covering transactions involve
purchases of securities in the open market after the distribution has been completed in order to
cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member
when the securities originally sold by the syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the securities to be higher than it would be
in the absence of the transactions. The underwriters may, if they commence these transactions,
discontinue them at any time.
General Information
We may have agreements with agents, underwriters, and dealers to indemnify them against
certain civil liabilities, including liabilities under the Securities Act. Agents, underwriters,
and dealers, or their affiliates, may be customers of, engage in transactions with or perform
services for us or our affiliates, in the ordinary course of business for which they may receive
customary compensation.
In compliance with the guidelines of the Financial Industry Regulatory Authority, Inc., or
FINRA, the maximum discount or commission to be received by any FINRA member or independent
broker-dealer may not exceed 8% of the aggregate amount of the securities offered pursuant to this
prospectus and any applicable supplement. However, it is anticipated that the maximum commission or
discount to be received in any particular offering of securities will be significantly less than
this amount.
44
VALIDITY OF THE SECURITIES
The validity of the class A common shares and preferred shares in this offering and legal
matters as to Cayman Islands law will be passed on for us by Conyers Dill & Pearman. Certain legal
matters as to United States federal securities and New York state law will be passed upon for us by
Latham & Watkins.
45
EXPERTS
The consolidated financial statements of Xinhua Sports & Entertainment Limited and its
subsidiaries and variable interest entities (the Company) as of December 31, 2007 and 2008, and
for each of the three years in the period ended December 31, 2008, incorporated in this prospectus
by reference from the Companys annual report on Form 20-F for the year ended December 31, 2008,
and the effectiveness of the Companys internal control over financial reporting have been audited
by Deloitte Touche Tohmatsu, an independent registered public accounting firm, as stated in their
reports which are incorporated herein by reference (which report on the financial statements
expresses an unqualified opinion and includes an explanatory paragraph regarding the adjustment
made for the change in composition of reportable segments in 2008 and which report on the internal
control over financial reporting includes an unqualified opinion). Such financial statements have
been so incorporated in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The office of Deloitte Touche Tohmatsu is located at 35F, One Pacific Place, 88 Queensway,
Hong Kong.
EXPENSES
The following table sets forth the aggregate expenses to be paid by us in connection with this
offering. All amounts shown are estimates, except for the SEC registration fee.
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SEC registration fee
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$
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5,580
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FINRA filing fee
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*
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NASDAQ supplemental listing fee
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*
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Audit fees and expenses
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60,000
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Legal fees and expenses
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*
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Printing costs
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*
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Miscellaneous
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*
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Total
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$
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65,580
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*
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To be provided in a prospectus supplement or in a Report on Form 6-K subsequently
incorporated by reference into this prospectus.
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46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Cayman Islands law does not limit the extent to which a companys articles of association may
provide for indemnification of officers and directors, except to the extent any such provision may
be held by the Cayman Islands courts to be contrary to public policy, such as to provide
indemnification against civil fraud or the consequences of committing a crime. Our amended and
restated memorandum and articles of association provide for indemnification of officers and
directors against all actions, proceedings, costs, charges, losses, damages and expenses incurred
in their capacities as such, except through their own willful neglect or default.
Pursuant to the form of indemnification agreements filed as Exhibit 10.2 to our F-1
registration statement (File No. 333-140808), as amended, we will agree to indemnify our directors
and officers against certain liabilities and expenses incurred by such persons in connection with
claims made by reason of their being such a director or officer.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the Securities Act) may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 9. EXHIBITS
The exhibits to this registration statement are listed on the Index to Exhibits to this
registration statement, which Index to Exhibits is hereby incorporated by reference.
ITEM 10. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended, or the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement. Notwithstanding
the foregoing, any increase or any decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the Calculation
of Registration Fee table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement;
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Provided
,
however
, that:
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the
registration statement is on Form F-3 and the information required to be included in
a post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the SEC by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, that are
incorporated by reference in the registration statement, or is contained in a form
of prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
(2) That, for the purpose of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
(4) To file a post-effective amendment to the registration statement to include any
financial statements required by Item 8A. of Form 20-F at the start of any delayed offering
or throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Securities Act need not be furnished, provided that the
Registrant includes in the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Securities Act or Rule 3-19
of Regulation S-K if such financial statements and information are contained in periodic
reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in this Form F-3.
(5) That, for the purpose of determining liability under the Securities Act to any
purchaser:
(i) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed prospectus
was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on Rule 430B relating to
an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act shall be
deemed to be part of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness or the date of
the first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Provided
,
however
, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such
effective date.
(6) That, for the purpose of determining liability of the Registrant under the
Securities Act to any purchaser in the initial distribution of the shares:
48
The undersigned Registrant undertakes that in a primary offering of shares of the
undersigned Registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the shares to the purchaser, if the shares are offered or
sold to such purchaser by means of any of the following communications, the undersigned
Registrant will be a seller to the purchaser and will be considered to offer or sell such
shares to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned Registrant or used or referred to by the undersigned
Registrant;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned Registrant or its shares
provided by or on behalf of the undersigned Registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned Registrant to the purchaser.
(b) The undersigned Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrants annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
49
Xinhua Sports & Entertainment Limited ADS, Each Representing Two Class A Common Shares (MM) (NASDAQ:XSEL)
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Xinhua Sports & Entertainment Limited ADS, Each Representing Two Class A Common Shares (MM) (NASDAQ:XSEL)
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