TM Entertainment & Media (symbol: TMI) is merging with CME.
SUMMARY OF THE PROXY STATEMENT
References in this report as to “we,” “us” or “our Company” refer to TM Entertainment and Media, Inc., a Delaware corporation (“TM”). References to “Public Stockholders” refer to holders of shares of common stock sold as part of the units in our initial public offering (the “IPO”), including any of our stockholders existing prior to our IPO to the extent that they purchased or acquired such shares.
This Proxy Statement relates to a proposed purchase of all of the issued and outstanding capital stock of Hong Kong Mandefu Holding Limited (“CME”) pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated as of May 1, 2009 and amended as of September 30, 2009, among TM, CME, Zheng Cheng, Thousand Space Holdings Limited and Bright Elite Management Limited (collectively, the “Sellers”), Fujian Zong Heng Express Information Technology Co., Ltd. (“Fujian Express”), Fujian Fenzhong Media Co., Ltd. (“Fujian Fenzhong”), Ou Wen Lin and Qingping Lin (collectively, Fujian Express, Fujian Fenzhong, Ou Wen Lin, Qingping Lin and the Sellers are referred to herein as the “CME Parties”) resulting in CME becoming a direct wholly-owned subsidiary of TM, referred to herein as (the “Transaction.”)
This summary highlights selected information from this Proxy Statement and does not contain all of the information that is important to you. To better understand the proposals being considered at the Special Meeting, you should carefully read this entire Proxy Statement and the other documents to which it refers you, including the Share Exchange Agreement attached as Annex A to this Proxy Statement, and the other agreements, instruments and documents attached as annexes to this Proxy Statement.
TM is a Delaware blank check company incorporated on May 1, 2007 in order to serve as a vehicle for the acquisition of an operating business in the entertainment, media, digital and communications industries. See section entitled “INFORMATION ABOUT TM ENTERTAINMENT AND MEDIA, INC.” As discussed in this Proxy Statement, on May 4, 2009, we announced that we had entered into a definitive agreement to, among other things, purchase from the Sellers all of the issued and outstanding capital stock of CME.
CME, through contractual arrangements with Fujian Fenzhong, an entity majority owned by CME’S majority shareholder, operates the largest television advertising network on inter-city express buses in China. All references in this Proxy Statement to “CME’s advertising network”, “CME’s customers”, CME’s operations in general and similar connotations, refer to Fujian Fenzhong, an entity which is controlled by CME through contractual agreements and which operates the advertising network. While CME has no direct equity ownership in Fujian Fenzhong, through the contractual agreements CME receives the economic benefits of Fujian Fenzhong’s operations. See the sections entitled “RISK FACTORS — Risks Related to CME’s Corporate Structure” and “CME’S CORPORATE STRUCTURE — Contractual Arrangements”. CME generates revenues by selling advertising on its network of television displays installed on inter-city express buses in China. See section entitled “INFORMATION ABOUT HONG KONG MANDEFU HOLDING LIMITED (“CME”) — Business Summary.”
As of June 30, 2009, the number of inter-city express buses within CME’s network exceeded 16,000 and covered inter-city express bus services originating in eleven regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and seven economically prosperous provinces, namely Guangdong, Jiangsu, Fujian, Sichuan, Hubei, Anhui and Hebei.
CME has entered into long-term framework agreements with 40 bus operator partners for terms ranging from five to eight years. Pursuant to these agreements, CME pays the bus operators concession fees for the right to install its displays and automated control systems inside their buses and display entertainment content and advertisements. CME’s entertainment content is provided by third parties and advertisements are provided by its clients.
In October 2007, CME entered into a five-year cooperation agreement with an entity affiliated with the Ministry of Transport of the People’s Republic of China to be the sole strategic alliance partner in the establishment of a nationwide in-vehicle television system that displays copyrighted programs on buses traveling on highways in China. The cooperation agreement also gave CME exclusive rights to display advertisements on the system. CME believes its status as the sole strategic alliance partner designated by an entity affiliated with the Ministry of Transport and the exclusive rights to display advertisements on the system has facilitated its historical expansion and is expected to continue to provide them with a competitive advantage in the future.
During the year ended December 31, 2008, more than 400 advertisers had purchased advertising time on CME’s network either through advertising agents or directly from CME. Some of these clients have purchased advertising time from CME for more than three years, including Hitachi, China Telecom, Toyota, Siemens and China Pacific Life Insurance. CME has attracted several well-known international and national brands to its advertising network, including Coca Cola, Pepsi, Wahaha, Siemens, Hitachi, China Telecom, China Mobile, China Post, Toyota, Bank of China, and China Pacific Life Insurance. While CME is unable to determine the exact dollar amount paid by these individual advertisers who purchase advertising through a third party agency, CME is able to determine, based on the number of ads run for these advertisers, that these advertisers comprise a significant portion the advertising on CME’s network. For the years ended December 31, 2006, 2007 and 2008, CME generated total net revenues of $4.0 million, $25.8 million and $63.0 million, respectively. During the same periods, CME had net income of $0.9 million, $7.0 million and $26.4 million, respectively.
Warrants to purchase an aggregate of 10,255,000 shares of TM Common Stock (excluding the insider warrants and the underwriter’s purchase option, each described below) are currently outstanding. The material terms of the warrants are set forth herein. Each warrant entitles the registered holder to purchase one share of our common stock at a price of $5.50 per share, subject to adjustment as discussed below, at any time commencing on the later of:
|•||the completion of a business combination; and|
|•||one year from the date of our IPO.|
However, the warrants will be exercisable only if a registration statement relating to the common stock issuable upon exercise of the warrants is effective and current. The warrants will expire October 17, 2011 at 6:00 p.m., New York City time.
We may call the warrants for redemption (including any warrants held by the underwriters as a result of the exercise of their option, but excluding any insider warrants held by our existing stockholders or their affiliates), without the consent of Pali Capital, Inc.:
|•||in whole and not in part,|
|•||at a price of $0.01 per warrant at any time after the warrants become exercisable,|
|•||upon not less than 30 days’ prior written notice of redemption to each warrant holder, and|
|•||if, and only if, the reported last sale price of the common stock equals or exceeds $11.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders.|
The right to exercise will be forfeited unless they are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holder’s warrant upon surrender of such warrant.
The redemption criteria for our warrants was established at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential between the then-prevailing common stock price and the warrant exercise price so that if the stock price declines as a result of our redemption call, the redemption will not cause the stock price to drop below the exercise price of the warrants.
The warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. Although the material provisions of the warrants are set forth herein, a copy of the warrant agreement has been filed as an exhibit to the registration statement.
The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No warrants held by public stockholders will be exercisable and we will not be obligated to issue shares of common stock unless at the time a holder seeks to exercise such warrant, a registration statement relating to the common stock issuable upon exercise of the warrants is effective and current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure our stockholders that we will be able to do so and, if we do not maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants and we will not be required to settle any such warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, we will not be required to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless.
No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up or down to the nearest whole number the number of shares of common stock to be issued to the warrant holder.
Long TMI and TMI Warrants
Long TMI and TMI Warrants