CONTINUING CONNECTED TRANSACTIONS ADVERTISING COMMISSION ARRANGEMENTS AND NOTICE OF SPECIAL GENERAL MEETING

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1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed dealer, bank manager, solicitor, professional accountant, or other professional adviser. If you have sold or transferred all your Shares in Clear Media Limited, you should at once hand this circular to the purchaser or transferee, or to the bank, licensed dealer or other agent through whom the sale or the transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. (Incorporated in Bermuda with limited liability) Stock Code: 100 CONTINUING CONNECTED TRANSACTIONS ADVERTISING COMMISSION ARRANGEMENTS AND NOTICE OF SPECIAL GENERAL MEETING Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders of the Company ORIENTAL PATRON ASIA LIMITED AletterfromtheBoardofDirectorsoftheCompanyissetoutonpages3to8ofthiscircular. A letter from the Independent Board Committee is set out on pages 9 to 10 of this circular. A letter from Oriental Patron, the independent financial adviser, containing its advice to the Independent Board Committee and the Company s Independent Shareholders is set out on pages 11 to 21 of this circular. A notice convening a Special General Meeting of Clear Media Limited to be held at 3:00 p.m. on 12 April 2013 at 16th Floor, Sunning Plaza, 10 Hysan Avenue, Causeway Bay, Hong Kong is set out on pages 32 to 33 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for holding the Special General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjournment thereof should you so wish. * For identification purposes only 25 March 2013

2 CONTENTS Page DEFINITIONS... 1 LETTER FROM THE BOARD 1. Introduction Framework Agreement Connection between the Parties Requirements under the Listing Rules General Special General Meeting Recommendation... 8 LETTER FROM THE INDEPENDENT BOARD COMMITTEE... 9 LETTER FROM ORIENTAL PATRON APPENDIX GENERAL INFORMATION NOTICE OF SPECIAL GENERAL MEETING i

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meaning: Board China Outdoor Media Investment (Hong Kong) Company Limited Company Continuing Connected Transactions Director(s) Framework Agreement Group Hainan White Horse Advertising Company Limited HK$ Independent Board Committee Independent Shareholders Latest Practicable Date Listing Rules the board of directors of the Company a company incorporated under the laws of Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company through the Company s total ownership of China Outdoor Media Investment, Inc. Clear Media Limited, a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the Stock Exchange the continuing connected transactions entered into pursuant to the Framework Agreement the director(s) of the Company from time to time the framework agreement dated 11 March 2013 between the WHA Joint Venture and White Horse Advertising the Company and its subsidiaries a company established in the PRC with limited liability, jointly owned by Guangdong White Horse Group Corporation with a 70% interest and Hainan Fu Ma Enterprise Company Limited which holds the remaining 30% interest Hong Kong dollars, the lawful currency of Hong Kong the independent committee of the Board, comprising Mr. Desmond Murray, Mr. Wang Shou Zhi, Ms. Leonie Ki Man Fung and Mr. Thomas Manning, the independent nonexecutive directors of the Company, established to advise the Independent Shareholders in respect of the Continuing Connected Transactions Shareholders other than Mr. Han Zi Jing (a Director of the Company and a brother of Mr. Han Zi Dian) and his associates, Outdoor Media China, Inc. 21 March 2013, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein the Rules Governing the Listing of Securities on the Stock Exchange 1

4 DEFINITIONS Oriental Patron Percentage Ratios PRC SFO Shareholders Shares Special General Meeting Stock Exchange Oriental Patron Asia Limited, being a licensed corporation licensed to conduct type 1 (dealing in securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions the percentage ratios set out in Rule of the Listing Rules The People s Republic of China Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) the holders of Shares ordinary shares of HK$0.10 each in the issued share capital of the Company the special general meeting of the Company to be convened and held on 12 April 2013 to, among other things, consider and, if thought fit, approve the Continuing Connected Transactions The Stock Exchange of Hong Kong Limited WHA Joint Venture Hainan White Horse Advertising Media Investment Company Limited, an indirect non-wholly owned subsidiary of the Company and a sino-foreign co-operative joint venture established in the PRC in which China Outdoor Media Investment (Hong Kong) Company Limited and Hainan White Horse Advertising Company Limited have a 80% and 20% interest, respectively White Horse Advertising Guangdong White Horse Advertising Company Limited, a company established in the PRC with limited liability 2

5 LETTER FROM THE BOARD (Incorporated in Bermuda with limited liability) Stock Code: 100 Executive Directors: Mark Thewlis (Executive Chairman) Han Zi Jing TeoHongKiong Zhang Huai Jun Non-Executive Directors: William Eccleshare Peter Cosgrove Zhu Jia Jonathan Bevan Independent Non-Executive Directors: Desmond Murray Wang Shou Zhi Leonie Ki Man Fung Thomas Manning Registered Office: Clarendon House 2ChurchStreet Hamilton HM11 Bermuda Principal Place of Business in Hong Kong: 16th Floor Sunning Plaza 10 Hysan Avenue Causeway Bay Hong Kong Alternate Directors: Zou Nan Feng (Alternate to Zhang Huai Jun) 25 March 2013 To the Shareholders 1. INTRODUCTION CONTINUING CONNECTED TRANSACTIONS ADVERTISING COMMISSION ARRANGEMENTS AND NOTICE OF SPECIAL GENERAL MEETING With reference to the Company s announcement dated 11 March 2013, the Directors would like to seek the Company s Independent Shareholders approval of the Framework Agreement, the Continuing Connected Transactions and the associated proposed annual caps. * For identification purposes only 3

6 LETTER FROM THE BOARD The purposes of this circular are (i) to provide you with further information relating to the Framework Agreement and the Continuing Connected Transactions, (ii) to set out the letter from the Independent Board Committee to the Independent Shareholders, (iii) to set out the letter of advice from Oriental Patron to the Independent Board Committee and the Independent Shareholders; and (iv) to seek your approval at the Special General Meeting of the ordinary resolutions in relation to the Framework Agreement, the Continuing Connected Transactions and the associated proposed annual caps. 2. FRAMEWORK AGREEMENT (a) Continuing connected transaction On 8 February 2010, the WHA Joint Venture and White Horse Advertising entered into a framework agreement which set out the terms of the advertising commission arrangement (described below) between the WHA Joint Venture and White Horse Advertising for a fixed term of three years. At the special general meeting convened on 3 March 2010, the Independent Shareholders approved the transactions under such framework agreement and the relevant annual caps for the years 2010, 2011 and The framework agreement expired on 8 February 2013 and the WHA Joint Venture entered into a new three-year framework agreement on 11 March 2013 with White Horse Advertising for the years 2013, 2014 and 2015 on substantially the same terms as the previous framework agreement. The Framework Agreement provides that White Horse Advertising may, with the consent of the WHA Joint Venture, assign part or all of the said agreement to an affiliated company or to such other company over which Mr. Han Zi Dian may exercise influence over the management and day-to-day operations. The assignee will assume the obligations and rights of White Horse Advertising under the Framework Agreement and the applicable annual caps for the transactions under the Framework Agreement will remain unchanged. Customers of the WHA Joint Venture can be classified into two categories, namely (i) advertisers or end-customers and (ii) advertising agencies. Under the advertising commission arrangement, White Horse Advertising, as an advertising agency engaged by end-customers for planning and implementing advertising campaigns, assists the WHA Joint Venture in procuring advertising sales. In return, the WHA Joint Venture pays an advertising commission to White Horse Advertising for successful sales. (b) Consideration All sales contracts entered into by the WHA Joint Venture, including those contracts booked through White Horse Advertising, are based on its standard terms and conditions and its standard price list, which are also applicable to sales contracts with other third party advertising agencies. The standard price list is revised at the end of each year with reference to the overall economic outlook for the coming year, anticipated market trend and discussions with our major customers. The amount of advertising commission payable to White Horse Advertising for procuring the sales contracts will be no more than the applicable standard advertising commission rate payable to the advertising agencies from time to time. Our standard advertising commission rate is currently 8% of the sales 4

7 LETTER FROM THE BOARD procured by an advertising agency, which is determined after discussions with our main advertising agencies. The Company believes that the standard price list and standard advertising commission rate is fair and reasonable and on normal commercial terms. As with the arrangement with other advertising agencies, the value of sales (net of commission) is settled in cash as and when the end-customers settle the gross sales amounts with White Horse Advertising, who in turn settles with the WHA Joint Venture. AccordingtotheCompany s audited annual reports for the financial years ended 31 December 2010 and 2011, the value of sales (net of commission) placed through White Horse Advertising amounted to approximately HK$162.0 million and HK$191.8 million, respectively. The gross sales placed through White Horse Advertising before commission is paid (i.e. value of net sales plus commission) was approximately HK$190.6 million and HK$213.8 million for each of 2010 and 2011 and the commission paid to White Horse Advertising for each of these financial years amounted to approximately HK$28.6 million and HK$22.0 million respectively. Based on the audited accounts of the Company for the financial year ended 31 December 2012, the respective gross sales placed through White Horse Advertising and the commission paid to White Horse Advertising for the year ended 31 December 2012 were HK$228.0 million and HK$12.5 million, respectively. The approved annual caps for the gross value of sales from White Horse Advertising for the financial years ended on 31 December 2010, 2011 and 2012 were HK$200.0 million, HK$230.0 million and HK$264.5 million, respectively. The approved annual caps for the advertising commission payable to White Horse Advertising for each of these financial years were HK$30.0 million, HK$34.5 million and HK$39.7 million, respectively. (c) Reasons for and benefits of the transaction Despite the efforts made by the WHA Joint Venture in building and establishing direct customer relationships, the Company has found it difficult to tap into certain categories of customers without the assistance of White Horse Advertising. These customers are typically major state-owned enterprises or local entities that rely heavily on advertising agencies for planning and executing advertising campaigns, and White Horse Advertising has set up a specialized team to specifically service these customers. The Company believes that the WHA Joint Venture will continue to benefit from White Horse Advertising s assistance in procuring advertising sales in the forthcoming years. 3. CONNECTION BETWEEN THE PARTIES The WHA Joint Venture is an indirect 80% owned subsidiary of the Company. Mr. Han Zi Dian, a non-executive Director from April 2001 to October 2012 and the brother of Mr. Han Zi Jing, an executive director of the Company, is able to exercise influence over the management and day-to-day operations as director and general manager of White Horse Advertising and controls the composition of a majority of the board of directors of White Horse Advertising from his indirect 14.2% interest in White Horse Advertising. As such, White Horse Advertising is an associate of Mr. Han Zi Jing (a Director) and Mr. Han Zi Dian (an individual who was a director of the Company within the last 12 months), and hence a 5

8 LETTER FROM THE BOARD connected person of the Company under Chapter 14A of the Listing Rules. Therefore, the transactions between the WHA Joint Venture and White Horse Advertising constitute continuing connected transactions of the Company under the Listing Rules. 4. REQUIREMENTS UNDER THE LISTING RULES (a) Caps and Basis for Continuing Connected Transactions Basedontheexistingandprojectednumberof bus shelters, the Company anticipates that the maximum aggregate value of sales from White Horse Advertising for the financial years ending 31 December 2013, 2014 and 2015 shall not exceed HK$260 million, HK$285 million and HK$315 million, respectively. The advertising commission payable to White Horse Advertising for each of these financial years shall not exceed HK$21.0 million, HK$23.0 million and HK$25.0 million, respectively. This is based on (i) the anticipated annual growth rate of approximately 10% to 13% of the gross advertising sales procured by White Horse Advertising (before deduction of the advertising commission retained by White Horse Advertising) for each of the three years ending 31 December 2015 (with reference to the audited amount of gross sales placed through White Horse Advertising of HK$228.0 million for the year ended 31 December 2012) which is mainly due to (a) the general growth and increasing spending in the advertising industry (including the outdoor advertising sector) as a whole; (b) the positive trend of local enterprises increasing their advertisingexpenditurebasedonthecompany s observation of current market trends and conditions and the increased orders from local enterprises procured through White Horse Advertising; and (c) the Company s continue growth and expansion of bus shelter network; as well as (ii) the current applicable advertising commission rate of 8%. The anticipated annual growth rate of approximately 10% to 13% of the gross advertising sales procured by White Horse Advertising (before deduction of the advertising commission retained by White Horse Advertising) is mainly based on the annual growth rate for each of the two years ended 31 December 2012 of 12.2% and 6.6% respectively, representing a compound annual growth rate of approximately 9.4%, which is similar to the compound annual growth rate of the Group s audited turnover of approximately 9.8% for the corresponding period. The Company will meet its obligation under the Framework Agreement using its working capital. (b) Approval by the Independent Shareholders The transactions under the Framework Agreement constitute non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules. As the relevant Percentage Ratios are higher than 5% and below 25% but the proposed cap is higher than HK$10 million, the Continuing Connected Transactions are subject to the reporting, announcement, annual review and independent shareholders approval requirements. 6

9 LETTER FROM THE BOARD An Independent Board Committee has been appointed to advise the Company s Independent Shareholders on whether the terms of the Continuing Connected Transactions are fair and reasonable and in the best interest of the Group and the Independent Shareholders as a whole and whether the proposed annual caps are fair and reasonable and how the Independent Shareholders should vote. Oriental Patron has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions. 5. GENERAL Information about the Group and connected persons The Group The businesses of the Group include obtaining concession rights, constructing and installing bus shelters and marketing advertising space on such bus shelters. White Horse Advertising White Horse Advertising is an advertising agency. Its principal business include planning and execution of media and advertising campaigns in China. Mr. Han Zi Dian controls the composition of a majority of the board of directors of White Horse Advertising with an indirect interest of 14.2% in White Horse Advertising through his direct 29% interest in White Horse Advertising Limited, which in turn is a shareholder of White Horse Advertising, having a 49% interest, with the remaining 51% held by a stateowned company, Guangdong Economic Association Group Corporation. 6. SPECIAL GENERAL MEETING You will find on pages 32 to 33 of this circular a notice of the Special General Meeting to be held at 3:00 p.m. on 12 April 2013 at 16th Floor, Sunning Plaza, 10 Hysan Avenue, Causeway Bay, Hong Kong. Under Rule 14A.54 of the Listing Rules, the Stock Exchange will require any connected person with a material interest in a proposed transaction, and any shareholder with a material interest in such transaction and its associate(s), to abstain from voting at the relevant general meeting on the relevant resolution(s). As at the Latest Practicable Date, Mr. Han Zi Jing (an executive Director and the brother of Mr. Han Zi Dian), through Outdoor Media China, Inc., is entitled to control the exercise of approximately 1.46% of the voting rights of the Company in respect of his interests in the Company as disclosed in paragraph 2(i) of the Appendix. As such, Outdoor Media China, Inc. will abstain from voting at the Special General Meeting. Save as disclosed above, no other Shareholders have to abstain from voting. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not later than 48 hours before the time appointed for holding of 7

10 LETTER FROM THE BOARD the Special General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjournment thereof should you so wish. Pursuant to Rule 13.39(4) of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. Therefore, all the resolutions put to the vote of the Independent Shareholders at the Special General Meeting will be taken by way of poll. The chairman of the Special General Meeting will explain the detailed procedures for conducting a poll at the commencement of the Special General Meeting. After the conclusion of the Special General Meeting, the poll results will be published on the respective websites of the Stock Exchange and the Company. 7. RECOMMENDATION Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 9 to 10 of this circular, which contains the recommendation of the Independent Board Committee to the Independent Shareholders concerning the Continuing Connected Transactions, and (ii) the letter from Oriental Patron set out on pages 11 to 21 of this circular, containing its recommendation to the Independent Board Committee and the Independent Shareholders in connection with the Continuing Connected Transactions and the associated proposed annual caps and the principal factors and reasons considered by Oriental Patron in arriving at its recommendation. Mr. Han Zi Jing, an executive Director and the brother of Mr. Han Zi Dian, has abstained from voting in the relevant board resolutions in respect of the Continuing Connected Transactions. Save as disclosed above, none of the Directors have a material interest in any of the Continuing Connected Transactions and hence no other Director is required to abstain from voting in the relevant board resolutions. Our Board, comprising Directors who are not interested in the Continuing Connected Transactions, including independent non-executive Directors, has reviewed the Framework Agreement, and has unanimously come to the view that the terms (including the assignment clause) of the Framework Agreement are on normal commercial terms and are fair and reasonable so far as the Group and the Independent Shareholders are concerned, and are in the best interests of the Group and the Independent Shareholders as a whole. Our Board also considers that the proposed cap amounts of the Continuing Connected Transactions have been determined on a fair and reasonable basis. On the basis that the Framework Agreement would benefit the Group and that their respective terms are in compliance with the requirements of the Listing Rules, the Directors, including independent non-executive Directors, recommend that the Company s Independent Shareholders vote in favour of the ordinary resolutions to be proposed at the Special General Meeting. By Order of the Board Clear Media Limited Mark Thewlis Executive Chairman 8

11 LETTER FROM THE INDEPENDENT BOARD COMMITTEE Independent Board Committee: Desmond Murray Wang Shou Zhi Leonie Ki Man Fung Thomas Manning (Incorporated in Bermuda with limited liability) Stock Code: 100 To the Independent Shareholders of the Company Dear Sirs or Madams CONTINUING CONNECTED TRANSACTIONS 25 March 2013 We refer to the circular dated 25 March 2013 issued by the Company to its Shareholders of which this letter forms part of. Terms defined in the circular shall have the same meanings when used in this letter, unless the context otherwise requires. On 11 March 2013 the WHA Joint Venture entered into the Framework Agreement with White Horse Advertising. As the relevant Percentage Ratios are higher than 5% and below 25% but the proposed cap is higher than HK$10 million, the transactions contemplated under the Framework Agreement are subject to the reporting, announcement, annual review and independent shareholders approval requirements under Chapter 14A of the Listing Rules. The circular dated 25 March 2013, of which this letter forms part, describes such transactions that the Company is proposing to enter into, subject to the approval of the independent shareholders to be sought at the Special General Meeting. The terms and the reasons for the Continuing Connected Transactions are summarised in the Letter from the Board set out on pages 4 to 5 of this circular. The Independent Board Committee was formed to make a recommendation to the Independent Shareholders as to whether, in its view, the terms of the Continuing Connected Transactions are fair and reasonable so far as the Group and the Independent Shareholders are concerned and whether such transactions are in the interests of the Group and the Independent Shareholders as a whole. Oriental Patron has been appointed as independent financial adviser to advise the Independent Board Committee on the fairness and reasonableness of the Continuing Connected Transactions. * For identification purposes only 9

12 LETTER FROM THE INDEPENDENT BOARD COMMITTEE As your Independent Board Committee, we have discussed with the management of the Company the reasons for and the terms of the Continuing Connected Transaction, and the basis upon which their terms have been determined. We have also considered the key factors taken into account by Oriental Patron in arriving at its opinion regarding the Continuing Connected Transactions as set out in the letter from Oriental Patron on pages 11 to 21 of this circular, which we urge you to read carefully. The Independent Board Committee concurs with the views of Oriental Patron and considers that the terms (including the assignment clause referred to in the Framework Agreement) of the Framework Agreement are on normal commercial terms and are fair and reasonable so far as the Group and the Shareholders are concerned, and are in the best interests of the Group and the Independent Shareholders as a whole. We also consider that the proposed cap amounts of the Continuing Connected Transactions have been determined on a fair and reasonable basis. Our view related to fairness and reasonableness is necessarily based on information, facts and circumstances currently prevailing. Accordingly, the Independent Board Committee unanimously recommends the Independent Shareholders to vote in favour of ordinary resolutions number 1 and 2 set out in the notice of the Special General Meeting at the end of this circular. Yours faithfully, Independent Board Committee Desmond Murray Wang Shou Zhi Independent non-executive director Independent non-executive director Leonie Ki Man Fung Thomas Manning Independent non-executive director Independent non-executive director 10

13 LETTER FROM ORIENTAL PATRON The following is the full text of the letter of advice from Oriental Patron to the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions, which has been prepared for the purpose of inclusion in this circular. The Independent Board Committee and the Independent Shareholders Clear Media Limited 16th Floor Sunning Plaza 10 Hysan Avenue Causeway Bay Hong Kong Dear Sirs, INTRODUCTION 27/F., Two Exchange Square, 8 Connaught Place, Central, Hong Kong 25 March 2013 CONTINUING CONNECTED TRANSACTIONS ADVERTISING COMMISSION ARRANGEMENTS We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the proposed cap amounts relating thereto, details of which are set out in the Letter from the Board in the circular dated 25 March 2013 (the Circular ) to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same respective meanings as defined in the Circular unless the context otherwise requires. On 11 March 2013, the WHA Joint Venture and the White Horse Advertising entered into the Framework Agreement which sets out the terms of the advertising commission arrangement between the WHA Joint Venture and White Horse Advertising. The Framework Agreement provides that White Horse Advertising may, with the consent of the WHA Joint Venture, assign part or all of the said agreement to an affiliated company or to such other company over which Mr. Han Zi Dian may exercise influence over the management and day-to-day operations. The assignee will assume the obligations and rights of White Horse Advertising under the Framework Agreement (the Assignment Clause ). The Framework Agreement will become effective upon passing the relevant resolutions at the date of the Special General Meetingupto31December2015. The Board is seeking Independent Shareholders approval of the ordinary resolutions in relation to the Framework Agreement, the Continuing Connected Transactions and the associated proposed annual caps for three years ending 31 December

14 LETTER FROM ORIENTAL PATRON The WHA Joint Venture is an indirect 80% owned subsidiary of the Company. Mr. Han Zi Dian, a non-executive Director from April 2001 to October 2012 and the brother of Mr. Han Zi Jing (an executive Director), is able to exercise influence over the management and day-today operations as director and general manager of White Horse Advertising and controls the composition of a majority of board of directors of White Horse Advertising from his indirect 14.2% interest in White Horse Advertising. As such, White Horse Advertising is an associate of Mr. Han Zi Jing (a Director) and Mr. Han Zi Dian (an individual who was a Director within last 12 months), and thus a connected person of the Company under the Listing Rules. Accordingly, the transactions between the WHA Joint Venture and White Horse Advertising as contemplated under the Framework Agreement constitute continuing connected transactions of the Company under the Listing Rules. As the relevant Percentage Ratios are higher than 5% and below 25% but the proposed cap amount is more than HK$10 million, the Continuing Connected Transactions constitute non-exempt continuing connected transactions under Rule 14A.35 of the Listing Rules and therefore, are subject to the reporting, announcement, annual review and independent shareholders approval requirements. As at the Latest Practicable Date, Mr. Han Zi Jing (an executive Director and the brother of Mr. Han Zi Dian), through Outdoor Media China, Inc., is entitled to control the exercise of approximately 1.46% of the voting rights of the Company in respect of his interests in the Company as disclosed in paragraph 2(i) of the Appendix. As such, Outdoor Media China, Inc. will abstain from voting in respect of the ordinary resolutions to approve the Continuing Connected Transactions and the relating proposed cap amounts thereto at the Special General Meeting. Save as disclosed, no other Shareholders have to abstain from voting at the Special General Meeting. The Independent Board Committee has been established to give advice and recommendation to the Independent Shareholders in relation to the Continuing Connected Transactions and the relating proposed cap amounts thereto. The Independent Board Committee comprises all the independent non-executive Directors, namely, Mr. Desmond Murray, Mr. Wang Shou Zhi, Ms. Leonie Ki Man Fung and Mr. Thomas Manning. This letter contains our advice to the Independent Board Committee and the Independent Shareholders as to (i) whether the terms of the Framework Agreement are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Shareholders as a whole; (ii) whether the proposed cap amounts have been determined on a fair and reasonable basis; and (iii) advise the Independent Shareholders on how to vote in relation to (i) to (ii) above. BASIS OF OUR OPINION In formulating our recommendations, we have relied on the statements, information and facts supplied by, the opinions expressed by and the representations expressed by the Directors and/or the management of the Group concerning the Continuing Connected Transactions, including those facts, opinions and representations set out in the Circular. We have been advised by the Directors and/or the management of the Group that no material facts have been omitted from the information supplied and representations expressed to us and we are not 12

15 LETTER FROM ORIENTAL PATRON aware of any facts or circumstances which would render such information and representations untrue, inaccurate or misleading. We have assumed that the information contained and representations made or referred to in the Circular were complete, true and accurate at the time they were made and continue to be so at the date of Special General Meeting. We have also discussed with the Directors and/or the management of the Group with respect to the terms of and reasons for the terms of the Framework Agreement, and consider that we have reviewed sufficient information to enable us to reach an informed view and to provide a reasonable basis for our recommendation. We have no reason to doubt the completeness, truth or accuracy of the information and facts provided and representations made to us by the Directors and/or management of the Group. We have not, however, conducted an independent investigation into the business and affairs of the Group. PRINCIPAL FACTORS AND REASONS CONSIDERED In arriving at our opinion and recommendation in respect of the transactions contemplated under the Framework Agreement and the relating proposed cap amounts thereto, we have considered the following principal factors and reasons: I. Information of the Group and its connected person Information of the Group The businesses of the Group include obtaining concession rights, constructing and installing bus shelters and marketing advertising space on such bus shelters. WHA Joint Venture is an indirect 80%-owned subsidiary of the Company. The principal business of WHA Joint Venture is the operation of outdoor advertising business. The WHA Joint Venture s customers can be classified into two categories, namely (i) advertisers or end customers; and (ii) advertising agencies. Information of White Horse Advertising White Horse Advertising, a company established in the PRC, is an advertising agency whose principal business includes the planning and execution of media and advertising campaigns in the PRC. Mr. Han Zi Dian controls the composition of a majority of the board of directors of White Horse Advertising with an indirect interest of 14.2% in White Horse Advertising through his direct 29% interest in White Horse Advertising Limited, which in turn is a shareholder of White Horse Advertising, having a 49% interest, with the remaining 51% held by a state-owned company, Guangdong Economic Association Group Corporation. II. Background and major terms of the Framework Agreement Background of the Framework Agreement On 8 February 2010, the WHA Joint Venture and White Horse Advertising had entered into a framework agreement which sets out the terms of the advertising commission arrangement between the WHA Joint Venture and White Horse Advertising for a fixed term of three years ( Old Framework Agreement ). These continuing 13

16 LETTER FROM ORIENTAL PATRON connected transactions and their respective relevant cap amounts for the each of the three years ended 31 December 2010, 2011 and 2012 had been approved by the then independent Shareholders at the special general meeting of the Company convened on 3 March Details of the principal terms of the Old Framework Agreement was set out in the circular of the Company dated 9 February The Old Framework Agreement had expired on 8 February The Board wishes to engage White Horse Advertising to continue the procurement of advertising sales for the Group. Accordingly, on 11 March 2013, the White Horse Advertising and the WHA Joint Venture entered into the Framework Agreement setting out, among others, the terms of the advertising commission arrangement between the parties and their respective proposed cap amount for each of the three years ending 31 December Save for the change in time period, the advertising commission rate payable to White Horse Advertising and the proposed cap amounts, there is no material change to the terms of the Framework Agreement as compared to the Old Framework Agreement, including the terms and conditions for sales contracts entered into by the WHA Joint Venture and White Horse Advertising. Major terms of the Framework Agreement Set out below is the principal terms of the Framework Agreement: Date : 11 March 2013 Parties : (1) WHA Joint Venture; (2) White Horse Advertising Effective Period Service to be provided Fee payable : The Framework Agreement will become effective upon the passing the resolutions in respect of the Framework Agreement by the Independent Shareholders at the Special GeneralMeetingupto31December2015 : The White Horse Advertising shall assist the WHA Joint Venture in procuring advertising sales : The WHA Joint Venture shall pay an advertising commission to White Horse Advertising for procuring the sales contract shall be no more than the applicable standard advertising commission rate payable to the advertising agencies from time to time, multiplied by the value of the gross advertising sales procured by White Horse Advertising 14

17 LETTER FROM ORIENTAL PATRON Assignment Clause : White Horse Advertising may, with the consent of the WHA Joint Venture, assign part or all of the said agreement to an affiliated company or to such other company over which Mr. Han Zi Dian may exercise influence over the management and day-to-day operations. The assignee will assume the obligations and rights of White Horse Advertising under the Framework Agreement It should be noted that the purpose of the Framework Agreement is to provide a framework of the agreed general terms and conditions governing the transactions contemplated thereunder, WHA Joint Venture and White Horse Advertising, as an advertising agency engaged by end customers for planning and implementing advertising campaigns, will further enter into separate sales contracts setting out generally, among others, the brand name and the products to be advertised, as well as the payment terms. We have obtained and reviewed (i) the published rate cards setting out the standard terms and conditions and the standard price list; (ii) the standard advertising sales contract to be entered into between WHA Joint Venture and the prospective advertising agencies; (iii) samples of executed copies of advertising sales contracts entered into between WHA Joint Venture and its top 10 advertising agencies (including White Horse Advertising), whose aggregate sales amount procured by them (net of advertising commission) accounted for approximately 52%, 54% and 58% of the total sales of the Group for each of the years 2010, 2011 and 2012, and those between WHA Joint Venture and independent advertising agencies other than the top 10 advertising agencies entered into for each of the years 2010, 2011 and It is noted that the terms and conditions of the advertising sales contracts entered into by WHA Joint Venture with all the advertising agencies, including White Horse Advertising, are consistent with those set out in the standard terms and conditions of the standard advertising sales contract set by WHA Joint Venture in all material respects and that the advertising commission rate offered to White Horse Advertising is no more favourable to those available to independent advertising agencies. Internal control of the Group and formulation of pricing As part of the internal control, the Group has set up procedures and guidelines on formulation of pricing (including advertising commission rate payable to the advertising agencies for procuring the sales contracts) of the advertising service offered to all advertising agencies, including the White Horse Advertising. In particular, under the supervision of the Chief Operating Officer, the Sales Director and the other senior Sales Executive (collectively, the Pricing Management Team ) are responsible for, among others, formulating the pricing for sales procuredbytheadvertisingagencies(including White Horse Advertising). We understand from the management of the Company that in formulating the pricing, the Pricing Management Team will take into account factors including the overall economic outlook for the coming year, anticipated market trend, the Group s sales strategy, feedback from major customers, the general operating cost level and other relevant matters. 15

18 LETTER FROM ORIENTAL PATRON We have discussed with the management of the Company in respect of their basis for determining the pricing (including the advertising commission rate) for sales procured by the advertising agencies (including White Horse Advertising) and was given the understanding that the Pricing Management Team will carry out an annual review at the end of each year to determine the pricing (including the advertising commission rate) of the sales procured by advertising agencies in the following year, taking into account the factors as mentioned above. Before the annual review, the Group will gather the feedback from its major customers (which are mainly advertising agencies) in respect of their proposed pricing in the following year through aninformaldiscussiontoassistthemin formulation of the pricing for the following year. The Group s management will also take into account the macroeconomic conditions and the outdoor advertising industry prospects in the following year based on, among others, the advertising sales orders being secured for the following year and the level of customer enquiry for advertising sales for the following year. The pricing scheme, including advertising commission rate, is published in the WHA Joint Venture s rate card and is available to all advertising agencies (including White Horse Advertising). We are of the view that it is commercial practice for the Group to take into account factors mentioned above in the determination of pricing (including the advertising commission rate) for sales procured by the advertising agencies. We therefore concur with the view of the Directors that the basis of determining the pricing (including the advertising commission rate) for sales procured by the advertising agencies (comprising White Horse Advertising and independent advertising agencies) is fair and reasonable as far as Independent Shareholders is concerned. Given the Chief Operating Officer and members of the Pricing Management Team do not comprise Mr. Han Zi Dian or his associates (including Mr. Han Zi Jing, a Director and the brother of Mr. Han Zi Dian), we therefore are of the view that this should be an effective internal control procedure to monitor pricing policies of the advertising service to be provided under the Framework Agreement is on normal commercial terms or on terms no less favourable to independent third parties than those available to the White Horse Advertising. We are also of the view that establishing such mechanism and corporate governance measures can safeguard the interests of the Independent Shareholders and is in the interests of the Company. Review of the Non-exempt Continuing Connected Transactions by the auditors The auditors of the Company were engaged to report on the Continuing Connected Transactions for the two financial years ended 31 December 2010 and 2011 (the Past Transactions ). We noted from the 2010 and 2011 annual reports of the Company that the auditors confirmed to the Directors that the Past Transactions (a) had received the approval of the Board; (b) were in accordance with the pricing policies of the Group; (c) had been entered into in accordance with the terms of the relevant agreements governing them; and (d) had not exceeded the relevant annual caps. 16

19 LETTER FROM ORIENTAL PATRON Our view Given that (1) the terms and conditions of the advertising sales contracts entered into by WHA Joint Venture with either independent advertising agencies or White Horse Advertising are consistent with those set out in the standard terms and conditions of the standard advertising sales contract set by WHA Joint Venture in all material respects and that the advertising commission rate offered to White Horse Advertising is no more favourable to those available to independent advertising agencies; (2) the Group has its own internal procedures and guidelines on formulation of pricing (including advertising commission rate payable to the advertising agencies for procuring the sales contracts) of the advertising service offered to all advertising agencies and has a Pricing Management Team whose members do not comprise Mr. Han Zi Dian or his associates (including Mr. Han Zi Jing, a Director and the brother of Mr. Han Zi Dian) to be responsible for formulating the pricing policy for sales procured by the advertising agencies (including White Horse Advertising); and (3) the auditors of the Company have confirmed to the Directors that, among others, the Past Transactions were in accordance with the pricing policies of the Group and had been entered into in accordance with the terms of the relevant agreements governing them, we are of the view the Group has internal control procedures in place to monitor pricing policies of the advertising service and are effective, in particular, based on the confirmation given by the auditors of the Company who were engaged to report on the Past Transactions and we concur with the view of the Directors that the principal terms of the advertising sales contracts offered by WHA Joint Venture to the independent advertising agencies are no less favourable than those offered to White Horse Advertising. Assignment Clause The Framework Agreement provides that White Horse Advertising may, with the consent of the WHA Joint Venture, assign part or all of the said agreement to an affiliated company or to such other company over which Mr. Han Zi Dian may exercise influence over the management and day-to-day operations. The assignee will assume the obligations and rights of White Horse Advertising under the Framework Agreement (the Assignment Clause ). Such affiliated company or such other company over which Mr. Han Zi Dian may exercise influence over the management and day-to-day operations are associates (as such term defined in the Listing Rules) of Mr. Han Zi Dian, and thus each of them is considered a connected person for the purpose of the Listing Rules and it is interpreted that the assignable transactions contemplated under the Framework Agreement (the Assignable Transactions ) should also form part of the Continuing Connected Transactions. Mr. Han Zi Dian confirmed that he owns or manages other companies engaging in planning and execution of media and advertising campaigns which in future 17

20 LETTER FROM ORIENTAL PATRON may procure advertising business to WHA Joint Venture via White Horse Advertising under the Framework Agreement. The Directors are therefore of the view that having the Assignment Clause can provide the Group with flexibility to seize further potential business opportunities from associates of Mr. Han Zi Dian. We concur with the view of the Directors that the Assignment Clause can provide the Group with flexibility to seize further potential business opportunities from associates of Mr. Han Zi Dian. The principal terms of the advertising commission arrangement offered by WHA Joint Venture to the assignee pursuant to the Assignment Clause will be the same as those offered to the independent advertising agencies in all material respects. We therefore consider that the Assignment Clause is fair and reasonable and in the interests of the Group and the Shareholders as a whole. III. Reasons for entering into the Framework Agreement Bus shelter advertising is the principal activity of the Group, accounting for approximately 93.0%, 91.6% and 100% of the Group s turnover for each of the three years ended 31 December 2012 respectively. The Group has started to procure advertising sales through the advertising agencies since 1998 and the advertising sales procured by the advertising agencies accounts for approximately 80% of the Group s turnover for each of the three years ended 31 December The Directors are of the view that the procurement of advertising sales through advertising agencies is in the ordinary course of business of the Group. The Group s turnover for each of the three years ended 31 December 2012 was wholly generated by its operations in the PRC. The Directors consider that, despite the efforts of the WHA Joint Venture to build and establish customer relationship directly, the entering into the Framework Agreement enables the Group to tap into certain types of customers such as major state-owned enterprises or local entities that rely heavily on advertising agencies for planning and executing advertising campaigns, in which White Horse Advertising has a specialized team to serve such customers. White Horse Advertising, like any other advertising agencies, advises and represents the advertisers in placing their orders in different media. Advertising business procured by the advertising agencies is the key source of business of all media operators, including the bus shelter advertising network operated by the Group. The Directors also consider that the entering into the Framework Agreement enables the Group to leverage on the existing and established customer base of White Horse Advertising and secure a relatively stable stream of revenue to the Group. In addition, it can minimize the Group s marketing costs and efforts in negotiating new sales orders. White Horse Advertising has been engaged in the media advertising business in the PRC since Its major customers include local entities and state-owned enterprises and White Horse Advertising has so far maintained good relationships with the advertisers in the PRC. The Directors consider that White Horse Advertising s stable, well established relationship with the advertisers in the PRC and its experience in media advertising in the PRC play a pivotal role to the business development of the Group. 18

21 LETTER FROM ORIENTAL PATRON Based on the above, we are of the view that the Framework Agreement was entered into in the ordinary course of business of the Group and in the interests of the Group and the Shareholders as a whole. IV. Historical figures and proposed cap amounts for the Continuing Connected Transactions The following sets out: (i) the historical transactions amounts for each of the three financial years ended 31 December 2012; (ii) the relevant approved caps for each of the three years ended 31 December 2012; and (iii) the proposed cap amounts of the transactions contemplated under the Framework Agreement for each of the three years ending 31 December 2015: To be paid by the Group: Commission payable to White Horse Advertising For the year ended 31 December Proposed cap amounts for the year ending 31 December (HK$ million) (HK$ million) Approved caps Historical figures To be received by the Group: Gross amount of sales from White Horse Advertising (before deduction of advertising commission) For the year ended 31 December Proposed cap amounts for the year ending 31 December (HK$ million) (HK$ million) Approved caps Historical figures From the above table, we noted that the gross amount of advertising revenue derived from White Horse Advertising increased during the three years ended 31 December 2012, whereas the commission payable to White Horse Advertising showed a decreasing trend during the three years ended 31 December We have discussed with the management of the Company, and also noted from published rate cards of WHA Joint Venture, that WHA Joint Venture has reduced the standard advertising commission rate payable to all advertising agencies (including White Horse Advertising) from 15% to 8% during the period of year 2010 to The proposed cap amounts in respect of the Continuing Connected Transactions was determined based on (i) the anticipated annual growth rate of approximately 10% to 13% of the gross advertising sales procured by White Horse Advertising (before deduction of the 19