28 August 2014 ARC Capital Holdings Limited Fortress Group Limited - Put Option

On 27 August 2014, ARCH Digital Holdings Limited ("ARCH Digital"), a wholly owned subsidiary of ARC Capital Holdings Limited ("ARCH"), received a letter from Fortress Group Limited ("FGL"), which enclosed a notice dated 25 August 2014 (the "Put Option Notice") issued by PAGAC Fortress Holding I Limited ("PAGAC") to exercise the put option (the "Put Option") referred to in the shareholder agreement dated 25 August 2011 (the "Shareholder Agreement") that ARCH Digital entered into at the time of the privatisation of Funtalk China Holdings Limited ("Funtalk").
According to the Put Option Notice, the put price as at 25 August 2014 was USD388,323,141 and from 26 August 2014 the put price will increase by an amount of USD191,502 per day.
As set out in ARCH's announcement dated 25 April 2014, if FGL did not consummate an exit of Funtalk by 25 August 2014 then PAGAC (who assumed all of the rights and obligations of PAG Asia I LP in an agreement dated 14 September 2012) would have the right to require FGL to repurchase PAGAC's holding in the preferred shares (the "Preferred Shares") and convertible bonds (the "Convertible Bonds") issued by FGL. This right was secured by PAGAC on ARCH Digital's equity holding in FGL pursuant to a share charge agreement dated 25 August 2011.
If FGL fails to perform its obligation under the Put Option, the requirement to repurchase PAGAC's Preferred Shares and Convertible Bonds falls to the shareholders of FGL other than the PAGAC pro-rata, including ARCH Digital.
Mr Borrelli, ARCH's representative on the FGL Board, has been informed by FGL that FGL currently does not have the necessary cash or liquid assets to meet its obligation in full under the Put Option. ARCH Shareholders should note that, in the event that FGL is unable to meet any obligations under the Put Option, there is a risk that the value of ARCH Digital's interest in FGL could in principle be fundamentally impaired notwithstanding that the value of the interest in ARCH Digital has already been written down to zero.
Mr Borrelli has advised that the Board of FGL is working with its legal advisor with respect of the Put Option. The board of ARCH is also considering its options with its legal advisors.
A further announcement will be made in respect of any material developments on this matter. For more information please contact:
ARC CAPITAL HOLDINGS LIMITED: Steve Feniger, Chairman of the Board
E: steve.feniger@gmail.com
Cosimo Borrelli
Managing Director, Borrelli Walsh Limited
Consultant to the Board
T: (852) 3761 3800
E: cb@borrelliwalsh.com
NOMINATED ADVISER:
Philip Secrett, Grant Thornton UK LLP T: (44) 20 7383 5100
E: Philip.J.Secrett@uk.gt.com
BROKER:
David Benda / Hugh Jonathan, Numis Securities Limited
T: (44) 20 7260 1000
E: d.benda@numiscorp.com

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