o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report: . |
o Large accelerated filer | þ Accelerated filer | o Non-accelerated filer |
þ U.S. GAAP | o International Financial Reporting Standards as issued | o Other | ||
by the International Accounting Standards Board |
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EX-1.1 | ||||||||
EX-4.31 | ||||||||
EX-4.32 | ||||||||
EX-4.33 | ||||||||
EX-4.34 | ||||||||
EX-4.35 | ||||||||
EX-4.36 | ||||||||
EX-8.1 | ||||||||
EX-12.1 | ||||||||
EX-12.2 | ||||||||
EX-13.1 | ||||||||
EX-13.2 | ||||||||
EX-15.1 | ||||||||
EX-15.2 | ||||||||
EX-15.3 | ||||||||
EX-15.4 |
1
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
A. | Selected Financial Data |
For the Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | |||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ (1) | |||||||||||||||||||
(in thousands, except for per share and per ADS data) | ||||||||||||||||||||||||
Consolidated Statement
of Operation Data: |
||||||||||||||||||||||||
Revenues |
1,038,328 | 1,350,129 | 1,806,130 | 802,629 | 108,514 | 16,441 | ||||||||||||||||||
Sales taxes |
(52,502 | ) | (70,522 | ) | (94,639 | ) | (42,113 | ) | (5,676 | ) | (860 | ) | ||||||||||||
Net revenues |
985,826 | 1,279,607 | 1,711,491 | 760,516 | 102,838 | 15,581 | ||||||||||||||||||
Cost of services |
(524,032 | ) | (700,047 | ) | (997,949 | ) | (712,473 | ) | (103,257 | ) | (15,645 | ) | ||||||||||||
Gross profit (loss) |
461,794 | 579,560 | 713,542 | 48,043 | (419 | ) | (64 | ) | ||||||||||||||||
Operating expenses |
(191,639 | ) | (343,695 | ) | (578,993 | ) | (530,884 | ) | (353,365 | ) | (53,540 | ) | ||||||||||||
Profit (loss) from operations |
270,155 | 235,865 | 134,549 | (482,841 | ) | (353,784 | ) | (53,604 | ) | |||||||||||||||
Interest income |
9,136 | 50,656 | 56,691 | 30,501 | 23,183 | 3,513 | ||||||||||||||||||
Other income (expense), net |
28,417 | (30,054 | ) | (18,967 | ) | 61,840 | 19,259 | 2,918 | ||||||||||||||||
Income (loss) before income
tax (expense) benefit, gain
on investment disposal,
impairment loss on
investments and share of loss
in equity investments |
307,708 | 256,467 | 172,273 | (390,500 | ) | (311,342 | ) | (47,173 | ) | |||||||||||||||
Income tax (expense) benefit |
2,670 | (9,269 | ) | (47,929 | ) | 5,536 | (7,368 | ) | (1,116 | ) | ||||||||||||||
Income (loss) before gain on
investment disposal,
impairment loss on
investments and share of loss
in equity investments |
310,378 | 247,198 | 124,344 | (384,964 | ) | (318,710 | ) | (48,289 | ) | |||||||||||||||
Gain on investment disposal |
23,409 | | | | 6,828 | 1,034 | ||||||||||||||||||
Impairment loss on investments |
(20,402 | ) | (627 | ) | (25,922 | ) | (22,412 | ) | (196,116 | ) | (29,715 | ) | ||||||||||||
Share of loss in equity
investments, net of taxes |
(908 | ) | (5,679 | ) | (2,241 | ) | (2,556 | ) | (10,713 | ) | (1,623 | ) | ||||||||||||
Net income (loss) |
312,477 | 240,892 | 96,181 | (409,932 | ) | (518,711 | ) | (78,593 | ) | |||||||||||||||
Less: Net income (loss)
attributable to
noncontrolling
interest(2) |
| | (655 | ) | (4,780 | ) | (19,099 | ) | (2,894 | ) | ||||||||||||||
Net income (loss)
attributable to holders of
ordinary shares |
312,477 | 240,892 | 96,836 | (405,152 | ) | (499,612 | ) | (75,699 | ) | |||||||||||||||
Net income (loss)
attributable to holders of
ordinary shares per share |
||||||||||||||||||||||||
Basic |
12.78 | 8.79 | 3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||||||||
Diluted |
12.72 | 8.72 | 3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||||||||
Net income (loss)
attributable to holders of
ordinary shares per
ADS(3) |
||||||||||||||||||||||||
Basic |
12.78 | 8.79 | 3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||||||||
Diluted |
12.72 | 8.72 | 3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) |
2
As of December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | |||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ (1) | |||||||||||||||||||
(in thousands, except for per share and per ADS data) | ||||||||||||||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||||||||||||||
Cash and cash equivalents |
937,846 | 2,215,282 | 2,152,586 | 1,675,081 | 1,416,189 | 214,574 | ||||||||||||||||||
Non-current assets |
537,492 | 831,342 | 769,023 | 522,161 | 295,886 | 44,831 | ||||||||||||||||||
Total assets |
1,624,585 | 3,246,101 | 3,263,009 | 2,324,958 | 1,857,339 | 281,415 | ||||||||||||||||||
Total current liabilities |
288,427 | 440,011 | 543,767 | 311,508 | 316,319 | 47,927 | ||||||||||||||||||
Total equity |
1,336,158 | 2,806,090 | 2,719,242 | 2,013,450 | 1,535,217 | 232,609 | ||||||||||||||||||
Total liabilities and equity |
1,624,585 | 3,246,101 | 3,263,009 | 2,324,958 | 1,857,339 | 281,415 |
(1) | Translation from RMB amounts into U.S. dollars was made at a rate of RMB6.6000 to US$1.00. See Exchange Rate Information. | |
(2) | We adopted authoritative guidance regarding accounting for noncontrolling interests on January 1, 2009, retrospectively. | |
(3) | Each ADS represents one ordinary share. |
3
Noon Buying Rate | ||||||||||||||||
Period | ||||||||||||||||
Period | End | Average(1) | Low | High | ||||||||||||
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 |
6.8259 | 6.8295 | 6.8470 | 6.8176 | ||||||||||||
2010 |
6.6000 | 6.7603 | 6.8330 | 6.6000 | ||||||||||||
October |
6.6707 | 6.6678 | 6.6912 | 6.6397 | ||||||||||||
November |
6.6670 | 6.6538 | 6.6892 | 6.6330 | ||||||||||||
December |
6.6000 | 6.6497 | 6.6745 | 6.6000 | ||||||||||||
2011 |
||||||||||||||||
January |
6.6017 | 6.5964 | 6.6364 | 6.5809 | ||||||||||||
February |
6.5713 | 6.5761 | 6.5965 | 6.5520 | ||||||||||||
March |
6.5483 | 6.5645 | 6.5743 | 6.5483 | ||||||||||||
April (through April 1) |
6.5477 | 6.5477 | 6.5477 | 6.5477 |
(1) | Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period. |
B. | Capitalization and Indebtedness |
C. | Reasons for the Offer and Use of Proceeds |
D. | Risk Factors |
4
5
6
| the popularity of new online games that we operate; |
| the introduction of new online games competing with or replacing our existing online games; |
| general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending; |
| changes in customer tastes and preferences; |
| the availability of other forms of entertainment; |
| critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted; and |
| the acceptance by customers of the purchase of in-game items. |
7
8
9
10
11
12
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15
16
17
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19
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21
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23
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| actual or anticipated fluctuations in our quarterly operating results; |
| announcements of new games by us or our competitors; |
| changes in financial estimates by securities analysts; |
| price fluctuations of publicly traded securities of other China-based companies engaging in Internet-related services or other similar businesses; |
| conditions in the Internet or online game industries; |
| changes in the economic performance or market valuations of other Internet or online game companies; |
| announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| fluctuations in the exchange rates between the U.S. dollar and the RMB; |
| addition or departure of key personnel; and |
| pending and potential litigation. |
25
26
ITEM 4. | INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
| Shanghai IT, which holds Internet content provision, Internet culture operation and Internet publishing licenses; |
| Shanghai Jiucheng Advertisement, whose business license permits it to conduct advertisement operations. |
27
B. | Business Overview |
28
| sophisticated 2D, 2.5D or 3D graphics which expose players to captivating screen scenes; |
| player upgrading system which allows players to attain higher game attributes with their characters as they develop experience and enhanced game capabilities over time; and |
| instant messaging system which allows players to communicate with each other during the game and form groups with other players, thereby coordinating their game skills to achieve collective objectives. |
29
Game | Developer/Licensor | Description | Status | |||
SUN
|
Webzen, Inc. | 3D MMORPG | Commercially launched in China in May 2007 | |||
EA Sports FIFA Online 2
|
EA Swiss Sàrl | Casual soccer game | Commercially launched in China in May 2009 | |||
Atlantica
|
Ndoors Corporation | 3D MMORPG | Commercially launched in China in June 2009 | |||
World of Fighter
|
The9 | 2D MMORPG | Commercially launched in China in January 2010 | |||
Kingdom Heroes 2 Online
|
USERJOY Technology Co., Ltd. | 3D MMORPG | Commercially launched in China in May 2010 | |||
Winning Goal
|
The9 | Web and SNS game | Commercially launched in China in July 2010 | |||
ShenXianZhuan
|
Hangzhou Fire Rain Network Technology Co., Ltd. | 2.5D MMORPG | Preparing for beta testing | |||
Planetside 2
|
Sony Online Entertainment LLC |
3D MMOFPS game | In localization process | |||
Free Realms
|
Sony Online Entertainment LLC |
3D cartoon fairy online game |
In localization process | |||
Seoyugi
|
NNG Lab/ CJ Internet Corporation | 2D MMORPG | In localization process |
30
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32
33
| servers and network devices located in eleven internet data centers throughout China as of the end of December 2010; |
| proprietary software, including game monitor tools, that are integrated with our websites and customer service center operations; and |
| hardware platform and server sites primarily consisting of Lenovo, Hewlett-Packard/Compaq, Dell and IBM servers; EMC, HP and Cisco storage systems; and H3C network equipments. |
34
| Telecommunications Regulations (2000); |
| The Administrative Rules for Foreign Investments in Telecommunications Enterprises (2001), as amended in 2008; |
| The Administrative Measures for Telecommunications Business Operating License (2009); |
| The Internet Information Services Administrative Measures (2000); |
35
| The Tentative Measures for Administration of Internet Culture (2003), as amended and reissued in 2011; |
| The Notice on Several Issues Relating to the Implementation of The Tentative Measures for Administration of Internet Culture (2003); |
| The Tentative Measures for Administration of Internet Publication (2002); |
| The Tentative Measures for Administration of Online Games (2010); and |
| The Foreign Investment Industrial Guidance Catalogue (2007). |
36
37
38
| Foreign Exchange Administration Rules (1996), as amended, or the Exchange Rules; and |
| Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
39
| The Foreign Investment Enterprise Law (1986), as amended; and |
| Administrative Rules under the Foreign Investment Enterprise Law (2001). |
| prior to establishing or assuming control of an offshore company for the purposes of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident must complete the overseas investment foreign exchange registration procedures with the local SAFE branch; |
| an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise in the offshore company, or (2) the completion of any overseas fundraising by such offshore company; and |
| an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company. |
40
C. | Organizational Structure |
41
D. | Property, Plant and Equipment |
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A. | Overview |
| our revenue composition and sources of revenue; |
| our cost of services; and |
| our operating expenses. |
42
For the Year Ended December 31, | ||||||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||||||
RMB | % | RMB | % | RMB | US$ | % | ||||||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||
Online game
operation |
1,800,313 | 99.7 | 795,477 | 99.1 | 101,815 | 15,426 | 93.8 | |||||||||||||||||||||
Other revenues |
5,817 | 0.3 | 7,152 | 0.9 | 6,699 | 1,015 | 6.2 | |||||||||||||||||||||
Total revenues |
1,806,130 | 100.0 | 802,629 | 100.0 | 108,514 | 16,441 | 100.0 | |||||||||||||||||||||
43
| A provision on a receivable amounting to RMB18.0 million from a customer that purchased WoW prepaid player cards from the company for distribution, as a result of the expiration of the WoW license on June 7, 2009 and, among other things, the impact on the ongoing relationship with the customer; |
| A RMB3.9 million provision for prepaid royalties; |
| A RMB22.7 million charge to increase the valuation allowance for deferred tax assets, which represented incremental income taxes as a result of non-renewal of the WoW license prior to the evaluation and recording of impairment charges as a result of the non-renewal of the WoW license; |
44
| RMB68.4 million of additional depreciation expense related to computer equipment to reflect the change to a shorter expected useful life of the underlying assets due to non-renewal of the WoW license agreement; |
| A RMB46.5 million provision for prepayment for equipment and a RMB8.7 million provision on advances to suppliers mainly related to a vendor which had been the primary supplier of computer servers and related computer equipment. With the non-renewal of the WoW license, we evaluated a number of factors, including the status of production of the assets underlying the advance prepayments, our ability to recover the value of the advances through the possible sale of the fixed assets upon the completion of production, the ability to utilize the servers upon completion of production, as well as our ability to recover the amounts advanced to the vendor and as a result of such assessment, and concluded that a full provision in connection with such advances and prepayments was necessary; |
| RMB7.0 million provisions on receivable and prepayments and other current assets in connection with Game First International Corporation, or GFD, comprising: (i) a RMB5.6 million provision on prepayments and other current assets. We assessed the impact of non-renewal of the WoW license on its ongoing relationship with GFD and the resulting collectability of this receivable, and concluded collection to be unlikely; and (ii) a RMB1.4 million provision on accounts receivable; and |
| A RMB1.7 million provision on inventories. |
| A RMB103.2 million provision for royalty prepayments including withholding taxes that were paid in 2009 but not consumed prior to the expiration of the WoW license on June 7, 2009; |
| RMB40.0 million of additional depreciation expense related to computer equipment to reflect the change to a shorter expected useful life of the underlying assets due to the non-renewal of the WoW license agreement; |
| A RMB30.2 million impairment for goodwill which was deemed recoverable as of December 31, 2008 based on our companys impairment test that includes the operating cash flow generated from WoW operation during the period from January 1 to June 6, 2009, but was no longer recoverable following the expiration of the WoW license on June 7, 2009; and |
| A RMB22.1 million provision for additional cost of services related to the refund of point cards, which is the difference between the face value of the point cards and the net proceeds our company received in the sales of the respective point cards. |
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49
50
51
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Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
% | % | % | ||||||||||
Revenues: |
||||||||||||
Online game services |
105.2 | 104.6 | 99.0 | |||||||||
Other revenues |
0.3 | 0.9 | 6.5 | |||||||||
Sales taxes |
(5.5 | ) | (5.5 | ) | (5.5 | ) | ||||||
Net revenues |
100.0 | 100.0 | 100.0 | |||||||||
Cost of services |
(58.3 | ) | (93.7 | ) | (100.4 | ) | ||||||
Gross profit (loss) |
41.7 | 6.3 | (0.4 | ) | ||||||||
Operating expenses: |
||||||||||||
Product development |
(4.3 | ) | (15.0 | ) | (135.6 | ) | ||||||
Sales and marketing |
(6.1 | ) | (14.8 | ) | (61.5 | ) | ||||||
General and administrative |
(18.7 | ) | (29.6 | ) | (109.6 | ) | ||||||
Impairment of equipment, intangible assets and
goodwill |
(4.8 | ) | (10.4 | ) | (36.9 | ) | ||||||
Total operating expenses |
(33.8 | ) | (69.8 | ) | (343.6 | ) | ||||||
Profit (loss) from operations |
7.9 | (63.5 | ) | (344.0 | ) | |||||||
Interest income |
3.3 | 4.0 | 22.5 | |||||||||
Other (expenses) income, net |
(1.1 | ) | 8.1 | 18.8 | ||||||||
Income tax (expenses) benefit |
(2.8 | ) | 0.7 | (7.2 | ) | |||||||
Gain on investment disposal |
| | 6.6 | |||||||||
Impairment loss on investments |
(1.5 | ) | (2.9 | ) | (190.7 | ) | ||||||
Share of loss in equity investments, net of taxes |
(0.1 | ) | (0.3 | ) | (10.4 | ) | ||||||
Net income (loss) |
5.6 | (53.9 | ) | (504.4 | ) | |||||||
Net loss attributable to noncontrolling interest |
* | (0.6 | ) | (18.6 | ) | |||||||
Net Income (loss) attributable to holders of
ordinary shares |
5.7 | (53.3 | ) | (485.8 | ) | |||||||
* | Less than 0.1% |
55
56
57
B. | Liquidity and Capital Resources |
Year Ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash provided by (used in) operating activities |
692,634 | (106,086 | ) | (247,552 | ) | (37,508 | ) | |||||||||
Net cash used in investing activities |
(487,513 | ) | (16,276 | ) | (7,114 | ) | (1,078 | ) | ||||||||
Net cash provided by (used in) financing activities |
(235,734 | ) | (356,548 | ) | (507 | ) | (77 | ) | ||||||||
Effect of foreign exchange rate changes on cash |
(32,084 | ) | 1,405 | (3,719 | ) | (563 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents |
(62,696 | ) | (477,505 | ) | (258,892 | ) | (39,226 | ) | ||||||||
Cash and cash equivalents at beginning of year |
2,215,282 | 2,152,586 | 1,675,081 | 253,800 | ||||||||||||
Cash and cash equivalents at end of year |
2,152,586 | 1,675,081 | 1,416,189 | 214,574 |
58
C. | Research and Development |
D. | Trend Information |
59
E. | Off-Balance Sheet Arrangements |
F. | Contractual Obligations |
Payment Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 year | 1-2 years | 3-5 years | 5 years | ||||||||||||||||
(in RMB) | ||||||||||||||||||||
Operating Lease Obligations |
11,200,749 | 8,009,544 | 1,729,965 | 1,461,240 | |
G. | Recent Accounting Pronouncements |
60
H. | Safe Harbor |
| our ability to successfully launch and operate additional online games licensed by us in China; |
| our ability to license, develop or acquire additional online games that are attractive to users; |
| the maintenance and expansion of our relationships with online game developers, including our existing licensors; |
| uncertainties in and the timeliness of obtaining necessary governmental approvals and licenses for operating any new online game; |
| risks inherent in the online game business; |
| risks associated with our future acquisitions and investments; |
| our ability to compete successfully against our competitors; |
| risks associated with our corporate structure and the regulatory environment in China; and |
| other risks outlined in our filings with the SEC including this annual report on Form 20-F. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | Directors and Senior Management |
Directors and Executive Officers(1) | Age | Position/Title | ||
Jun Zhu |
44 | Chairman of the Board and Chief Executive Officer | ||
Cheung Kin Au-Yeung |
62 | Director | ||
Davin Alexander Mackenzie(2)(3) |
50 | Independent Director | ||
Chao Y. Wang(2)(3) |
46 | Independent Director | ||
Ka Keung Yeung(2)(3) |
51 | Independent Director | ||
George Lai |
34 | Chief Financial Officer | ||
Swun Woo Park |
37 | Vice President | ||
Chris Shen |
42 | Vice President | ||
Yong Wang |
43 | Vice President |
(1) | Our former president Xiaowei Chens employment contract with the company expired on May 16, 2010. Lingdong Huang, our former vice president, resigned on August 20, 2010. Xudong He, our former vice president, resigned on November 30, 2010. Huanxin Jiang, our former vice president, resigned on January 31, 2011. | |
(2) | Member of Compensation Committee. | |
(3) | Member of Audit Committee. |
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B. | Compensation of Directors and Executive Officers |
63
Total Number of Ordinary | Exercise | |||||||
Shares Underlying Options | Price Range | |||||||
Granted | (in US$) | Expiration date | ||||||
Jun Zhu |
1,600,000 | 5.13 | August 27, 2015 | |||||
Yong Wang |
* | 5.13-6.07 | August 27, 2015 December 11, 2015 | |||||
Chris Shen |
* | 5.13-7.36 | March 6, 2012 December 11, 2015 | |||||
Chao Y. Wang |
* | 5.13-7.36 | March 6, 2012 December 11, 2015 | |||||
Ka Keung Yeung |
* | 5.13-7.36 | March 6, 2012 December 11, 2015 | |||||
Davin Alexander Mackenzie |
* | 5.13-7.36 | March 6, 2012 December 11, 2015 | |||||
Cheung Kin Au-Yeung |
* | 5.13-7.36 | November 17, 2013 December 11, 2015 | |||||
Swun Woo Park |
* | 5.13-6.07 | August 27, 2015 December 11, 2015 | |||||
George Lai |
* | 5.13-7.36 | November 17, 2013 December 11, 2015 | |||||
All Directors and Senior Executive Officers as a Group |
2,685,000 | 5.13-7.36 | March 6, 2012 December 11, 2015 | |||||
Other Individuals as a Group (other than those listed above) |
1,218,651 | 5.13-30.90 | March 6, 2012 December 11, 2015 |
| Excluding 1,746,359 options forfeited as of the date of this annual report pursuant to the terms of our Amended 2004 Stock Option Plan. | |
* | The options held by each of these directors and officers represent less than 1% of our total outstanding shares. |
64
C. | Board Practices |
65
| selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
| reviewing and approving all proposed related-party transactions; |
| discussing the annual audited financial statements with management and the independent auditors; |
| annually reviewing and reassessing the adequacy of our audit committee charter; |
| meeting separately and periodically with management and the independent auditors; |
| reporting regularly to the full board of directors; and |
| such other matters that are specifically delegated to our audit committee by our board of directors from time to time. |
| reviewing and determining the compensation for our five most senior executives; |
| reviewing the compensation of our other employees and recommending any proposed changes to the management; |
| reviewing and approving director and officer indemnification and insurance matters; |
| reviewing and approving any employee loans in an amount equal to or greater than US$60,000 (or such amount as from time to time announced by the relevant regulatory bodies as requiring the approval of the Committee); and |
| reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pensions and welfare benefits plans. |
66
D. | Employees |
E. | Share Ownership |
(1) | each of our directors and executive officers who are also our shareholders; and |
(2) | each person known to us to own beneficially more than 5% of our ordinary shares. |
67
Ordinary Shares Beneficially Owned | ||||||||
Name | Number(1) | %(2) | ||||||
Directors and executive officers: |
||||||||
Jun Zhu(3) |
6,755,086 | 22.2 | % | |||||
Cheung Kin Au-Yeung |
* | * | ||||||
Davin Alexander Mackenzie |
* | * | ||||||
Chao Y. Wang |
* | * | ||||||
Ka Keung Yeung |
* | * | ||||||
George Lai |
* | * | ||||||
Swun Woo Park |
* | * | ||||||
Chris Shen |
* | * | ||||||
Yong Wang |
* | * | ||||||
All Directors and Senior Executive Officers as a Group(4) |
7,081,550 | 23.0 | % | |||||
Principal shareholders: |
||||||||
Incsight Limited(5) |
6,399,530 | 21.3 | % | |||||
Bosma Limited(6) |
4,612,522 | 15.6 | % | |||||
CRCM Institutional Master Fund (BVI), Ltd.(7) |
3,100,000 | 10.5 | % | |||||
QVT Financial LP(8) |
1,479,788 | 5.0 | % |
* | Less than 1% of our total outstanding shares. | |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of March 10, 2011, including through the exercise of any option, warrant or other right or the conversion of any other security. | |
(2) | Percentage of beneficial ownership is based on 29,512,745 ordinary shares outstanding as of March 10, 2011, as well as the shares underlying share options and warrants exercisable by such person or group within 60 days from March 10, 2011. | |
(3) | Consists of (i) 5,847,334 ordinary shares held by Incsight Limited, a British Virgin Islands company 100% owned by Mr. Zhu, as jointly reported by Incsight Limited and Jun Zhu, (ii) options to purchase 355,556 shares held by Mr. Zhu and (iii) warrants to purchase 552,196 ordinary shares of our company that are also held by Incsight Limited. The business address for Mr. Zhu is Building No. 3, 690 Bibo Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai 201203, Peoples Republic of China. | |
(4) | Includes ordinary shares, ordinary shares issuable upon exercise of options and restricted shares, held by all of our directors and executive officers as a group. | |
(5) | Consists of (i) 5,847,334 ordinary shares held by Incsight Limited, a British Virgin Islands company 100% owned by Jun Zhu, our chairman and chief executive officer, as jointly reported by Incsight Limited and Jun Zhu, and (ii) warrants to purchase 552,196 ordinary shares of our company. The business address for Incsight Limited is Building No. 3, 690 Bibo Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai 201203, Peoples Republic of China. | |
(6) | Consists of 4,612,522 ordinary shares held by Bosma Limited, as reported by Bosma Limited on the Schedule 13G/A filed with the SEC on February 13, 2009. Bosma Limited, a British Virgin Islands corporation, is wholly-owned by Morningside VC Limited, a British Virgin Islands corporation, which is in turn wholly-owned by The HCB Trust, an Isle of Man trust, the trustee of which is Dunn Investments Limited, an Isle of Man corporation. Dunn Investments Limited controls indirectly, through The HCB Trust, a 100% interest in Bosma Limited, and as a result has the sole power to vote and dispose of the shares of The9 Limited held by Bosma Limited. Dunn Investments Limited is controlled by its board of directors, consisting of Lorna Irene Cameron and Philip Alvaro Salazar, both of whom expressly disclaim beneficial ownership of the shares held by Bosma Limited. The address for Bosma Limited is Pasea Estate, Road Town, Tortola, British Virgin Islands. | |
(7) | Consists of 3,100,000 ADSs, each representing one ordinary share of our company, owned by CRCM Institutional Master Fund (BVI), Ltd., or the Fund, a British Virgin Islands company, as it reported on the Schedule 13G/A filed with the SEC on February 11, 2011. The Funds investment manager with respect to the ADSs held by the Fund is CRCM LP, a Delaware limited partnership, which in turn has ChinaRock Capital Management Limited, a Hong Kong company limited by shares as its sub-investment adviser. CRCM LPs general partner is CRCM LLC, a Delaware limited liability company. Chun R. Ding, a United States citizen, is the managing partner of CRCM LP, the director of ChinaRock Capital Management Limited and a member of CRCM LLC, with respect to the ADSs held by the Fund. The address for CRCM is c/o Walkers (BVI) Limited, PO Box 92, Road Town, Tortola, British Virgin Islands VG1110. | |
(8) | Consists of 1,337,038 ordinary shares held by QVT Fund LP and 142,750 ordinary shares held by Quintessence Fund L.P., as reported by QVT Financial LP on the Schedule 13G/A filed with the SEC on February 14, 2011. QVT Financial LP is the investment manager for QVT Fund LP and Quintessence Fund LP and has the power to direct the vote and disposition of ordinary shares held by each fund. QVT Financial LP is a Delaware limited liability company, with an address at 1177 Avenue of the Americas, 9th Floor, New York, New York 10036. |
68
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
B. | Related Party Transactions |
69
70
C. | Interests of Experts and Counsel |
ITEM 8. | FINANCIAL INFORMATION |
A. | Consolidated Statements and Other Financial Information |
71
B. | Significant Changes |
ITEM 9. | THE OFFER AND LISTING |
A. | Offer and Listing Details |
72
Sales Price | ||||||||
High | Low | |||||||
Annual Highs and Lows |
||||||||
2006 |
32.87 | 15.50 | ||||||
2007 |
52.44 | 19.56 | ||||||
2008 |
28.50 | 9.97 | ||||||
2009 |
16.64 | 6.28 | ||||||
2010 |
8.66 | 3.70 | ||||||
Quarterly Highs and Lows |
||||||||
First Quarter 2009 |
16.64 | 9.16 | ||||||
Second Quarter 2009 |
15.90 | 8.62 | ||||||
Third Quarter 2009 |
10.20 | 7.08 | ||||||
Fourth Quarter 2009 |
8.97 | 6.28 | ||||||
First Quarter 2010 |
8.66 | 6.35 | ||||||
Second Quarter 2010 |
7.33 | 3.70 | ||||||
Third Quarter 2010 |
5.78 | 3.75 | ||||||
Fourth Quarter 2010 |
7.10 | 5.04 | ||||||
First Quarter 2011 |
8.49 | 6.03 | ||||||
Monthly Highs and Lows |
||||||||
October 2010 |
5.70 | 5.04 | ||||||
November 2010 |
7.10 | 5.60 | ||||||
December 2010 |
6.99 | 5.94 | ||||||
January 2011 |
8.49 | 6.63 | ||||||
February 2011 |
8.20 | 6.99 | ||||||
March 2011 |
7.52 | 6.03 | ||||||
April 2011 (through April 6, 2011) |
6.96 | 6.50 |
B. | Plan of Distribution |
C. | Markets |
D. | Selling Shareholders |
E. | Dilution |
F. | Expenses of the Issue |
ITEM 10. | ADDITIONAL INFORMATION |
A. | Share Capital |
73
B. | Memorandum and Articles of Association |
74
| a merger means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company; and |
| a consolidation means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. |
| a special resolution of the shareholders of each constituent company voting together as one class, if the shares to be issued to each shareholder in the consolidated or surviving company will have the same rights and economic value as the shares held in the relevant constituent company; or |
| a shareholder resolution of each constituent company passed by a majority in number representing 75% in value of the shareholders voting together as one class. |
75
| the statutory provisions as to majority vote have been met; |
| the shareholders have been fairly represented at the meeting in question; |
| the arrangement is such that a businessman would reasonably approve; and |
| the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law. |
76
77
| authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders; and |
| create a classified board of directors pursuant to which our directors are elected for staggered terms, which means that shareholders can only elect, or remove, a limited number of directors in any given year. |
C. | Material Contracts |
78
D. | Exchange Controls |
E. | Taxation |
79
| banks and other financial institutions; |
| insurance companies; |
| regulated investment companies; |
| real estate investment trusts; |
| broker-dealers; |
| traders that elect to use a mark-to-market method of accounting; |
| U.S. expatriates; |
| tax-exempt entities; |
| persons liable for alternative minimum tax; |
| persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or integrated transaction; |
| persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock; |
| partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through such entities; or |
| persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation. |
80
| an individual who is a citizen or resident of the United States; |
| a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any State thereof or the District of Columbia; |
| an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
| at least 75% of its gross income for such year is passive income; or |
| at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the asset test). |
81
| the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or ordinary shares; |
| the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and |
| the amount allocated to each other taxable year will be subject to tax at the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
82
83
84
F. | Dividends and Paying Agents |
G. | Statement by Experts |
H. | Documents on Display |
I. | Subsidiary Information |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
85
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities |
B. | Warrants and Rights |
C. | Other Securities |
D. | American Depositary Shares |
Persons depositing or withdrawing shares must pay: | For: | |
$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
|
Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other property |
|
Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement
terminates |
||
$.02 (or less) per ADS
|
Any cash distribution to ADS registered holders |
86
Persons depositing or withdrawing shares must pay: | For: | |
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
|
Distribution of securities distributed to
holders of deposited securities that are
distributed by the depositary to ADS
registered holders |
|
$.02 (or less) per ADSs per calendar year
|
Depositary services |
|
Registration or transfer fees
|
Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit or
withdraw shares |
|
Expenses of the depositary
|
Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement) |
|
Converting foreign currency to U.S. dollars |
||
Taxes and other governmental charges the
depositary or the custodian have to pay on any
ADS or share underlying an ADS, for example,
stock transfer taxes, stamp duty or withholding
taxes
|
As necessary |
|
Any charges incurred by the depositary or its
agents for servicing the deposited securities
|
As necessary |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
87
ITEM 15. | CONTROLS AND PROCEDURES |
88
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. | CODE OF ETHICS |
89
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
2009 | 2010 | |||||||||||
RMB | RMB | US$ | ||||||||||
Audit fees(1) |
7,067,896 | 3,754,970 | 568,935 | |||||||||
Audit-related fees(2) |
1,652,614 | 1,078,526 | 163,413 | |||||||||
Tax fees(3) |
155,030 | 230,786 | 34,968 | |||||||||
All other fees |
| | |
(1) | Audit fees means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements. | |
(2) | Audit-related fees means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit fees. Services comprising the fees disclosed under the category of Audit-related fees involve principally the issue of consent letters and other audit-related services for the years ended December 31, 2009 and 2010. | |
(3) | Tax fees means the fees billed for tax compliance services, including the preparation of tax returns and tax consultations. |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT |
ITEM 16G. | CORPORATE GOVERNANCE |
90
ITEM 17. | FINANCIAL STATEMENTS |
ITEM 18. | FINANCIAL STATEMENTS |
ITEM 19. | EXHIBITS |
Exhibit Number | Document | |||
1.1 | * | Amended and Restated Memorandum and Articles of Association of The
Registrant as currently in effect |
||
2.1 | Specimen American Depositary Receipt of The Registrant (incorporated by
reference to Exhibit 4.1 from our Registration Statement on Form F-1
Amendment No.2 (file no. 333-120810) filed with the Securities and
Exchange Commission on December 9, 2004) |
|||
2.2 | Specimen Certificate for Ordinary Shares of The Registrant (incorporated
by reference to Exhibit 4.2 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004) |
|||
2.3 | Form of Deposit Agreement dated as of December 20, 2004, as amended and
restated as of January 16, 2009, as further amended and restated as of
March 20, 2009, and as further amended and restated as of 2010 among The
Registrant, The Bank of New York Mellon as Depositary, and all Owners and
Beneficial Owners from time to time of American Depositary Shares issued
thereunder (incorporated by reference to Exhibit 1 of our Post-Effective
Amendment No. 2 to the Registration Statement on Form F-6 (file No.
333-156635) filed with the Securities and Exchange Commission on November
19, 2010) |
|||
4.1 | Amended 2004 Stock Option Plan (incorporated by reference to Exhibit 10.1
from our Post-Effective Amendment No. 2 to our Registration Statement on
Form S-8 (file no. 333-127700) filed with the Securities and Exchange
Commission on December 16, 2010) |
|||
4.2 | Form of Indemnification Agreement with the Registrants directors and
executive officers (incorporated by reference to Exhibit 10.2 from our
Registration Statement on Form F-1 Amendment No. 1 (file no. 333-120810)
filed with the Securities and Exchange Commission on November 30, 2004) |
|||
4.3 | Form of Employment Agreement between the Registrant and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.3 from
our Registration Statement on Form F-1 Amendment No. 1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004) |
|||
4.4 | Translation of Exclusive Technical Support Service Agreement, dated
January 14, 2004, between Shanghai IT and The9 Computer (incorporated by
reference to Exhibit 10.4 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004) |
91
Exhibit Number | Document | |||
4.5 | Translation of Master Agreement, dated January 1, 2004, among 9Webzen
Shanghai, The9 Computer and Shanghai IT (incorporated by reference to
Exhibit 10.5 from our Registration Statement on Form F-1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
26, 2004) |
|||
4.6 | Translation of Form of Call Option Agreement among The9 Computer, Shanghai
IT and other parties therein (incorporated by reference to Exhibit 10.6
from our Registration Statement on Form F-1 Amendment No.1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004) |
|||
4.7 | Translation of Form of Equity Pledge Agreement among The9 Computer,
Shanghai Advertisement and the other parties therein (incorporated by
reference to Exhibit 10.7 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 30, 2004) |
|||
4.8 | Translation of Form of Loan Agreement between The9 Computer and a
shareholder of the Registrant (incorporated by reference to Exhibit 10.8
from our Registration Statement on Form F-1 Amendment No.1 (file no.
333-120810) filed with the Securities and Exchange Commission on November
30, 2004) |
|||
4.9 | Translation of Domain Name License Agreement, dated January 1, 2004,
between GameNow.net (Hong Kong) Limited and Shanghai IT (incorporated by
reference to Exhibit 10.9 from our Registration Statement on Form F-1
(file no. 333-120810) filed with the Securities and Exchange Commission on
November 26, 2004) |
|||
4.10 | Joint Venture Agreement, dated September 10, 2002, between Webzen Inc. and
GameNow.net (Hong Kong) Limited (incorporated by reference to Exhibit
10.10 from our Registration Statement on Form F-1 (file no. 000-53051)
filed with the Securities and Exchange Commission on November 26, 2004) |
|||
4.11 | Subscription and Purchase Agreement, dated April 2, 2004, by and among The
Registrant, Object Software Limited and other parties thereto
(incorporated by reference to Exhibit 10.19 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004) |
|||
4.12 | Shareholders Agreement, dated April 16, 2004, by and among The
Registrant, Object Software Limited and its shareholders party thereto
(incorporated by reference to Exhibit 10.20 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004) |
|||
4.13 | Memorandum of Agreement, dated November 9, 2004, between The Registrant
and Object Software Limited (incorporated by reference to Exhibit 10.21
from our Registration Statement on Form F-1 (file no. 333-120810) filed
with the Securities and Exchange Commission on November 26, 2004) |
|||
4.14 | Software License Agreement, dated September 20, 2004, among HanbitSoft,
Inc., IMC Games, Co., Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 10.22 from our Registration
Statement on Form F-1 (file no. 333- 120810) filed with the Securities and
Exchange Commission on November 26, 2004) |
|||
4.15 | Translation of Mystina Online Cooperative Agreement, dated July 19, 2004,
between Lager (Beijing) Information Co., Ltd and The Registrant
(incorporated by reference to Exhibit 10.23 from our Registration
Statement on Form F-1 (file no. 333-120810) filed with the Securities and
Exchange Commission on November 26, 2004) |
92
Exhibit Number | Document | |||
4.16 | Translation of Capital Subscription Agreement, dated October 19, 2004,
among Beijing Wanwei Sky Technology Co., Ltd., its shareholders and
Shanghai IT (incorporated by reference to Exhibit 10.24 from our
Registration Statement on Form F-1 (file no. 333-120810) filed with the
Securities and Exchange Commission on November 26, 2004) |
|||
4.17 | Translation of Shanghai Municipality Property Lease Commodity Housing
Pre-lease Contract, dated May 17, 2005, between The9 Computer and Shanghai
Zhangjiang Port of Microelectronics Co. Ltd., with respect to the premises
where the Registrants principal executive offices are located
(incorporated by reference to Exhibit 4.22 from our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2006) |
|||
4.18 | Translation of Presale Agreement, dated March 17, 2005, between The9
Computer and Shanghai Zhangjiang Port of Microelectronics Co. Ltd
(incorporated by reference to Exhibit 4.23 from our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2006) |
|||
4.19 | Loan Agreement, dated December 25, 2004, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.24 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006) |
|||
4.20 | Share Purchase Agreement, dated December 25, 2004, between China
Interactive (Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited
(incorporated by reference to Exhibit 4.25 from our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2006) |
|||
4.21 | Loan Agreement, dated April 4, 2005, between China Interactive (Singapore)
Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by reference
to Exhibit 4.26 from our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 30, 2006) |
|||
4.22 | Pledge of Shares, dated April 4, 2005, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.27 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006) |
|||
4.23 | Option, dated April 4, 2005, between China Interactive (Singapore) Pte.
Ltd. and GameNow.net (Hong Kong) Limited (incorporated by reference to
Exhibit 4.28 from our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on June 30, 2006) |
|||
4.24 | Share Purchase Agreement, dated August 26, 2005, between China Interactive
(Singapore) Pte. Ltd. and GameNow.net (Hong Kong) Limited (incorporated by
reference to Exhibit 4.29 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006) |
|||
4.25 | Share Purchase Agreement, dated December 14, 2005, between GameNow.net
(Hong Kong) Limited and Webzen Inc. (incorporated by reference to Exhibit
4.30 from our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 30, 2006) |
93
Exhibit Number | Document | |||
4.26 | Addendum to Joint Venture Agreement, dated December 16, 2005, between
Webzen Inc. and GameNow.net (Hong Kong) Limited (incorporated by reference
to Exhibit 4.31 from our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 30, 2006) |
|||
4.27 | List of Counterparties and Translation of Form of Shanghai Municipality
Commodity Property Sale Contract (incorporated by reference to Exhibit
4.32 from our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 30, 2006) |
|||
4.28 | Translation of Share Transfer Agreement, dated August 14, 2006, between
Qin Jie, Wang Yong, Zhu Jun and Shanghai IT (incorporated by reference to
Exhibit 4.33 from our Annual Report on Form 20-F filed with the Securities
and Exchange Commission on June 30, 2006) |
|||
4.29 | Translation of Novation Agreement, dated August 14, 2006, between Qin Jie,
Wang Yong, Zhu Jun, The9 Computer and Shanghai IT (incorporated by
reference to Exhibit 4.34 from our Annual Report on Form 20-F filed with
the Securities and Exchange Commission on June 30, 2006) |
|||
4.30 | Translation of Supplementary Agreement between Wang Yong, Zhu Jun and The9
Computer (incorporated by reference to Exhibit 4.35 from our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on June 30,
2006) |
|||
4.31 | * | Translation of Form of Shareholder Voting Proxy Agreement among The9
Computer, Shanghai IT and its shareholders |
||
4.32 | * | Translation of Exclusive Technical Support Service Agreement dated
December 13, 2010 between Huopu Cloud and The9 Computer |
||
4.33 | * | Translation of Exclusive Call Option Agreement dated December 13, 2010
among Junping Han, Wei Xiong and The9 Computer with respect to Huopu Cloud |
||
4.34 | * | Translation of Equity Pledge Agreement dated January 6, 2011 among Junping
Han, Wei Xiong and The9 Computer with respect to Huopu Cloud |
||
4.35 | * | Translation of Loan Agreement dated December 13, 2010 among Junping Han,
Wei Xiong and The9 Computer |
||
4.36 | * | Translation of Shareholder Voting Proxy Agreement dated December 13, 2010
among Junping Han, Wei Xiong, Huopu Cloud and The9 Computer |
||
8.1 | * | List of Subsidiaries of the Registrant |
||
11.1 | Amended Code of Business Conduct and Ethics of the Registrant
(incorporated by reference to Exhibit 11.1 to our annual report on Form
20-F filed with the Securities and Exchange Commission on June 30, 2005) |
|||
12.1 | * | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
12.2 | * | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
13.1 | * | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
13.2 | * | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
15.1 | * | Consent of Maples and Calder |
||
15.2 | * | Consent of Fangda Partners |
||
15.3 | * | Consent of Deloitte Touche Tohmatsu CPA Ltd. |
||
15.4 | * | Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company |
* | Filed with this Form 20-F. |
94
THE9 LIMITED |
||||
By: | /s/ Jun Zhu | |||
Name: | Jun Zhu | |||
Title: | Chairman and Chief Executive Officer |
Page | ||||
F-2 | ||||
F-4 | ||||
F-6 | ||||
F-7 | ||||
F-10 | ||||
F-12 |
F-1
F-2
F-3
Notes | 2008 | 2009 | 2010 | 2010 | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(Note 3) | ||||||||||||||||||||
Revenues: |
||||||||||||||||||||
Online game services |
1,800,313,225 | 795,476,714 | 101,815,232 | 15,426,550 | ||||||||||||||||
Other revenues |
5,816,996 | 7,152,637 | 6,698,350 | 1,014,902 | ||||||||||||||||
1,806,130,221 | 802,629,351 | 108,513,582 | 16,441,452 | |||||||||||||||||
Sales taxes |
(94,639,527 | ) | (42,113,498 | ) | (5,675,992 | ) | (859,999 | ) | ||||||||||||
Net revenues |
1,711,490,694 | 760,515,853 | 102,837,590 | 15,581,453 | ||||||||||||||||
Cost of services |
(997,948,540 | ) | (712,472,751 | ) | (103,256,343 | ) | (15,644,900 | ) | ||||||||||||
Gross profit (loss) |
713,542,154 | 48,043,102 | (418,753 | ) | (63,447 | ) | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Product development |
(73,819,607 | ) | (114,443,552 | ) | (139,431,649 | ) | (21,126,008 | ) | ||||||||||||
Sales and marketing |
(103,725,123 | ) | (112,517,602 | ) | (63,290,886 | ) | (9,589,528 | ) | ||||||||||||
General and administrative |
(319,298,044 | ) | (225,051,424 | ) | (112,692,772 | ) | (17,074,662 | ) | ||||||||||||
Impairment of equipment,
intangible assets and goodwill |
9, 10, 11 | (82,149,755 | ) | (78,871,643 | ) | (37,949,452 | ) | (5,749,917 | ) | |||||||||||
Total operating expenses |
(578,992,529 | ) | (530,884,221 | ) | (353,364,759 | ) | (53,540,115 | ) | ||||||||||||
Profit (loss) from operations |
134,549,625 | (482,841,119 | ) | (353,783,512 | ) | (53,603,562 | ) | |||||||||||||
Interest income |
56,690,807 | 30,501,101 | 23,183,239 | 3,512,612 | ||||||||||||||||
Other (expenses) income, net |
(18,967,099 | ) | 61,840,303 | 19,258,286 | 2,917,922 | |||||||||||||||
Income (loss) before income tax (expense) benefit, gain on investment disposal, impairment loss on investments and
share of loss in equity investments |
172,273,333 | (390,499,715 | ) | (311,341,987 | ) | (47,173,028 | ) | |||||||||||||
Income tax (expense) benefit |
15 | (47,928,533 | ) | 5,535,866 | (7,368,020 | ) | (1,116,367 | ) | ||||||||||||
Income (loss) before gain on investment disposal, impairment loss on investments and share of loss in equity investments |
124,344,800 | (384,963,849 | ) | (318,710,007 | ) | (48,289,395 | ) | |||||||||||||
Gain on investment disposal |
8 | | | 6,827,900 | 1,034,530 | |||||||||||||||
Impairment loss on investments |
7, 8 | (25,922,363 | ) | (22,412,269 | ) | (196,115,321 | ) | (29,714,442 | ) | |||||||||||
Share of loss in equity investments, net of taxes |
7 | (2,241,135 | ) | (2,555,515 | ) | (10,713,295 | ) | (1,623,227 | ) | |||||||||||
Net income (loss) |
96,181,302 | (409,931,633 | ) | (518,710,723 | ) | (78,592,534 | ) | |||||||||||||
Less: Net loss attributable to noncontrolling interest |
(654,734 | ) | (4,779,226 | ) | (19,099,129 | ) | (2,893,807 | ) | ||||||||||||
Net income (loss) attributable to holders of ordinary shares |
96,836,036 | (405,152,407 | ) | (499,611,594 | ) | (75,698,727 | ) | |||||||||||||
Net income (loss) |
96,181,302 | (409,931,633 | ) | (518,710,723 | ) | (78,592,534 | ) | |||||||||||||
Other
comprehensive income (loss): |
||||||||||||||||||||
Transfer to earnings of other-than-temporary impairment loss on available-for-sale investments |
8 | | (13,643,131 | ) | | | ||||||||||||||
Currency translation adjustments |
| | (2,511,883 | ) | (380,588 | ) | ||||||||||||||
Comprehensive income (loss) |
96,181,302 | (423,574,764 | ) | (521,222,606 | ) | (78,973,122 | ) | |||||||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest |
(654,734 | ) | (4,779,226 | ) | (19,514,314 | ) | (2,956,714 | ) | ||||||||||||
Comprehensive income (loss) attributable to holders of ordinary shares |
96,836,036 | (418,795,538 | ) | (501,708,292 | ) | (76,016,408 | ) | |||||||||||||
F-4
Notes | 2008 | 2009 | 2010 | 2010 | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(Note 3) | ||||||||||||||||||||
Net income (loss) attributable to holders of ordinary shares per share |
23 | |||||||||||||||||||
- Basic |
3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||||||
- Diluted |
23 | 3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | ||||||||||||
Weighted average number of shares outstanding |
23 | |||||||||||||||||||
- Basic |
27,664,687 | 25,414,620 | 25,121,679 | 25,121,679 | ||||||||||||||||
- Diluted |
23 | 27,704,201 | 25,414,620 | 25,121,679 | 25,121,679 | |||||||||||||||
F-5
December 31, | December 31, | December 31, | ||||||||||||||
Notes | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
(Note 3) | ||||||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
1,675,081,345 | 1,416,189,294 | 214,574,135 | |||||||||||||
Accounts receivable, net of
allowance for doubtful accounts of
2009: RMB22.2 million, 2010: RMB22.2
million (US$3.4 million) |
920,214 | 10,712,252 | 1,623,068 | |||||||||||||
Due from related party |
22 | 1,110,424 | | | ||||||||||||
Advances to suppliers |
27 | 44,132,089 | 52,054,494 | 7,887,045 | ||||||||||||
Prepayments and other current assets |
77,896,385 | 63,969,737 | 9,692,385 | |||||||||||||
Prepaid royalties |
6, 27 | | 15,615,493 | 2,365,984 | ||||||||||||
Deferred costs |
6, 27 | 1,516,601 | 2,911,937 | 441,203 | ||||||||||||
Deferred tax assets, current |
15 | 2,139,896 | | | ||||||||||||
Total current assets |
1,802,796,954 | 1,561,453,207 | 236,583,820 | |||||||||||||
Investments in equity investees |
7 | 308,806,125 | 74,843,710 | 11,339,957 | ||||||||||||
Property, equipment and software |
9 | 75,977,200 | 58,061,464 | 8,797,192 | ||||||||||||
Goodwill |
10 | | 10,548,323 | 1,598,231 | ||||||||||||
Intangible assets |
11 | 51,628,286 | 17,647,842 | 2,673,915 | ||||||||||||
Land use right |
12 | 79,877,847 | 77,956,936 | 11,811,657 | ||||||||||||
Other long-term assets |
603,910 | 56,827,902 | 8,610,288 | |||||||||||||
Deferred tax assets, non-current |
15 | 5,267,185 | | | ||||||||||||
Total assets |
2,324,957,507 | 1,857,339,384 | 281,415,060 | |||||||||||||
LIABILITIES |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable (including accounts
payable of the consolidated VIEs
without recourse to the Group of
17,061,480 and 24,878,129 as of
December 31, 2009 and December 31,
2010, respectively) |
35,013,675 | 46,948,658 | 7,113,433 | |||||||||||||
Income tax payable(including income
tax payable of the consolidated VIEs
without recourse to the Group of nil
as of both December 31, 2009 and
December 31, 2010) |
29,947 | | | |||||||||||||
Other taxes payable (including other
taxes payable of the consolidated
VIEs without recourse to the Group
of 2,768,124 and 2,995,044 as of
December 31, 2009 and December 31,
2010, respectively) |
6,270,518 | 5,437,764 | 823,904 | |||||||||||||
Advances from customers (including
advances from customers of the
consolidated VIEs without recourse
to the Group of 10,628,644 and
6,574,768 as of December 31, 2009
and December 31, 2010, respectively) |
27 | 11,154,437 | 7,101,645 | 1,076,007 | ||||||||||||
Deferred revenue (including deferred
revenue of the consolidated VIEs
without recourse to the Group of
8,330,989 and 13,757,771 as of
December 31, 2009 and December 31,
2010, respectively) |
27 | 10,933,464 | 18,508,169 | 2,804,268 | ||||||||||||
Refund of game points (including
refund of game points of the
consolidated VIEs without recourse
to the Group of 196,401,437 and
195,993,716 as of December 31, 2009
and December 31, 2010, respectively) |
27 | 196,401,440 | 195,993,716 | 29,696,018 | ||||||||||||
Other payables and accruals
(including other payables and
accruals of the consolidated VIEs
without recourse to the Group of
15,155,234 and 15,629,966 as of
December 31, 2009 and December 31,
2010, respectively) |
16 | 51,704,425 | 42,328,817 | 6,413,457 | ||||||||||||
Total current liabilities |
311,507,906 | 316,318,769 | 47,927,087 | |||||||||||||
Deferred tax liabilities, non-current
(including deferred tax liabilities,
non-current of the consolidated VIEs
without recourse to the Group of nil
as of both December 31, 2009 and
December 31, 2010) |
15 | | 5,803,848 | 879,371 | ||||||||||||
Total liabilities |
311,507,906 | 322,122,617 | 48,806,458 | |||||||||||||
Commitments and contingencies |
26 | |||||||||||||||
EQUITY |
||||||||||||||||
The9 Limited shareholders equity |
||||||||||||||||
Ordinary shares (US$0.01 par value;
100,000,000 shares authorized as of
December 31, 2009 and 250,000,000
shares authorized as of December 31,
2010, 25,121,645 shares issued and
outstanding as of December 31, 2009,
and 25,124,147 shares issued and
outstanding as of December 31, 2010) |
2,051,712 | 2,051,878 | 310,891 | |||||||||||||
Additional paid-in capital |
2,069,616,975 | 2,091,113,883 | 316,835,437 | |||||||||||||
Statutory reserves |
24 | 28,071,982 | 28,071,982 | 4,253,331 | ||||||||||||
Accumulated other comprehensive income |
| (2,096,698 | ) | (317,682 | ) | |||||||||||
Accumulated deficit |
(88,364,685 | ) | (587,976,279 | ) | (89,087,315 | ) | ||||||||||
Total The9 Limited shareholders equity |
2,011,375,984 | 1,531,164,766 | 231,994,662 | |||||||||||||
Noncontrolling interest |
25 | 2,073,617 | 4,052,001 | 613,940 | ||||||||||||
Total equity |
2,013,449,601 | 1,535,216,767 | 232,608,602 | |||||||||||||
Total liabilities and equity |
2,324,957,507 | 1,857,339,384 | 281,415,060 | |||||||||||||
F-6
The9 Limited shareholders equity | ||||||||||||||||||||||||||||||||
Ordinary shares | Additional paid-in | Statutory | Accumulated other | Retained | Noncontrolling | |||||||||||||||||||||||||||
(US$0.01 par value) | capital | reserves | comprehensive income | earnings(deficit) | interest | Total equity | ||||||||||||||||||||||||||
Number of shares |
Par value | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||
Balance as of December 31, 2007 |
28,763,188 | 2,350,463 | 2,218,516,672 | 20,745,422 | 13,643,131 | 550,834,861 | | 2,806,090,549 | ||||||||||||||||||||||||
Net income |
| | | | | 96,836,036 | (654,734 | ) | 96,181,302 | |||||||||||||||||||||||
Recognition of noncontrolling
interest |
| | | | | | 654,734 | 654,734 | ||||||||||||||||||||||||
Issuance of
ordinary shares
from stock option
exercise |
72,583 | 5,067 | 8,840,640 | | | | | 8,845,707 | ||||||||||||||||||||||||
Repurchase and
retirement of ADSs
(Note 18) |
(2,018,083 | ) | (164,885 | ) | (150,799,327 | ) | | | (93,615,638 | ) | | (244,579,850 | ) | |||||||||||||||||||
Employee share
based compensation
(Note 21) |
| | 52,049,596 | | | | | 52,049,596 | ||||||||||||||||||||||||
Appropriations to
statutory reserves
(Note 24) |
| | | 4,090,932 | | (4,090,932 | ) | | | |||||||||||||||||||||||
Balance as
of December 31, 2008 |
26,817,688 | 2,190,645 | 2,128,607,581 | 24,836,354 | 13,643,131 | 549,964,327 | | 2,719,242,038 |
F-7
The9 Limited shareholders equity | ||||||||||||||||||||||||||||||||
Ordinary shares | Additional | Statutory | Accumulated other | Retained | Noncontrolling | |||||||||||||||||||||||||||
(US$0.01 par value) | paid-in capital | reserves | comprehensive income | earnings (deficit) | interest | Total Equity | ||||||||||||||||||||||||||
Number of shares |
Par value | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||
Net loss |
| | | | | (405,152,407 | ) | (4,779,226 | ) | (409,931,633 | ) | |||||||||||||||||||||
Recognition of noncontrolling
interest in exchange for
product development expenses |
| | | | | | 3,094,220 | 3,094,220 | ||||||||||||||||||||||||
Dividend distribution (Note 17) |
| | | | | (201,028,477 | ) | | (201,028,477 | ) | ||||||||||||||||||||||
Issuance of ordinary shares
from stock option
exercise (Note 21) |
29,067 | 1,985 | 1,458,898 | | | | | 1,460,883 | ||||||||||||||||||||||||
Repurchase and retirement of
ADSs (Note 18) |
(1,725,110 | ) | (140,918 | ) | (127,927,178 | ) | | | (28,912,500 | ) | | (156,980,596 | ) | |||||||||||||||||||
Employee share based
compensation (Note 21) |
| | 70,234,857 | | | | 1,001,440 | 71,236,297 | ||||||||||||||||||||||||
Appropriations to statutory
reserves (Note 24) |
| | | 3,235,628 | | (3,235,628 | ) | | | |||||||||||||||||||||||
Transfer to
earnings of other-than-temporary impairment loss on available-for-sale
investment (Note 8) |
| | | | (13,643,131 | ) | | | (13,643,131 | ) | ||||||||||||||||||||||
Conversion of a loan into equity of a VIE
subsidiary |
| | (2,757,183 | ) | | | | 2,757,183 | | |||||||||||||||||||||||
Balance as of December 31, 2009 |
25,121,645 | 2,051,712 | 2,069,616,975 | 28,071,982 | | (88,364,685 | ) | 2,073,617 | 2,013,449,601 |
F-8
The9 Limited shareholders equity | ||||||||||||||||||||||||||||||||
Ordinary shares | Additional | Statutory | Accumulated other | Retained | Noncontrolling | |||||||||||||||||||||||||||
(US$0.01 par value) | paid-in capital | reserves | comprehensive income | earnings (deficit) | interest | Total Equity | ||||||||||||||||||||||||||
Number of shares |
Par value | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||
Net loss |
| | | | | (499,611,594 | ) | (19,099,129 | ) | (518,710,723 | ) | |||||||||||||||||||||
Recognition of noncontrolling
interest from an
acquisition |
| | | | | | 15,417,870 | 15,417,870 | ||||||||||||||||||||||||
Issuance of
ordinary shares
from stock option
exercise (Note 21) |
2,502 | 166 | 84,838 | | | | | 85,004 | ||||||||||||||||||||||||
Employee share
based compensation
(Note 21) |
| | 27,864,312 | | | | 2,315,605 | 30,179,917 | ||||||||||||||||||||||||
Purchase of shares
of a subsidiary
from holders of
noncontrolling
interest |
| | 523,586 | | | | (1,122,325 | ) | (598,739 | ) | ||||||||||||||||||||||
Dissolution of
two VIEs |
| | | | | | (2,100,946 | ) | (2,100,946 | ) | ||||||||||||||||||||||
Capital
contribution to
subsidiaries
attributable to
noncontrolling
interest |
| | (6,981,392 | ) | | | | 6,981,392 | | |||||||||||||||||||||||
Issuance of
shares by a subsidiary upon exercise of stock options |
| | 5,564 | | | | 1,102 | 6,666 | ||||||||||||||||||||||||
Currency translation adjustments |
| | | | (2,096,698 | ) | | (415,185 | ) | (2,511,883 | ) | |||||||||||||||||||||
Balance as of December 31, 2010 |
25,124,147 | 2,051,878 | 2,091,113,883 | 28,071,982 | (2,096,698 | ) | (587,976,279 | ) | 4,052,001 | 1,535,216,767 | ||||||||||||||||||||||
Balance as of December 31, 2010
(US$ except share data, Note 3) |
25,124,147 | 310,891 | 316,835,437 | 4,253,331 | (317,682 | ) | (89,087,315 | ) | 613,940 | 232,608,602 | ||||||||||||||||||||||
F-9
Notes | 2008 | 2009 | 2010 | 2010 | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(Note 3) | ||||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
96,181,302 | (409,931,633 | ) | (518,710,723 | ) | (78,592,534 | ) | |||||||||||||
Adjustments for: |
||||||||||||||||||||
Deferred taxes |
15 | 34,474,878 | (7,407,081 | ) | 7,407,081 | 1,122,285 | ||||||||||||||
Gain on disposal of property,
equipment and software |
(29,717 | ) | (490,369 | ) | (984,264 | ) | (149,131 | ) | ||||||||||||
Impairment of intangible assets |
11 | 73,248,491 | 27,507,199 | 33,020,462 | 5,003,100 | |||||||||||||||
Impairment of goodwill |
10 | | 30,199,751 | | | |||||||||||||||
Impairment loss on investments |
7, 8 | 25,922,363 | 22,412,269 | 196,115,321 | 29,714,442 | |||||||||||||||
Impairment on equipment |
9 | 8,901,264 | 21,164,693 | 4,928,990 | 746,817 | |||||||||||||||
Depreciation and amortization of
property, equipment and software |
9 | 207,787,590 | 123,028,739 | 23,856,884 | 3,614,679 | |||||||||||||||
Amortization of land use right |
12 | 1,920,910 | 1,920,908 | 1,920,911 | 291,047 | |||||||||||||||
Amortization of intangible assets |
11 | 88,886,444 | 49,481,516 | 10,012,288 | 1,517,013 | |||||||||||||||
Share of loss in equity investments,
net of taxes |
7 | 2,241,135 | 2,555,515 | 10,713,295 | 1,623,227 | |||||||||||||||
Gain on investment disposal |
8 | | | (6,827,900 | ) | (1,034,530 | ) | |||||||||||||
Allowance for doubtful accounts |
20,733,448 | 855,130 | | | ||||||||||||||||
Provision for prepaid royalties and
deferred costs |
6, 27 | 3,882,516 | 160,069,079 | 5,518,917 | 836,199 | |||||||||||||||
Provision for due from related party |
| | 1,285,845 | 194,825 | ||||||||||||||||
Provision for advances to suppliers
and prepayment for equipment |
27 | 55,191,282 | | | | |||||||||||||||
Provision for prepayments and other
current assets |
8,065,933 | | 200,000 | 30,303 | ||||||||||||||||
Loss on deconsolidation of two VIEs |
| | 1,082,591 | 164,029 | ||||||||||||||||
Exchange loss (gain) |
31,657,480 | (1,405,166 | ) | 4,527,477 | 685,981 | |||||||||||||||
Share based compensation expense |
21 | 52,049,596 | 71,236,297 | 30,179,917 | 4,572,715 | |||||||||||||||
Recognition of noncontrolling
interest in exchange for product
development expenses |
654,734 | 3,094,220 | | | ||||||||||||||||
Change in accounts receivable |
(6,999,641 | ) | 6,547,740 | (9,792,038 | ) | (1,483,642 | ) | |||||||||||||
Change in due from related party |
(637,708 | ) | (472,716 | ) | (175,421 | ) | (26,579 | ) | ||||||||||||
Change in advances to suppliers |
(1,195,620 | ) | (42,696,308 | ) | (10,086,545 | ) | (1,528,264 | ) | ||||||||||||
Change in prepayments and other
current assets |
(38,849,005 | ) | 32,128,649 | 11,804,104 | 1,788,501 | |||||||||||||||
Change in prepaid royalties |
(70,788,361 | ) | 17,227,594 | (21,134,410 | ) | (3,202,183 | ) | |||||||||||||
Change in deferred costs |
(7,989,724 | ) | 15,778,691 | (1,395,336 | ) | (211,415 | ) | |||||||||||||
Change in other long-term assets |
454,212 | (603,910 | ) | (18,016,107 | ) | (2,729,713 | ) | |||||||||||||
Change in accounts payable |
(14,360,918 | ) | 5,529,144 | 4,163,941 | 630,900 | |||||||||||||||
Change in due to related parties |
(77,052 | ) | | | | |||||||||||||||
Change in income tax payable |
(2,272,777 | ) | (26,733 | ) | (29,947 | ) | (4,537 | ) | ||||||||||||
Change in other taxes payable |
44,182,027 | (93,146,297 | ) | (2,044,225 | ) | (309,731 | ) | |||||||||||||
Change in advances from customers |
25,308,833 | (104,601,759 | ) | (2,052,793 | ) | (311,029 | ) | |||||||||||||
Change in deferred revenue |
34,729,841 | (41,111,862 | ) | 7,574,705 | 1,147,682 | |||||||||||||||
Change in other payables and accruals |
19,360,340 | 5,071,097 | (10,614,609 | ) | (1,608,274 | ) | ||||||||||||||
Net cash provided by (used in)
operating activities |
692,634,096 | (106,085,603 | ) | (247,551,589 | ) | (37,507,817 | ) | |||||||||||||
F-10
2008 | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Acquisition, net of cash acquired |
| | (7,512,404 | ) | (1,138,243 | ) | ||||||||||
Cash disposed of upon
deconsolidation of two VIEs |
| | (2,207,437 | ) | (334,460 | ) | ||||||||||
Cash paid to acquire equity
investees and available-for-sale
investments |
(299,365,918 | ) | (26,837,000 | ) | (39,093,200 | ) | (5,923,212 | ) | ||||||||
Lending of loans receivable |
| (13,660,000 | ) | (2,000,000 | ) | (303,030 | ) | |||||||||
Collection of loans receivable |
| | 13,660,000 | 2,069,697 | ||||||||||||
Proceeds from disposal of
available-for-sale investments |
| | 6,827,900 | 1,034,530 | ||||||||||||
Cash paid for short-term investments |
(795,162,471 | ) | | | | |||||||||||
Proceeds from maturities of
short-term investments |
728,000,000 | 68,039,221 | | | ||||||||||||
Proceeds from disposal of property,
equipment and software |
184,110 | 532,644 | 1,500,000 | 227,273 | ||||||||||||
Proceeds from refund of upfront
licensing fees |
| | 41,873,102 | 6,344,409 | ||||||||||||
Purchase of property, equipment and
software |
(96,515,362 | ) | (20,452,845 | ) | (7,856,721 | ) | (1,190,412 | ) | ||||||||
Purchase of intangible assets |
(24,652,900 | ) | (23,897,622 | ) | (12,305,541 | ) | (1,864,476 | ) | ||||||||
Net cash used in investing activities |
(487,512,541 | ) | (16,275,602 | ) | (7,114,301 | ) | (1,077,924 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||||||
Purchase of shares of a subsidiary from holders of noncontrolling interest |
| | (598,739 | ) | (90,718 | ) | ||||||||||
Proceeds from stock option exercise |
8,845,707 | 1,460,883 | 85,004 | 12,879 | ||||||||||||
Proceeds from exercise of stock options of a subsidiary |
| | 6,666 | 1,010 | ||||||||||||
Dividend paid |
| (201,028,477 | ) | | | |||||||||||
Repurchase of ADSs |
(244,579,850 | ) | (156,980,596 | ) | | | ||||||||||
Net cash provided by (used in) financing activities |
(235,734,143 | ) | (356,548,190 | ) | (507,069 | ) | (76,829 | ) | ||||||||
Effect of foreign exchange rate changes on cash |
(32,083,695 | ) | 1,405,166 | (3,719,092 | ) | (563,499 | ) | |||||||||
Net change in cash and cash equivalents |
(62,696,283 | ) | (477,504,229 | ) | (258,892,051 | ) | (39,226,069 | ) | ||||||||
Cash and cash equivalents, beginning of year |
2,215,281,857 | 2,152,585,574 | 1,675,081,345 | 253,800,204 | ||||||||||||
Cash and cash equivalents, end of year |
2,152,585,574 | 1,675,081,345 | 1,416,189,294 | 214,574,135 | ||||||||||||
Supplemental disclosure of cash flow information: |
||||||||||||||||
Cash paid for income taxes |
23,405,934 | 6,454,702 | 1,839 | 279 | ||||||||||||
Supplemental disclosure of non-cash investing and financing
activities: |
||||||||||||||||
Accrual related to purchase of property, equipment and
software |
1,072,640 | 736,608 | 886,319 | 134,291 | ||||||||||||
Accrual related to purchase of intangible assets and related
withholding taxes |
| | 8,609,510 | 1,304,471 | ||||||||||||
Conversion of a loan into equity of a VIE subsidiary |
| 2,757,183 | | | ||||||||||||
Receivable on refund of investment in an equity investee |
| | 66,227,000 | 10,034,394 | ||||||||||||
Receivable on refund of
upfront licensing fees |
| 31,410,422 | 13,245,400 | 2,006,879 |
F-11
Date of | Place of | Interest held | ||||||||||||
Name of entity | incorporation | incorporation | Relationship | Direct | Indirect | |||||||||
GameNow.net (Hong Kong) Limited (GameNow
Hong Kong) |
January-00 | Hong Kong | Subsidiary | 100 | % | | ||||||||
The9 Computer Technology Consulting
(Shanghai) Co., Ltd. (The9 Computer) |
June-00 | PRC | Subsidiary | | 100 | % | ||||||||
China The9 Interactive Limited (C9I) |
October-03 | Hong Kong | Subsidiary | | 100 | % | ||||||||
China The9 Interactive (Shanghai) Limited
(C9I Shanghai) |
February-05 | PRC | Subsidiary | | 100 | % | ||||||||
9Dream
Limited (9Dream) |
July-05 | Hong Kong | Subsidiary | 100 | % | | ||||||||
China The9 Interactive (Beijing) Limited
(C9I Beijing) |
March-07 | PRC | Subsidiary | | 100 | % | ||||||||
Jiu Jing Era Information Technology
(Beijing) Limited (Jiu Jing) |
April-07 | PRC | Subsidiary | | 100 | % | ||||||||
Jiu Tuo (Shanghai) Information Technology
Limited (Jiu Tuo) |
July-07 | PRC | Subsidiary | | 100 | % | ||||||||
China Crown Technology Limited (China
Crown Technology) |
November-07 | Hong Kong | Subsidiary | 100 | % | | ||||||||
Asian Way Development Limited (Asian Way) |
November-07 | Hong Kong | Subsidiary | 100 | % | | ||||||||
New Star International Development Limited
(New Star) |
January-08 | Hong Kong | Subsidiary | 100 | % | | ||||||||
The9 Development Center Limited (TDC) |
June-08 | Hong Kong | Subsidiary | 100 | % | |
F-12
Date of | Place of | Interest held | ||||||||||||
Name of entity | incorporation | incorporation | Relationship | Direct | Indirect | |||||||||
TDC (Asia) Limited (TDC Asia) |
April-09 | British Virgin Islands | Subsidiary | | 100 | % | ||||||||
Red 5
Studios, Inc. (Red 5) |
June-05 | USA | Subsidiary | | 83 | % | ||||||||
The9 Singapore Pte. Ltd. (The9 Singapore) |
April-10 | Singapore | Subsidiary | 100 | % | | ||||||||
The9 Interactive, Inc. (The9 Interactive) |
June-10 | USA | Subsidiary | 100 | % | | ||||||||
Shanghai The9 Information Technology Co.,
Ltd. (Shanghai IT) |
September-00 | PRC | VIE subsidiary | None (Note 4) |
||||||||||
Shanghai Jiucheng Advertisement Co., Ltd.
(Shanghai Jiucheng Advertisement) |
April-07 | PRC | VIE subsidiary | None (Note 4) |
||||||||||
Hangzhou Fire Rain Network Technology Co.,
Ltd. (Fire Rain) |
December-08 | PRC | VIE subsidiary | 25% (Note 4) |
||||||||||
Shenzhen Wanyouyinli Technology Co., Ltd.
(Wanyouyl)* |
June-09 | PRC | VIE subsidiary | 20% (Note 4) |
||||||||||
Shanghai Huopu Cloud Computing Terminal
Technology Co., Ltd. (Huopu Cloud) |
December-10 | PRC | VIE subsidiary | None (Note 4) |
* | Previously named as Shenzheng Fatiaocheng Technology Co., Limited. |
F-13
F-14
F-15
(i) | Royalties paid to the licensors of games are initially recognized as prepaid royalties when paid and subsequently recognized as deferred costs upon the customers online registration and activation of their cards or online points, and then ultimately recognized as cost of services in the consolidated statements of operations and comprehensive income (loss) based upon the actual usage of the game playing time by the customers or when the likelihood that the Group would provide further services to those customers becomes remote. |
(ii) | Royalties payable to the licensors or receivable from collection agents upon customers charging their accounts are initially recorded as deferred costs upon the customers online registration and activation of their cards or online points. Deferred costs are recognized as costs of services in the consolidated statements of operations and comprehensive income (loss) based upon the actual usage of the game points by end customers. |
F-16
F-17
Leasehold improvements
|
Respective term of the leases or the estimated useful lives of the leasehold improvements | |
Computer and equipment
|
3 to 4 years | |
Software
|
5 years | |
Office furniture and fixtures
|
3 years | |
Motor vehicles
|
5 years | |
Office buildings
|
10 to 20 years |
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-30
F-31
December 31, 2009 | December 31, 2010 | December 31, 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Total assets |
167,391,153 | 141,428,028 | 21,428,489 | |||||||||
Total liabilities |
251,945,913 | 265,829,394 | 40,277,181 |
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | RMB | US$ (Note 3) |
|||||||||||||
Revenues |
1,801,713,116 | 802,074,406 | 107,447,650 | 16,279,947 | ||||||||||||
Net income(loss) |
14,501,809 | (79,376,759 | ) | (72,685,391 | ) | (11,012,938 | ) |
5. | ACQUISITION |
RMB | ||||
Cash |
11,876,274 | |||
Subscription receivable |
95,549,799 | |||
Fixed assets |
3,650,947 | |||
Identifiable intangible assets: |
||||
In-process research and development |
12,285,000 | |||
Backlog |
2,730,000 | |||
Goodwill |
10,870,537 | |||
Other assets |
1,968,347 | |||
Liabilities assumed |
(2,599,092 | ) | ||
Deferred tax liability |
(5,981,135 | ) | ||
Noncontrolling interest at fair value |
(15,417,870 | ) | ||
Total |
114,932,807 | |||
F-32
F-33
Revenues | Net Loss | |||||||
RMB | RMB | |||||||
Pro forma for 2009 |
802,629,351 | (491,679,970 | ) | |||||
Pro forma for 2010 |
108,513,582 | (532,673,479 | ) |
December 31, | December 31, | December 31, | ||||||||||||
Note | 2009 | 2010 | 2010 | |||||||||||
RMB | RMB | US$ | ||||||||||||
(Note 3) | ||||||||||||||
Investments accounted for under equity method: |
||||||||||||||
Object Software Limited (Object Software) |
7.1<1> | 4,218,795 | 894,361 | 135,509 | ||||||||||
Beijing Zhongqing Shenglian Internet
Technology Co., Ltd. (BZSIT) |
7.1<2> | 18,564,513 | | | ||||||||||
Beijing Linkage Technology Co., Ltd.
(BLT) |
7.1<3> | | 11,963,228 | 1,812,610 | ||||||||||
9 Webzen Limited (9Webzen Hong Kong) |
7.1<4> | | | | ||||||||||
Ideas Corporation (Ideas) |
7.1<5> | | | | ||||||||||
Investments accounted for under cost method: |
||||||||||||||
Shanghai Institute of Visual Art of
Fudan University (SIVA) |
7.2<1> | 10,000,000 | 10,000,000 | 1,515,152 | ||||||||||
G10 Entertainment Corporation (G10) |
7.2<2> | 276,022,817 | 24,892,921 | 3,771,656 | ||||||||||
OpenFeint Inc. (formerly named Aurora
Feint Inc., OpenFeint) |
7.2<3> | | 27,093,200 | 4,105,030 | ||||||||||
Total |
308,806,125 | 74,843,710 | 11,339,957 | |||||||||||
F-34
Object | ||||||||||||||||
Software | BZSIT | BLT | Total | |||||||||||||
<1> | <2> | <3> | ||||||||||||||
Balance at December 31, 2008 (RMB) |
5,338,823 | | | 5,338,823 | ||||||||||||
Investments |
| 20,000,000 | | 20,000,000 | ||||||||||||
Share of loss in equity investments, net of taxes |
(1,120,028 | ) | (1,435,487 | ) | | (2,555,515 | ) | |||||||||
Balance at December 31, 2009 (RMB) |
4,218,795 | 18,564,513 | | 22,783,308 | ||||||||||||
Investments |
| | 12,000,000 | 12,000,000 | ||||||||||||
Share of loss in equity investments, net of taxes |
(3,324,434 | ) | (7,352,089 | ) | (36,772 | ) | (10,713,295 | ) | ||||||||
Impairment |
| (11,212,424 | ) | | (11,212,424 | ) | ||||||||||
Balance at December 31, 2010 (RMB) |
894,361 | | 11,963,228 | 12,857,589 | ||||||||||||
Balance at December 31, 2010 (US$, Note 3) |
135,509 | | 1,812,610 | 1,948,120 | ||||||||||||
F-35
F-36
F-37
F-38
December
31, 2009 |
December 31, 2010 |
December 31, 2010 |
||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Office buildings |
58,835,873 | 59,911,552 | 9,077,508 | |||||||||
Computer and equipment |
581,259,400 | 223,054,013 | 33,796,063 | |||||||||
Leasehold improvements |
6,399,643 | 8,860,119 | 1,342,442 | |||||||||
Office furniture and fixtures |
7,219,856 | 13,822,926 | 2,094,383 | |||||||||
Motor vehicles |
10,411,896 | 10,251,896 | 1,553,318 | |||||||||
Software |
13,690,415 | 16,366,922 | 2,479,837 | |||||||||
Less: accumulated
depreciation and amortization |
(571,773,926 | ) | (248,627,064 | ) | (37,670,767 | ) | ||||||
Impairment provision |
(30,065,957 | ) | (25,578,900 | ) | (3,875,592 | ) | ||||||
Net book value |
75,977,200 | 58,061,464 | 8,797,192 | |||||||||
F-39
Accumulated | ||||||||||||||||
Gross | Impairment | Net | ||||||||||||||
Note | Amount | Loss | Amount | |||||||||||||
RMB | RMB | RMB | ||||||||||||||
Balance at January 1, 2009 |
30,199,751 | | 30,199,751 | |||||||||||||
Impairment loss recognized |
27 | | (30,199,751 | ) | (30,199,751 | ) | ||||||||||
Balance at December 31, 2009 |
30,199,751 | (30,199,751 | ) | | ||||||||||||
Acquisition |
5 | 10,870,537 | | 10,870,537 | ||||||||||||
Translation difference |
(322,214 | ) | | (322,214 | ) | |||||||||||
Balance at December 31, 2010 |
40,748,074 | (30,199,751 | ) | 10,548,323 | ||||||||||||
Balance at
December 31, 2010 (US$, Note 3) |
6,173,951 | (4,575,720 | ) | 1,598,231 | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Backlog |
| 2,730,000 | 413,636 | |||||||||
Upfront licensing fees |
275,860,798 | 237,258,342 | 35,948,234 | |||||||||
Less: Accumulated amortization |
(66,779,481 | ) | (76,791,769 | ) | (11,635,117 | ) | ||||||
Impairment provision |
(126,042,609 | ) | (130,683,870 | ) | (19,800,586 | ) | ||||||
Licensing fee refunds transferred to
prepayments and other current assets |
(31,410,422 | ) | (26,704,800 | ) | (4,046,182 | ) | ||||||
Translation difference |
| (80,920 | ) | (12,261 | ) | |||||||
51,628,286 | 5,726,983 | 867,724 | ||||||||||
Intangible assets from an acquisition relating to C9I |
283,701,360 | 283,701,360 | 42,985,055 | |||||||||
Less: accumulated amortization |
(283,701,360 | ) | (283,701,360 | ) | (42,985,055 | ) | ||||||
| | | ||||||||||
Net book value of intangible assets subject to
amortization |
51,628,286 | 5,726,983 | 867,724 | |||||||||
F-40
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
In-process research and development |
| 12,285,000 | 1,861,364 | |||||||||
Translation difference |
| (364,141 | ) | (55,173 | ) | |||||||
Net book value of intangible assets not
subject to amortization |
| 11,920,859 | 1,806,191 | |||||||||
RMB | US$ | |||||||
(Note 3) | ||||||||
2011 |
1,844,544 | 279,476 | ||||||
2012 |
1,093,913 | 165,744 | ||||||
2013 |
413,254 | 62,614 | ||||||
2014 |
377,143 | 57,143 | ||||||
2015 |
377,143 | 57,143 | ||||||
Total |
4,105,997 | 622,120 | ||||||
December
31, 2009 |
December 31, 2010 |
December 31, 2010 |
||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Land use right |
85,160,349 | 85,160,349 | 12,903,083 | |||||||||
Less: accumulated amortization |
(5,282,502 | ) | (7,203,413 | ) | (1,091,426 | ) | ||||||
Net book value |
79,877,847 | 77,956,936 | 11,811,657 | |||||||||
F-41
(i) | Due to weaker than expected operating performance of certain games, the Group recognized impairment provisions on computer equipment and upfront licensing fees of RMB8.9 million and RMB7.1 million, respectively, in 2008 and RMB7.6 million and RMB26.7 million, respectively, in 2009. Impairment provisions on computer equipment and upfront licensing fees of RMB4.9 million (US$0.7 million) and RMB21.5 million (US$3.3 million), respectively, were recognized in 2010. A significant factor for the internally developed income approach is forecasting performance and revenue from the games. The Group continued to monitor the actual revenue performance versus forecast revenue. Due to the lower than expected market acceptance of the games and the following the content updates, certain games experienced significantly lower than expected user levels and revenue. |
F-42
(ii) | The Group has been monitoring its licensed games that have not commercially launched, including but not limited to their market acceptance and operational performance in other regions where they are commercially launched and operated by other operators. Such information includes ceased operation in certain regions where games were commercially launched, delayed or unsuccessful commercial launch, and user number significantly below the expectation despite the launching of patches. The Group incorporated these results and experience into it continuous evaluation of the forecasted results of the respective games and taking into account the Groups expected commercial launch and cash flows in the evaluation of impairment testing for the carrying value of upfront licensing fees. Based on the Groups impairment tests, impairment provisions on upfront licensing fees of RMB66.1 million, RMB0.8 million and RMB11.5 million (US$1.7 million) were recognized in 2008, 2009 and 2010, respectively. |
(iii) | During the year ended December 31, 2009, impairment provisions on idle computer equipment of RMB13.6 million was recognized in view of the low possibility to reuse the idle computer equipment in the foreseeable future. |
Fair Value Measurements Using Significant | ||||||||
Unobservable Inputs | ||||||||
(Level 3) | ||||||||
2008 | 2009 | |||||||
RMB | RMB | |||||||
Balance at the beginning of the year |
29,218,400 | 29,218,400 | ||||||
Purchases |
14,634,730 | 6,837,000 | ||||||
Reversal of unrealized gain previously
recognized in other comprehensive income |
| (13,643,131 | ) | |||||
Impairment losses included in earnings |
(14,634,730 | ) | (22,412,269 | ) | ||||
Balance at the end of the year |
29,218,400 | | ||||||
F-43
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||||||
in Active | Other | Significant | ||||||||||||||||||||||
Year Ended | Markets for | Observable | Unobservable | |||||||||||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||||||||||
Note | 2009 | (Level 1) | (Level 2) | (Level 3) | Total Losses | |||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||
Computers and equipment |
13 | | | | | 21,164,693 | ||||||||||||||||||
Upfront licensing fees |
13 | | | | | 27,507,199 | ||||||||||||||||||
Goodwill |
10 | | | | | 30,199,751 | ||||||||||||||||||
Total |
| | | | 78,871,643 | |||||||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||||||
in Active | Other | Significant | ||||||||||||||||||||||
Year Ended | Markets for | Observable | Unobservable | |||||||||||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||||||||||
Note | 2010 | (Level 1) | (Level 2) | (Level 3) | Total Losses | |||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||
Investments in
equity investees |
7.2 | 24,892,921 | | | 24,892,921 | 196,115,321 | ||||||||||||||||||
Computers and equipment |
13 | | | | | 4,928,991 | ||||||||||||||||||
Upfront licensing fees |
13 | | | | | 33,020,462 | ||||||||||||||||||
Total |
| | | 24,892,921 | 234,064,774 | |||||||||||||||||||
F-44
Significant unobservable inputs (Level 3) were used in measuring the fair value of the Groups investments in equity investees based on which the other-than-temporary impairment losses were calculated. The Group measured the fair value of its investment in BZSIT as of December 31, 2010 using the income approach based on a weighted average of multiple discounted cash flow scenarios, which required the use of unobservable inputs including assumptions of projected revenue, expenses, capital spending, and other costs, as well as a discount rate calculated based on the risk profile of the online game industry and company-specific risk adjustments. As a result of the impairment test, the investment in BZSIT with a carrying amount of RMB11.2 million (US$1.7 million) was fully impaired. Using the valuation technique described in 7.2<2>, the Group measured the fair value of its investment in G10 at RMB24.9 million (US$3.8 million) as of December 31, 2010. The investment in G10 with a carrying amount of RMB276.0 million (US$41.8 million), after reduction of RMB66.2 million (US$10.0 million) receivable, was impaired by the amount of RMB184.9 million (US$28.0 million). The above impairment charges were included in impairment loss on investments on the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2010. |
F-45
F-46
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
Current income tax
(expense) benefit |
(13,453,655 | ) | (1,871,215 | ) | 39,061 | 5,918 | ||||||||||
China |
(13,453,655 | ) | (1,871,215 | ) | 39,061 | 5,918 | ||||||||||
Other jurisdictions |
| | | | ||||||||||||
Deferred taxation |
15,831,538 | 69,182,452 | 131,458,011 | 19,917,880 | ||||||||||||
China |
15,831,538 | 69,182,452 | 56,671,847 | 8,586,643 | ||||||||||||
Other jurisdictions |
| | 74,786,164 | 11,331,237 | ||||||||||||
Change in valuation allowance |
(50,306,416 | ) | (61,775,371 | ) | (138,865,092 | ) | (21,040,165 | ) | ||||||||
China |
(50,306,416 | ) | (61,775,371 | ) | (64,078,928 | ) | (9,708,928 | ) | ||||||||
Other jurisdictions |
| | (74,786,164 | ) | (11,331,237 | ) | ||||||||||
Income tax (expense) benefit |
(47,928,533 | ) | 5,535,866 | (7,368,020 | ) | (1,116,367 | ) | |||||||||
For the year ended | For the year ended | For the year ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
PRC Statutory EIT rate |
25 | % | 25 | % | 25 | % | ||||||
Effect of different tax rates in other jurisdictions |
24 | % | (15 | %) | (4 | %) | ||||||
Change of valuation allowance |
35 | % | (15 | %) | (15 | %) | ||||||
Income not subject to tax and non-deductible expenses, net |
| (8 | %) | (9 | %) | |||||||
Effect of tax holidays |
(49 | %) | 3 | % | (1 | %) | ||||||
Effect of future tax rate change |
| 11 | % | 3 | % | |||||||
Other |
(2 | %) | | | ||||||||
Effective EIT rate |
33 | % | 1 | % | (1 | %) | ||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Temporary differences related to expenses and accruals |
4,985,989 | 4,719,640 | 715,097 | |||||||||
Temporary differences related to provision for advances to suppliers |
1,912,082 | 2,085,908 | 316,047 | |||||||||
Temporary differences related to provision for doubtful accounts |
3,744,950 | 6,080,201 | 921,243 | |||||||||
Temporary differences related to prepaid royalties |
5,564,504 | 7,795,758 | 1,181,175 | |||||||||
Other |
| 939,162 | 142,297 | |||||||||
Total current deferred tax assets |
16,207,525 | 21,620,669 | 3,275,859 | |||||||||
Less: Valuation allowance |
(14,067,629 | ) | (21,620,669 | ) | (3,275,859 | ) | ||||||
Net current deferred tax assets |
2,139,896 | | | |||||||||
F-47
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Temporary
differences related to depreciation, amortization, and impairment of equipment and intangible assets |
49,732,344 | 19,516,778 | 2,957,088 | |||||||||
Startup expenses and advertising fee |
2,483,828 | 5,929,990 | 898,483 | |||||||||
Temporary differences related to research and development credits |
| 2,916,809 | 441,941 | |||||||||
Foreign tax credits |
| 16,358,069 | 2,478,495 | |||||||||
Temporary differences related to provision for prepayment for equipment |
11,625,000 | 11,625,000 | 1,761,364 | |||||||||
Tax loss carry forwards |
45,621,033 | 179,160,426 | 27,145,519 | |||||||||
Total non-current deferred tax assets |
109,462,205 | 235,507,072 | 35,682,890 | |||||||||
Less: Valuation allowance |
(104,195,020 | ) | (235,507,072 | ) | (35,682,890 | ) | ||||||
Net non-current deferred tax assets |
5,267,185 | | | |||||||||
Total deferred tax assets |
7,407,081 | | | |||||||||
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Temporary differences
related to amortization
of intangible assets |
| 5,803,848 | 879,371 |
For the year ended | For the year ended | For the year ended | ||||||||||
December 31, 2009 | December 31, 2010 | December 31, 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Balance at January 1 |
56,487,278 | 118,262,649 | 17,918,583 | |||||||||
Increase in valuation allowance |
70,599,298 | 138,865,092 | 21,040,166 | |||||||||
Reversal of valuation allowance |
(8,823,927 | ) | | | ||||||||
Balance at December 31 |
118,262,649 | 257,127,741 | 38,958,749 | |||||||||
F-48
F-49
December 31, | December 31, | December 31, | ||||||||||
2009 | 2010 | 2010 | ||||||||||
RMB | RMB | US$ | ||||||||||
(Note 3) | ||||||||||||
Staff cost related payables |
23,944,309 | 20,037,102 | 3,035,925 | |||||||||
Professional services |
16,721,169 | 12,761,093 | 1,933,499 | |||||||||
Product development services |
2,665,366 | 2,665,366 | 403,843 | |||||||||
Marketing and promotion |
2,045,100 | 1,034,855 | 156,796 | |||||||||
Others |
6,328,481 | 5,830,401 | 883,394 | |||||||||
51,704,425 | 42,328,817 | 6,413,457 | ||||||||||
F-50
F-51
F-52
Weighted-Average | ||||||||||||||||
Remaining | ||||||||||||||||
Number of | Weighted-Average | Contractual Term | Aggregate Intrinsic | |||||||||||||
Options | Exercise Price | (years) | Value | |||||||||||||
Outstanding at
January 1, 2010 |
1,304,100 | US$ | 8.07 | 2.63 | Nil | |||||||||||
Granted |
3,887,382 | US$ | 5.35 | |||||||||||||
Exercised |
(2,502 | ) | US$ | 5.13 | ||||||||||||
Forfeited |
(1,193,098 | ) | US$ | 7.33 | ||||||||||||
Outstanding at
December 31, 2010 |
3,995,882 | US$ | 5.65 | 4.57 | US$ | 6,061,473 | ||||||||||
Vested and expected
to vest at December
31, 2010 |
3,538,957 | US$ | 5.68 | 4.55 | US$ | 5,341,379 | ||||||||||
Exercisable at
December 31, 2010 |
527,389 | US$ | 7.37 | 3.57 | US$ | 584,692 | ||||||||||
For the year | For the year | |||||||
ended December 31, 2008 | ended December 31, 2010 | |||||||
Risk-free interest rate |
1.53 | % | 0.77%-1.03 | % | ||||
Expected life (years) |
2.90 | 3.25 | ||||||
Expected dividend yield |
| | ||||||
Volatility |
54 | % | 59.24%-60.71 | % | ||||
Fair value of options at grant date |
US$4.46 | US$2.13-US$2.58 |
For the year | ||||
ended December 31, 2009 | ||||
Risk-free interest rate |
0.08%-1.44 | % | ||
Expected remaining life (years) |
0.13-3.14 | |||
Expected dividend yield |
| |||
Volatility |
49%-67 | % | ||
Fair value of incremental cost |
US$0.06-US$2.03 |
F-53
Risk-free interest rate |
1.22 | % | ||
Expected life (years) |
1.81 | |||
Expected dividend yield |
| |||
Volatility |
57 | % | ||
F-54
Weighted-Average | ||||||||||||||||
Weighted-Average | Remaining | |||||||||||||||
Number of | Exercise Price | Contractual Term | Aggregate | |||||||||||||
Options | per Option | (years) | Intrinsic Value | |||||||||||||
Outstanding at January 1, 2010 |
18,901,000 | HK$ | 0.10 | 6.0 | RMB | 414,915 | ||||||||||
Forfeited |
(2,026,000 | ) | HK$ | 0.10 | ||||||||||||
Outstanding at December 31, 2010 |
16,875,000 | HK$ | 0.10 | 5.0 | Nil | |||||||||||
Vested and expected to vest at December 31, 2010 |
16,875,000 | HK$ | 0.10 | 5.0 | Nil | |||||||||||
Exercisable at December 31, 2010 |
12,656,250 | HK$ | 0.10 | 5.0 | Nil | |||||||||||
Risk-free interest rate |
3.75 | % | ||
Expected life (years) |
5.00 | |||
Expected dividend yield |
| |||
Volatility |
53 | % |
F-55
Weighted-Average | ||||||||||||||||
Weighted-Average | Remaining | |||||||||||||||
Number of | Exercise Price | Contractual Term | Aggregate | |||||||||||||
Options | per Option | (years) | Intrinsic Value | |||||||||||||
Outstanding at April 6, 2010 |
3,168,201 | US$ | 0.190 | 3.08 | US$ | 85,185 | ||||||||||
Granted |
7,235,874 | US$ | 0.137 | |||||||||||||
Exercised |
(122,355 | ) | US$ | 0.038 | ||||||||||||
Forfeited |
(1,891,848 | ) | US$ | 0.236 | ||||||||||||
Outstanding at December 31, 2010 |
8,389,872 | US$ | 0.136 | 4.86 | US$ | 78,375 | ||||||||||
Vested and expected to vest at December 31, 2010 |
8,246,548 | US$ | 0.136 | 4.88 | US$ | 69,670 | ||||||||||
Exercisable at December 31, 2010 |
2,354,921 | US$ | 0.136 | 4.05 | US$ | 53,269 | ||||||||||
F-56
Risk-free interest rate |
1.70%-5.00 | % | ||
Expected life (years) |
5.00-6.00 | |||
Expected dividend yield |
| |||
Volatility |
38.89%-69.36 | % |
F-57
For the year | For the year | For the year | For the year | |||||||||||||
ended December | ended December | ended December | ended December | |||||||||||||
31, 2008 | 31, 2009 | 31, 2010 | 31, 2010 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) attributable to ordinary
shareholders |
96,836,036 | (405,152,407 | ) | (499,611,594 | ) | (75,698,727 | ) | |||||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings (loss) per
share weighted-average shares outstanding |
27,664,687 | 25,414,620 | 25,121,679 | 25,121,679 | ||||||||||||
Dilutive effect of share options and warrants |
39,514 | | | | ||||||||||||
Denominator for diluted earnings (loss) per
share |
27,704,201 | 25,414,620 | 25,121,679 | 25,121,679 | ||||||||||||
Earnings per share
|
||||||||||||||||
- Basic |
3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||
- Diluted |
3.50 | (15.94 | ) | (19.89 | ) | (3.01 | ) | |||||||||
F-58
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
RMB | RMB | RMB | ||||||||||
Net income
(loss) attributable
to The9 Limited |
96,836,036 | (405,152,407 | ) | (499,611,594 | ) | |||||||
Transfers (to) from
the noncontrolling
interest |
||||||||||||
Increase in The9
Limiteds
additional
paid-in capital
for issuance of
shares by Red 5
upon stock
option exercise |
| | 5,564 | |||||||||
Increase in The9
Limiteds
additional
paid-in capital
for purchase of
common stock of
Red 5 from
holders of
noncontrolling
interest |
| | 523,586 | |||||||||
Decrease in The9
Limiteds
additional
paid-in capital
for conversion
of a loan into
equity of Fire
Rain |
| (2,757,183 | ) | | ||||||||
Decrease in The9
Limiteds
additional
paid-in capital
for capital
contribution to
Red 5, Fire Rain
and Wanyouyl |
| | (6,981,392 | ) | ||||||||
Change from net
income attributable
to The9 Limited and
transfers (to) from
noncontrolling
interest |
96,836,036 | (407,909,590 | ) | (506,063,836 | ) | |||||||
F-59
RMB | US$ | |||||||
(Note 3) | ||||||||
2011 |
8,009,544 | 1,213,567 | ||||||
2012 |
1,729,965 | 262,116 | ||||||
2013 |
1,461,240 | 221,400 | ||||||
11,200,749 | 1,697,083 | |||||||
F-60
F-61
| A provision on a receivable amounting to RMB18.0 million from a customer that purchased
WoW prepaid player cards from the Group for distribution, as a result of the expiration of
the Groups WoW license on June 7, 2009 and, among other things, the impact on the ongoing
relationship with the customer. |
| A RMB3.9 million provision for prepaid royalties. |
| A RMB22.7 million charge to increase the valuation allowance for deferred tax assets,
which represented incremental income taxes as a result of non-renewal of the WoW license
prior to the evaluation and recording of impairment charges as a result of non-renewal of the
WoW license. |
||
| A RMB68.4 million additional depreciation expense related to computer equipment to reflect
the change to a shorter expected useful life of the underlying assets due to non-renewal of
the WoW license agreement. The Group assessed the alternative uses for equipment used in
connection with the operation of WoW, taking into consideration future expected game
operations, as well as expected value at the WoW license expiration date. As a result, the
Group adjusted the expected useful life of the servers and related equipment, and the
expected value of the servers and related equipment at the end of the WoW license. This
change in accounting estimate has been accounted for prospectively from January 1, 2008. As a
result, the Group recorded additional depreciation expense as a component of cost of service
in the amount of RMB68.4 million in 2008 to reflect the change to a shorter expected useful
life of the underlying assets. Depreciation expense relating to this change is to decrease
both profit from operations and net income by RMB68.4 million, and to decrease both basic and
diluted net income attributable to holders of ordinary shares per share by RMB2.47 in 2008. |
F-62
| A full provision for prepayments to a vendor, whom had been the Groups primary supplier
of computer servers and related computer equipment, in connection with its purchase of
certain fixed assets, including RMB46.5 million originally recorded as prepayments for
equipment and RMB8.7 million originally recorded as advances to suppliers. With the
non-renewal of WoW license, the Company evaluated a number of factors, including the status
of production of the assets underlying the advance prepayments, ability to recover the value
of the advances through the possible sale of the fixed assets upon the completion of
production, the ability to utilize the servers upon completion of production, as well as the
ability to recover the amounts advanced to the vendor and as a result of such assessment, and
concluded that a full provision in connection with such advances and prepayments was
necessary. The provision was recorded as general and administrative expenses for the year
ended December 31, 2008. |
| A RMB7.0 million provision on receivables and prepayments and other current assets in
connection with Game First International Corporation (GFD) As of December 31, 2008, the
Groups outstanding receivable from selling of 100% of its interest in Spring Asia Limited, a
wholly owned subsidiary to a third party in 2006, amounted to RMB7.0 million, including
RMB1.4 million recorded in accounts receivable and RMB5.6 million recorded in prepayments and
other current assets. The Group assessed the impact of the non-renewal of the WoW license on
its ongoing relationship with GFD, whose equity interest is 30% held by Spring Asia Limited,
and resulting collectability of this receivable and concluded collection to be unlikely
resulting in the recording of impairment charge in the amount of RMB7.0 million recorded in
general and administrative expenses for the year ended December 31, 2008. |
| A RMB1.7 million provision on inventories. |
F-63
| The Group continued to make prepayment of royalties for WoW until the expiration of the
WoW license. As a result of the non-renewal of the WoW license, the Group recognized an
impairment loss for prepaid royalties, deferred cost and related prepaid withholding taxes of
RMB60.7 million, RMB38.1 million and RMB4.4 million, respectively, for the year ended
December 31, 2009. |
| As a result of change in accounting estimate on the useful life of computer equipment
through the end of the WoW license, the Group recorded additional depreciation expense as a
component of cost of service in the amount of RMB40.0 million in 2009. Depreciation expense
relating to this change is to increase both loss from operations and net loss by RMB40.0
million, and to increase both basic and diluted net loss per share by RMB1.57 in 2009. |
| A RMB30.2 million impairment of goodwill following the expiration of the WoW license on
June 7, 2009. The Group determined the fair value of the reporting unit related to WoW using
the income approach. The income approach included the use of a discounted cash flow model,
which required assumptions of projected revenue expenses, capital expenditures and other
costs, as well as a discount rate calculated based on the risk profile of the online game
industry. The Group does not expect any revenue from WoW reporting unit after expiration of
the WoW license and assessed the fair value of the WoW reporting unit to be zero.
Accordingly, the assigned value for goodwill related to WoW was zero and a full impairment
was recognized. |
| As a result of non-renewal of WoW license beyond June 7, 2009, the Group announced a
refund plan in connection with unactivated WoW game point cards, which the Group recorded as
advance from customers. According to the plan, unactivated WoW game point card holders are
eligible to receive a cash refund from the Group. In connection with the settlement of both
unactivated points cards and activated but unconsumed point cards, the maximum refund the
Group may potentially make amounts to approximately RMB200.4 million, of which RMB4.0 million
was refunded in 2009. The difference between the face value of the point cards and the net
proceeds the Group received in the sales of the respective point cards was recorded as
additional cost of
services, amounting to RMB22.1 million for the year ended December 31, 2009. The advances from
customers and deferred revenue relating to these WoW game point cards will be recorded as
revenue after the release of legal liability to refund under the respective laws. The Group
has engaged an agent to settle the liability with the game point card holders who have claimed
a refund. As of December 31, 2009, the balance of the advance payment to the agent was RMB43.3
million. In 2010, RMB0.4 million (US$0.1 million) was refunded to game point card holders. |
| As of December 31, 2009, the WoW related computer and equipment and intangible assets have
been fully depreciated and no additional impairment was recognized in 2009. |
For the year ended December 31, 2010, there was no additional impairment and charges provided
related to the expiration of WoW license. |
F-64
/s/
Alan G. de Saram
|
||
Registered Office of The9 Limited |
||
Dated: 2nd Day of November 2010 |
1. | The name of the Company is The9 Limited. |
2. | The Registered Office of the Company shall be at the offices of CARD Corporate Services Ltd, Zephyr House, Mary Street, PO Box 709 George Town, Grand Cayman, or at such other place as the Directors may from time to time decide. |
3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (2004 Revision) or as the same may be revised from time to time, or any other law of the Cayman Islands. |
4. | The liability of each Member is limited to the amount from time to time unpaid on such Members shares. |
5. | The authorized share capital of the Company is US$1,000,000 divided into 100,000,000 ordinary shares of a nominal or par value of US$0.01 each. The Company has the power to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (2004 Revision) and the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained. |
6. | The Company has the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
7. | Capitalized terms that are not defined in this Amended and Restated Memorandum of Association bear the same meaning as those given in the Amended and Restated Articles of Association of the Company adopted by Special Resolution passed on December 9, 2004 and effective on December 14, 2004. |
1. | In these Articles, unless otherwise defined, the defined terms shall have the meanings assigned to them as follows: |
Articles |
the Amended and Restated Articles of Association adopted by Special Resolution on December 16, 2008, as from time to time altered or added to in accordance with the Statutes and these Articles; |
Board |
the board of Directors for the time being of the Company; |
Business Day |
a day, excluding Saturdays or Sundays, on which banks in Hong Kong, Shanghai and New York are open for general banking business throughout their normal business hours; |
Commission |
Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act; |
Companies Law |
the Companies Law (2007 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof. Where any provision of the Companies Law is referred to, the reference is to that provision as amended by any law for the time being in force; |
Company |
The9 Limited, a Cayman Islands company limited by shares; |
Companys Website |
the website of the Company, the address or domain name of which has been notified to Members; |
Directors and Board of Directors and Board |
the directors of the Company for the time being, or as the case may be, the Directors assembled as a Board or as a committee thereof; |
electronic |
the meaning given to it in the Electronic Transactions Law 2000 of the Cayman Islands and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefore; |
electronic communication |
electronic posting to the Companys Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board; |
in writing |
includes writing, printing, lithograph, photograph, type-writing and every other mode of representing words or figures in a legible and non-transitory form and, only where used in connection with a notice served by the Company on Members or other persons entitled to receive notices hereunder, shall also include a record maintained in an electronic medium which is accessible in visible form so as to be useable for subsequent reference; |
Member |
a person whose name is entered in the register of members as the holder of a share or shares; |
Memorandum of Association |
the Memorandum of Association of the Company, as amended and re-stated from time to time; |
month |
calendar month; |
Ordinary Resolution |
a resolution: |
(a) | passed by a simple majority of votes cast by such Members as, being entitled to do so, vote in person or, in the case of any Member being an organization, by its duly authorized representative or, where proxies are allowed, by proxy at a general meeting of the Company; or |
(b) | approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is executed; |
Ordinary Shares |
ordinary shares of par value of US$0.01 each in the capital of the Company; |
paid up |
paid up as to the par value and any premium payable in respect of the issue of any shares and includes credited as paid up; |
Register of Members |
the register to be kept by the Company in accordance with Section 40 of the Companies Law; |
Seal |
the Common Seal of the Company including any facsimile thereof; |
Securities Act |
the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time; |
share |
any share in the capital of the Company, including the Ordinary Shares and shares of other classes; |
shareholders |
any or all of those persons at any time holding any shares; |
signed |
includes a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a person with the intent to sign the electronic communication; |
Special Resolution |
a resolution passed in accordance with Section 60 of the Companies Law and includes an unanimous written resolution expressly passed as a special resolution; |
Statutes |
the Companies Law and every other laws and regulations of the Cayman Islands for the time being in force concerning companies and affecting the Company; |
year |
calendar year. |
2. | In these Articles, save where the context requires otherwise: |
(a) | words importing the singular number shall include the plural number and vice versa; |
(b) | words importing the masculine gender only shall include the feminine gender; |
(c) | words importing persons only shall include companies or associations or bodies of persons, whether corporate or not; |
(d) | may shall be construed as permissive and shall shall be construed as imperative; |
(e) | a reference to a dollar or dollars (or $) is a reference to dollars of the United States; |
(f) | references to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force; and |
(g) | any phrase introduced by the terms including, include, in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms. |
3. | Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
4. | The business of the Company may be commenced as soon after incorporation as the Directors see fit, notwithstanding that only part of the shares may have been allotted or issued. |
5. | The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. |
6. | The authorized share capital of the Company at the date of adoption of these Articles is US$1,000,000 divided into 100,000,000 shares of a nominal or par value of US$0.01 each with power for the Company insofar as is permitted by law, to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law and these Articles and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained. |
7. | Subject to the provisions, if any, in that behalf in the Memorandum of Association and to any direction that may be given by the Company in a general meeting, the Directors may allot, issue, grant options over or otherwise dispose of shares of the Company (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. The Company shall not issue shares in bearer form. |
8. | The Company shall maintain a Register of its Members and every person whose name is entered as a member in the Register of Members shall, without payment, be entitled to a certificate within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the share or shares held by that person and the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. All certificates for shares shall be delivered personally or sent through the post addressed to the member entitled thereto at the Members registered address as appearing in the register. |
9. | Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act. |
10. | Any two or more certificates representing shares of any one class held by any Member may at the Members request be cancelled and a single new certificate for such shares issued in lieu on payment (if the Directors shall so require) of US$1 or such smaller sum as the Directors shall determine. |
11. | If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same shares may be issued to the relevant member upon request subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit. |
12. | In the event that shares are held jointly by several persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders. |
13. | The instrument of transfer of any share shall be in writing and executed by or on behalf of the transferor and shall be accompanied by the certificate of the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. |
14. | All instruments of transfer that shall be registered shall be retained by the Company. |
15. | Subject to the provisions of the Statutes and these Articles, the Company may: |
(a) | issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Member or the Company on such terms and in such manner as the Board may, before the issue of the shares, determine; |
(b) | purchase its own shares (including any redeemable shares) provided that the Members shall have approved the manner of purchase by Ordinary Resolution or the manner of purchase shall be in accordance with the following Articles (this authorisation is in accordance with section 37(2) of the Companies Law or any modification or re-enactment thereof for the time being in force); and |
(c) | make a payment in respect of the redemption or purchase of its own shares in any manner permitted by the Statutes, including out of capital. |
16. | Purchase of shares listed on any securities exchange or other system on which shares of the Company may be listed or otherwise authorized for trading from time to time (an Exchange) : the Company is authorised to purchase any share listed on such Exchange in accordance with the following manner of purchase: |
(a) | the maximum number of shares that may be repurchased shall be equal to the number of issued and outstanding shares less one share; and |
(b) | the repurchase shall be at such time, at such price and on such other terms as determined and agreed by the Board in their sole discretion provided however that: |
(i) | the repurchase shall be at such time, at such price and on such other terms as determined and agreed by the Board in their sole discretion provided however that: |
(ii) | at the time of the repurchase, the Company is able to pay its debts as they fall due in the ordinary course of its business. |
17A. | Purchase of shares not listed on an Exchange: the Company is authorised to purchase any shares not listed on an Exchange in accordance with the following manner of purchase: |
(a) | the Company shall serve a repurchase notice in a form approved by the Board on the Member from whom the shares are to be repurchased at least two business days prior to the date specified in the notice as being the repurchase date; |
(b) | the price for the shares being repurchased shall be such price agreed between the Board and the applicable Member; |
(c) | the date of repurchase shall be the date specified in the repurchase notice; and |
(d) | the repurchase shall be on such other terms as specified in the repurchase notice as determined and agreed by the Board and the applicable Member in their sole discretion. |
17B. | The purchase of any share shall not oblige the Company to purchase any other share other than as may be required pursuant to applicable law and any other contractual obligations of the Company. |
18. | The holder of the shares being purchased shall be bound to deliver up to the Company at its registered office or such other place as the Board shall specify, the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof. |
19. | If at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to these Articles, be varied or abrogated with the consent in writing of the holders of a majority of the issued shares of that class, or with the sanction of a resolution passed by at least a majority of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of the shares of the class. |
20. | The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be one person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. |
21. | The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. |
22. | The Company may in so far as the Statutes from time to time permit pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. |
23. | No person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the Statutes) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder. |
24. | The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such share shall operate as a waiver of the Companys lien (if any) thereon. The Companys lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof. |
25. | The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of 14 days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy. |
26. | For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
27. | The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the date of the sale. |
28. | The Directors may from time to time make calls upon the Members in respect of any moneys unpaid on their shares, and each member shall (subject to receiving at least 14 days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on his shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. |
29. | The joint holders of a share shall be jointly and severally liable to pay calls in respect thereof. |
30. | If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. |
31. | The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the amount of the share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. |
32. | The Directors may make arrangements on the issue of shares for a difference between the Members, or the particular shares, in the amount of calls to be paid and in the times of payment. |
33. | The Directors may, if they think fit, receive from any member willing to advance the same all or any part of the moneys uncalled and unpaid upon any shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent. per annum) as may be agreed upon between the Member paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. |
34. | If a Member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of such much of the call or instalment as is unpaid, together with any interest which may have accrued. |
35. | The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited. |
36. | If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. |
37. | A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. |
38. | A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, but his liability shall cease if and when the Company receives payment in full of the fully paid up amount of the shares. |
39. | A statutory declaration in writing that the declarant is a Director of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration, if any, given for the share or any sale or disposition thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. |
40. | The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a share becomes due and payable, whether on account of the amount of the share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. |
41. | The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. |
42. | The legal personal representative of a deceased sole holder of a share shall be the only person recognised by the Company as having any title to the share. In the case of a share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only person recognised by the Company as having any title to the share. |
43. | Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member shall upon such evidence being produced as may from time to time be properly required by the Directors, have the right either to be registered as a member in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made. If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. |
44. | A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with within ninety days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the share until the requirements of the notice have been complied with. |
45. | Subject to these Articles, the Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe. |
46. | Subject to these Articles, the Company may by Ordinary Resolution: |
(a) | consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; |
(b) | sub-divide its existing shares, or any of them into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; |
(c) | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
47. | The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorized by law. |
48. | All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the shares in the original share capital. |
49. | For the purpose of determining those Members that are entitled to receive notice of, attend or vote at any meeting of Members or any adjournment thereof, or those Members that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Member for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period but not to exceed in any case 40 days. If the Register of Members shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members such register shall be so closed for at least 10 days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members. |
50. | In lieu of or apart from closing the Register of Members, the Directors may fix in advance a date as the record date for any such determination of those Members that are entitled to receive notice of, attend or vote at a meeting of the Members and for the purpose of determining those Members that are entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date of such determination. |
51. | If the Register of Members is not so closed and no record date is fixed for the determination of those Members entitled to receive notice of, attend or vote at a meeting of Members or those Members that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of those Members that are entitled to receive notice of, attend or vote at a meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof. |
52. | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
53. | (a) | The Company shall, if required by the Companies Law, in each year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors. |
(b) | At these meetings the report of the Directors (if any) shall be presented. |
(c) | The Company may hold an annual general meeting but shall not (unless required by the Companies Law) be obliged to hold an annual general meeting. |
54. | (a) | The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company. |
(b) | A Members requisition is a requisition of Members of the Company holding at the date of deposit of the requisition not less than 33% of the share capital of the Company as at that date carries the right of voting at general meetings of the Company. |
(c) | The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. |
(d) | If the Directors do not within twenty one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the second said twenty one days. |
(e) | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
55. | At least seven business days notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: |
(a) | in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat; and |
(b) | in the case of an extraordinary general meeting by a majority in number of the Members (or their proxies) having a right to attend and vote at the meeting, being a majority together holding not less than ninety five per cent in par value of the shares giving that right. |
56. | The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Member shall not invalidate the proceedings at any meeting. |
57. | No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business. The holders of Ordinary Shares being not less than an aggregate of one-third of all Ordinary Shares in issue present in person or by proxy and entitled to vote shall be a quorum for all purposes. A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting. |
58. | If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Member or Members present and entitled to vote shall be a quorum. |
59. | The Chairman of the Board of Directors shall preside as chairman at every general meeting of the Company. |
60. | If at any meeting the Chairman of the Board of Directors is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Members present shall choose a chairman of the meeting. |
61. | The Chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is adjourned for 10 days or more, not less than seven business days notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. |
62. | At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by one or more Members present in person or by proxy entitled to vote and who together hold not less than 10 per cent of the paid up voting share capital of the Company, and unless a poll is so demanded, a declaration by the chairman that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution. |
63. | If a poll is duly demanded it shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn. |
64. | In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall not be entitled to a second or casting vote. |
65. | A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. |
66. | Subject to any rights and restrictions for the time being attached to any class or classes of shares, every Member present in person and every person representing a Member by proxy at a general meeting of the Company shall have one vote for each share registered in his name in the Register of Members. |
67. | In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. |
68. | A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, or other person in the nature of a committee appointed by that court, and any such committee or other person, may on a poll, vote by proxy. |
69. | No Member shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. |
70. | On a poll, votes may be given either personally or by proxy. |
71. | The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorized. A proxy need not be a Member of the Company. |
72. | An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. |
73. | The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
74. | A resolution in writing signed by all the Members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorized representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. |
75. | Any corporation which is a Member or a Director may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members or of the Board of Directors or of a committee of Directors, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Member or Director. |
76. | If a clearing house (or its nominee) is a member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such person or persons as it thinks fit to act as its representative or representatives at any general meeting of the Company or at any general meeting of any class of members of the Company provided that, if more than one person is so authorized, the authorisation shall specify the number and class of shares in respect of which each such person is so authorized. A person so authorized pursuant to this provision shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual member of the Company holding the number and class of shares specified in such authorisation. |
77. | (A) | Unless otherwise determined by the Company in general meeting, the number of Directors shall not be more than nine Directors, the exact number of Directors to be determined from time to time solely by resolution of Members at general meeting. The Directors shall be elected or appointed in the first place by the subscribers to the Memorandum of Association or by a majority of them and thereafter by the Members at general meeting. |
(B) | The Directors shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal in number as possible. Each Directors class designation shall be approved by 2/3 of the affirmative votes of Directors present at the meeting of the Board of Directors. |
The Directors as initially classified shall hold office for terms as follows: |
(a) | the Class I Directors shall hold office until the earlier of July 31, 2005 or the date by which the Company is required under applicable law or the Nasdaq corporate governance rules to appoint three independent directors; |
(b) | the Class II Directors shall hold office until the date of the annual general meeting of shareholders in 2006 or until their successors shall be elected and qualified; and |
(c) | the Class III Directors shall hold office until the date of the annual general meeting or shareholders in 2007 or until their successors shall be elected and qualified. |
(C) | The Board of Directors shall have a Chairman of the Board of Directors (the Chairman) elected and appointed by a majority of the Directors then in office. The Directors may also elect a Vice-Chairman of the Board of Directors (the Vice-Chairman). The Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at a meeting of the Board of Directors, the Vice-Chairman, or in his absence, the attending Directors may choose one Director to be the chairman of the meeting. The Chairmans voting right as to the matters to be decided by the Board of Directors shall be the same as other Directors. |
(D) | Subject to these Articles and the Companies Law, the Company may by Ordinary Resolution elect any person to be a Director either to fill a casual vacancy on the Board or as an addition to the existing Board. |
(E) | The Directors by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting shall have the power from time to time and at any time to appoint any person as a Director to fill a casual vacancy on the Board or as an addition to the existing Board. |
78. | Subject to Article 77, a Director may be removed from office by Ordinary Resolution at any time before the expiration of his term notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). |
79. | A vacancy on the Board created by the removal of a Director under the provisions of Article 78 above may be filled by the election or appointment by Ordinary Resolution at the meeting at which such Director is removed or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. |
80. | The Board may, from time to time, and except as required by applicable law or the listing rules of the recognized stock exchange or automated quotation system where the Companys securities are traded, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to set forth the policies of the Company and the Board on various corporate governance related matters as the Board shall determine by resolution from time to time. |
81. | A Director shall not be required to hold any shares in the Company by way of qualification. A Director who is not a member of the Company shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company and all classes of shares of the Company. |
82. | The Directors shall receive such remuneration as the Board may from time to time determine. Each Director shall be entitled to be repaid or prepaid all travelling, hotel and incidental expenses reasonably incurred or expected to be incurred by him in attending meetings of the Board or committees of the Board or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of his duties as a Director. |
83. | Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration provided for by or pursuant to any other Article. |
84. | Any Director may in writing appoint another person to be his alternate to act in his place at any meeting of the Directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an officer of the Company and shall be deemed to be the agent of the Director appointing him. |
85. | Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. |
86. | Subject to the provisions of the Companies Law, these Articles and to any resolutions made in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution made by the Company in a general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been made. |
87. | Subject to these Articles, the Directors may from time to time appoint any person, whether or not a director of the Company to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the office of the Chief Executive Officer, one or more Vice Presidents, Chief Financial Officer, Manager or Controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. The Directors may also appoint one or more of their number to the office of Managing Director upon like terms, but any such appointment shall ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. |
88. | The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. |
89. | The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretion vested in him. |
90. | The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the following paragraphs shall be without prejudice to the general powers conferred by this paragraph. |
91. | The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any of the aforesaid. |
92. | The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. |
93. | Any such delegates as aforesaid may be authorized by the Directors to subdelegate all or any of the powers, authorities, and discretions for the time being vested to them. |
94. | The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. |
95. | Subject to Article 77, the office of Director shall be vacated, if the Director: |
(a) | becomes bankrupt or makes any arrangement or composition with his creditors; |
(b) | is found to be or becomes of unsound mind; |
(c) | resigns his office by notice in writing to the Company; |
(d) | without special leave of absence from the Board, is absent from meetings of the Board for six consecutive months and the Board resolves that his office be vacated; or |
(e) | if he or she shall be removed from office pursuant to these Articles or the Statutes. |
96. | Subject to Article 77, the Directors may meet together (whether within or outside the Cayman Islands) for the dispatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting of the Directors shall be decided by a majority of votes. In case of an equality of votes the chairman shall not have a second or casting vote. A Director may at any time summon a meeting of the Directors by at least two days notice in writing to every other Director and alternate Director. |
97. | A Director or Directors may participate in any meeting of the Board of Directors, or of any committee appointed by the Board of Directors of which such Director or Directors are members, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. |
98. | The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be three, provided that a Director and his appointed alternate Director shall be considered only one person for this purpose. A meeting of the Directors at which a quorum is present when the meeting proceeds to business shall be competent to exercise all powers and discretions for the time being exercisable by the Directors. A meeting of the Directors may be held by means of telephone or teleconferencing or any other telecommunications facility provided that all participants are thereby able to communicate immediately by voice with all other participants. |
99. | Subject to Article 77, a Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. |
100. | A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. |
101. | Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company. |
102. | The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording: |
(a) | all appointments of officers made by the Directors; |
(b) | the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and |
(c) | all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. |
103. | When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. |
104. | A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. When signed a resolution may consist of several documents each signed by one or more of the Directors. |
105. | The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. |
106. | The Directors shall elect a chairman of their meetings and determine the period for which he is to hold office but if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the same, the Directors present may choose one of their number to be chairman of the meeting. |
107. | A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting. |
108. | A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote. |
109. | All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. |
110. | A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Chairman or Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. |
111. | Subject to any rights and restrictions for the time being attached to any class or classes of shares and these Articles, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. |
112. | Subject to any rights and restrictions for the time being attached to any class or classes of shares and these Articles, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. |
113. | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors be applicable for meeting contingencies, or for equalizing dividends or for any other purpose to which those funds be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares of the Company) as the Directors may from time to time think fit. |
114. | Any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto, or in the case of joint holders, to any one of such joint holders at his registered address or to such person and such address as the Member or person entitled, or such joint holders as the case may be, may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Member or person entitled, or such joint holders as the case may be, may direct. |
115. | The Directors when paying dividends to the Members in accordance with the foregoing provisions may make such payment either in cash or in specie. |
116. | No dividend shall be paid otherwise than out of profits or, subject to the restrictions of the Companies Law, the share premium account. |
117. | Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as fully paid on the shares, but if and so long as nothing is paid up on any of the shares in the Company dividends may be declared and paid according to the amounts of the shares. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share. |
118. | If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share. |
119. | No dividend shall bear interest against the Company. |
120. | The books of account relating to the Companys affairs shall be kept in such manner as may be determined from time to time by the Directors. |
121. | The books of account shall be kept at the registered office of the Company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
122. | The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by law or authorized by the Directors or by the Company by Ordinary Resolution. |
123. | The accounts relating to the Companys affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Company by Ordinary Resolution or failing any such determination by the Directors or failing any determination as aforesaid shall not be audited. |
124. | The Board shall make the requisite annual returns and any other requisite filings in accordance with the Companies Law. |
125. | The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration. |
126. | Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. |
127. | Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an ordinary company, and at the next special meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an exempted company, and at any time during their term of office, upon request of the Directors or any general meeting of the Members. |
128. | The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of any one or more persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence. |
129. | The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal of the Company is so affixed in their presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose. |
130. | Notwithstanding the foregoing, a Director shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. |
131. | Subject to Article 87, the Company may have a Chief Executive Officer, Chief Technology Officer, Chief Operating Officer and Chief Financial Officer, one or more Vice Presidents appointed by the Directors. The Directors may also from time to time appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such provisions as to disqualification and removal as the Directors from time to time subscribe. |
132. | Subject to the Statutes and these Articles, the Board may, with the authority of an Ordinary Resolution: |
(a) | resolve to capitalise an amount standing to the credit of reserves (including a share premium account, capital redemption reserve and profit and loss account), whether or not available for distribution; |
(b) | appropriate the sum resolved to be capitalised to the Members in proportion to the nominal amount of shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards: |
(i) | paying up the amounts (if any) for the time being unpaid on shares held by them respectively; or |
(ii) | paying up in full unissued shares or debentures of a nominal amount equal to that sum, |
(c) | make any arrangements it thinks fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where shares or debentures become distributable in fractions the Board may deal with the fractions as it thinks fit; |
(d) | authorise a person to enter (on behalf of all the Members concerned) an agreement with the Company providing for either: |
(i) | the allotment to the Members respectively, credited as fully paid, of shares or debentures to which they may be entitled on the capitalisation, or |
(ii) | the payment by the Company on behalf of the Members (by the application of their respective operations of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing shares, |
an agreement made under the authority being effective and binding on all those Members; and |
(e) | generally do all acts and things required to give effect to the resolution. |
133. | Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the person entitled to give notice to any Member either personally, by facsimile or by sending it through the post in a prepaid letter or via a recognised courier service, fees prepaid, addressed to the Member at his address as appearing in the Register of Members or, to the extent permitted by all applicable laws and regulations, by electronic means by transmitting it to any electronic number or address or website supplied by the member to the Company or by placing it on the Companys Website provided that the Company has obtained the Members prior express positive confirmation in writing to receive or otherwise have made available to him notices. In the case of joint holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
134. | Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail. |
135. | Any Member present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. |
136. | Any notice or other document, if served by (a) post, shall be deemed to have been served five days after the time when the letter containing the same is posted and if served by courier, shall be deemed to have been served five days after the time when the letter containing the same is delivered to the courier (in proving such service it shall be sufficient to prove that the letter containing the notice or document was properly addressed and duly posted or delivered to the courier), or (b) facsimile, shall be deemed to have been served upon confirmation of receipt, or (c) recognised delivery service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service and in proving such service it shall be sufficient to provide that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier or (d) electronic means as Provided herein shall be deemed to have been served and delivered on the day following that on which it is successfully transmitted or at such later time as may be prescribed by any applicable laws or regulations. |
137. | Any notice or document delivered or sent to any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. |
138. | Notice of every general meeting shall be given to: |
(a) | all Members who have supplied to the Company an address for the giving of notices to them; and |
(b) | every person entitled to a share in consequence of the death or bankruptcy of a Member, who but for his death or bankruptcy would be entitled to receive notice of the meeting. |
139. | No Member shall be entitled to require discovery of any information in respect of any detail of the Companys trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the members of the Company to communicate to the public. |
140. | The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its members including, without limitation, information contained in the register of members and transfer books of the Company. |
141. | Every Director (including for the purposes of this Article any Alternate Director appointed pursuant to the provisions of these Articles) and officer of the Company for the time being and from time to time shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in connection with the execution or discharge of his duties, powers, authorities or discretions as a Director or officer of the Company, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. |
142. | No such Director or officer of the Company shall be liable to the Company for any loss or damage unless such liability arises through the willful neglect or default of such Director or officer. |
143. | Each Member agrees to waive any claim or right of action he might have, whether individually or by or in the right of the Company, against any Director or officer on account of any action taken by such Director, or the failure of such Director to take any action in the performance of his duties with or for the Company; PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director. |
144. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each year and shall begin on January 1st in each year. |
145. | No person shall be recognised by the Company as holding any share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent or future interest in any of its shares or any other rights in respect thereof except an absolute right to the entirety thereof in each Member registered in the Register of Members. |
146. | Subject to these Articles, if the Company shall be wound up the liquidator may, with the sanction of an Ordinary Resolution of the Company divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability. |
147. | Subject to the Companies Law and these Articles, the Company may at any time and from time to time by Special Resolution alter or amend these Articles or the Memorandum of Association of the Company, in whole or in part, or change the name of the Company. |
148. | Subject to these Articles, the Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
1. | The9 Computer Technology Consulting (Shanghai) Co., Ltd. (hereinafter The9 Computer) |
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Registered address: B-44, No. 498 Guoshoujing Road, Zhangjiang Hi-Tech Park, Shanghai |
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2. | Shanghai Jiucheng Information Technology Co., Ltd. (hereinafter Shanghai IT) |
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Registered address: No. 8885 Hutai Road, Shanghai |
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3. | [ ] Identity card number: Domicile address: |
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4. | [ ] Identity card number: Domicile address: |
1. | The Shareholders are all existing shareholders of Shanghai IT, who own all of the equity
interest of Shanghai IT; |
2. | Each of the Shareholders intends to entrust The9 Computer to exercise his voting rights in
Shanghai IT, and The9 Computer intends to accept the entrustment. |
1.1 | The Shareholders hereby irrevocably entrust The9 Computer with full power to exercise, on
behalf of each of the Shareholders, the following rights to which the Shareholders are
entitled in their capacity of Shanghai ITs shareholders under the articles of association of
Shanghai IT then in effect (collectively the Entrusted Rights): |
(1) | to attend Shareholders meetings of Shanghai IT as the proxy of each of the
Shareholders; |
(2) | to exercise, on behalf of each of the Shareholders, his voting rights on all
matters requiring discussion or resolutions of the shareholders meeting of Shanghai
IT; |
(3) | to propose to convene interim shareholders meetings of Shanghai IT; |
(4) | to exercise other voting rights of the Shareholders as specified in the
articles of association of Shanghai IT (including any other shareholders voting rights
as specified in the amended articles of association). |
1.2 | The Shareholders shall acknowledge and assume liabilities for any legal consequences
resulting from the exercise by The9 Computer of the Entrusted Rights described above. |
1.3 | The Shareholders hereby confirm that The9 Computer shall not be required to seek opinions
from the Shareholders prior to its exercise of the above Entrusted Rights. However, The9
Computer shall notify the Shareholders in a timely manner of any resolution or proposal for
convening an interim shareholders meeting after such resolution or proposal is made. |
2.1 | For the purpose of exercising the Entrusted Rights hereunder, The9 Computer shall be entitled
to know all information of Shanghai IT relating to its operation, business, customers, finance
and employees, and shall have access to the relevant documents and materials of Shanghai IT.
Shanghai IT shall fully cooperate with The9 Computer in this regard. |
3.1 | Where necessary, The9 Computer may sub-entrust its specific internal personnel (one or more)
to exercise any or all of the Entrusted Rights within the scope stipulated in Article 1
hereof. The Shareholders shall acknowledge such sub-entrustment and agree to assume any legal
liabilities in relation thereto. |
3.2 | The Shareholders will provide sufficient assistances to The9 Computer with regard to its
exercise of the Entrusted Rights, including the execution of resolutions of shareholders
meetings made by The9 Computer with respect to Shanghai IT or other relevant legal documents
in a timely manner when necessary (e.g., where the same is required in order to submit
documents for the purposes of government approvals, registrations or filings). |
3.3 | If, at any time within the term of this Agreement, the grant or exercise of the Entrusted
Rights hereunder cannot be realized due to any reason (except for the default of any
Shareholder or Shanghai IT), the parties shall immediately seek the alternative proposal that
is most similar to the one that cannot be realized and, if necessary, enter into a
supplementary agreement to amend or adjust the provisions herein, in order to ensure that the
purpose of this Agreement can continue to realize. |
4.1 | The parties acknowledge that The9 Computer shall not be required to be liable to or
compensate (economic or otherwise) the other parties or any third party in connection with any
exercise of the Entrusted Rights hereunder. |
4.2 | The Shareholders and Shanghai IT agree to indemnify and hold The9 Computer harmless against
all losses suffered or likely to be suffered by it due to any exercise of the Entrusted
Rights, including without limitation, any loss resulting from any litigation, demand,
arbitration or claim by any third party against it or from administrative investigation or
penalty by government authorities, provided, however, that no indemnification is available for
any losses caused by a willful default or gross negligence of The9 Computer. |
5.1 | Each of the Shareholders hereby jointly and severally represents and warrants as follows: |
5.1.1 | He is a PRC citizen with full capacity, has full and independent legal status
and legal capacity to execute, deliver and perform this Agreement, and may act
independently as a party to lawsuit. |
5.1.2 | He has full power to execute and deliver this Agreement and all the other
documents to be signed by him in relation to the transaction referred to herein, and
has the full power to complete the transaction referred to herein. This Agreement
shall be executed and delivered by him legally and properly. This Agreement
constitutes the legal and binding obligations on him and is enforceable against him in
accordance with its terms and conditions |
5.1.3 | He is the legitimate shareholder of Shanghai IT whose name appears on its
register of members as of the effective date of this Agreement, and except for the
rights created by this Agreement, there is no third party right on the Entrusted
Rights. In accordance with this Agreement, The9 Computer may exercise the Entrusted
Rights fully and completely pursuant to the articles of association of Shanghai IT then
in effect. |
5.2 | Each of The9 Computer and Shanghai IT hereby severally represents and warrants as follows: |
5.2.1 | It is a company with limited liability duly incorporated and legally existing
under the laws of the place of its incorporation with an independent legal person
status. It has full and independent legal status and legal capacity to execute,
deliver and perform this Agreement and may act independently as a party to lawsuit. |
5.2.2 | It has the full corporate power and authority to execute and deliver this
Agreement and all the other documents to be signed by it in relation to the transaction
referred to herein, and it has the full power and authority to complete the transaction
referred to herein. |
5.3 | Shanghai IT further represents and warrants as follows: |
5.3.1 | The Shareholders are all legitimate shareholders of Shanghai IT whose names
appear on its register of members as of the effective date of this Agreement. In
accordance with this Agreement, The9 Computer may exercise the Entrusted Rights fully
and completely pursuant to the articles of association of Shanghai IT then in effect. |
6.1 | This Agreement shall become effective once it is duly signed by the parties. Unless it is
early terminated by the parties in writing, this Agreement shall continue to be effective with
no restrictions so long as any of the Shareholders continues to be the shareholder of Shanghai
IT. |
6.2 | If any of the Shareholders transfers all of his equity interest in Shanghai IT with the prior
consent of The9 Computer, such Shareholder will no longer be a party hereto and the
obligations and undertakings of any other parties hereunder will not be adversely affected. |
7.1 | Any notice, request, demand and other correspondences required by this Agreement or made in
accordance with this Agreement shall be delivered in writing to the relevant party. |
7.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by
facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if
sent by post, five (5) days after it was posted. |
8.1 | The parties agree and confirm that, if any Party (hereinafter the Defaulting Party)
substantially violates any of the provisions herein or substantially fails to perform any of
the obligations hereunder, such violation or failure shall constitute a default under this
Agreement (hereinafter a Default), and any of the other non-defaulting parties (hereinafter
the Non-defaulting Party) shall have the right to require the Defaulting Party to rectify
such Default or take remedial measures within a reasonable period. If the Defaulting Party
fails to rectify such Default or take remedial measures within such a reasonable period or
within ten (10) days after the Non-defaulting Party notifies the Defaulting Party in writing
and require it to rectify the Default, then: (1) if any Shareholder or Shanghai IT is the
Defaulting Party, The9 Computer shall be entitled to terminate this Agreement and require the
Defaulting Party to make compensation for damages; (2) if The9 Computer is the Defaulting
Party, the Non-defaulting Party shall be entitled to require the Defaulting Party to make
compensation for damages, but the Non-defaulting Party shall have no right to terminate or
discharge this Agreement or the entrustment hereunder in any circumstances. |
8.2 | The rights and remedies set out herein shall be cumulative, and shall not preclude any other
rights or remedies provided by law. |
8.3 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected
by the suspension or termination of this Agreement. |
9.1 | This Agreement is executed in Chinese in [four (4)] originals, with one (1) original to be
retained by each party hereto. |
9.2 | The formation, effectiveness, performance, amendment, interpretation and termination of this
Agreement shall be governed by the laws of the PRC. |
9.3 | Any disputes arising out of and in connection with this Agreement shall be resolved through
consultations among the parties. If the parties cannot reach an agreement regarding such
disputes within thirty (30) days of their occurrence, such disputes shall be submitted to
China International Economic and Trade Arbitration Commission, Shanghai Branch, for
arbitration in Shanghai in accordance with the arbitration rules of such Commission, and the
arbitration award shall be final and binding on the parties. |
9.4 | None of the rights, powers and remedies granted to any party by any provisions herein shall
preclude any other rights, powers and remedies available to such party at law and under the
other provisions of this Agreement, nor shall the exercise by a Party of its rights, powers
and remedies preclude any exercise by such party of its other rights, powers and remedies. |
9.5 | No failure or delay by a party in exercising any of its rights, powers and remedies hereunder
or in accordance with laws (hereinafter the Partys Rights) shall result in a waiver
thereof, nor shall the waiver of any single or partial exercise of the Partys Rights preclude
such party from exercising such rights in any other way and exercising the other Partys
Rights. |
9.6 | The headings of the provisions herein are for reference only, and in no circumstances shall
such headings be used for or affect the interpretation of the provisions hereof. |
9.7 | Each provision contained herein shall be severable and independent from each of other
provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions herein
shall not be affected as a result thereof. |
9.8 | Any amendments or supplements to this Agreement shall be made in writing, and shall become
effective only when duly signed by the parties to this Agreement. |
9.9 | Without the prior written consent of the other parties, no party shall transfer any of
his/its rights and/or obligations hereunder to any third parties. |
9.10 | This Agreement shall be binding on the legal successors of the parties. |
1. | Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. (hereinafter Party A) |
2. | The9 Computer Technology Consulting (Shanghai) Co., Ltd. (hereinafter Party B) |
1.1 | Unless otherwise required herein or except as otherwise construed in the context, the
following terms in this Agreement shall be interpreted to have the following meanings: |
(1) | granting a license to Party A to use any software necessary for Party As
Business, in which Party B has a legal right; |
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(2) | providing Party A with a comprehensive operation plan and solution for
information technology/operation and management that is necessary for Party As
Business; |
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(3) | being responsible for the day-to-day management, maintenance and updating of
hardware equipment and data room/software resources and client resources; |
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(4) | being responsible for the development, maintenance and updating of application
software that is necessary for Party As Business; |
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(5) | providing training for the relevant business personnel of Party A; |
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(6) | assisting Party A in conducting technical information collection/ related
industry investigation and research; |
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(7) | providing consulting service relating to marketing and management of assets
(including without limitation, tangible assets and intangible assets, such as
trademarks, technologies, goodwill and public relation); |
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(8) | providing consulting service relating to personnel management and internal
administrative management; |
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(9) | providing consulting services, and other business and operation in relation
thereto; |
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(10) | providing any other relevant services required by Party A from time to time. |
1.2 | Any reference to any laws and regulations (hereinafter the Laws) herein shall be deemed: |
(1) | to include the references to the amendments, changes, supplements and
reenactments of such Laws, irrespective of whether they take effect before or after the
formation of this Agreement; and |
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(2) | to include the references to other decisions, notices and regulations enacted
in accordance therewith or effective as a result thereof. |
1.3 | Except as otherwise stated in the context herein, all references to an article, clause, item
or paragraph shall refer to the relevant part of this Agreement. |
2.1 | During the term hereof, Party B shall provide the Service to Party A with due care and
diligence based on the demand of Party As Business and according to the specific requirements
of Party A from time to time. |
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2.2 | For the purpose of providing good Service, Party B shall grant to Party A the right to use
any hardware Equipment for computers and networks that is necessary for Party As Business. |
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2.3 | Party B shall be equipped with all Equipment and personnel that are reasonably necessary for
the provision of the Service, and shall purchase and acquire new Equipment and employ
additional personnel based on the Annual Business Plan and according to the reasonable
requirements of Party A so as to satisfy the needs of Party B for the provision of good
Service to Party A in accordance with this Agreement. |
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2.4 | For the purpose of providing the Service hereunder, Party B shall communicate and exchange
with Party A all information relating to Party As Business. |
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2.5 | Notwithstanding any other provisions herein, Party B shall have the right to designate any
third party to provide any or all of the Services hereunder or perform any obligations of
Party B hereunder on its behalf. Party A hereby agrees that Party B shall have the right to
transfer to any third party all of its rights and obligations hereunder. |
3.1 | In respect of the Service provided by Party B hereunder, Party A shall pay the Service Fees
to Party B in the manner set forth below: |
3.1.1 | the performance Service Fee that is equivalent to 90% of the remaining
amount of the Service income of Party A for the year in which such income is generated
after deducting the costs of Party As Business as agreed upon by the Parties; and |
3.1.2 | the Service Fee, as separately agreed by the Parties, for the provision of any
specific technical Service and consulting Service by Party B from time to time upon
request by Party A. |
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3.1.3 | the Parties agree that the period for exemption of the performance Service Fee
shall be from January 1, 2011 to December 31, 2013, during which Party B shall exempt
Party A from the payment of any performance Service Fee incurred under Article 3.1.1
above as its support for the new business development of Party A. |
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3.1.4 | at the end of each year, the Parties shall calculate and confirm the actual
amount of the Service Fees required to be settled according to the payment requirements
described above. In the event of any change of the above due to the change of actual
business situation, a written contract shall be signed by the Parties in respect
thereof. |
3.2 | Party B may require Party A to make compensation in respect of any depreciation on the
Equipment actually provided by Party B to Party A for use according to the actual situation. |
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3.3 | The Parties agree to pay the Service Fees pursuant to the following requirements: |
3.3.1 | Unless otherwise exempted by Party B, Party A shall pay the fixed Service Fee
to Party B on monthly basis according to the payment notice issued by Party B to Party
A. Party A shall pay the fixed Service Fee under Article 3.1.1 hereof to Party B prior
to the tenth (10th) business day of each month; |
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3.3.2 | Unless otherwise exempted by Party B, Party A shall pay the performance
Service Fee annually according to the payment notice issued by Party B to Party A.
After the close of each fiscal year of Party A, Party A and Party B shall calculate and
verify the performance Service Fee actually payable by Party A based on the total
income before taxation of Party A for the preceding year as confirmed in the audit
report issued by an accounting firm registered in China as agreed by the Parties.
Party A shall, within fifteen (15) business days after the issue of the audit report,
pay the corresponding performance Service Fee to Party B. Party A undertakes to Party
B that it will provide all necessary information and assistance to the above accounting
firm, and will procure such accounting firm to complete and issue to the Parties the
audit report for the preceding year within thirty (30) business days after the close of
each calendar year. |
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3.3.3 | The payment method of the Service Fee under Article 3.1.3 hereof shall be
determined separately by the Parties. |
3.4 | Party A shall pay all the Service Fees as scheduled to the bank account designated by Party B
pursuant to the requirement of this Article. Party B shall notify Party A in writing of any
change of its bank account within seven (7) business days prior to such change. |
3.5 | The Parties agree that any payment of the above Service Fees shall, in principle, not result
in operating difficulty of any Party in the year when such payment is made. For the above
purpose and to the extent of realizing the above principle, Party B may agree to postpone any
payment of the Service Fees by Party A, or upon mutual consultation, adjust the payment ratio
and/or specific amount of the Service Fees payable by Party A to Party B under Article 3.1
hereof in writing. |
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3.6 | The Service Fees that shall be paid by Party A to Party B under Article 3.1.3 shall be
determined separately by the Parties according to the nature of the Service and workload. |
4.1 | The Service provided by Party B hereunder shall be exclusive. During the term of this
Agreement and without the prior written consent of Party B, Party A shall not sign any
agreement with any other third parties, nor accept, in any other form, other Services provided
to it by such third parties that are identical or similar to the Service of Party B. |
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4.2 | Party A shall, before November 30 of each year, provide Party B with the Annual Business Plan
for next year that has been confirmed by Party A so that Party B can prepare Service plans in
respect thereof and increase any software, Equipment, personnel and technical service capacity
required by it. Where Party A requires Party B to increase additional Equipment or personnel
on an ad hoc basis, it shall negotiate with Party B at least fifteen (15) days prior to such
increase so as to reach a unanimous agreement between the Parties. |
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4.3 | To facilitate the provision of the Service by Party B, Party A shall provide Party B with the
relevant information required by it in a timely manner according to the requirements of Party
B. |
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4.4 | Party A shall pay the Service Fees in full to Party B as scheduled in accordance with Article
3 hereof. |
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4.5 | Party A shall maintain its good reputation, actively expand its business and strive for the
optimization of its interest. |
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4.6 | During the term hereof, Party A agrees to cooperate with Party B and its parent companies
(including direct or indirect) to conduct an audit on connected transactions and all other
audits, and to provide Party B, its parent companies or any auditor entrusted by them with the
information and materials relating to the operation of Party A, its business, clients, finance
and employees. Party A also grants its consent to the disclosure of such information and
materials by the parent companies of Party B for the satisfaction of any regulatory
requirements of the countries on which their securities are listed. |
5.1 | Any intellectual property originally owned by Party B or obtained during the term hereof,
including the intellectual property of work products created during the provision of the
Service shall be the property of Party B. |
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5.2 | As the development of Party As Business is premised on the Service provided by Party B
hereunder, Party A agrees to make the following arrangements in respect of the Business
Related Technologies developed by Party A on the basis of such Service: |
(1) | if the Business Related Technologies are further developed by Party A due to
the entrustment of Party B, or jointly developed by Party A and Party B, their
ownership and the right to apply for patent in relation thereto shall belong to Party
B. |
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(2) | if the Business Related Technologies are further developed solely by Party A,
their ownership shall belong to Party A, provided that (A) Party A shall inform Party B
of the details of such technologies in a timely manner and provide Party B with the
relevant information required by it; (B) if Party A intends to license or transfer such
technologies, it shall first transfer such technologies or grant an exclusive license
in respect thereof to Party B subject to the mandatory requirements of the Laws of the
PRC. Party B may use such technologies within the specific scope of transfer or
authorization (but Party B shall have the right to decide whether to accept the
transfer or license); Party A shall only transfer the ownership of such technologies or
grant a license in respect thereof to any third party on the conditions not favorable
than those offered to Party B (including but not limited to the transfer price or
license fee) when Party B gives up the pre-emptive right in respect of the ownership of
such technology or an exclusive license to use the same, and shall guarantee that such
third parties will fully comply and perform the obligations of Party A hereunder; (C)
save for the circumstances described in (B) above, Party B shall have the right to
request for the purchase of such technologies during the term hereof; Party A shall
give its consent to such purchase request made by Party B subject to the mandatory
requirements of the Laws of the PRC, and the purchase price shall be the lowest price
permitted by the Laws of the PRC then in force. |
5.3 | If Party B is licensed to use the Business Related Technologies exclusively pursuant to
paragraph (2) of Article 5.2 hereof, such license shall be made according to the following
requirements: |
(1) | the term of the license shall not be less than five (5) years (from the
effective date of the relevant license agreement); |
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(2) | the scope of the license shall be set at the greatest possible extent; |
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(3) | during the term of the license and within scope thereof, no Party (including
Party A) other than Party B shall in any way use or license others to use such
technologies; |
(4) | without violating the conditions set forth in paragraph (3) of Article 5.3,
Party A shall have right to decide in its sole discretion to grant further licenses to
other third parties in respect of such technologies; |
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(5) | upon expiry of the license, Party B shall have the right to request for the
renewal of the license agreement, and Party A shall give its consent in respect
thereof. The terms of the license agreement shall remain unchanged, except for those
changes agreed by Party B. |
5.4 | Notwithstanding paragraph (2) of Article 5.2 above, all applications for patent with respect
to any Business Related Technologies set forth in such paragraph shall be made according to
the following requirements: |
(1) | if Party A intends to apply for patent with respect to any Business Related
Technologies set forth in such paragraph, it shall obtain the prior written consent
from Party B. |
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(2) | Party A shall only apply for patent on its own or transfer such right to
application to any third party when Party B gives up to purchase such right to
application for the Business Related Technologies. To the extent that Party A
transfers the right to application for patent as described above, Party A shall
guarantee that such third party will fully comply and perform the obligations of Party
A hereunder; the conditions on which Party A transfers the right to application for
patent to a third party (including but not limited to the transfer price) shall not be
favorable than those offered to Party B under paragraph (3) of this Article 5.4 hereof. |
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(3) | during the term hereof, Party B may at any time require Party A to make an
application for patent with respect to such Business Related Technologies, and decide
on its own whether to purchase the right to application in respect of such patent
application. Upon request by Party B, Party A shall transfer such right to application
for patent to Party B subject to the mandatory requirements of the Laws of the PRC, and
the transfer price shall be the lowest price permitted by the Laws of the PRC then in
force; Party B shall make patent applications after obtaining the right to application
for patent with respect to the Business Related Technologies. On obtaining the patent,
Party B shall become the legitimate owner of such patent. |
5.5 | Each of the Parties warrant to the other Party that it will indemnify the other Party against
any and all economic losses suffered by the other Party due to its infringement of others
intellectual property right (including copyright, trademark, patent right and proprietary
technologies). |
6.1 | During the term hereof, all Customer Information relating to Party As Business and the
Service provided by Party B, as well as other relevant materials (hereinafter the Customer
Information) shall be jointly owned by the Parties. |
6.2 | Regardless of whether this Agreement has terminated or not, the Parties shall keep in strict
confidence all the trade secrets, proprietary information and customer information and all
other information of a confidential nature about the other Parties known by them during the
execution and performance of this Agreement (hereinafter collectively the Confidential
Information). Unless a prior written consent is obtained from the Party disclosing the
Confidential Information or unless it is required to be disclosed to third parties according
to the relevant laws and regulations or the requirement of the country on which any affiliate
of a Party is listed, the Party receiving the Confidential Information shall not disclose to
any third party any Confidential Information. The receiving Party shall not use or indirectly
use any Confidential Information other than for the purpose of performing this Agreement. |
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6.3 | The following information shall not deemed as the Confidential Information: |
(a) | any information that has been legally known by receiving Party before as
evidenced by written documents; |
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(b) | any information entering the public domain not attributable to the fault of the
receiving Party; or |
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(c) | any information lawfully acquired by the receiving Party through other sources
after its receipt of such information. |
6.4 | The receiving Party may disclose the Confidential information to its relevant employees,
agents or professionals retained by it. However, the receiving Party shall ensure that the
aforesaid personnel shall comply with the relevant terms and conditions of this Agreement and
be responsible for any liability incurred in connection with any breach by such personnel of
the relevant terms and conditions hereof. |
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6.5 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected
by the termination of this Agreement. |
7.1 | It is a company with limited liability duly incorporated and legally existing under the Laws
of the PRC with an independent legal person status, has full and independent legal status and
legal capacity to execute, deliver and perform this Agreement, and may act independently as a
party to lawsuit. |
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7.2 | It has full corporate power and authority to execute and deliver this Agreement and all the
other documents to be signed by it in relation to the transaction referred to herein, and has
the full power and authority to complete the transaction referred to herein. This Agreement
shall be executed and delivered by it legally and properly. This Agreement constitutes the
legal and binding obligations on it and is enforceable against it in accordance with its
terms. |
7.3 | It has the complete business licenses necessary for its operation as of the effective date
hereof and adequate rights and qualifications to operate Party As Business being conducted
by it in China. |
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7.4 | It shall, within fifteen (15) business days after the close of each quarter, provide Party B
with the financial statements of the quarter to which they relate and a budget for next
quarter, and shall, within thirty (30) business days after the close of each year, provide
Party B with the financial statement of the year to which they relate and a budget for next
year. |
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7.5 | It shall notify Party B promptly of any circumstance that has or may have a material adverse
effect on Party As Business and its operation, and shall use its best effort to prevent the
occurrence of such circumstance and/or increase of losses. |
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7.6 | Without the written consent of Party B, Party A shall not in any way dispose of any asset
that is of significance to Party A, nor change the existing shareholding structure of Party A. |
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7.7 | Once Party B makes a written request, Party A shall use all its trade receivables and/or all
other assets that are legally owned and may be disposed of by it at that time in the manner
permitted by the Laws then in effect as the guarantee for the performance of its payment
obligation under Article 3 hereof. |
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7.8 | It shall indemnify and hold Party B harmless against all losses suffered or likely to be
suffered by it due to the provision of the Service by Party B, including without limitation,
any loss resulting from any litigation, demand, arbitration or claim by any third party
against it or from administrative investigation or penalty by government authorities,
provided, however, that no indemnification is available for any losses caused by a willful
default or gross negligence of Party B. |
8.1 | It is a company with limited liability duly incorporated and legally existing under the Laws
of the PRC with an independent legal person status. It has full and independent legal status
and legal capacity to execute, deliver and perform this Agreement and may act independently as
a party to lawsuit. |
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8.2 | It has full corporate power and authority to execute and deliver this Agreement and all the
other documents to be signed by it in relation to the transaction referred to herein, and has
the full power and authority to complete the transaction referred to herein. This Agreement
shall be executed and delivered by it legally and properly. This Agreement constitutes the
legal and binding obligations on it and is enforceable against it in accordance with its
terms. |
9.1 | This Agreement shall be formed from the date on which it is duly signed by the Parties. This
Agreement shall, once formed, have retrospective effect up to January 1, 2011.
Unless otherwise expressly agreed herein or the Parties agree in writing to terminate
this Agreement, this Agreement shall have a term of twenty (20) years. |
9.2 | The Parties shall, within three months prior to the expiry of their respective business
terms, complete all formalities in relation to the approval and registration for the extension
of their business terms so that the term of this Agreement can be continued. |
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9.3 | Upon termination hereof, Party A and Party B shall continue to observe their respective
obligations under Article 6 hereof. |
10.1 | Any notice, request, demand and other correspondences required by this Agreement or made in
accordance with this Agreement shall be delivered in writing to the relevant Party. |
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10.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by
facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if
sent by post, five (5) days after it was posted. |
11.1 | The Parties agree and confirm that, if any Party (hereinafter the Defaulting Party)
substantially violates any of the provisions herein or substantially fails to perform any of
the obligations hereunder, such violation or failure shall constitute a default under this
Agreement (hereinafter a Default), and the non-defaulting Party shall have the right to
require the Defaulting Party to rectify such Default or take remedial measures within a
reasonable period. If the Defaulting Party fails to rectify such Default or take remedial
measures within such a reasonable period or within ten (10) days after the non-defaulting
Party notifies the Defaulting Party in writing and require it to rectify the Default, then the
non-defaulting Party shall have the right to decide: (1) to terminate this Agreement and
require the Defaulting Party to make compensation for all damages; or (2) to require the
performance by the Defaulting Party of its obligations hereunder compulsorily and demand the
Defaulting Party to make compensation for all damages. |
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11.2 | Notwithstanding Article 11.1 above, the Parties agree and confirm that in no circumstances
shall Party A terminate this Agreement for whatever cause, unless otherwise required by the
Laws or herein. |
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11.3 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected
by the termination of this Agreement. |
13.1 | This Agreement is executed in Chinese in two (2) originals, with one (1) original to be
retained by each Party hereto. |
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13.2 | The formation, effectiveness, performance, amendment, interpretation and termination of this
Agreement shall be governed by the Laws of the PRC. |
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13.3 | Any disputes arising out of and in connection with this Agreement shall be resolved through
consultations among the Parties. If the Parties cannot reach an agreement regarding such
disputes within thirty (30) days of their occurrence, such disputes shall be submitted to
China International Economic and Trade Arbitration Commission for arbitration in Beijing in
accordance with the arbitration rules of such Commission currently in force at the time when
the application for arbitration is made, and the arbitration award shall be final and binding
on the Parties. |
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13.4 | None of the rights, powers and remedies granted to any Party by any provisions herein shall
preclude any other rights, powers and remedies available to such Party at Laws and under the
other provisions of this Agreement, nor shall the exercise by a Party of its rights, powers
and remedies preclude any exercise by such Party of its other rights, powers and remedies. |
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13.5 | No failure or delay by a Party in exercising any of its rights, powers and remedies hereunder
or in accordance with Laws (hereinafter the Partys Rights) shall result in a waiver
thereof, nor shall the waiver of any single or partial exercise of the Partys Rights preclude
such Party from exercising such rights in any other way and exercising the other Partys
Rights. |
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13.6 | The headings of the provisions herein are for reference only, and in no circumstances shall
such headings be used for or affect the interpretation of the provisions hereof. |
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13.7 | Each provision contained herein shall be severable and independent from each of other
provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions herein
shall not be affected as a result thereof. |
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13.8 | Any amendments or supplements to this Agreement shall be made in writing, and shall become
effective only when duly signed by the Parties to this Agreement. |
13.9 | Unless otherwise agreed herein, no Party shall transfer any of its rights and/or obligations
hereunder to any third parties without the prior written consent of the other Party. |
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13.10 | This Agreement shall be binding on the legal successors of the Parties. |
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13.11 | The Parties undertake that they will legally declare and pay all taxes on the transactions
contemplated under this Agreement, respectively. |
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13.12 | This Agreement is the entire agreement between the Parties with respect to the subject
matter of this Agreement and supersedes all previous oral and written agreements, contracts,
understandings and communications existing between the Parties with respect to such subject
matter. |
(1) | Han Junping, a PRC citizen with his identity card number: and his domicile address at ; | |
(2) | Xiong Wei, a PRC citizen with his identity card number: and his domicile address at ; |
(3) | The9 Computer Technology Consulting (Shanghai) Co., Ltd., a company with limited liability established and validly existing under the PRC Law with its registered address at Room 103, Building 3, No. 690 Bibo Road, Zhangjiang Hi-Tech Park, Shanghai (hereinafter The9 Computer); |
(1) | The Existing Shareholders are the shareholders of Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. (Huopu Cloud) a company with limited liability established and validly existing under the PRC Law, hereinafter the Company) whose name appear on the register of members of the Company, legally holding all equity interests of the Company, and the capital contribution and equity ratio of the Existing Shareholders in the registered capital of the Company as of the date of this Agreement are set out in Appendix I hereto. | |
(2) | The Existing Shareholders intend to transfer to The9 Computer and/or any other entity or individual designated by it, and The9 Computer intends to accept the transfer of, all of their respective equity interests in the Company, subject to the PRC Law. | |
(3) | In order to realize the equity transfer described above, the Existing Shareholders agree to grant to The9 Computer an exclusive and irrevocable equity transfer option, respectively. Pursuant to the equity transfer option, the Existing Shareholders shall, at the request of The9 Computer and to the extent permitted by the PRC Law, transfer the Option Equity (as defined below) to The9 Computer and/or any other entity or individual designated by it in accordance with the provisions of this Agreement. |
1.1 | Except as otherwise construed in the context, the following terms in this Agreement shall be interpreted to have the following meanings: |
1.2 | Any reference to the PRC Law herein shall be deemed (1) to include the references to the amendments, changes, supplements and reenactments of such law, irrespective of whether they take effect before or after the formation of this Agreement; and (2) to include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof. |
1.3 | Except as otherwise stated in the context herein, all references to an article, clause, item or paragraph shall refer to the relevant part of this Agreement. |
2.1 | The Existing Shareholders hereby severally and jointly agree to grant to The9 Computer an irrevocable, unconditional and exclusive Transfer Option. Pursuant to the Transfer Option, The9 Computer shall have the right to, to the extent permitted by the PRC Law, require the Existing Shareholders to transfer the Option Equity to The9 Computer or its designated entity or individual according to the terms and conditions of this Agreement. The9 Computer also agrees to accept such Transfer Option. |
3.1 | Subject to the terms and conditions of this Agreement, The9 Computer shall have the absolute sole discretion to determine the specific time, method and times of its Exercise of Option to the extent permitted by the PRC Law. |
3.2 | If The9 Computer and/or any other entity or individual designated by it is/are permitted by the PRC Law then in effect to hold all the equity interest of Huopu Cloud, The9 Computer shall have the right to elect to exercise all of its Transfer Option on a one-off basis, and The9 Computer and/or any other entity or individual designated by it shall accept the one-off transfer of all the Option Equity from the Existing Shareholders; if The9 Computer and/or any other entity or individual designated by it is/are permitted by the PRC Law then in effect to hold only part of the equity interest of Huopu Cloud, The9 Computer shall have the right to determine the amount of the Transferred Equity within the extent of not exceeding the upper limit of shareholding ratio as specified by the PRC Law then in force (hereinafter the Shareholding Limit), and shall also have the right to designate at its own will the amount of the Transfer Option that the Existing Shareholders shall transfer to The9 Computer and/or any entity or individual designated by it in such Exercise of Option. In the latter case, The9 Computer shall have the right to exercise its Transfer Option at multiple times in line with the gradual deregulation of the PRC Law on the permitted Shareholding Limit, with a view to ultimately acquiring all the Option Equity. |
3.3 | At each Exercise of Option by The9 Computer, each of the Existing Shareholders shall transfer the Transferred Equity to The9 Computer and/or any other entity or individual designated by it in the amount requested by The9 Computer. The9 Computer and any other entity or individual designated by it shall pay the Transfer Price in respect of the Transferred Equity accepted in each Exercise of Option to the Existing Shareholders transferring such Transferred Equity. |
3.4 | Subject to the terms and conditions of this Agreement and without violating the PRC Law then in effect, The9 Computer may accept the transfer of the Transferred Equity by itself or designate any third party to accept the transfer of all or part of the Transferred Equity in each Exercise of Option. |
3.5 | Having decided each Exercise of Option, The9 Computer shall issue to the Existing Shareholders a notice for exercising the Transfer Option (hereinafter the Exercise Notice, the form of which is set out in Appendix II hereto). The Existing Shareholders shall, upon receipt of the Exercise Notice, forthwith transfer the Transferred Equity to The9 Computer and/or any other entity or individual designated by it in such method as described in Article 3.3 hereof. |
3.6 | Each of the Existing Shareholders hereby jointly and severally undertake and guarantee that once The9 Computer issues the Exercise Notice: |
(1) | he shall immediately convene a shareholders meeting, pass shareholders resolution and take all other necessary actions to approve the transfer by any Existing Shareholder of all the Transfer Option at the Transfer Price to The9 Computer and/or any other entity or individual designated by it, and give up any pre-emptive right owned by him (if any); | ||
(2) | he shall immediately enter into an equity transfer agreement with The9 Computer and/or any other entity or individual designated by it for the transfer of all the Transferred Equity at the Transfer Price to The9 Computer and/or any other entity or individual designated by it; | ||
(3) | he shall provide The9 Computer with necessary support (including providing and executing all relevant legal documents, performing all government approval and registration procedures and assuming all relevant obligations) as per its request and in accordance with the requirements of the laws and regulations, so that The9 Computer and/or any other entity or individual designated by it can acquire all the Transferred Equity, free from and clear of any legal defect and any encumbrance, third party right or any other restriction on equity interest. |
3.7 | In respect of the Transferred Equity, at each Exercise of Option by The9 Computer, all the Transfer Price that shall be paid by The9 Computer or its designated entity or individual to each of the Existing Shareholders shall be the book value of the Company Registered Capital that is corresponding to the Transferred Equity. If, however, the lowest price permitted by the PRC Law then in force is higher than the book value of the Company Registered Capital, the Transfer Price shall be the lowest price permitted by the PRC Law. |
4.1 | Each of the Existing Shareholders hereby jointly and severally represents and warrants as follows: |
4.1.1 | He is a PRC citizen with full capacity, has full and independent legal status and legal capacity to execute, deliver and perform this Agreement, and may act independently as a party to lawsuit. | ||
4.1.2 | He has full power to execute, deliver and perform this Agreement and all the other documents to be signed by him in relation to the transaction referred to herein, and he has the full power to complete the transaction referred to herein. | ||
4.1.3 | This Agreement shall be executed and delivered by him legally and properly. This Agreement constitutes the legal and binding obligations on him and is enforceable against him in accordance with its terms and conditions. | ||
4.1.4 | He is the legal owner of the Option Equity whose name appears on the register of members of the Company as of the effective date of this Agreement, and except the pledge right created by the Equity Pledge Agreement dated December 13, 2010 between The9 Computer and the Existing Shareholders, the delegated power created by the Shareholders Voting Proxy Agreement dated December 13, 2010 among the Company, The9 Computer and the Existing Shareholders, and the rights created by this Agreement, there is no lien, pledge, claim and other encumbrances and third party rights on the Option Equity. In accordance with this Agreement, The9 Computer and/or any other entity or individual designated by it may, upon the Exercise of Option, obtain a good title to the Transferred Equity, free from and clear of any lien, pledge, claim and other encumbrances or third party rights. | ||
4.1.5 | The execution, delivery and performance by the Existing Shareholders of this Agreement and the consummation by the Existing Shareholders of the transactions contemplated hereby do not violate any provisions of the PRC Law, and any of its agreements, contracts and other arrangements with any third party by which he is bound. |
4.2 | The9 Computer hereby represents and warrants as follows: |
4.2.1 | The9 Computer is a wholly foreign-owned company with limited liability duly incorporated and legally existing under the RPC Law with an independent legal person status. The9 Computer has full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit. | ||
4.2.2 | The9 Computer has the full corporate power and authority to execute, deliver and perform this Agreement and all the other documents to be signed by it in relation to the transaction referred to herein, and it has the full power and authority to complete the transaction referred to herein. |
5.1 | He shall take all necessary measures during the term of this Agreement to ensure that the Company is able to obtain all the Business Permits promptly and all the Business Permits remain to be valid at any time. |
5.2 | Without the prior written consent by The9 Computer during the term of this Agreement, |
5.2.1 | none of the Existing Shareholders shall transfer or otherwise dispose of any Option Equity or create any encumbrance or other third party rights on any Option Equity; | ||
5.2.2 | he shall not increase or decrease the Company Registered Capital, or cause/approve the Company to be divided or merged with any other entity; | ||
5.2.3 | he shall not dispose of or cause the management of the Company to dispose of any Material Asset (other than in the ordinary course of business), or create any encumbrance or other third party rights on any Material Asset; | ||
5.2.4 | he shall not terminate or cause the management of the Company to terminate any Material Agreements entered into by the Company, or enter into any other agreements in conflict with the existing Material Agreements; | ||
5.2.5 | he shall not appoint or replace any executive directors or members of the board (if any)or supervisors of the Company or any other management personnel of the Company who shall be appointed or dismissed by the Existing Shareholders; | ||
5.2.6 | he shall not procure the Company to declare the distribution of or in practice release any distributable profit, bonus, share profit or dividend; | ||
5.2.7 | he shall ensure that the Company validly exists and is not terminated, liquidated or dissolved; | ||
5.2.8 | he shall not amend the articles of association of the Company; | ||
5.2.9 | he shall ensure that the Company shall not lend or borrow any money, or provide guarantee or engage in security activities in any other forms, or bear any substantial obligations other than in the ordinary course of business; | ||
5.2.10 | he shall not in any way make or authorize others (including but not limited to the Companys directors nominated by him) to make any resolution, instruction, consent or order to procure the Company to carry out any transaction that would or might substantially affect any asset, right, obligation or business of the Company (including its branches, subsidiaries or affiliates) (hereinafter Prohibited Transaction), nor sign any agreement, contract, memorandum or transaction document of any other form in respect of the Prohibited Transaction (hereinafter Prohibited Document), nor shall he allow any Prohibited Transaction to be carried out nor any Prohibited Documents to be signed through omission to act; and |
5.2.11 | he shall not cause the Company or the management of Company to approve any of the following acts of the Companys subsidiaries or affiliates (collectively referred to the Subsidiaries): |
(a) | to increase or decrease any Subsidiarys registered capital, or cause/approve any Subsidiary to be divided or merged with any other entity; | ||
(b) | to dispose of or cause the management of the Subsidiaries to dispose of any Material Assets of any Subsidiary (other than in the ordinary course of business), or create any encumbrance or other third party rights on the Material Asset; | ||
(c) | to terminate or cause the management of the Subsidiaries to terminate any Material Agreements entered into by any Subsidiary, or enter into any other agreements in conflict with the existing Material Agreements; | ||
(d) | to appoint or replace any directors or supervisors of any Subsidiary or any other management personnel of such Subsidiary who shall be appointed or dismissed by the Company; | ||
(e) | to terminate, liquidate or dissolve any Subsidiary or act in any way that damages or is likely to damage the valid existence of any Subsidiary; | ||
(f) | to amend the articles of association of any Subsidiary; and | ||
(g) | to lend or borrow any money, or provide guarantee or engage in security activities in any other forms, or bear any substantial obligations other than in the ordinary course of business. |
5.3 | Within the term of this Agreement, he shall make his best effort to develop the business of the Company and ensure that the operation of the Company is legal and in compliance with the regulations, and he will not engage in any act or omission to act which may damage the Companys (including the Subsidiaries) assets, goodwill or affect the validity of the Business Permits of the Company. | |
5.4 | Within the term of this Agreement, he shall timely notify The9 Computer of any situation that may have a material adverse effect on the existence, business operation, financial condition, assets or goodwill of the Company (including the Subsidiaries), and shall timely take all the measures approved by The9 Computer to remove such adverse situation or take effective remedial measures with respect thereto. | |
5.5 | He will procure any director of the Company nominated by him or any management personnel of the Company recommended by him (if any) to strictly observe the above undertakings in discharging their duties as director or management personnel of the Company, and shall not in any way engage in any act or omission to act that is in conflict with any such undertaking. |
5.6 | If the total amount of the Transfer Price obtained by any Existing Shareholder with respect to the Transferred Equity held by him is higher than his capital contribution to the Company, or he receives any form of profit distribution, share profit, dividend or bonus from the Company, then the Existing Shareholder agrees that he will, subject to the provisions of the PRC Law, give up the premium earnings and any profit distribution, share profit, dividend or bonus (after the deduction of relevant taxes), and The9 Computer shall be entitled thereto. Otherwise, such Existing Shareholder shall compensate The9 Computer and/or any other entity or individual designated by it for any loss incurred as a result thereof. |
6.1 | Regardless of whether this Agreement has terminated or not, the Parties shall keep in strict confidence all the trade secrets, proprietary information and customer information and all other information of a confidential nature about the other Parties known by them during the execution and performance of this Agreement (hereinafter collectively the Confidential Information). Unless a prior written consent is obtained from the Party disclosing the Confidential Information or unless it is required to be disclosed to third parties according to the relevant laws and regulations or the requirement of the country on which any affiliate of a Party is listed, the Party receiving the Confidential Information shall not disclose to any third party any Confidential Information. The receiving Party shall not use or indirectly use any Confidential Information other than for the purpose of performing this Agreement. |
6.2 | The following information shall not deemed as the Confidential Information: |
(a) | any information that has been legally known by receiving Party before as evidenced by written documents; | ||
(b) | any information entering the public domain not attributable to the fault of the receiving Party; or | ||
(c) | any information lawfully acquired by the receiving Party through other sources after his/its receipt of such information. |
6.3 | The receiving Party may disclose the Confidential information to his/its relevant employees, agents or professionals retained by him/it. However, the receiving Party shall ensure that the aforesaid personnel shall comply with the relevant terms and conditions of this Agreement and be responsible for any liability incurred in connection with any breach by such personnel of the relevant terms and conditions hereof. | |
6.4 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected by the suspension or termination of this Agreement. |
7.1 | This Agreement shall become effective once it is duly signed by the Parties, and shall terminate after all the Option Equity is legally transferred to The9 Computer and/or any other entity or individual designated by it in accordance with the provisions of this Agreement. |
8.1 | Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant Party. | |
8.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if sent by post, five (5) days after it was posted. | |
8.3 | Any notice, request, demand and other correspondences made to The9 Computer shall be delivered to the address of the Company as first above written. |
9.1 | The Parties agree and confirm that, if any Party (hereinafter the Defaulting Party) substantially violates any of the provisions herein or substantially fails to perform any of the obligations hereunder, such violation or failure shall constitute a default under this Agreement (hereinafter a Default), and the non-defaulting Party shall have the right to require the Defaulting Party to rectify such Default or take remedial measures within a reasonable period. If the Defaulting Party fails to rectify such Default or take remedial measures within such a reasonable period or within ten (10) days after the non-defaulting Party notifies the Defaulting Party in writing and require it to rectify the Default, then the non-defaulting Party shall have the right at its own discretion to decide the following: |
9.1.1 | if any Existing Shareholder or the Company is the Defaulting Party, The9 Computer shall be entitled to terminate this Agreement and require the Defaulting Party to make compensation for damages; | ||
9.1.2 | if The9 Computer is the Defaulting Party, the non-defaulting Party shall be entitled to require the Defaulting Party to make compensation for damages, but unless otherwise provided by law, the non-defaulting Party shall have no right to terminate or discharge this Agreement in any circumstances. |
9.2 | The rights and remedies set out herein shall be cumulative, and shall not preclude any other rights or remedies provided by law. |
9.3 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected by the suspension or termination of this Agreement. |
10.1 | This Agreement is executed in Chinese in three (3) originals, with one (1) original to be retained by each Party hereto. |
10.2 | The formation, effectiveness, performance, amendment, interpretation and termination of this Agreement shall be governed by the PRC Law. |
10.3 | Any disputes arising out of and in connection with this Agreement shall be resolved through consultations among the Parties. If the Parties cannot reach an agreement regarding such disputes within thirty (30) days of their occurrence, such disputes shall be submitted to China International Economic and Trade Arbitration Commission, Shanghai Branch, for arbitration in Shanghai in accordance with the arbitration rules of such Commission, and the arbitration award shall be final and binding on the Parties. |
10.4 | None of the rights, powers and remedies granted to any Party by any provisions herein shall preclude any other rights, powers and remedies available to such Party at law and under the other provisions of this Agreement, nor shall the exercise by a Party of its rights, powers and remedies preclude any exercise by such Party of its other rights, powers and remedies. |
10.5 | No failure or delay by a Party in exercising any of its rights, powers and remedies hereunder or in accordance with laws (hereinafter the Partys Rights) shall result in a waiver thereof, nor shall the waiver of any single or partial exercise of the Partys Rights preclude such Party from exercising such rights in any other way and exercising the other Partys Rights. |
10.6 | The headings of the provisions herein are for reference only, and in no circumstances shall such headings be used for or affect the interpretation of the provisions hereof. |
10.7 | Each provision contained herein shall be severable and independent from each of other provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions herein shall not be affected as a result thereof. |
10.8 | This Agreement, once executed, shall supersede any other previous legal documents executed by the Parties with respect to the subject matter hereof. Any amendments or supplements to this Agreement shall be made in writing and shall become effective only when duly signed by the Parties to this Agreement. |
10.9 | Without the prior written consent of The9 Computer, neither the Existing Shareholders nor the Company shall transfer any of their/its rights and/or obligations hereunder to any third parties. The9 Computer shall be entitled to transfer any of its rights and/or obligations hereunder to any third party designated by it after serving notice to the Existing Shareholders. The Existing Shareholders and the Company hereby agree that The9 Computer shall be entitled to transfer any of its rights and/or obligations hereunder to any third party after serving written notice to the Existing Shareholders. |
10.10 | This Agreement shall be binding on the legal successors of the Parties. |
Han Junping | ||||
Signature:
|
/s/ Han Junping
|
|||
Xiong Wei | ||||
Signature:
|
/s/ Xiong Wei
|
Company Name
|
Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. | |
Registered Address
|
Room 1F02, Block 14, No. 528, Yanggao North Road, New Pudong District, Shanghai | |
Registered Capital
|
RMB50 million | |
Legal Representative
|
Junping Han |
Capital Structure | Shareholders name | Contribution (RMB) | Capital Share | ||||
Junping Han | 30 million | 60 | % | ||||
Wei Xiong | 20 million | 40 | % | ||||
Total | 50 million | 100 | % | ||||
Financial Year | January 1 to December 31 |
(1) | Han Junping, a PRC citizen with his identity card number: and his domicile address at ; | |
(2) | Xiong Wei, a PRC citizen with his identity card number: and his domicile address at ; |
(3) | The9 Computer Technology Consulting (Shanghai) Co., Ltd., a company with limited liability incorporated in Shanghai, the PRC with its registered address at Room 103, Building 3, No. 690 Bibo Road, Zhangjiang Hi-Tech Park, Shanghai, PRC (hereinafter the Pledgee). |
(1) | The Pledgors are the shareholders of Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. (a company with limited liability established and validly existing under the PRC Law, hereinafter the Company) whose names appear on the register of members of the Company, legally holding all equity interests of the Company (hereinafter the Companys Equity), and the capital contribution and equity ratio of the Pledgors in the registered capital of the Company as of the date of this Agreement is set out in Appendix I hereto. |
(2) | The Parties hereto entered into the Exclusive Call Option Agreement dated December 13, 2010 (hereinafter the Call Option Agreement), pursuant to which the Pledgors shall, to the extent permitted by the PRC Law, transfer at the request of the Pledgee all or part of their respective equity interests in the Company to the Pledgee and/or any other entities or persons designated by it. |
(3) | The Parties hereto entered into the Shareholder Voting Proxy Agreement dated December 13, 2010 (hereinafter the Voting Right Proxy Agreement), pursuant to which the Pledgors shall irrevocably entrust any person then designated by the Pledgee with full power to exercise on their behalf all of their shareholders voting rights in the Company. |
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(4) | Pursuant to the Loan Agreement dated December 13, 2010 between the Pledgee and the Pledgors (hereinafter the Loan Agreement), the Pledgee has already provided the Pledgors with a loan totaling Fifty Million Renminbi (RMB50,000,000), which shall be repaid, in the sole discretion of the Pledgee, by the Pledgors immediately when the Pledgee makes a repayment request to the Pledgors in writing. | |
(5) | As the guarantee by the Pledgors for the performance of their Contractual Obligations (as defined below) and repayment of their Guaranteed Liabilities (as defined below), the Pledgors agree to pledge all of the Companys Equity owned by them to the Pledgee, and grants herewith to the Pledgee the right of first priority in the pledge. |
1.1 | Except as otherwise construed in the context, the following terms in this Agreement shall be interpreted to have the following meanings: |
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1.2 | Any reference to the PRC Law herein shall be deemed (1) to include the references to the amendments, changes, supplements and reenactments of such law, irrespective of whether they take effect before or after the formation of this Agreement; and (2) to include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof. |
1.3 | Except as otherwise stated in the context herein, all references to an article, clause, item or paragraph shall refer to the relevant part of this Agreement. |
2.1 | The Pledgors hereby agree to pledge the Pledged Property which they legally own and have the right to dispose of to the Pledgee according to the provisions hereof as the guarantee for the performance of their Contractual Obligations and repayment of their Guaranteed Liabilities. |
2.2 | The Pledgors hereby undertake that they will be responsible for, on the date hereof, recording the arrangement of the equity pledge hereunder (hereinafter the Equity Pledge) on the register of members of the Company. The Parties shall, immediately after the execution hereof, make their best efforts to complete all formalities in relation to the Equity Pledge with the industrial and commercial registration authority to which the Company relates as soon as possible. |
2.3 | During the term of this Agreement, except for the willful material negligence of the Pledgee or that such negligence is directly related as cause/result to the consequence, the Pledgee shall not be liable in any way to, nor shall the Pledgors have any right to claim in any way or propose any demands on the Pledgee, in respect of the reduction in value of the Pledged Property. |
2.4 | Subject to compliance with Article 2.3 above, in case of any possibility of obvious reduction in value of the Pledged Property which is sufficient to jeopardize the Pledgees rights, the Pledgee may demand the Pledgors to provide corresponding guarantee as supplements. Where the Pledgors fail to do so, the Pledgee may at any time auction or sell off the Pledged Property on behalf of the Pledgors, and discuss with the Pledgors to use the proceeds from such auction or sale-off as pre-repayment of the Guaranteed Liabilities, or may submit such proceeds to the local notary institution where the Pledgee is domiciled (any costs incurred in relation thereto shall be borne by the Pledgors). | |
2.5 | In case of any Event of Default, the Pledgee shall have the right to dispose of the Pledged Property in the manner as set out in Article 4 hereof. |
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2.6 | The Pledgors shall increase the capital of the Company unless with the prior consent of the Pledgee. The increased capital contribution of the Pledgors in the registered capital of the Company due to the capital increase made by them shall also be deemed as part of the Pledged Property. |
2.7 | The Pledgors shall receive dividends or bonus from the Pledged Property unless with the prior consent of the Pledgee. Any dividends received by the Pledgors in connection with the Pledged Property shall be deposited by the Company into the bank account designated by the Pledgee, subject to the supervision of the Pledgee and used as the Pledged Property to first repay the Guaranteed Liabilities. | |
2.8 | The Pledgors agree that they will be jointly and severally liable to the Pledgee for any Event of Default of the other Pledgors. Upon the occurrence of the Event of Default, the Pledgors shall have the right to dispose of any Pledged Property of any of the Pledgors pursuant to this Agreement. |
3.1 | After the Pledgors and the Company have fully and completely performed all Contractual Obligations and repaid all Guaranteed Liabilities, the Pledgee shall, at the request of the Pledgors, release the Equity Pledge hereunder, and shall cooperate with the Pledgors to cancel the record of the Equity Pledge in the register of members of the Company and the registration thereof with the industrial and commercial registration authority to which the Company relates. All reasonable costs incurred by the release of the pledge shall be borne by the Pledgors. |
4.1 | The Parties hereby agree that, in case of any Event of Default, the Pledgee shall have the right to exercise, upon giving written notice to the Pledgors, all remedies, rights and powers for breach available to it under the PRC Law, Transaction Agreements and the terms hereof, including (but not limited to) repayment in priority with proceeds from auctions or sale-offs of the Pledged Property. The Pledgee shall not be liable for any loss arising from its reasonable exercise of such rights and powers. | |
4.2 | The Pledgee shall have the right to designate in writing its legal counsel or other agents to exercise on its behalf any and all rights and powers set out above, and the Pledgors shall not oppose thereto. |
4.3 | With regard to the reasonable costs incurred by the Pledgee in connection with its exercise of any or all of the rights and powers set out above, the Pledgee shall have the right to deduct such costs in exact amount from the proceeds it acquires from the exercise of such rights and powers. |
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4.4 | The proceeds the Pledgee acquires from the exercise of its rights and powers shall be used in the following order: |
4.5 | The Pledgee shall have the option to exercise, simultaneously or in certain sequence, any of the remedies for breach to which it is entitled; the Pledgee shall not be required to exercise other remedies for breach before its exercise of the right to the auctions or sale-offs of the Pledged Property hereunder. |
5.1 | All actual expenses in connection with the creation of the Equity Pledge hereunder, including (but not limited to) stamp duties, any other taxes and all legal fees, etc shall be borne by the Pledgors and the Pledgee, respectively. |
6.1 | The Equity Pledge hereunder is a continuous guarantee, the validity of which shall continue until the full performance of the Contractual Obligations or the full repayment of the Guaranteed Liabilities. No exemption or grace period granted by the Pledgee in respect of any breach of the Pledgors, nor delay by the Pledgee in exercising any of its rights under the Transaction Agreements and this Agreement shall affect the rights of the Pledgee under this Agreement, the relevant PRC Law and the Transaction Agreements, the rights of the Pledgee to demand at any time thereafter the strict performance of the Transaction Agreements and this Agreement by the Pledgors or the rights to which the Pledgee may be entitled due to any subsequent breach by the Pledgors of the Transaction Agreements and/or this Agreement. |
7.1 | The Pledgors are PRC citizen with full capacity, and have the legal right and capacity to execute this Agreement and to bear legal obligations hereunder. |
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7.2 | All reports, documents and information concerning all issues of the Pledgors and as required by this Agreement that are provided by the Pledgors to the Pledgee prior to the effective date of this Agreement are true and valid in all material aspects as of the effective date hereof. |
7.3 | All reports, documents and information concerning all issues of the Pledgors and as required by this Agreement that are provided by the Pledgors to the Pledgee after the effective date of this Agreement are true and valid in all material aspects at the time of their provisions. |
7.4 | At the time of the effectiveness of this Agreement, the Pledgors are the sole legal owner of the Pledged Property, with no existing dispute whatever concerning the ownership of the Pledged Property. The Pledgors have the right to dispose of the Pledged Property or any part thereof. | |
7.5 | Except for the encumbrance set on the Pledged Property hereunder and the rights set under the Transaction Agreements, there is no other encumbrance or third party interest set on the Pledged Property. |
7.6 | The Pledged Property is capable of being pledged or transferred according to the laws, and the Pledgors have the full right and power to pledge the Pledged Property to the Pledgee according to this Agreement. |
7.7 | This Agreement constitutes the legal, valid and binding obligations on the Pledgors when it is duly executed by the Pledgors. |
7.8 | Any consent, permission, waiver or authorization by any third person, or any approval, permission or exemption by any government authority, or any registration or filing formalities (if required by laws) with any government authority to be handled or obtained in respect of the execution and performance hereof and the Equity Pledge hereunder have already been handled or obtained, and will be fully effective during the term of this Agreement. |
7.9 | The execution and performance by the Pledgors of this Agreement are not in violation of or conflict with any laws applicable to it, or any agreement to which it is a party or which has binding effect on its assets, any court judgment, any arbitration award, or any administration authority decision. |
7.10 | The pledge hereunder constitutes the encumbrance of first order in priority on the Pledged Property. |
7.11 | All taxes and costs payable in connection with acquisition of the Pledged Property have already been paid in full by the Pledgors. | |
7.12 | There is no pending or, to the knowledge of the Pledgors, threatened litigation, legal proceeding or demand by any court or any arbitral tribunal against the Pledgors, or their property, or the Pledged Property, nor is there any pending or, to the knowledge of the Pledgors, threatened litigation, legal proceeding or demand by any government authority or any administration authority against the Pledgors, or their property, or the Pledged Property, which is of material or detrimental effect on the economic status of the Pledgors or their capability to perform the obligations hereunder and the Guaranteed Liabilities. |
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7.13 | The Pledgors hereby warrant to the Pledgee that the above representations and warranties will be true and correct and fully performed in all circumstances at any time before the Contractual obligations are fully performed or the Guaranteed Liabilities are fully repaid. |
8.1 | In case that the value of the Pledged Property is detrimentally affected due to any cause not attributable to the Pledgee, the Pledgors shall, at the request of the Pledgee, provide the Pledgee with further guarantee in the way and on the terms acceptable to the Pledgee so as to supplement or replace the Pledged Property fully. |
8.2 | Without the prior written consent of the Pledgee, the Pledgors shall not further create or permit the creation of any new pledge or any other encumbrance on the Pledged Property; any pledge or other encumbrance on the whole or part of the Pledged Property created without the prior written consent by the Pledgee shall be null and void. |
8.3 | Without first giving written notice to the Pledgee and having the Pledgees prior written consent, the Pledgors shall not transfer the Pledged Property, and any attempt by the Pledgors to transfer the Pledged Property shall be null and void. The proceeds from any transfer of the Pledged Property by the Pledgors shall be used to repay to the Pledgee in advance the Guaranteed Liabilities or submit the same to the third party as agreed with the Pledgee. |
8.4 | In case of any litigation, arbitration or other demand which may affect detrimentally the interest of the Pledgors or the Pledgee under the Transaction Agreements and hereunder or the Pledged Property, the Pledgors undertake to notify the Pledgee thereof in writing as soon as possible and promptly and shall take, at the reasonable request of the Pledgee, all necessary measures to ensure the pledged interest of the Pledgee in the Pledged Property. |
8.5 | The Pledgors shall not carry on or permit any act or action which may affect detrimentally the interest of the Pledgee under the Transaction Agreements and hereunder or the Pledged Property. The Pledgors shall give up the right of first refusal to which they may be entitled when the Pledgee realizes its right to the pledge. | |
8.6 | The Pledgors shall, during the first month of each calendar quarter, provide the Pledgee with the financial statement of the Company for the preceding calendar quarter, including (but not limited to) its balance sheet, profit statement and cash flow statement. |
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8.7 | The Pledgors shall, after the execution hereof, make their best effort and take all necessary means to complete the registration of the Equity Pledge hereunder with the relevant industrial and commercial administration departments as soon as possible. Moreover, the Pledgors guarantee that they shall, at the reasonable request of the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to supplementary agreement hereof) so as to ensure the pledged interest of Pledgee in the Pledged Property and the exercise and realization of the rights thereof. |
8.8 | In case of assignment of any Pledged Property as a result of the exercise of the right to the pledge hereunder, the Pledgors guarantee that they will take all necessary measures to realize such assignment. | |
8.9 | The Pledgors shall ensure that the procedures for convening shareholders meetings and board meetings of the Company for the purposes of executing this Agreement, creating the pledge and exercising the right thereto, as well as the method of voting and matters put for voting shall not in violation of laws, administrative regulations or the articles of association of the Company. |
9.1 | As supplement and subject to compliance with other terms of the Transaction Agreements and this Agreement, in case that at any time the promulgation or change of any PRC Law, regulations or rules, or change in interpretation or application of such laws, regulations and rules, or the change of the relevant registration procedures enables the Pledgee to believe that it will be illegal or in conflict with such laws, regulations or rules to further maintain the effectiveness of this Agreement and/or dispose of the Pledged Property in the way provided herein, the Pledgors shall, at the written direction of the Pledgee and in accordance with its reasonable request, promptly take any action and/or execute any agreement or other document, in order to: |
(1) | keep this Agreement and the right to the pledge hereunder remain in effect; | ||
(2) | facilitate the disposal of the Pledged Property in the way as provided herein; and/or | ||
(3) | maintain or realize the guarantee established or intended to establish hereunder. |
10.1 | This Agreement shall become effective upon the satisfaction of all of the following conditions: |
(1) | this Agreement is duly executed by each of the Parties; and | ||
(2) | the Equity Pledge hereunder has been legally recorded in the register of members of the Company. |
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10.2 | This Agreement shall have its valid term until the full performance of the Contractual Obligations or the full repayment of the Guaranteed Liabilities. |
11.1 | Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant Party. |
11.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if sent by post, five (5) days after it was posted. |
12.1 | Without the consent of the Pledgors, the Pledgee may assign its rights and/or obligations hereunder to any third party after giving notice to the Pledgors; however, the Pledgors shall not, without the Pledgees prior written consent, assign their respective rights, obligations and/or liabilities hereunder to any third party. Any successors or permitted assignees (if any) of the Pledgors shall continue to perform the obligations of the Pledgors under this Agreement. |
12.2 | The amount of the Guaranteed Liabilities determined by the Pledgee in its sole discretion at the time when it exercises the right of pledge to the Pledged Property according to this Agreement shall be the conclusive evidence of the Guaranteed Liabilities hereunder. |
12.3 | This Agreement is executed in Chinese in four (4) original copies, with one (1) original to be retained by each party hereto, and one original shall be used for the application for registration of the Equity Pledge hereunder with the industrial and commercial registration authority to which the Company relates. |
12.4 | The formation, validity, execution, amendment, interpretation and termination of this Agreement shall be governed by the PRC Laws. |
12.5 | Any disputes arising out of and in connection with this Agreement shall be resolved through consultations between the Parties. If the Parties cannot reach an agreement regarding such disputes within thirty (30) days of their occurrence, such disputes shall be submitted to China International Economic and Trade Arbitration Commission, Shanghai Branch, for arbitration in Shanghai in accordance with the arbitration rules of such Commission, and the arbitration award shall be final and binding on the Parties. |
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12.6 | None of the rights, powers and remedies granted to the Parties by any provisions herein shall preclude any other rights, powers and remedies available to such Parties at law and under the other provisions of this Agreement, nor shall the exercise by a party of its rights, powers and remedies preclude any exercise by such party of its other rights, powers and remedies. |
12.7 | No failure or delay by a Party in exercising any of its rights, powers and remedies hereunder or in accordance with laws (hereinafter the Partys Rights) shall result in a waiver thereof, nor shall the waiver of any single or partial exercise of the Partys Rights shall preclude such Party from exercising such rights in any other way and exercising the other Partys Rights. |
12.8 | The headings of the provisions herein are for reference only, and in no circumstances shall such headings be used for or affect the interpretation of the provisions hereof. |
12.9 | Each provision contained herein shall be severable and independent from each of other provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions herein shall not be affected as a result thereof. |
12.10 | Any amendments or supplements to this Agreement shall be made in writing. Except for assignment by the Pledgee of its rights hereunder according to Article 12.1 of this Agreement, the amendments or supplements to this Agreement shall become effective only when duly signed by the Parties to this Agreement. The Parties shall obtain permission from and/or complete registration or filing formalities with any government authority according to law if any amendment or supplement to this Agreement so requires. |
12.11 | This Agreement shall be binding on the legal successors of the Parties. |
12.12 | At the time of execution hereof, the Pledgors shall sign a power of attorney (hereinafter the Power of Attorney), the format of which is shown in Appendix II, to authorize any person designated by the Pledgee to sign on its behalf according to this Agreement any and all legal documents necessary for the exercise by the Pledgee of its rights hereunder. Such Power of Attorney shall be delivered to the Pledgee for custody and, when necessary, the Pledgee may at any time submit the Power of Attorney to the relevant government authority. |
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Han Junping | ||||
Signature:
|
/s/ Han Junping
|
|||
Xiong Wei | ||||
Signature:
|
/s/ Xiong Wei
|
Company Name
|
Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. | |
Registered Address
|
Room 1F02, Block 14, No. 528, Yanggao North Road, New Pudong District, Shanghai | |
Registered Capital
|
RMB50 million | |
Legal Representative
|
Junping Han |
Capital Structure | Shareholders name | Contribution (RMB) | Capital Share | ||||
Junping Han | 30 million | 60 | % | ||||
Wei Xiong | 20 million | 40 | % | ||||
Total | 50 million | 100 | % | ||||
Financial Year | January 1 to December 31 |
1. | The9 Computer Technology Consulting (Shanghai) Co., Ltd. (hereinafter The9 Computer) |
2. | Han Junping, a PRC citizen with his identity card number: |
3. | Xiong Wei, a PRC citizen with his identity card number: |
1.1 | The sum of the Loan under this Agreement shall amount to Fifty Million
Renminbi (RMB50,000,000), which is the Loan of Fifty Million Renminbi
(RMB50,000,000) provided by The9 Computer to Borrowers, of which: Thirty Million Renminbi (RMB 30,000,000) will be provided by The9 Computer to Han Junping Twenty Million Renminbi (RMB 20,000,000) will be provided by The9 Computer to Xiong Wei |
1.2 | The interest rate of the Loan under this Agreement shall be zero, which means that no interest will be charged. |
1.3 | Each of the Borrowers shall sign an equity pledge agreement with The9 Computer as per its request to pledge all of his equity interest in the Company to The9 Computer as an guarantee for the Loan. |
2.1 | The Borrowers shall apply the Loan hereunder only for the investment in or the operation of the Company. The Borrowers shall not use any part of the Loan for any other purpose unless with the prior written consent of The9 Computer. |
2.2 | The Borrower shall, within five (5) business days of the date hereof, make an request to The9 Computer for the withdrawal of all the Loan hereunder in a lump sum. Subject to compliance with the provisions of this Agreement, the Loan shall be paid by The9 Computer to the bank accounts designated by the Borrowers as per their request. |
3.1 | The term of the Loan under this Agreement shall expire on the date when The9 Computer requests the Borrowers to repay the Loan in accordance with Article 3.2 of this Agreement. However, the maximum term shall not exceed the business term of The9 Computer (including the business term as extended from time to time) or the business term of the Company (including the business term as extended from time to time), whichever is earlier (hereinafter Term). Upon expiry of the Term, the Borrowers shall repay all outstanding amounts under the Loan (hereinafter Amounts) in a lump sum on the expiry date of the Term. | |
Upon execution hereof, The9 Computer shall, at any time within the Term and in its absolute discretion, be entitled to deliver to the Borrowers a repayment notice under Article 4.1 of this Agreement, requesting the Borrowers to repay all or part of their respective Amounts under this Agreement. |
3.2 | Any Borrower required to make repayment shall repay the relevant Amounts in cash, or in any other forms as decided by the board of directors of The9 Computer by way of resolution duly passed by it. If the repayment is made in cash, the Borrowers shall credit the entire Amounts required by The9 Computer for repayment to the bank account designated by The9 Computer within five (5) business days upon the receipt of a repayment notice under Article 4.1 of this Agreement. |
3.3 | If The9 Computer gives the repayment notice under Article 4.1 of this Agreement to the Borrowers, it shall, without violating any applicable laws and regulations, have the right to acquire on its own or designate any third party to acquire all of the equity interests owned by the Borrowers in the Company at the time when such notice is given at the transfer price that is equivalent to the Amounts. |
3.4 | The9 Computer shall, in its absolute discretion, also have the right to demand to offset its creditors right to the Borrowers under this Agreement against all or part of the transfer price required to be paid by it to the Borrowers in connection with its exercise of the relevant call option (hereinafter Call Option) when it exercises the Call Option in accordance with the provisions of the Exclusive Call Option Agreement entered into between The9 Computer and the Borrowers on December 13, 2010 (hereinafter Option Agreement). |
3.5 | The Borrower shall not be jointly and severally liable for the repayment by the other Borrower of his Loan under this Agreement. |
4.1 | The repayment notice given by The9 Computer to the Borrower or any or several of the Borrowers shall at least contain the following items: name of Borrower, sum of Loan, sum of repayment, time of repayment and bank account for repayment. |
5.1 | The Borrower hereby represents and warrants as follows: |
5.1.1 | he is a PRC citizen with full capacity, has full and independent legal status and legal capacity to execute, deliver and perform this Agreement, and may act independently as a party to lawsuit. |
5.1.2 | he has full power to execute and deliver this Agreement and all the other documents to be signed by him in relation to the transaction referred to herein, and he has full power to complete the transaction referred to herein. This Agreement shall be executed and delivered by him legally and properly. This Agreement constitutes the legal and binding obligations on him and is enforceable against him in accordance with its terms and conditions. |
5.1.3 | he has fully disclosed his financial conditions to The9 Computer before the execution of this Agreement. As of the execution of this Agreement, there exist no circumstances that may render him in insolvency, nor are there any material liabilities that affects his ability to repay debts. The9 Computer may demand him to perform his obligations hereunder in accordance with this Agreement. |
5.2 | The9 Computer hereby represents and warrants as follows: |
5.2.1 | it is a limited liability company duly incorporated and legally existing under the laws of the PRC with an independent legal person status. It has full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to lawsuit. |
5.2.2 | it has the full corporate power and authority to execute and deliver this Agreement and all the other documents to be signed by it in relation to the transaction referred to herein, and it has the full power and authority to complete the transaction referred to herein. |
6.1 | This Agreement shall become effective once it is duly signed by the parties. This Agreement confirms all matters with regard to the Loan between the parties and shall terminate when the Borrowers repay in full the Loan under this Agreement. |
6.2 | If any of the Borrowers transfers his liabilities under this Agreement with the prior consent of The9 Computer, then the successor of such liabilities shall continue to perform such Borrowers obligations under this Agreement, and the obligations and undertakings of the other Borrower under this Agreement shall not be adversely affected as a result thereof. |
7.1 | All taxes in connection with the Loan shall be borne by The9 Computer. |
8.1 | Regardless of whether this Agreement has terminated or not, the Borrowers shall be under an obligation to keep in confidence any trade secret, proprietary information and customer information (hereinafter Confidential Information) in connection with The9 Computer that are known to or received by them due to the execution and performance of this Agreement. The Borrowers shall use the Confidential Information only for the purpose of performing their obligations under this Agreement. Without the written permission of The9 Computer, the Borrowers shall not disclose the above Confidential Information to any third party. Otherwise, they shall be liable for the breach of this Agreement and make compensation for all losses arising therefrom. |
8.2 | The following information shall not be deemed as the Confidential Information: |
(a) | any information that has been legally known by the receiving party before as evidenced by written documents; | ||
(b) | any information entering the public domain not attributable to the fault of the receiving party; or | ||
(c) | any information lawfully acquired by the receiving party through other sources after his/its receipt of such information. |
8.3 | Following the termination of this Agreement, the Borrowers shall, upon request by The9 Computer, return, destroy or otherwise dispose of all files, materials or software containing the Confidential Information, and shall cease to use such Confidential Information. | |
8.4 | Notwithstanding any other provisions herein, the effect of this Article 8 shall not be affected by the suspension or termination of this Agreement. |
9.1 | The Borrowers hereby irrevocably guarantee and warrant that they will not in any way make nor authorize others (including but not limited to the Companys directors nominated by them) to make any resolution, instruction, consent or order to procure the Company to carry out any transaction that would or might substantially affect any asset, right, obligation or business of the Company and/or its subsidiaries (hereinafter Prohibited Transaction), including but not limited to: |
(1) | borrowing money from any third party or assuming any debts (except for any single debt whose amount does not exceed One Hundred Thousand Renminbi incurred in the usual and normal business activities or any debt whose total amount does not exceed One Hundred Thousand Renminbi in consecutive six months); | ||
(2) | providing guarantees to any third party for its own debts, or providing any guarantee to any third party; | ||
(3) | transferring any businesses, major assets, actual or potential business opportunities to any third party; | ||
(4) | transferring any domain names, trademarks or other intellectual property in which the Company has legal right to any third party; | ||
(5) | transferring all or part of their equity interests in the Company to any third party; | ||
(6) | any other major transactions; |
9.2 | The Borrowers shall procure the directors and senior management of the Company to strictly observe the provisions of this Agreement in discharging their duties as directors and senior management of the Company. |
10.1 | Any notice, request, demand and other correspondences required by this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant party. |
10.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if sent by post, five (5) days after it was posted. |
11.1 | The parties agree and confirm that, if any of the parties (hereinafter the Defaulting Party) substantially violates any of the provisions herein or substantially fails to perform any of the obligations hereunder, such violation or failure shall constitute a default under this Agreement (hereinafter a Default), and any of the other non-defaulting parties (hereinafter a Non-defaulting Party) shall have the right to require the Defaulting Party to rectify such Default or take remedial measures within a reasonable period. If the Defaulting Party fails to rectify such Default or take remedial measures within such a reasonable period or within ten (10) days after the other party notifies the Defaulting Party in writing and requires it to rectify the Default, then the Non-defaulting Party shall have the right to terminate this Agreement and/or to demand the Defaulting Party to make compensation for any loss. |
11.2 | The rights and remedies set out herein shall be cumulative, and shall not preclude any other rights or remedies provided by law. |
11.3 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected by the suspension or termination of this Agreement. |
12.1 | This Agreement is executed in Chinese in three (3) originals, with one (1) original to be retained by each party hereto. |
12.2 | The formation, effectiveness, performance, amendment, interpretation and termination of this Agreement shall be governed by the laws of the PRC. |
12.3 | Any disputes arising out of and in connection with this Agreement shall be resolved through consultations among the parties. If the parties cannot reach an agreement regarding such disputes within thirty (30) days upon their occurrence, such disputes shall be submitted to China International Economic and Trade Arbitration Commission, Shanghai Branch, for arbitration in Shanghai in accordance with the arbitration rules of such Commission, and the arbitration award shall be final and binding on the parties. |
12.4 | None of the rights, powers and remedies granted to the parties by any provisions herein shall preclude any other rights, powers and remedies available to such parties at law and under the other provisions of this Agreement, nor shall the exercise by a party of its rights, powers and remedies preclude any exercise by such party of its other rights, powers and remedies. |
12.5 | No failure or delay by a party in exercising any of its rights, powers and remedies hereunder or in accordance with laws (hereinafter the Partys Rights) shall result in a waiver thereof, nor shall the waiver of any single or partial exercise of the Partys Rights preclude such party from exercising such rights in any other way and exercising the other Partys Rights. |
12.6 | The headings of the provisions herein are for reference only, and in no circumstances shall such headings be used for or affect the interpretation of the provisions hereof. |
12.7 | Each provision contained herein shall be severable and independent from each of other provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions herein shall not be affected as a result thereof. |
12.8 | Any amendments or supplements to this Agreement shall be made in writing and shall become effective only when duly signed by the parties to this Agreement. |
12.9 | Without the prior written consent of the lender, the Borrowers shall not transfer any of their respective rights and/or obligations hereunder to any third parties. The lender shall be entitled to transfer any of its rights hereunder to any third party designated by it after serving notice to the other parties. |
12.10 | This Agreement shall be binding on the legal successors of the parties. |
Han Junping | ||||
Signature:
|
/s/ Han Junping
|
|||
Xiong Wei | ||||
Signature:
|
/s/ Xiong Wei
|
1. | The9 Computer Technology Consulting (Shanghai) Co., Ltd. (hereinafter The9 Computer) |
2. | Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. (hereinafter the Company) |
3. | Han Junping, identity card number: |
4. | Xiong Wei, identity card number: |
1. | The Shareholders are all existing shareholders of the Company, who own 100% equity interest
in the Company; |
2. | Each of the Shareholders intends to entrust any individual designated by The9 Computer to
exercise his voting rights in the Company, and The9 Computer intends to designate such
individuals to accept the entrustment. |
1.1 | The Shareholders hereby irrevocably undertake that they will, upon execution hereof, sign a
power of attorney in substance and form as set out in Appendix I hereto, respectively, to
entrust any individuals then designated by The9 Computer (hereinafter the Entrusted Persons)
to exercise, on behalf of each of the Shareholders, the following rights to which the
Shareholders are entitled in their capacity of the Companys shareholders under the articles
of association of the Company then in effect (collectively the Entrusted Rights): |
(1) | to propose to convene and attend Shareholders meetings of the Company as the
proxy of each of the Shareholders according to the articles of association of the
Company; |
(2) | to exercise, on behalf of each of the Shareholders, his voting rights on all
matters requiring discussion or resolutions of the Shareholders meeting of the
Company, including without limitation, the designation and election of the Companys
directors and general manager, and other senior management that shall be appointed and
removed by the Shareholders; |
(3) | to exercise other voting rights to which the Shareholders are entitled under
the laws and regulations of the PRC (including any amendment, change, addition and
supplement and reenactment thereof, irrespective of whether they take effect before or
after the formation of this Agreement); |
(4) | to exercise other voting rights of the Shareholders as specified in the
articles of association of the Company (including any other shareholders voting rights
as specified in the amended articles of association). |
1.2 | The Entrusted Person(s) shall perform their obligations in respect of the entrustment
hereunder to the extent authorized hereunder with due care and diligence and in compliance
with laws. The Shareholders shall acknowledge and assume liabilities for any legal
consequences resulting from the exercise by the Entrusted Persons of the Entrusted Rights
described above. |
1.3 | The Shareholders hereby confirm that the Entrusted Persons shall not be required to seek
opinions from the Shareholders prior to their exercise of the above Entrusted Rights.
However, the Entrusted Persons shall notify the Shareholders in a timely manner of any
resolution or proposal for convening an interim shareholders meeting after such resolution or
proposal is made. |
2.1 | For the purpose of exercising the Entrusted Rights hereunder, the Entrusted Persons shall be
entitled to know all information of the Company relating to its operation, business,
customers, finance and employees, and shall have access to the relevant documents and
materials of the Company. The Company shall fully cooperate with the Entrusted Persons in
this regard. |
3.1 | The Shareholders will provide sufficient assistances to the Entrusted Persons with regard to
their exercise of the Entrusted Rights, including the execution of resolutions of
shareholders meetings made by the Entrusted Persons or other relevant legal documents in a
timely manner when necessary (e.g., where the same is required in order to submit documents
for the purposes of government approvals, registrations or filings). |
3.2 | If, at any time within the term of this Agreement, the grant or exercise of the Entrusted
Rights hereunder cannot be realized due to any reason (except for the default of any
Shareholder or the Company), the Parties shall immediately seek the alternative proposal that
is most similar to the one that cannot be realized and, if necessary, enter into a
supplementary agreement to amend or adjust the provisions herein, in order to ensure that the
purpose of this Agreement can continue to realize. |
4.1 | The Parties acknowledge that in no case shall The9 Computer be required to be liable to or
compensate (economic or otherwise) the other Parties or any third party in connection with any
exercise of the Entrusted Rights hereunder by the individuals designated by it. |
4.2 | The Shareholders and the Company agree to indemnify and hold The9 Computer harmless against
all losses suffered or likely to be suffered by it due to any exercise of the Entrusted Rights
by the Entrusted Persons designated by The9 Computer, including without limitation, any loss
resulting from any litigation, demand, arbitration or claim by any third party against it or
from administrative investigation or penalty by government authorities, provided, however,
that no indemnification is available for any losses caused by a willful default or gross
negligence of the Entrusted Persons. |
5.1 | Each of the Shareholders hereby jointly and severally represents and warrants as follows: |
5.1.1 | He is a PRC citizen with full capacity, has full and independent legal status
and legal capacity to execute, deliver and perform this Agreement, and may act
independently as a party to lawsuit. |
5.1.2 | He has full power to execute and deliver this Agreement and all the other
documents to be signed by him in relation to the transaction referred to herein, and
has the full power to complete the transaction referred to herein. This Agreement
shall be executed and delivered by him legally and properly. This Agreement
constitutes the legal and binding obligations on him and is enforceable against him in
accordance with its terms and conditions |
5.1.3 | He is the legitimate shareholder of the Company whose name appears on its
register of members as of the effective date of this Agreement, and except for the
rights created by this Agreement, the Equity Pledge Agreement and the Exclusive Call
Option Agreement entered into by the Shareholders, the
Company and The9 Computer, there is no third party right on the Entrusted Rights.
In accordance with this Agreement, the Entrusted Persons may exercise the Entrusted
Rights fully and completely pursuant to the articles of association of the Company
then in effect. |
5.2 | Each of The9 Computer and the Company hereby severally represents and warrants as follows: |
5.2.1 | It is a company with limited liability duly incorporated and legally existing
under the laws of the place of its incorporation with an independent legal person
status. It has full and independent legal status and legal capacity to execute,
deliver and perform this Agreement and may act independently as a party to lawsuit. |
5.2.2 | It has the full corporate power and authority to execute and deliver this
Agreement and all the other documents to be signed by it in relation to the transaction
referred to herein, and it has the full power and authority to complete the transaction
referred to herein. |
5.3 | The Company further represents and warrants as follows: |
5.3.1 | The Shareholders are all legitimate shareholders of the Company whose names
appear on its register of members as of the effective date of this Agreement, and
except for the rights created by this Agreement, the Equity Pledge Agreement and the
Exclusive Call Option Agreement entered into by the Shareholders, the Company and The9
Computer, there is no third party right on the Entrusted Rights. In accordance with
this Agreement, the Entrusted Persons may exercise the Entrusted Rights fully and
completely pursuant to the articles of association of the Company then in effect. |
6.1 | Subject to Articles 6.2 and 6.3 hereof, this Agreement shall become effective once it is duly
signed by the Parties, and shall remain effective until the date on which the business term of
the Company or The9 Computer expires (whichever is earlier), unless it is early terminated by
the Parties in writing or pursuant to Article 9.1 hereof. This Agreement will be
automatically extended for one (1) year upon the expiration except where The9 Computer gives
the other Parties a prior notice of thirty (30) days not to extend the term of this Agreement
upon its expiration, and the same mechanism will apply subsequently upon the expiration of
each extended term. |
6.2 | This Agreement shall terminate if the Company or The9 Computer, upon expiry of its business
term, fails to complete the formalities in relation to the approval and registration for the
extension thereof. |
6.3 | If any of the Shareholders transfers all of his equity interest in the Company with the prior
consent of The9 Computer, such Shareholder will no longer be a Party hereto and the
obligations and undertakings of any other Parties hereunder will not be adversely affected. |
7.1 | Any notice, request, demand and other correspondences required by this Agreement or made in
accordance with this Agreement shall be delivered in writing to the relevant Party. |
7.2 | Any such notice or other correspondences shall be deemed to have been delivered, if sent by
facsimile or telex, when it is sent, and if delivered in person, when it is delivered, and if
sent by post, five (5) days after it was posted. |
9.1 | The Parties agree and confirm that, if any Party (hereinafter the Defaulting Party)
substantially violates any of the provisions herein or substantially fails to perform any of
the obligations hereunder, such violation or failure shall constitute a default under this
Agreement (hereinafter a Default), and any of the other non-defaulting Parties (hereinafter
the Non-defaulting Party) shall have the right to require the Defaulting Party to rectify
such Default or take remedial measures within a reasonable period. If the Defaulting Party
fails to rectify such Default or take remedial measures within such a reasonable period or
within ten (10) days after the Non-defaulting Party notifies the Defaulting Party in writing
and require it to rectify the Default, then: (1) if any Shareholder or the Company is the
Defaulting Party, The9 Computer shall be entitled to terminate this Agreement and require the
Defaulting Party to make compensation for damages; (2) if The9 Computer is the Defaulting
Party, the Non-defaulting Party shall be entitled to require the Defaulting Party to make
compensation for damages, but unless otherwise provided by law, the Non-defaulting Party shall
have no right to terminate or discharge this Agreement or the entrustment hereunder in any
circumstances. |
9.2 | The rights and remedies set out herein shall be cumulative, and shall not preclude any other
rights or remedies provided by law. |
9.3 | Notwithstanding any other provisions herein, the effect of this Article shall not be affected
by the suspension or termination of this Agreement. |
10.1 | This Agreement is executed in Chinese in four (4) originals, with one (1) original to be
retained by each Party hereto. |
10.2 | The formation, effectiveness, performance, amendment, interpretation and termination of this
Agreement shall be governed by the laws of the PRC. |
10.3 | Any disputes arising out of and in connection with this Agreement shall be resolved through
consultations among the Parties. If the Parties cannot reach an agreement regarding such
disputes within thirty (30) days of their occurrence, such disputes shall be submitted to
China International Economic and Trade Arbitration Commission, Shanghai Branch, for
arbitration in Shanghai in accordance with the arbitration rules of such Commission, and the
arbitration award shall be final and binding on the Parties. |
10.4 | None of the rights, powers and remedies granted to any Party by any provisions herein shall
preclude any other rights, powers and remedies available to such Party at law and under the
other provisions of this Agreement, nor shall the exercise by a Party of its rights, powers
and remedies preclude any exercise by such Party of its other rights, powers and remedies. |
10.5 | No failure or delay by a Party in exercising any of its rights, powers and remedies hereunder
or in accordance with laws (hereinafter the Partys Rights) shall result in a waiver
thereof, nor shall the waiver of any single or partial exercise of the Partys Rights preclude
such Party from exercising such rights in any other way and exercising the other Partys
Rights. |
10.6 | The headings of the provisions herein are for reference only, and in no circumstances shall
such headings be used for or affect the interpretation of the provisions hereof. |
10.7 | Each provision contained herein shall be severable and independent from each of other
provisions, and if at any time any one or more provisions herein become(s) invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions herein
shall not be affected as a result thereof. |
10.8 | Any amendments or supplements to this Agreement shall be made in writing, and shall become
effective only when duly signed by the Parties to this Agreement. |
10.9 | Without the prior written consent of The9 Computer, the other Parties shall not transfer any
of their rights and/or obligations hereunder to any third parties. The Shareholders and the
Company hereby agree that The9 Computer shall be entitled to transfer any of its rights and/or
obligations hereunder to any third party after serving written notice to the Shareholders and
the Company. |
10.10 | This Agreement shall be binding on the legal successors of the Parties. |
Han Junping | ||||
Signature:
|
/s/ Han Junping
|
|||
Xiong Wei | ||||
Signature:
|
/s/ Xiong Wei
|
(1) | Attend, as my proxy, shareholder meetings pursuant to the Companys articles of association; |
(2) | Exercise voting rights with respect to all the matters discussed and resolved at the shareholders meetings as my proxy, including but not limited to designating and electing the Companys directors and other senior management officers that ought to be appointed at a shareholders meeting; and |
(3) | Exercise any other shareholder voting rights conferred on myself by the Companys articles of association as my proxy (including any other shareholder voting rights provided for under any amendments to the articles of association). |
Name of Subsidiary | Jurisdiction of Incorporation | |
GameNow.net (Hong Kong) Limited |
Hong Kong | |
China The9 Interactive Limited |
Hong Kong | |
9Dream Limited |
Hong Kong | |
China Crown Technology Limited |
Hong Kong | |
The9 Development Center Limited |
Hong Kong | |
Asian Way Development Limited |
Hong Kong | |
New Star International Development Limited |
Hong Kong | |
TDC (Asia) Limited |
British Virgin Islands | |
The9 Singapore Pte. Ltd. |
Singapore | |
The9 Interactive, Inc. |
Delaware, USA | |
The9 Korea Co., Ltd. |
Korea | |
Red5 Korea, LLC |
Korea | |
The9 Computer Technology Consulting (Shanghai) Co., Ltd. |
China | |
China The9 Interactive (Shanghai) Limited |
China | |
China The9 Interactive (Beijing) Limited |
China | |
Jiu Jing Era Information Technology (Beijing) Limited |
China | |
Jiu Tuo (Shanghai) Information Technology Limited |
China |
Name of Subsidiary | Jurisdiction of Incorporation | |
Red 5 Studios, Inc. |
Delaware, USA |
Name of Subsidiary | Jurisdiction of Incorporation | |
Shanghai Huopu Cloud Computing Terminal Technology Co., Ltd. |
China | |
Shanghai The9 Information Technology Co., Ltd. |
China | |
Shanghai Jiucheng Advertisement Co., Ltd. |
China | |
Hangzhou Fire Rain Network Technology Co., Ltd. |
China | |
Shenzhen Wanyouyinli Technology Co., Ltd. |
China |
By: | /s/ Jun Zhu | |||||
Name: | Jun Zhu | |||||
Title: | Chief Executive Officer |
By: | /s/ George Lai | |||||
Name: | George Lai | |||||
Title: | Chief Financial Officer |
By: | /s/ Jun Zhu | |||||
Name: | Jun Zhu | |||||
Title: | Chairman and Chief Executive Officer |
By: | /s/ George Lai | |||||
Name: | George Lai | |||||
Title: | Chief Financial Officer |
Our ref:
|
VZL\604835\4414110v1 | |
Direct
|
+852 2971 30395 | |
Email
|
valerie.law@maplesandcalder.com |