Cayman Islands
|
7011 | Not Applicable | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
Howard Zhang, Esq.
Davis Polk & Wardwell LLP 26/F, Twin Towers (West) B12 Jian Guo Men Wai Avenue, Chaoyang District Beijing 100022, China (86) 10-8567-5000 |
Chris K.H. Lin, Esq.
Simpson Thacher & Bartlett LLP 35/F, ICBC Tower 3 Garden Road Central, Hong Kong (852) 2514-7600 |
Title of each class of
|
Proposed maximum aggregate
|
Amount of
|
||||
securities to be registered | offering price(3) | registration fee | ||||
Ordinary shares, par value US$0.0001 per share(1)(2)
|
US$50,000,000 | US$3,565 | ||||
(1) | American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered pursuant to a separate registration statement on Form F-6 (Registration No. 333- ). Each American depositary share represents ordinary shares. |
(2) | Includes (a) ordinary shares represented by American depositary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and (b) ordinary shares represented by American depositary shares that are issuable upon the exercise of the underwriters over-allotment option to purchase additional shares. These ordinary shares are not being registered for the purposes of sales outside the United States. |
(3) | Estimated solely for the purpose of computing the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any
jurisdiction where such offer or sale is not permitted.
|
Per ADS | Total | |||||||
Public offering price
|
US$ | US$ | ||||||
Underwriting discount
|
US$ | US$ | ||||||
Proceeds, before expenses, to us
|
US$ | US$ |
Goldman Sachs | Morgan Stanley |
Your home on the journey 39 cities 236 hotels 6,181 staff 38,360 Rooms 1,505,442 Hanting Club Members HANTING SEASONS HOTEL HENATING EXPRES HANTING |
Premiunrr Brand JfcJtQuality Customer Base Diversified Prbducij Capluring a Wide Spectrum of Market Oppom o. I Occupancy 1 No.1 RevPAR 1 Harbin 3i. No. 1 Growth 2 No.2 Revenue3 Experienced Management Team and a Well-Trained Workforce Effictrl& Scalable I JO [berating System Supported by an Advanced IT Platform fa Shenyang *C BeijingDalian fa ShijiazhuangJ*; fa Tianjin Talyuanfa Guangzhou fa %t Shenzhen In 2008 and for the tirst half of 2009, among economy hotel chains in China with over 100 hotels or at least 10,000 hotel rooms, according to the October 2009 Inntie Report. In terms of the number of hotel rooms, in 2008 and forthe first half of 2009, among economy hotel chains in China with over 100 hotels or at least 10,000 hotel rooms, according to the October 2009 Inntie Report. In terms of net revenues for the six months ended June 30, 2009, as compared with other publicly listed economy hotel operators based in the PRC, according to trie October 2009 Inntie Report. |
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EX-3.1
EX-4.2
EX-4.4
EX-4.5
EX-4.6
EX-4.7
EX-4.8
EX-4.9
EX-4.10
EX-4.11
EX-4.12
EX-8.2
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-16.1
EX-21.1
EX-23.1
EX-23.4
EX-23.5
EX-23.6
EX-23.7
EX-23.8
EX-99.1
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ADRs are to the American depositary receipts that
may evidence our ADSs;
ADSs are to our American depositary shares, each
representing ordinary shares;
China or the PRC are to the
Peoples Republic of China, excluding, for purposes of this
prospectus, Hong Kong, Macau and Taiwan;
Ordinary shares are to our ordinary shares, par
value US$0.0001 per share;
Series A preferred shares are to our
Series A convertible preferred shares, par value US$0.0001
per share;
Series B preferred shares are to our
Series B convertible redeemable preferred shares, par value
US$0.0001 per share;
RMB and Renminbi are to the legal
currency of China;
US$, U.S. dollars, $,
and dollars are to the legal currency of the United
States; and
we, us, our company,
our, and HanTing refer to China Lodging
Group, Limited, a Cayman Islands company, and its predecessor
entities and subsidiaries.
ii
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10
F-33
F-41
II-2
II-3
II-4
Chinas robust economic growth which drives overall travel
and tourism industry;
increasing domestic business travel, particularly with the
growing importance of small and medium enterprises;
1
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rapidly growing domestic leisure travel as a result of higher
disposable income and changing lifestyle;
increasing attractiveness of branded economy hotel
chains; and
emerging segmentation within the economy hotel industry.
we have established a premium brand and achieved the highest
RevPAR and occupancy rate in 2008 and for the first half of
2009, according to the October 2009 Inntie Report;
we have successfully established a portfolio of diversified
products;
we have adopted a disciplined return-driven development model
with a proven track record;
we have been able to achieve operational efficiency while
improving productivity;
we have an efficient and scalable operating system supported by
advanced technology platform; and
we have an experienced management team supported by a
well-trained workforce.
enhance our market leadership through prudent return-driven
network expansion;
meet evolving market demand through product diversification and
customer segmentation;
further enhance our brand recognition and expand our customer
base by leveraging our loyalty program;
continue to invest in human capital to support future growth; and
continue to implement cost control measures to enhance our
profitability.
Our operating results are subject to conditions affecting the
lodging industry in general, which include, among other things,
changes and volatility in general economic conditions,
competition, and local market conditions.
Our limited operating history makes it difficult to evaluate our
future prospects and results of operations.
We incurred net losses attributable to our company of
RMB111.6 million and RMB136.2 million in 2007 and
2008, respectively, and may incur losses in the future.
We may not be able to manage our planned growth.
We may not be able to identify additional hotel properties for
lease that satisfy our return threshold and achieve the expected
economic returns on our
leased-and-operated
hotels.
2
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Our legal right to lease certain properties could be challenged
by property owners or other third parties or subject to
government regulation.
Any failure to comply with land- and property-related PRC laws
and regulations may negatively affect our ability to operate our
hotels and we may suffer significant losses as a result.
Our success could be adversely affected by the performance of
our
franchised-and-managed
hotels.
We may not be able to maintain and enhance the attractiveness of
our hotels and our reputation.
As we operate as a holding company, any limitation on the
ability of our subsidiaries to make payments to us could have a
material adverse effect on our ability to conduct our business.
Rapid urbanization and changes in zoning and urban planning in
China may cause our leased properties to be demolished, removed
or otherwise affected.
(1)
Winner Crown Holdings Limited, or Winner Crown, is a British
Virgin Islands company wholly owned by Sherman Holdings Limited,
a Bahamas company, which is in turn wholly owned by Credit
Suisse Trust Limited, or CS Trustee. CS Trustee
acts as trustee of the Ji Family Trust, of which Mr. Qi Ji,
our founder and executive chairman, and his family members, are
the beneficiaries. Mr. Ji is the sole director of Winner
Crown and beneficially owns approximately 62.7% of our total
outstanding ordinary shares on an as-converted basis, including
a certain number of shares that are held by East Leader
International Limited (see footnote (2) below), over which
Mr. Ji has voting power pursuant to certain powers of
attorney.
3
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(2)
East Leader International Limited, or East Leader, is a British
Virgin Islands company wholly owned by Perfect Will Holdings
Limited, a British Virgin Islands company, which is in turn
wholly owned by Bank Sarasin Nominees (CI) Limited, as nominee
for Sarasin Trust Company Guernsey Limited, or Sarasin
Trust. Sarasin Trust acts as trustee of the Tanya Trust, of
which Ms. Tongtong Zhao, a co-founder of our company, and
her family members, are the beneficiaries. Ms. Zhao is the
sole director of East Leader and beneficially owns approximately
21.1% of our total outstanding ordinary shares on an
as-converted basis.
(3)
The Chengwei Funds include (i) Chengwei Partners, L.P.,
(ii) Chengwei Ventures Evergreen Fund, L.P. and
(iii) Chengwei Ventures Evergreen Advisors Fund, LLC.
Chengwei Partners, L.P. is an exempted limited partnership
incorporated in the Cayman Islands. Chengwei Ventures Evergreen
Fund, L.P. is an exempted limited partnership incorporated in
the Cayman Islands. Chengwei Ventures Evergreen Advisors Fund,
LLC is an exempted limited liability corporation incorporated in
the Cayman Islands. Chengwei Ventures Evergreen Management, LLC,
a Cayman Islands exempted limited liability company, is the
general partner of Chengwei Partners, L.P. and Chengwei Ventures
Evergreen Fund, L.P., as well as the managing member of Chengwei
Ventures Evergreen Advisors Fund, LLC.
(4)
CDH Courtyard Limited is a British Virgin Islands company.
(5)
The IDG Funds include (i) IDG-Accel China Growth
Fund L.P., (ii) IDG-Accel China Growth Fund-A L.P. and
(iii) IDG-Accel China Investors L.P. Each of the IDG Funds
is an exempted limited partnership incorporated in the Cayman
Islands. IDG-Accel China Growth Fund GP Associates Ltd., a
Cayman Islands limited company, is the general partner of
IDG-Accel China Growth Fund Associates L.P., a Cayman
Islands limited partnership, which in turn is the general
partner of IDG-Accel China Growth Fund L.P. and IDG-Accel
China Growth Fund-A L.P. Each of the two directors of IDG-Accel
China Growth Fund GP Associates Ltd., Mr. Patrick J.
McGovern and Mr. Quan Zhou, owns 50% of IDG-Accel China
Growth Fund GP Associates Ltd.s voting shares.
IDG-Accel China Investors Associates Ltd., a Cayman Islands
limited company, is the general partner of IDG-Accel China
Investors L.P. Mr. James Breyer is the sole shareholder and
one of the two directors of IDG-Accel China Investors Associates
Ltd. Mr. Quan Zhou is the other director of IDG-Accel China
Investors Associates Ltd.
(6)
The Northern Light Funds include (i) Northern Light Venture
Fund, L.P., (ii) Northern Light Partners Fund, L.P., and
(iii) Northern Light Strategic Fund, L.P. Each of the
Northern Light Funds is an exempted limited partnership
incorporated in the Cayman Islands. Northern Light Venture
Capital Limited, a Cayman Islands exempted limited liability
company, is the general partner of Northern Light
Partners, L.P., a Cayman Islands limited partnership, which
in turn is the general partner of the Northern Light Funds.
(7)
Pinpoint Capital 2006 A Limited is a British Virgin Islands
company.
(8)
Formerly known as Lishan Senbao (Shanghai) Investment Management
Co., Ltd.
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Total ADSs offered by us
ADSs
Price per ADS
We currently estimate that the initial public offering price
will be between US$ and
US$ per ADS.
Over-allotment option
We have granted the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase an
additional ADSs to cover
over-allotments.
The ADSs
Each ADS represents ordinary
shares. The depositary will hold the shares underlying your ADSs
and you will have rights as provided in the deposit agreement.
We do not expect to pay dividends in the foreseeable future. If,
however, we declare dividends on our ordinary shares, the
depositary will pay you the cash dividends and other
distributions it receives on our ordinary shares, after
deducting its fees and expenses in accordance with the terms set
forth in the deposit agreement.
You may surrender your ADSs to the depositary to be cancelled in
exchange for ordinary shares. The depositary will charge you
fees for any cancellation.
We may amend or terminate the deposit agreement without your
consent. If you continue to hold your ADSs, you agree to be
bound by the deposit agreement as amended.
To better understand the terms of the ADSs, you should carefully
read the Description of American Depositary Shares
section of this prospectus. You should also read the deposit
agreement, which is filed as an exhibit to the registration
statement that includes this prospectus.
ADSs
(or ADSs if the underwriters
exercise the over-allotment option in full).
ordinary shares
(or ordinary shares if the
underwriters exercise the over-allotment option in full).
Use of proceeds
We anticipate using approximately 90% of the net proceeds of
this offering for our hotel network expansion purposes and the
remaining amount for general corporate purposes. See Use
of Proceeds for more information.
Listing
We have applied to have our ADSs listed on the NASDAQ Global
Market.
HTHT
Depositary
Citibank, N.A.
Lock-up
We, our directors and executive officers, and all of our
existing shareholders as well as option holders under our
Amended and Restated 2007 Global Share Plan and Amended and
Restated 2008 Global Share Plan have agreed with the
underwriters for a period
7
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of 180 days after the date of this prospectus not to sell,
transfer or otherwise dispose of, and not to announce an
intention to sell, transfer or otherwise dispose of any ADSs,
ordinary shares or similar securities. See
Underwriting for more information.
Reserved ADSs
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to an aggregate
of ADSs, to our directors,
officers, employees, business associates and related persons
through a directed share program.
Risk factors
See Risk Factors and other information included in
this prospectus for a discussion of risks you should carefully
consider before investing in the ADSs.
excludes 9,213,538 ordinary shares issuable upon the exercise of
stock options issued under our Amended and Restated 2007 Global
Share Plan that are outstanding as of the date of this
prospectus;
excludes 6,540,060 ordinary shares issuable upon the exercise of
stock options issued under our Amended and Restated 2008 Global
Share Plan that are outstanding as of the date of this
prospectus;
excludes 2,385,470 ordinary shares issuable upon the exercise of
stock options issued under our Amended and Restated 2009 Share
Incentive Plan that are outstanding as of the date of this
prospectus; and
assumes that the underwriters do not exercise their
over-allotment option to purchase additional ADSs.
8
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Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands, except per share and per ADS data)
248,199
797,815
1,288,898
188,825
1,210
12,039
44,965
6,587
249,409
809,854
1,333,863
195,412
(14,103
)
(45,605
)
(73,672
)
(10,793
)
235,306
764,249
1,260,191
184,619
(228,362
)
(687,364
)
(1,004,472
)
(147,156
)
(17,581
)
(40,810
)
(57,818
)
(8,470
)
(65,653
)
(81,665
)
(83,666
)
(12,257
)
(61,020
)
(108,062
)
(37,821
)
(5,541
)
(372,616
)
(917,901
)
(1,183,777
)
(173,424
)
(137,310
)
(153,652
)
76,414
11,195
(131,001
)
(156,463
)
69,438
10,173
(113,739
)
(132,583
)
51,448
7,537
(2,116
)
3,579
8,903
1,304
(111,623
)
(136,162
)
42,545
6,233
(2.85
)
(2.52
)
0.24
0.03
(2.85
)
(2.52
)
0.23
0.03
45,248
54,071
57,562
57,562
45,248
54,071
183,632
183,632
0.24
0.03
0.23
0.03
179,621
179,621
183,632
183,632
Note: (1)
Include share-based compensation expenses as follows:
9
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Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
14,785
4,815
7,955
1,165
(2)
Each ADS represents ordinary
shares.
(3)
Pro forma basic and diluted earnings (loss) per ordinary share
is computed by dividing income (loss) attributable to holders of
ordinary shares by the weighted average number of ordinary
shares outstanding for the year plus the number of ordinary
shares resulting from the assumed conversion of the outstanding
convertible preferred shares upon the closing of the planned
initial public offering.
on an actual basis;
on a pro forma basis as of December 31, 2009 to give effect
to (i) the automatic conversion of all of our outstanding
Series A preferred shares into 44,000,000 ordinary shares,
at a conversion ratio of one Series A preferred share to
one ordinary share; and (ii) the automatic conversion of
all of our outstanding Series B preferred shares into
78,058,919 ordinary shares, at a conversion ratio of one
Series B preferred share to one ordinary share; and
on a pro forma as adjusted basis as of December 31, 2009 to
give effect to (i) the automatic conversion of all of our
outstanding Series A preferred shares into 44,000,000
ordinary shares, at a conversion ratio of one Series A
preferred share to one ordinary share; (ii) the automatic
conversion of all of our outstanding Series B preferred
shares into 78,058,919 ordinary shares, at a conversion ratio of
one Series B preferred share to one ordinary share; and
(iii) the issuance and sale of ordinary shares in the form
of ADSs by us in this offering, assuming an initial public
offering price
of per
ADS, the midpoint of the estimated range of the initial public
offering price, after deducting estimated underwriting discounts
and commissions and offering expenses payable by us and assuming
no exercise of the underwriters over-allotment option. A
US$1.00 increase (decrease) in the assumed initial public
offering price of
US$
per ADS, the midpoint of the estimated range of the initial
public offering price, would increase (decrease) the amounts
representing cash and cash equivalents, total assets and total
equity (deficit) by
US$ million.
As of December 31,
2007
2008
2009
Pro Forma
Actual
Actual
Actual
Pro Forma
As Adjusted
(unaudited)
(unaudited)
(RMB)
(RMB)
(RMB)
(US$)
(RMB)
(US$)
(RMB)
(US$)
(in thousands)
173,636
183,246
270,587
39,641
270,587
39,641
23,650
5,597
500
73
500
73
500
73
465,186
957,407
1,028,267
150,642
1,028,267
150,642
1,028,267
150,642
836,045
1,432,940
1,581,131
231,637
1,581,131
231,637
-
27,500
80,000
11,720
80,000
11,720
80,000
11,720
46,084
138,207
174,775
25,605
174,775
25,605
174,775
25,605
293,062
665,378
678,875
99,456
678,875
99,456
678,875
99,456
437,829
796,803
796,803
116,732
-
-
-
-
105,154
(29,241
)
105,453
15,449
902,256
132,181
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Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
(95,983
)
(67,957
)
214,893
31,482
(34,963
)
40,105
252,714
37,023
(1)
We believe that earnings before interest expense, tax expense
(benefit) and depreciation and amortization, or EBITDA, is a
useful financial metric to assess our operating and financial
performance before the impact of investing and financing
transactions and income taxes. Given the significant investments
that we have made in leasehold improvements, depreciation and
amortization expense comprises a significant portion of our cost
structure. In addition, we believe that EBITDA is widely used by
other companies in the lodging industry and may be used by
investors as a measure of our financial performance. We believe
that EBITDA will provide investors with a useful tool for
comparability between periods because it eliminates depreciation
and amortization expense attributable to capital expenditures.
We also use EBITDA from Operating Hotels, which is defined as
EBITDA before pre-opening expenses, to assess operating results
of the hotels in operation. We believe that the exclusion of
pre-opening expenses, a portion of which is non-cash rental
expenses, helps facilitate
year-on-year
comparison of our results of operations as the number of hotels
in the development stage may vary significantly from year to
year. Therefore, we believe EBITDA from Operating Hotels more
closely reflects the performance of hotels currently in
operation. Our calculation of EBITDA and EBITDA from Operating
Hotels does not deduct interest income, which was
RMB1.2 million, RMB3.8 million and RMB1.9 million
in 2007, 2008, and 2009, respectively. The presentation of
EBITDA and EBITDA from Operating Hotels should not be construed
as an indication that our future results will be unaffected by
other charges and gains we consider to be outside the ordinary
course of our business.
The uses of EBITDA and EBITDA from Operating Hotels have certain
limitations. Depreciation and amortization expense for various
long-term assets, income tax and interest expense have been and
will be incurred and are not reflected in the presentation of
EBITDA. Pre-opening expenses have been and will be incurred and
are not reflected in the presentation of EBITDA from Operating
Hotels. Each of these items should also be considered in the
overall evaluation of our results. Additionally, EBITDA or
EBITDA from Operating Hotels does not consider capital
expenditures and other investing activities and should not be
considered as a measure of our liquidity. We compensate for
these limitations by providing the relevant disclosure of our
depreciation and amortization, interest expense, income tax
expense, pre-opening expenses, capital expenditures and other
relevant items both in our reconciliations to the financial
measures under accounting principles generally accepted in the
United States, or U.S. GAAP, and in our consolidated
financial statements, all of which should be considered when
evaluating our performance.
The terms EBITDA and EBITDA from Operating Hotels are not
defined under U.S. GAAP, and neither EBITDA nor EBITDA from
Operating Hotels is a measure of net income, operating income,
operating performance or liquidity presented in accordance with
U.S. GAAP. When assessing our operating and financial
performance, you should not consider this data in isolation or
as a substitute for our net income, operating income or any
other operating performance measure that is calculated in
accordance with U.S. GAAP. In addition, our EBITDA or EBITDA
from Operating Hotels may not be comparable to EBITDA or EBITDA
from Operating Hotels or similarly titled measures utilized by
other companies since such other companies may not calculate
EBITDA or EBITDA from Operating Hotels in the same manner as we
do.
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Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
(111,623
)
(136,162
)
42,545
6,233
-
1,249
8,787
1,287
(17,262
)
(23,880
)
17,990
2,636
32,902
90,836
145,571
21,326
(95,983
)
(67,957
)
214,893
31,482
61,020
108,062
37,821
5,541
(34,963
)
40,105
252,714
37,023
As of December 31,
2007
2008
2009
67
167
236
62
145
173
5
22
63
8,089
21,033
28,360
7,583
18,414
21,658
506
2,619
6,702
23
35
39
Pre-conversion
Conversion
Period
(1)
Period
(2)
Total
8
13
21
31
92
123
39
105
144
(1)
Includes hotels for which we have entered into binding leases or
franchise-and-management agreements but of which the property
has not been delivered by the respective lessors or managed
hotel owners, as the case may be. The majority of these hotels
are expected to commence operations by June 30, 2011.
(2)
Includes hotels for which we have commenced conversion
activities but that have not yet commenced operations. The
majority of these hotels are expected to commence operations by
December 31, 2010.
Year Ended December 31,
2007
2008
2009
85
89
94
82
74
91
85
87
94
181
178
174
176
180
172
181
178
174
154
158
165
145
132
156
154
156
163
12
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changes and volatility in general economic conditions;
our ability to maintain or increase sales to existing customers
and attract new customers;
competition from other hotels;
natural disasters or travelers fears of exposure to
contagious diseases and social unrest;
seasonality of our business;
changes in travel patterns or in the desirability of particular
locations;
increases in operating costs and expenses due to inflation and
other factors;
local market conditions such as an oversupply of, or a reduction
in demand for, hotel rooms;
the quality and performance of managers and other employees of
our hotels;
the availability and cost of capital to allow us and our
franchisees to fund construction and renovation of, and make
other investments in, our hotels; and
the possibility that leased properties may be subject to
challenges as to their compliance with the relevant government
regulations.
we may not be able to successfully identify additional hotel
properties for lease that satisfy our return threshold and we
may not be able to achieve the expected economic returns on our
leased-and-operated
hotels;
we may not be able to control our costs effectively as
anticipated; and
our limited operating history makes it difficult to evaluate our
future prospects and results of operations.
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the uncertainties associated with our ability to continue our
growth while trying to achieve and maintain our profitability;
preserving our competitive position in the economy hotel segment
of the lodging industry in China;
offering innovative products to attract recurring and new
customers;
implementing our strategy and modifying it from time to time to
respond effectively to competition and changes in customer
preferences and needs;
increasing awareness of our brand and products and continuing to
develop customer loyalty; and
attracting, training, retaining and motivating qualified
personnel.
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actual or anticipated fluctuations in our quarterly operating
results;
changes in financial estimates by securities research analysts;
conditions in the travel and lodging industries;
changes in the economic performance or market valuations of
other lodging companies;
announcements by us or our competitors of new products,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
addition or departure of key personnel;
fluctuations of exchange rates between the RMB and
U.S. dollar or other foreign currencies;
potential litigation or administrative investigations;
release of
lock-up
or
other transfer restrictions on our outstanding ADSs or ordinary
shares or sales of additional ADSs; and
general economic or political conditions in China.
29
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30
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31
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32
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our anticipated growth strategies, including developing new
hotels at desirable locations in a timely and cost-effective
manner;
our future business development, results of operations and
financial condition;
expected changes in our revenues and certain cost or expense
items;
our ability to attract customers and leverage our brand; and
trends and competition in the lodging industry.
33
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34
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35
Table of Contents
on an actual basis;
on a pro forma basis to give effect to (i) the automatic
conversion of all of our outstanding Series A preferred
shares into 44,000,000 ordinary shares, at a conversion ratio of
one Series A preferred share to one ordinary share; and
(ii) the automatic conversion of all of our outstanding
Series B preferred shares into 78,058,919 ordinary shares,
at a conversion ratio of one Series B preferred share to
one ordinary share; and
on a pro forma as adjusted basis to give effect to (i) the
automatic conversion of all of our outstanding Series A
preferred shares into 44,000,000 ordinary shares, at a
conversion ratio of one Series A preferred share to one
ordinary share; (ii) the automatic conversion of all of our
outstanding Series B preferred shares into 78,058,919
ordinary shares, at a conversion ratio of one Series B
preferred share to one ordinary share; and (iii) the
issuance and sale of
ordinary shares in the form of ADSs by us in this offering,
assuming an initial public offering price
of per ADS, the midpoint of
the estimated range of the initial public offering price, after
deducting estimated underwriting discounts and commissions and
offering expenses payable by us and assuming no exercise of the
underwriters over-allotment option.
As of December 31, 2009
Pro Forma
Actual
Pro Forma
As Adjusted
(unaudited)
(unaudited)
(RMB)
(US$)
(RMB)
(US$)
(RMB)
(US$)
(in thousands, except share data)
80,000
11,720
80,000
11,720
80,000
11,720
796,803
116,732
-
-
-
-
46
7
125
18
34
5
-
-
-
-
351,994
51,567
1,148,752
168,293
(245,457
)
(35,960
)
(245,457
)
(35,960
)
(245,457
)
(35,960
)
(12,529
)
(1,835
)
(12,529
)
(1,835
)
(12,529
)
(1,835
)
11,365
1,665
11,365
1,665
11,365
1,665
105,453
15,449
902,256
132,181
982,256
143,901
982,256
143,901
(1)
Assuming the number of ADSs offered
by us, as set forth on the cover page of this prospectus,
remains the same, and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us, a
US$1.00 increase (decrease) in the assumed initial public
offering price of US$ would
increase (decrease) each of additional paid-in capital and total
equity by US$ million.
36
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Per Ordinary
Share
Per ADS
US$
US$
US$
US$
37
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Ordinary Shares
Total
Average Price
Purchased
Consideration
Per Ordinary
Average Price
Number
Percent
Amount
Percent
Share
(1)
Per
ADS
(1)
%
US$
%
US$
US$
100%
US$
100%
(1)
Assumes an initial public offering
price of US$ per ADS, the
midpoint of the estimated range of the initial public offering
price, and the automatic conversion of all of our outstanding
44,000,000 Series A preferred shares and 78,058,919
Series B preferred shares into ordinary shares upon the
completion of this offering.
do not take into account the issuance of 1,700,000 ordinary
shares in February 2010 pursuant to the exercise of certain
warrants;
assume no exercise of options to purchase ordinary shares
outstanding as of . As
of , there
were shares issuable
upon exercise of options to purchase ordinary shares at an
exercise price of US$ per
share. To the extent outstanding options are exercised, new
investors will experience further dilution; and
are based on ordinary shares outstanding as
of .
38
Table of Contents
Noon Buying Rate
Period
Period End
Average
(1)
Low
High
(RMB per US$1.00)
8.0702
8.1826
8.2765
8.0702
7.8041
7.9579
8.0702
7.8041
7.2946
7.6058
7.8172
7.2946
6.8225
6.9477
7.2946
6.7800
6.8259
6.8307
6.8176
6.8470
6.8262
6.8277
6.8303
6.8247
6.8264
6.8267
6.8292
6.8248
6.8265
6.8271
6.8300
6.8255
6.8259
6.8275
6.8299
6.8244
6.8268
6.8269
6.8295
6.8258
6.8258
6.8285
6.8330
6.8258
6.8262
6.8262
6.8262
6.8262
(1)
Averages for a period are calculated by using the average of the
exchange rates at the end of each month during the period.
Monthly averages are calculated by using the average of the
daily rates during the relevant period.
39
Table of Contents
recognize or enforce judgments of United States courts obtained
against us or our directors or officers predicated upon the
civil liability provisions of the securities laws of the United
States or any state in the United States; or
entertain original actions brought in each respective
jurisdiction against us or our directors or officers predicated
upon the securities laws of the United States or any state in
the United States.
40
Table of Contents
Year Ended December 31,
2006
2007
2008
2009
(RMB)
(RMB)
(RMB)
(RMB)
(US$)
(in thousands, except per share and per ADS data)
54,031
235,306
764,249
1,260,191
184,619
(94,069
)
(372,616
)
(917,901
)
(1,183,777
)
(173,424
)
(40,038
)
(137,310
)
(153,652
)
76,414
11,195
(36,623
)
(131,001
)
(156,463
)
69,438
10,173
(29,954
)
(113,739
)
(132,583
)
51,448
7,537
(425
)
(2,116
)
3,579
8,903
1,304
(29,529
)
(111,623
)
(136,162
)
42,545
6,233
(2.85
)
(2.52
)
0.24
0.03
(2.85
)
(2.52
)
0.23
0.03
45,248
54,071
57,562
57.562
45,248
54,071
183,632
183,632
0.24
0.03
0.23
0.03
179,621
179,621
183,632
183,632
41
Table of Contents
Note: (1)
Include share-based compensation
expenses as follows:
Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
14,785
4,815
7,955
1,165
(2)
Each ADS
represents
ordinary shares.
(3)
Pro forma basic and diluted earnings (loss) per ordinary share
is computed by dividing income (loss) attributable to holders of
ordinary shares by the weighted average number of ordinary
shares outstanding for the year plus the number of ordinary
shares resulting from the assumed conversion of the outstanding
convertible preferred shares upon the closing of the planned
initial public offering.
on an actual basis;
on a pro forma basis as of December 31, 2009 to give effect
to (i) the automatic conversion of all of our outstanding
Series A preferred shares into 44,000,000 ordinary shares,
at a conversion ratio of one Series A preferred share to
one ordinary share; and (ii) the automatic conversion of
all of our outstanding Series B preferred shares into
78,058,919 ordinary shares, at a conversion ratio of one
Series B preferred share to one ordinary share; and
on a pro forma as adjusted basis as of December 31, 2009 to
give effect to (i) the automatic conversion of all of our
outstanding Series A preferred shares into
44,000,000 ordinary shares, at a conversion ratio of one
Series A preferred share to one ordinary share;
(ii) the automatic conversion of all of our outstanding
Series B preferred shares into 78,058,919 ordinary
shares, at a conversion ratio of one Series B preferred
share to one ordinary share; and (iii) the issuance
and sale of ordinary shares in the form of ADSs by us in this
offering, assuming an initial public offering price
of per
ADS, the midpoint of the estimated range of the initial public
offering price, after deducting estimated underwriting discounts
and commissions and offering expenses payable by us and assuming
no exercise of the underwriters over-allotment option. A
US$1.00 increase (decrease) in the assumed initial public
offering price of
US$
per ADS, the midpoint of the estimated range of the initial
public offering price, would increase (decrease) the amounts
representing cash and cash equivalents, total assets and total
equity (deficit) by
US$ million.
As at December 31,
2006
2007
2008
2009
2009
2009
Pro Forma
Actual
Actual
Actual
Actual
Pro Forma
As Adjusted
(unaudited)
(unaudited)
(RMB)
(RMB)
(RMB)
(RMB)
(US$)
(RMB)
(US$)
(RMB)
(US$)
(in thousands)
33,272
173,636
183,246
270,587
39,641
270,587
39,641
27,330
23,650
5,597
500
73
500
73
500
73
159,216
465,186
957,407
1,028,267
150,642
1,028,267
150,642
1,028,767
150,642
280,593
836,045
1,432,940
1,581,131
231,637
1,581,131
231,637
-
-
27,500
80,000
11,720
80,000
11,720
80,000
11,720
6,028
46,084
138,207
174,775
25,605
174,775
25,605
174,775
25,605
175,382
293,062
665,378
678,875
99,456
678,875
99,456
678,875
99,456
-
437,829
796,803
796,803
116,732
-
-
-
-
105,211
105,154
(29,241
)
105,453
15,449
902,256
132,181
42
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43
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AND RESULTS OF OPERATIONS
General
factors affecting our results of operations
Changes in the national, regional or local economic
conditions in China
. Our financial performance
depends upon the demand for our products, which is closely
linked to the general economy and sensitive to business and
individual discretionary spending levels in China. While the
lodging industry in China has benefited from the significant
growth experienced by the PRC economy in recent years, the
recent global financial crisis and economic slowdown in 2008 and
2009 have negatively affected business and consumer confidence
and contributed to slowdowns
44
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in most industries, including the lodging industry. Despite
signs of recoveries, there remain uncertainties regarding the
general economic conditions and demand for our products. Our
costs and expenses may also be affected by Chinas
inflation level. We may not be able to pass on the increased
costs to our customers. Other macro-economic factors beyond our
control may also affect our results of operations. For example,
any prolonged recurrence of contagious diseases, social
instability or significant natural disasters may have a negative
impact on the demand for our products.
PRC government policies and regulations.
Our
future business and results of operations could be significantly
affected by PRC government policies and regulations,
particularly those that relate to zoning and licensing.
Competition
. The lodging industry in China is
highly competitive. We compete primarily with other economy
hotel chains as well as various local lodging facilities.
Competition among economy hotels in China is primarily based on
location, room rates, brand recognition, the quality of the
accommodations and service levels.
Access to capital
. The lodging industry is a
capital intensive business that requires significant amounts of
capital expenditures to develop, maintain and improve hotel
properties. Access to the capital that we or our franchisees
need to finance the development of new hotels or to maintain and
improve existing hotels is critical to the continued growth of
our business.
Seasonality and special events
. The lodging
industry is subject to fluctuations in revenues due to
seasonality. Generally, the first quarter, in which both the New
Year and Spring Festival holidays fall, accounts for a lower
percentage of our annual revenues than other quarters of the
year. In addition, certain special events, such as the China
Import and Export Fair held twice a year in Guangzhou and the
upcoming World Expo in Shanghai in 2010, may increase the demand
for our hotels as such special events may attract travelers into
and within the regions in China where we operate hotels.
Specific
factors affecting our results of operations
The total number of hotels and hotel rooms in our hotel
network.
Our revenues largely depend on the size
of our hotel network. Furthermore, we believe the expanded
geographic coverage of our hotel network will enhance our brand
recognition. Whether we can successfully increase the
45
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number of hotels and hotel rooms in our hotel chain is largely
affected by our ability to effectively identify and lease or
franchise additional hotel properties at desirable locations on
commercially favorable terms and the availability of funding to
make necessary capital investments to open these new hotels.
The fixed-cost nature of our business.
A
significant portion of our operating costs and expenses,
including rent and base salary, is relatively fixed. As a
result, an increase in our revenues achieved through higher
RevPAR generally will result in higher profitability.
Vice
versa
, a decrease in our revenues could result in a
disproportionately larger decrease in our earnings because our
operating costs and expenses are unlikely to decrease
proportionately.
The mix of
leased-and-operated
hotels and
franchised-and-managed
hotels in our hotel portfolio.
The mix of
leased-and-operated
hotels and
franchised-and-managed
hotels in our hotel portfolio affects our results of operations
in a given period. Our
leased-and-operated
hotels have been and will continue to be the main contributor to
our revenues. Under the
lease-and-operate
model, while each hotel incurs certain upfront development costs
and pre-opening expenses, we generally expect more revenues and
profit contribution once a hotels operations mature. Under
the franchise-and-manage model, we generate revenues from fees
we charge to each
franchised-and-managed
hotel while a franchisee bears substantially all the capital
expenditures, pre-opening and operational expenses. As such, our
franchise-and-manage
model enables us to quickly expand our network through
franchisees without incurring significant capital expenditures
or expenses. We intend to increase the percentage of
franchised-and-managed
hotels in our hotel portfolio to expand our geographic presence
and diversify our revenue mix.
The proportion of mature hotels in our
leased-and-operated
hotel portfolio.
Generally, the operation of each
leased-and-operated
hotel goes through three stages: development,
ramp-up
and
mature operations. During the development stage,
leased-and-operated
hotels generally incur pre-opening expenses ranging from
approximately RMB1.0 to RMB2.0 million per hotel. During
the
ramp-up
stage, when the occupancy rate is relatively low, revenues
generated by these hotels may be insufficient to cover their
operating costs, which are relatively fixed in nature. The
pre-opening expenses incurred during the development stage and
the lower profitability during the
ramp-up
stage for
leased-and-operated
hotels may have a significant negative impact on our financial
performance. It typically takes our hotels three to six months
to ramp up, which may be affected by factors such as seasonality
and location. We define mature leased-and-operated hotels as
those that have been in operation for more than six months.
2007
2008
2009
24
62
145
38
83
28
158
%
134
%
19
%
46
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Year Ended
December 31,
2007
2008
2009
(RMB in millions, except RevPAR and percentages)
147
171
169
174
491
1,080
151
398
841
22
94
238
13
%
19
%
22
%
112
116
124
61
262
138
77
288
159
(16
)
(27
)
(21
)
(26
)%
(10
)%
(15
)%
47
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Year Ended December 31,
2007
2008
2009
(RMB)
%
(RMB)
%
(RMB)
(US$)
%
(in thousands except percentages)
248,199
99.5
797,815
98.5
1,288,898
188,825
96.6
1,210
0.5
12,039
1.5
44,965
6,587
3.4
249,409
100.0
809,854
100.0
1,333,863
195,412
100.0
(14,103
)
(5.7
)
(45,605
)
(5.6
)
(73,672
)
(10,793
)
(5.5
)
235,306
94.3
764,249
94.4
1,260,191
184,619
94.5
Leased-and-operated
Hotels.
In 2008, we generated revenues of
RMB797.8 million from our
leased-and-operated
hotels, which accounted for 98.5% of our total revenues for the
year. In 2009, we generated revenues of RMB1,288.9 million
from our
leased-and-operated
hotels, which accounted for 96.6% of our total revenues for the
year. We expect that revenues from our
leased-and-operated
hotels will continue to constitute a substantial majority of our
total revenues in the foreseeable future. As of
December 31, 2009, we had 21 leased-and-operated hotels
under development.
the total number of
leased-and-operated
hotels in our hotel chain;
the total number of
leased-and-operated
hotel rooms in our hotel chain; and
RevPAR achieved by our
leased-and-operated
hotels, which represents the product of average daily rates and
occupancy rates.
48
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Franchised-and-managed
Hotels.
In 2008, we generated revenues of
RMB12.0 million from our
franchised-and-managed
hotels, which accounted for 1.5% of our total revenues for the
year. In 2009, we generated revenues of RMB45.0 million
from our
franchised-and-managed
hotels, which accounted for 3.4% of our total revenues for the
year. We expect that revenues from our
franchised-and-managed
hotels will increase in the foreseeable future as we add more
franchised-and-managed
hotels in our hotel chain. We also expect the number of our
franchised-and-managed
hotels as a percentage of the total number of hotels in our
network to increase. As of December 31, 2009, we had 123
franchised-and-managed hotels under development.
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Year Ended December 31,
2007
2008
2009
(RMB)
%
(RMB)
%
(RMB)
(US$)
%
(in thousands except percentages)
249,409
100.0
809,854
100.0
1,333,863
195,412
100.0
(14,103
)
(5.7
)
(45,605
)
(5.6
)
(73,672
)
(10,793
)
(5.5
)
235,306
94.3
764,249
94.4
1,260,191
184,619
94.5
(112,787
)
(45.2
)
(322,809
)
(39.9
)
(508,579
)
(74,507
)
(38.1
)
(34,411
)
(13.8
)
(137,231
)
(16.9
)
(169,248
)
(24,795
)
(12.7
)
(33,234
)
(13.3
)
(92,838
)
(11.5
)
(141,600
)
(20,744
)
(10.6
)
(35,597
)
(14.3
)
(82,662
)
(10.2
)
(119,056
)
(17,442
)
(8.9
)
(12,333
)
(5.0
)
(51,824
)
(6.4
)
(65,989
)
(9,668
)
(5.0
)
(228,362
)
(91.6
)
(687,364
)
(84.9
)
(1,004,472
)
(147,156
)
(75.3
)
(17,581
)
(7.0
)
(40,810
)
(5.0
)
(57,818
)
(8,470
)
(4.3
)
(65,653
)
(26.3
)
(81,665
)
(10.1
)
(83,666
)
(12,257
)
(6.3
)
(61,020
)
(24.5
)
(108,062
)
(13.3
)
(37,821
)
(5,541
)
(2.8
)
(372,616
)
(149.4
)
(917,901
)
(113.3
)
(1,183,777
)
(173,424
)
(88.7
)
Hotel operating costs.
Our hotel operating
costs consist of costs and expenses directly attributable to the
operation of our
leased-and-operated
and
franchised-and-managed
hotels.
Leased-and-operated
hotel operating costs primarily include rental payments and
utility costs for hotel properties, compensation and benefits
for our hotel-based employees, costs of hotel room consumable
products and depreciation and amortization of leasehold
improvements.
Franchised-and-managed
hotel operating costs primarily include compensation and
benefits for
franchised-and-managed
hotel managers and other limited number of employees directly
hired by us, which are recouped by us in the form of monthly
service fees. We anticipate that our hotel operating costs will
increase as we continue to open new hotels. However, we
anticipate that our hotel operating costs as a percentage of our
total revenues will decrease in general primarily due to
(i) the enlarged base of relatively mature hotels in our
leased-and-operated hotel portfolio and (ii) the relatively
fixed nature of a significant portion of our operating costs and
expenses.
Selling and marketing expenses.
Our selling
and marketing expenses consist primarily of commissions to
travel intermediaries, expenses for marketing programs and
materials, bank fees for processing bank card payments, and
compensation and benefits for our sales and marketing personnel,
including personnel at our centralized reservation center. We
expect that our selling and marketing expenses will increase as
our sales increase and as we further expand into new geographic
locations and promote our brand.
General and administrative expenses.
Our
general and administrative expenses consist primarily of
compensation and benefits for our corporate and regional office
employees and other employees who are not sales and marketing or
hotel-based employees, travel and communication expenses of our
general and administrative staff, costs of third-party
professional services, and office expenses for corporate and
regional office. We expect that our general and administrative
expenses will increase in the near term as we hire additional
personnel and incur additional costs in connection with the
expansion of our business and with being a public company,
including costs of enhancing our internal controls.
Pre-opening expenses.
Our pre-opening expenses
consist primarily of rents, personnel cost, and other
miscellaneous expenses incurred prior to the opening of a new
leased-and-operated
hotel.
50
Table of Contents
Our pre-opening expenses are largely determined by the number of
pre-opening hotels in the pipeline and the rental fees incurred
during the development stage. Landlords typically offer a three-
to six-months rent-free period at the beginning of the lease.
Nevertheless, rental is booked during this period on a
straight-line basis. Therefore, a portion of pre-opening
expenses is non-cash rental expenses. The following table sets
forth the components of our pre-opening expenses for the periods
indicated.
Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
41,515
77,764
29,907
4,381
11,585
16,402
3,584
526
7,920
13,896
4,330
634
61,020
108,062
37,821
5,541
Year Ended December 31,
2007
2008
2009
(RMB)
(%)
(RMB)
(%)
(RMB)
(US$)
(%)
(in thousands except percentages)
24
0.2
116
2.4
523
77
6.6
107
0.7
178
3.7
465
67
5.8
14,654
99.1
4,521
93.9
6,967
1,021
87.6
14,785
100.0
4,815
100.0
7,955
1,165
100.0
51
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52
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53
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54
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no material changes in the existing political, legal, fiscal and
economic conditions in China;
no major changes in tax law in China or the tax rates applicable
to our subsidiaries and consolidated affiliated entities in
China;
no material changes in the exchange rates and interest rates
from the presently prevailing rates;
availability of finance not a constraint on our future growth;
our ability to retain competent management, key personnel and
technical staff to support our ongoing operations; and
no material deviation in market conditions from economic
forecasts.
55
Table of Contents
Midpoint of
Purchase
Fair Value of
Estimated
Ordinary
Price/Exercise
Ordinary
Initial Public
Intrinsic
Type of
Grant Date
Shares
Options
Price
Shares
Offering Price
Value*
Valuation
(in millions)
-
227,000
US$1.53
US$
0.64
Retrospective
-
110,000
US$1.53
US$
1.36
Retrospective
-
3,756,100
US$1.53
US$
1.51
Retrospective
1,982,509
-
US$1.80
US$
1.51
Retrospective
-
1,596,000
US$1.53
US$
1.63
Retrospective
-
16,875
US$1.53
US$
1.63
Retrospective
-
600,000
US$1.53
US$
1.76
Retrospective
-
118,000
US$1.53
US$
2.23
Contemporaneous
-
54,595
US$1.53
*
Intrinsic value equals the difference between the midpoint of
the estimated initial public offering price and the purchase
price/exercise price of the ordinary shares/options, multiplied
by the number of ordinary shares/options.
56
Table of Contents
The prospect for the global economy became more optimistic and
Chinas economy showed robust growth since the second
quarter of 2009. This was evidenced by a number of indicators,
including a 14.9% annualized quarter-over-quarter GDP growth
from the first quarter of 2009, according to a report issued by
the Peoples Bank of China on July 28, 2009, the
expansion of the Purchasing Managers Index (PMI) and a
significant increase in banking loans and investments.
We increased the number of our hotels in operation from
167 hotels as of January 1, 2009 to 200 hotels as
of June 30, 2009. For the first time in our history, we
were able to generate a quarterly profit. We generated a net
income attributable to our company of RMB27.9 million in
57
Table of Contents
the three months ended June 30, 2009. We generated an
operating cash in flow of RMB101.4 million for the six
months ended June 30, 2009 compared to an operating cash
outflow of RMB30.1 million for the six months ended
June 30, 2008. The improved operating performance in the
second quarter as well as the first half of 2009 contributed to
the increase in our projections used in the July 2009 valuation.
The improved profitability, among others, led us to increase the
probability of an initial public offering in calculating the
fair value of the ordinary shares from January 1, 2009 to
June 30, 2009. In addition, we decreased the discount for
lack of marketability from 25% as of January 1, 2009 to 19%
as of June 30, 2009 given the increased likelihood of and
proximity to an initial public offering.
As a result of the above, inclusive of our ability to achieve or
exceed our business plan, we decreased the overall discount rate
by 1% from 14% as of January 1, 2009 to 13% as of
June 30, 2009.
Chinas economy continued to show robust growth during this
period, which was evidenced by a number of indicators, including
accelerating annualized quarter-over-quarter GDP growth in the
last quarter of 2009 and the improving export figures.
We have been able to successfully carry out our expansion plan
by operating 20 more hotels in the three months ended
December 31, 2009 as compared to the three months ended
September 30, 2009.
The cash flow generated from our operating activities during the
six months ended December 31, 2009 has enabled us to
accelerate our hotel expansion plan for 2010.
We generated net income attributable to our company of
RMB42.1 million for the six months ended December 31,
2009, exceeding the forecast we used to determine the fair value
of our ordinary shares as of November 20, 2009. The
improvement in profitability, among other things, led us to
increase the projected total number of our new hotels.
We increased the probability of our initial public offering and
decreased the discount for lack of marketability in calculating
the fair value of our ordinary shares given the progress we have
achieved in the public offering preparation process.
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As of December 31,
2007
2008
2009
67
167
236
62
145
173
5
22
63
8,089
21,033
28,360
7,583
18,414
21,658
506
2,619
6,702
23
35
39
Year Ended December 31,
2007
2008
2009
85
89
94
82
74
91
85
87
94
181
178
174
176
180
172
181
178
174
154
158
165
145
132
156
154
156
163
59
Table of Contents
Note: (1)
Include share-based compensation expenses as follows:
Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
14,785
4,815
7,955
1,165
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Table of Contents
For the Year Ended
December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
(95,983
)
(67,957
)
214,893
31,482
(34,963
)
40,105
252,714
37,023
(1)
We believe that EBITDA is a useful financial metric to assess
our operating and financial performance before the impact of
investing and financing transactions and income taxes. Given the
significant investments that we have made in leasehold
improvements, depreciation and amortization expense comprises a
significant portion of our cost structure. In addition, we
believe that EBITDA is widely used by other companies in the
lodging industry and may be used by investors as a measure of
our financial performance. We believe that EBITDA will provide
investors with a useful tool for comparability between periods
because it eliminates depreciation and amortization expense
attributable to capital expenditures. We also use EBITDA from
Operating Hotels, which is defined as EBITDA before pre-opening
expenses, to assess operating results of the hotels in
operation. We believe that the exclusion of pre-opening
expenses, a portion of which is non-cash rental expenses, helps
facilitate
year-on-year
comparison of our results of operations as the number of hotels
in the development stage may vary significantly from year to
year. Therefore, we believe EBITDA from Operating Hotels more
closely reflects the performance capability of hotels currently
in operation. Our calculation of EBITDA and EBITDA from
Operating Hotels does not deduct interest income, which was
RMB1.2 million, RMB3.8 million and RMB1.9 million
in 2007, 2008, and 2009, respectively. The presentation of
EBITDA and EBITDA from Operating Hotels should not be construed
as an indication that our future results will be unaffected by
other charges and gains we consider to be outside the ordinary
course of our business.
The use of EBITDA and EBITDA from Operating Hotels has certain
limitations. Depreciation and amortization expense for various
long-term assets, income tax and interest expense have been and
will be incurred and are not reflected in the presentation of
EBITDA. Pre-opening expenses have been and will be incurred and
are not reflected in the presentation of EBITDA from Operating
Hotels. Each of these items should also be considered in the
overall evaluation of our results. Additionally, EBITDA or
EBITDA from Operating Hotels does not consider capital
expenditures and other investing activities and should not be
considered as a measure of our liquidity. We compensate for
these limitations by providing the relevant disclosure of our
depreciation and amortization, interest expense, income tax
expense, pre-opening expenses, capital expenditures and other
relevant items both in our reconciliations to the U.S. GAAP
financial measures and in our consolidated financial statements,
all of which should be considered when evaluating our
performance.
The terms EBITDA and EBITDA from Operating Hotels are not
defined under U.S. GAAP, and neither EBITDA nor EBITDA from
Operating Hotels is a measure of net income, operating income,
operating performance or liquidity presented in accordance with
U.S. GAAP. When assessing our operating and financial
performance, you should not consider this data in isolation or
as a substitute for our net income, operating income or any
other operating performance measure that is calculated in
accordance with U.S. GAAP. In addition, our EBITDA or EBITDA
from Operating Hotels may not be comparable to EBITDA or EBITDA
from Operating Hotels or similarly titled measures utilized by
other companies since such other companies may not calculate
EBITDA or EBITDA from Operating Hotels in the same manner as we
do.
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For the Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
(111,623
)
(136,162
)
42,545
6,233
-
1,249
8,787
1,287
(17,262
)
(23,880
)
17,990
2,636
32,902
90,836
145,571
21,326
(95,983
)
(67,957
)
214,893
31,482
61,020
108,062
37,821
5,541
(34,963
)
40,105
252,714
37,023
Leased-and-operated
hotels
. Revenues from our
leased-and-operated
hotels increased by 61.6% from RMB797.8 million in 2008 to
RMB1,288.9 million in 2009. This increase was primarily due
to our continued expansion of
leased-and-operated
hotels from 145 hotels and 18,414 hotel rooms as of
December 31, 2008 to 173 hotels and 21,658 hotel
rooms as of December 31, 2009, and an increase in RevPAR.
RevPAR for our
leased-and-operated
hotels increased from RMB158 in 2008 to RMB165 in 2009 due to an
increase in occupancy rate of our
leased-and-operated
hotels from 89% in 2008 to 94% in 2009. The increase in this
occupancy rate resulted primarily from the increased proportion
of room nights in our mature leased-and-operated hotels, which
have been in operation for more than six months, from 57% in
2008 to 85% in 2009. The average daily rate for our
leased-and-operated
hotels decreased from RMB178 in 2008 to RMB174 in 2009,
primarily reflecting room rate decreases during the economic
slowdown.
Franchised-and-managed
hotels
. Revenues from our
franchised-and-managed
hotels increased significantly from RMB12.0 million in 2008
to RMB45.0 million in 2009. This growth was primarily due
to an increase in the number of
franchised-and-managed
hotels from 22 as of December 31, 2008 to 63 as of
December 31, 2009, and an increase in RevPAR. RevPAR for
our
franchised-and-managed
hotels increased from RMB132 in 2008 to RMB156 in 2009 driven by
the increase in occupancy rate of our
franchised-and-managed
hotels from 74% in 2008 to 91% in 2009. The increase in this
occupancy rate resulted primarily from the increased proportion
of our
franchised-and-managed
hotels that are located in Chinas economically more
developed cities. The average daily rate for our
franchised-and-managed
hotels decreased from RMB180 in 2008 to RMB172 in 2009,
primarily reflecting room rate decreases during the economic
slowdown.
Hotel operating costs
. Our hotel operating
costs increased by 46% from RMB687.4 million in 2008 to
RMB1,004.5 million in 2009. This increase was primarily
because of our substantial expansion of hotels from
167 hotels as of December 31, 2008 to 236 hotels
as of December 31, 2009. Our hotel operating costs as a
percentage of total revenues decreased from 84.9% in 2008 to
75.3% in 2009, primarily due to cost control of personnel costs,
consumables, food and beverage and other hotel operating costs.
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Table of Contents
Selling and marketing expenses
. Our selling
and marketing expenses increased by 42% from
RMB40.8 million in 2008 to RMB57.8 million in 2009.
This increase was primarily due to RMB9.5 million of
additional expenses for marketing and promotional activities,
RMB6.3 million of additional commissions to travel
intermediaries, RMB5.7 million of additional compensation
and benefits for our sales and marketing personnel, and
RMB4.1 million of additional bank fees for processing bank
card payments as we expanded our business. We recorded less
expenses relating to our customer loyalty program in 2009 due to
(i) an amendment to franchise-and-management agreements to
discontinue reimbursing franchisees for free room nights
provided in connection with point redemption; and (ii) the
application of a point expiration rate in estimating the costs
of our customer loyalty program. Our selling and marketing
expenses as a percentage of total revenues decreased from 5.0%
in 2008 to 4.3% in 2009.
General and administrative expenses
. Our
general and administrative expenses increased slightly from
RMB81.7 million in 2008 to RMB83.7 million in 2009,
primarily as a result of an increase in personnel costs, an
increase in provision for contingent liabilities, and an
increase in
share-based
compensation expenses, partially offset by a decrease of
RMB9.2 million in professional service fees. Our general
and administrative expenses as a percentage of total revenues
decreased from 10.2% in 2008 to 6.3% in 2009.
Pre-opening expenses.
Our pre-opening expenses
decreased from RMB108.1 million in 2008 to
RMB37.8 million in 2009, primarily due to a decrease in the
number of newly opened
leased-and-operated
hotels from 83 in 2008 to 28 in 2009 in an effort to balance
growth and profitability during the global economic downturn.
Our pre-opening expenses as a percentage of total revenues
decreased from 13.3% in 2008 to 2.8% in 2009.
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Table of Contents
Leased-and-operated
hotels
. Revenues from our
leased-and-operated
hotels more than tripled from RMB248.2 million in 2007 to
RMB797.8 million in 2008. This increase was primarily due
to our substantial expansion of
leased-and-operated
hotels from 62 hotels and 7,583 hotel rooms, as of
December 31, 2007 to 145 hotels and 18,414 hotel rooms as
of December 31, 2008, and the increased proportion of
mature leased-and-operated hotels, which have been in operation
for more than six months, in our portfolio and an increase in
RevPAR. RevPAR for our
leased-and-operated
hotels increased from RMB154 in 2007 to RMB158 in 2008 due to an
increase in occupancy rate of our
leased-and-operated
hotels from 85% in 2007 to 89% in 2008. The average daily rate
for our
leased-and-operated
hotels decreased from RMB181 in 2007 to RMB178 in 2008,
primarily as a result of the decreased proportion of our
leased-and-operated
hotels that are located in Chinas economically more
developed cities.
Franchised-and-managed
hotels
. Revenues from our
franchised-and-managed
hotels substantially increased from RMB1.2 million in 2007
to RMB12.0 million in 2008. This growth was primarily due
to our substantial expansion of
franchised-and-managed
hotels from five hotels as of December 31, 2007 to 22
hotels as of December 31, 2008, partially offset by a
decrease in RevPAR for our franchised-and-managed hotels from
RMB145 in 2007 to RMB132 in 2008.
Hotel operating costs
. Our hotel operating
costs increased from RMB228.4 million in 2007 to
RMB687.4 million in 2008. This increase was primarily
because of our substantial expansion from 67 hotels as of
December 31, 2007 to 167 hotels as of
December 31, 2008. Our hotel operating costs as a
percentage of total revenues decreased from 91.6% in 2007 to
84.9% in 2008.
Selling and marketing expenses
. Our selling
and marketing expenses increased from RMB17.6 million in
2007 to RMB40.8 million in 2008, primarily due to
RMB6.6 million of additional expenses for marketing and
promotional activities, RMB5.0 million of additional bank
fees for processing bank card payments, RMB4.2 million of
additional personnel costs as we expanded our business and
RMB2.3 million of additional commissions to travel
intermediaries. Our selling and marketing expenses as a
percentage of total revenues decreased from 7.0% in 2007 to 5.0%
in 2008.
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Table of Contents
General and administrative expenses
. Our
general and administrative expenses increased from
RMB65.7 million in 2007 to RMB81.7 million in 2008.
This increase was primarily due to an increase of
RMB5.3 million in professional service fees and an increase
of RMB5.2 million in travelling and other expenses as a
result of wider geographic coverage and an increased number of
hotels in our portfolio, partially offset by a decrease of
RMB10.1 million in related share-based compensation
expenses. Our general and administrative expenses as a
percentage of total revenues decreased from 26.3% in 2007 to
10.2% in 2008.
Pre-opening expenses.
Our pre-opening expenses
increased from RMB61.0 million in 2007 to
RMB108.1 million in 2008, primarily due to an increase in
our rental costs as a result of an increase in the number of our
newly opened
leased-and-operated
hotels from 38 in 2007 to 83 in 2008. Our pre-opening expenses
as a percentage of total revenues decreased from 24.5% in 2007
to 13.3% in 2008.
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For the Three Months Ended
March 31,
June 30,
September 31,
December 31,
March 31,
June 30,
September 31,
December 31,
2008
2008
2008
2008
2009
2009
2009
2009
(in RMB thousands)
127,856
179,467
223,943
266,549
262,482
321,528
349,788
355,100
531
2,236
2,617
6,655
6,024
12,282
11,325
15,334
128,387
181,703
226,560
273,204
268,506
333,810
361,113
370,434
(7,282
)
(10,071
)
(12,379
)
(15,873
)
(14,970
)
(18,514
)
(20,004
)
(20,184
)
121,105
171,632
214,181
257,331
253,536
315,296
341,109
350,250
(117,272
)
(142,466
)
(187,443
)
(240,183
)
(241,650
)
(239,090
)
(256,268
)
(267,464
)
(6,360
)
(8,772
)
(10,287
)
(15,391
)
(8,847
)
(16,305
)
(18,546
)
(14,120
)
(19,151
)
(19,216
)
(22,277
)
(21,021
)
(19,814
)
(14,225
)
(21,724
)
(27,902
)
(37,952
)
(25,412
)
(30,219
)
(14,479
)
(14,963
)
(7,718
)
(7,518
)
(7,622
)
(180,735
)
(195,866
)
(250,226
)
(291,074
)
(285,274
)
(277,338
)
(304,056
)
(317,108
)
(59,630
)
(24,234
)
(36,045
)
(33,743
)
(31,738
)
37,958
37,053
33,142
215
959
1,687
925
271
206
630
763
(1,249
)
(1,338
)
(2,422
)
(2,493
)
(2,534
)
(1,557
)
(1,533
)
(10,879
)
85
(3
)
8
12
(77
)
4,016
4,520
(56,956
)
(20,288
)
(45,237
)
(33,982
)
(32,808
)
35,750
35,202
31,294
(8,544
)
(3,043
)
(6,786
)
(5,507
)
(5,577
)
6,078
9,112
8,377
(48,412
)
(17,245
)
(38,451
)
(28,475
)
(27,231
)
29,672
26,090
22,917
(265
)
(1,467
)
(655
)
(1,192
)
(276
)
(1,725
)
(3,826
)
(3,076
)
(48,677
)
(18,712
)
(39,106
)
(29,667
)
(27,507
)
27,947
22,264
19,841
66
Table of Contents
Note: (1)
Includes share-based compensation
expenses as follows:
For the Three Months Ended
March 31,
June 30,
September 31,
December 31,
March 31,
June 30,
September 31,
December 31,
2008
2008
2008
2008
2009
2009
2009
2009
(in RMB thousands)
1,173
1,273
1,185
1,184
1,251
1,264
2,158
3,282
As of and for the Three Months Ended
March 31,
June 30,
September 30,
December 31,
March 31,
June 30,
September 30,
December 31,
2008
2008
2008
2008
2009
2009
2009
2009
86
102
145
167
181
200
216
236
81
96
127
145
151
160
166
173
5
6
18
22
30
40
50
63
10,562
12,863
18,076
21,033
22,744
24,707
26,475
28,360
9,993
12,224
16,123
18,414
19,223
20,235
20,906
21,658
569
639
1,953
2,619
3,521
4,472
5,569
6,702
27
29
35
35
36
38
38
39
84
91
87
90
86
96
98
96
78
83
61
78
80
91
95
91
84
90
85
89
85
96
98
95
176
181
180
177
169
175
175
178
183
179
184
177
170
173
171
173
176
181
180
177
169
174
174
177
148
164
157
159
145
168
172
171
143
149
113
138
136
157
163
158
148
163
153
157
144
167
171
168
67
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Year Ended December 31,
2007
2008
2009
(RMB)
(RMB)
(RMB)
(US$)
(in thousands)
(68,254
)
(13,738
)
296,340
43,414
(284,014
)
(451,589
)
(256,027
)
(37,508
)
499,307
482,479
47,064
6,895
(6,676
)
(7,541
)
(36
)
(6
)
140,363
9,611
87,341
12,795
33,272
173,636
183,246
26,846
173,635
183,247
270,587
39,641
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69
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Payment Due by Period
Less Than
More Than
Total
1 Year
1-3 Years
3-5 Years
5 Years
(in RMB millions)
147
64
83
-
-
5,205
460
931
929
2,885
22
22
-
-
-
5,374
546
1,014
929
2,885
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Outstanding
Balance
Maximum
Drawdown as
as of
Date of
Credit Line
Credit Line
of December 31,
December 31,
Interest
Lender
Credit Line
Maturity Date
Amount
2009
2009
Rate
(in RMB)
June 2009
June 2010
150,000,000
-
-
4.98
%
September 2008
September 2011
172,000,000
172,000,000
137,000,000
(1)
5.72
%
Note: (1)
We repaid the total outstanding balance on February 1, 2010.
71
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72
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73
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74
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% of
Number of
% of
Number of Hotels
Total
Hotel Rooms
Total
315,893
100.0
%
27,346,500
100.0
%
2,253
0.7
%
526,482
1.9
%
313,640
99.3
%
26,820,018
98.1
%
(1)
Euromonitor International, 2009
(2)
National Tourism Administration of China, 2008
*
Represents the difference between the number for total lodging
facilities and the number for four and five star hotels
2003-2008
2003
2004
2005
2006
2007
2008
CAGR
87
166
522
906
1,698
2,805
100.3
%
10,292
19,199
56,854
98,817
188,788
312,930
98.0
%
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Chinas
robust economic growth drives overall travel and tourism
industry
Increasing
domestic business travel, particularly with the growing
importance of small and medium enterprises
Rapidly
growing domestic leisure travel as a result of higher disposable
income and changing lifestyle
Increasing
attractiveness of branded economy hotel chains
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China
U.S.
312,930
(1)
755,369
(2)
602,317
248,336
45.6
%
81.7
%
0.52
3.04
(1)
October 2009 Inntie Report
(2)
Smith Travel Research
(3)
Euromonitor International, 2009
*
Represents the ratio of the number of branded economy hotel
chain rooms in 2008 to urban population (in thousands) in 2008
Emerging
segmentation within the economy hotel industry
77
Table of Contents
We
have established a premium brand and achieved the highest RevPAR
and occupancy rate
78
Table of Contents
We
have successfully established a portfolio of diversified
products
We
have adopted a disciplined return-driven development model with
a proven track record
79
Table of Contents
We
have been able to achieve operational efficiency while improving
productivity
We
have an efficient and scalable operating system supported by
advanced technology platform
Real-time inventory management maximizing occupancy and
booking efficiency
: Our real-time inventory
management system allows us to lower our booking costs relative
to our competitors, efficiently manage room inventory across our
hotels to maximize occupancy and enhance our customer
satisfaction by improving reservation efficiency and accuracy.
RevPAR management maximizing revenues
: Our
system allows our management to centrally control pricing across
our hotel network. We track industry-wide room pricing
information to determine our pricing structure across products,
locations and seasons to enhance RevPAR by optimizing daily room
rate and occupancy.
Membership management enhancing loyalty
: Our
system is capable of tracking and monitoring the data,
preferences, activities and needs of our individual and
corporate members. As a result, we are able to implement more
focused marketing initiatives and provide more tailored services
that can enhance our customers experience and loyalty.
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Franchisee management
: We manage our
franchised-and-managed
hotels through our centralized and standardized information
platform. Key functions such as bookings are monitored by our
central reservation system.
Performance management
: Our real-time system
provides valuable data for management to monitor, evaluate and
make important business decisions on a real-time basis. It also
enhances our ability to manage our entire operations and
therefore allows us to maintain product and service quality and
consistency while growing rapidly.
We
have an experienced management team supported by a well-trained
workforce
Enhance
our market leadership through prudent return-driven network
expansion
Grow our leased-and-operated hotels in pursuit of long-term
profitability
: We believe that the
leased-and-operated hotels will continue to be the main
contributor to our revenues and long-
81
Table of Contents
term profitability. As of December 31, 2009, we had 21
leased-and-operated hotels under development. We plan to gain
greater market share and strengthen our leadership position
through opening more leased-and-operated hotels that meet our
stringent strategic and financial return criteria in selective
locations. While screening new opportunities, our key criterion
remains the expected return on investment.
Further expand our network growth through
franchised-and-managed hotels
: We believe the
franchise-and-manage model enables us to quickly and effectively
expand our coverage and market share in a less capital-intensive
manner with substantially lower execution risks. We intend to
supplement the expansion of our network coverage with
franchised-and-managed hotels. As of December 31, 2009, we
had 123 franchised-and-managed hotels under development. We plan
to continue to enhance our marketing activities to attract new
franchisees while encouraging our existing franchisees to expand
their hotel businesses under our brand and management.
Pursue selective acquisitions
: We have in the
past made selective acquisitions. For instance, we acquired
three hotels at prime locations in Hangzhou, China which were
originally franchised hotels of an international hotel operator
but are now under our leased-and-operated hotel operation. When
opportunities arise, we may continue to selectively acquire
economy hotel operators who operate either leased or franchised
hotels. In identifying potential acquisition targets, we will
adhere to our return-driven development model.
Meet
evolving market demand through product diversification and
customer segmentation
Further
enhance our brand recognition and expand our customer base by
leveraging our loyalty program
Continue
to invest in human capital to support future
growth
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Continue
to implement cost control measures to enhance our
profitability
Information technology systems.
We intend to
continue to upgrade our information technology systems,
including our web property management, central reservation,
customer relationship management and enterprise resource
planning systems, to further improve our financial, operational
and managerial efficiency and reduce personnel costs.
Procurement system.
We will continue to
enhance our centralized procurement of construction materials
and other consumable items, which we believe will help lower our
procurement costs, ensure consistent quality of materials and
increase our rate of return.
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Leased-and-
Franchised-and-
Leased-and-Operated
Franchised-and-Managed
Operated
Managed
Hotels Under
Hotels Under
Hotels
Hotels
Development
(1)
Development
(1)
55
24
6
32
80
25
8
42
38
14
7
49
173
63
21
123
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(1)
Include hotels for which we have entered into binding leases or
franchise-and-management agreements but that have not yet
commenced operations.
(2)
According to the National Bureau of Statistics of China, in
addition to Shanghai and Beijing, the top 20 cities, as
measured by 2007 GDP, include Guangzhou, Shenzhen, Suzhou,
Tianjin, Chongqing, Hangzhou, Wuxi, Qingdao, Foshan, Ningbo,
Chengdu, Nanjing, Dongguan, Wuhan, Dalian, Shenyang, Yantai and
Tangshan. We currently have no operation in Foshan, Dongguan,
Tangshan and Yantai.
(3)
Include Changchun, Changsha, Changzhou, Fuzhou, Guilin, Harbin,
Hefei, Jinan, Kunshan, Nanning, Nantong, Shijiazhuang, Taiyuan,
Wuhu, Xian, Xiamen, Yangzhou, Yiwu, Zhenjiang, Zhengzhou,
Zibo, Taizhou, Putian, Taian, Huaian, Yixing,
Zhangjiagang, Xining, Tongxiang, Yancheng and Jinzhou.
Pre-conversion
Conversion
Period
(1)
Period
(2)
Total
8
13
21
31
92
123
39
105
144
(1)
Include hotels for which we have entered into binding leases or
franchise-and-management agreements but of which the property
has not been delivered by the respective lessors or managed
hotel owners, as the case may be. The majority of these hotels
are expected to commence operations by December 31, 2010.
(2)
Include hotels for which we have commenced conversion activities
but that have not yet commenced operations. The majority of
these hotels are expected to commence operations by
June 30, 2010.
Leased-and-operated
hotels
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Franchised-and-managed
hotels
As of December 31,
2005
2006
2007
2008
2009
5
24
62
145
173
-
2
5
22
63
5
26
67
167
236
HanTing
Express Hotel
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HanTing
Seasons Hotel
HanTing
Hi Inn
Leased-and-operated
hotels
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Franchised-and-managed
hotels
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to ensure that commodities and services meet with certain safety
requirements;
to disclose serious defects of a commodity or a service and to
adopt preventive measures against damage occurrence;
to provide consumers with accurate information and to refrain
from conducting false advertising;
not to set unreasonable or unfair terms for consumers or
alleviate or release itself from civil liability for harming the
legal rights and interests of consumers by means of standard
contracts, circulars, announcements, shop notices or other
means; and
not to insult or slander consumers or to search the person of,
or articles carried by, a consumer or to infringe upon the
personal freedom of a consumer.
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the name, domiciles, legal representative, registered capital,
scope of business and basic information relating to its
commercial franchising;
basic information relating to the registered trademark, logo,
patent, know-how and business model;
the type, amount and method of payment of franchise fees
(including payment of deposit and the conditions and method of
refund of deposit);
the price and conditions for the franchisor to provide goods,
service and equipment to the franchisee;
the detailed plan, provision and implementation plan of
consistent services including operational guidance, technical
support and business training provided to the franchisee;
detailed measures for guiding and supervising the operation of
the franchisor;
investment budget for all franchised hotels of the franchisee;
the current numbers, territory and operation evaluation of the
franchisors within China;
a summary of accounting statements audited by an accounting firm
and a summary of audit reports for the previous two years;
information on any lawsuit in which the franchisor has been
involved in the previous five years;
basic information regarding whether the franchisor and its legal
representative have any record of material violation; and
other information required to be disclosed by the MOC.
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Directors and Executive
Officers
Age
Position/Title
43
Founder, Executive Chairman of the Board of Directors
42
Co-founder, Director
43
Co-founder, Director
35
Independent Director
42
Independent Director
44
Chief Executive Officer
36
Chief Financial Officer
33
Executive Vice President
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Audit
Committee
selecting the independent auditors and pre-approving all
auditing and non-auditing services permitted to be performed by
the independent auditors;
selecting independent auditors and pre-approving all auditing
and non-auditing services permitted to be performed by the
independent auditors;
setting clear hiring policies for employees or former employees
of the independent auditors;
reviewing with the independent auditors any audit problems or
difficulties and managements response;
reviewing and approving all proposed related-party transactions;
discussing the annual audited financial statements with
management and the independent auditors;
discussing with management and the independent auditors major
issues regarding accounting principles and financial statement
presentations;
reviewing reports prepared by management or the independent
auditors relating to significant financial reporting issues and
judgments;
reviewing with management and the independent auditors
related-party transactions and off-balance sheet transactions
and structures;
reviewing with management and the independent auditors the
effect of regulatory and accounting initiatives and actions;
reviewing policies with respect to risk assessment and risk
management;
reviewing our disclosure controls and procedures and internal
control over financial reporting;
timely reviewing reports from the independent auditors regarding
all critical accounting policies and practices to be used by our
company, all alternative treatments of financial information
within GAAP that have been discussed with management and all
other material written communications between the independent
auditors and management;
establishing procedures for the receipt, retention and treatment
of complaints received from our employees regarding accounting,
internal accounting controls or auditing matters and the
confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters;
annually reviewing and reassessing the adequacy of our audit
committee charter;
such other matters that are specifically delegated to our audit
committee by our board of directors from time to time; and
meeting separately, periodically, with management, the internal
auditors and the independent auditors.
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Compensation
Committee
reviewing and approving the compensation for our senior
executives;
reviewing and evaluating our executive compensation and benefits
policies generally;
reporting to our board of directors periodically;
evaluating its own performance and reporting to our board of
directors on such evaluation;
periodically reviewing and assessing the adequacy of the
compensation committee charter and recommending any proposed
changes to our board of directors; and
such other matters that are specifically delegated to the
compensation committee by our board of directors from time to
time.
Options.
Each option agreement must specify
the exercise price. The exercise price of an option must not be
less than 100% of the fair market value of the underlying shares
on the option grant date, and a higher percentage may be
required. The term of an option granted under the Amended and
Restated 2007 and 2008 Plans must not exceed ten years from the
date the option is granted, and a shorter term may be required.
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Share Purchase Rights.
A share purchase right
is a right to purchase restricted shares. Each share purchase
right under the Amended and Restated 2007 and 2008 Plans must be
evidenced by a restricted share purchase agreement between the
purchaser and us. The purchase price will be determined by the
administrator. The share purchase rights will automatically
expire if not exercised by the purchaser within 30 days
after the grant date.
Options.
The purchase price per share under an
option will be determined by a committee appointed by our board
and set forth in the award agreement. The term of an option
granted under the Amended and Restated 2009 Plan must not exceed
ten years from the grant date, and a shorter term may be
required.
Restricted Stock and Restricted Stock
Units.
An award of restricted stock is a grant of
our ordinary shares subject to restrictions the committee
appointed by our board may impose. A restricted stock unit is a
contractual right that is denominated in our ordinary shares,
each of which represents a right to receive the value of a share
or a specified percentage of such value upon the terms and
conditions set forth in the Amended and Restated 2009 Plan and
the applicable award agreement.
Other Stock-based Awards.
The committee is
authorized to grant other stock-based awards that are
denominated or payable in or otherwise related to our ordinary
shares such as stock appreciation rights and rights to dividends
and dividend equivalents. Terms and conditions of such awards
will be determined by the committee appointed by our board.
Unless the awards are granted in substitution for outstanding
awards previously granted by an entity that we acquired or
combined, the value of the consideration for the ordinary shares
to be purchased upon the exercise of such awards shall not be
less than the fair market value of the underlying ordinary
shares on the grant date.
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Ordinary Shares
Underlying
Exercise Price
Name
Options Awarded
(US$/Share)
Date of Grant
Date of Expiration
400,000
1.53
October 1, 2009
October 1, 2019
100,000
1.53
October 1, 2009
October 1, 2019
100,000
1.53
October 1, 2009
October 1, 2019
*
1.53
October 1, 2009
October 1, 2019
*
1.53
October 1, 2009
October 1, 2019
2,270,000
1.40/
1.53/
1.53
October 20, 2007/ August 3, 2009/November 20, 2009
October 20, 2017/ August 3, 2019/November 20, 2019
*
1.40/
1.53
October 20, 2007/November 20, 2009
October 20, 2017/November 20, 2019
*
0.50
February 4, 2007
February 4, 2017
11,829,068
0.50-1.53
February 4, 2007-
February 4, 2017-
February 5, 2010
February 5, 2020
*
Upon exercise of all options granted, would beneficially own
less than 1% of our outstanding ordinary shares.
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each of our directors and executive officers; and
each person known to us to own beneficially more than 5% of our
ordinary shares and each person who owns our Series A
preferred shares or Series B preferred shares.
Ordinary
Ordinary
Shares
Ordinary Shares
Shares
Beneficially
Beneficially Owned
Being Sold in
Owned After
Prior to This
This
This
Offering
(1)
Offering
(2)
Offering
(1)(2)
Number
%
Number
%
Number
%
115,759,849
62.67
38,920,000
21.07
9,633,333
5.22
-
-
-
-
*
*
*
*
*
*
132,773,807
70.56
80,759,849
43.72
38,920,000
21.07
14,768,868
8.00
14,768,868
8.00
8,550,949
4.63
6,340,428
3.43
2,139,134
1.16
*
Less than 1%.
(1)
The number of ordinary shares outstanding in calculating the
percentages for each listed person or group includes the
ordinary shares underlying options held by such person or group
exercisable within 60 days of the date of this prospectus.
Percentage of beneficial ownership of each listed person or
group prior to this offering is based on (i) 184,706,932
ordinary shares outstanding as of the date of this prospectus,
including ordinary shares convertible from our outstanding
Series A preferred shares and Series B preferred
shares, and (ii) the ordinary shares underlying share
options exercisable by such person within 60 days of the
date of this prospectus. Percentage of beneficial ownership of
each listed person or group after this offering is based
on
ordinary shares outstanding immediately after the completion of
this offering and additional shares issuable upon the exercise
of the outstanding options within 60 days of the date of
this prospectus.
(2)
Assumes that the underwriters do not exercise the over-allotment
option.
(3)
Includes (i) 34,822,510 ordinary shares, 20,000,000 ordinary
shares issuable upon conversion of the same number of Series A
preferred shares and 25,937,339 ordinary shares issuable upon
conversion of the same number of Series B preferred shares held
by Winner Crown Holdings Limited, or Winner Crown, a British
Virgin Islands company wholly owned by Sherman Holdings Limited,
a Bahamas company, which is in turn wholly owned by Credit
Suisse Trust Limited, or CS Trustee. CS Trustee acts as trustee
of the Ji Family Trust, of which Mr. Qi Ji and his family
members, are the beneficiaries, (ii) 15,000,000 ordinary
shares held by East Leader International Limited, or East
Leader, a British Virgin Islands company, over which Mr. Ji
has voting power pursuant to a power of attorney dated
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February 25, 2010, and
(iii) 20,000,000 ordinary shares issuable upon conversion
of the same number of Series A preferred shares held by East
Leader, over which Mr. Ji has voting power pursuant to a
power of attorney dated September 29, 2009. East Leader is
wholly owned by Perfect Will Holdings Limited, a British Virgin
Islands company, which is in turn wholly owned by Bank Sarasin
Nominees (CI) Limited, as nominee for Sarasin Trust Company
Guernsey Limited, or Sarasin Trust. Sarasin Trust acts as
trustee of the Tanya Trust, of which Ms. Tongtong Zhao and
her family members, are the beneficiaries.
(4)
Includes (i) 15,000,000 ordinary shares,
(ii) 20,000,000 ordinary shares issuable upon conversion of
the same number of Series A preferred shares and
(iii) 3,920,000 ordinary shares issuable upon conversion of
the same number of Series B preferred shares, all of which
are held by East Leader, a British Virgin Islands company wholly
owned by Perfect Will Holdings Limited, a British Virgin Islands
company, which is in turn wholly owned by Bank Sarasin Nominees
(CI) Limited, as nominee for Sarasin Trust Company Guernsey
Limited, or Sarasin Trust. Sarasin Trust acts as trustee of the
Tanya Trust, of which Ms. Tongtong Zhao and her family
members, are the beneficiaries. Ms. Zhao is the sole director of
East Leader.
(5)
Includes 4,000,000 ordinary shares, 4,000,000 ordinary shares
issuable upon conversion of the same number of Series A
preferred shares, and 1,633,333 ordinary shares issuable upon
conversion of the same number of Series B preferred shares.
(6)
Includes 34,822,510 ordinary shares, 20,000,000 ordinary shares
issuable upon conversion of the same number of Series A
preferred shares and 25,937,339 ordinary shares issuable upon
conversion of the same number of Series B preferred shares.
Winner Crown is a British Virgin Islands company wholly owned by
Sherman Holdings Limited, a Bahamas company, which is in turn
wholly owned by Credit Suisse Trust Limited, or CS Trustee.
CS Trustee acts as trustee of the Ji Family Trust, of which
Mr. Qi Ji, our founder and executive chairman, and his
family members, are the beneficiaries. Mr. Ji is the sole
director of Winner Crown. The address of Winner Crown is Akara
Bldg., 24 De Castro Street, Wickhams Cay I, Road Town,
Tortola, British Virgin Islands.
(7)
Includes (i) 15,000,000 ordinary shares,
(ii) 20,000,000 ordinary shares issuable upon conversion of
the same number of Series A preferred shares and
(iii) 3,920,000 ordinary shares issuable upon conversion of
the same number of Series B preferred shares. East Leader
is a British Virgin Islands company wholly owned by Perfect Will
Holdings Limited, a British Virgin Islands company, which is in
turn wholly owned by Bank Sarasin Nominees (CI) Limited, as
nominee for Sarasin Trust Company Guernsey Limited, or Sarasin
Trust. Sarasin Trust acts as trustee of the Tanya Trust, of
which Ms. Tongtong Zhao and her family members, are the
beneficiaries. Ms. Zhao is the sole director of East
Leader. The address of East Leader is P.O. Box 957,
Offshore Incorporations Centre, Road Town,Tortola, British
Virgin Islands.
(8)
Includes 516,910, 12,684,242 and 1,567,716 ordinary shares
issuable upon conversion of the same numbers of Series B
preferred shares held by Chengwei Partners, L.P., Chengwei
Ventures Evergreen Fund, L.P. and Chengwei Ventures Evergreen
Advisors Fund, LLC, respectively, collectively referred to as
the Chengwei Funds. Chengwei Partners, L.P. is an exempted
limited partnership incorporated in the Cayman Islands. Chengwei
Ventures Evergreen Fund, L.P. is an exempted limited partnership
incorporated in the Cayman Islands. Chengwei Ventures Evergreen
Advisors Fund, LLC is an exempted limited liability corporation
incorporated in the Cayman Islands. Chengwei Ventures Evergreen
Management, LLC, a Cayman Islands exempted limited liability
company, is the general partner of Chengwei Partners, L.P. and
Chengwei Ventures Evergreen Fund, L.P., as well as the managing
member of Chengwei Ventures Evergreen Advisors Fund, LLC.
Mr. Eric X. Li, Mr. Pei Kang and Mr. Yang Dong
Shao, the directors of Chengwei Ventures Evergreen Management,
LLC, hold voting and dispositive power over the Chengwei Funds.
The address of the Chengwei Funds is P.O. Box 309 GT,
Ugland House, South Church Street, George Town, Grand Cayman,
Cayman Islands.
(9)
Includes 14,768,868 ordinary shares issuable upon conversion of
the same number of Series B preferred shares. CDH Courtyard
Limited is a company incorporated in the British Virgin Islands.
All of the issued and outstanding shares of CDH Courtyard
Limited are wholly owned by CDH Venture Partners, L.P., a Cayman
Islands exempted limited partnership. CDH Venture GP I
Company Limited, a Cayman Islands exempted limited liability
company, is the general partner of CDH Venture Partners, L.P.
and has the power to direct CDH Venture Partners, L.P. as to the
voting and disposition of shares directly and indirectly held by
CDH Venture Partners, L.P. Mr. Gongquan Wang is a director
and a member of the investment committee of CDH Venture
GP I Company Limited. Mr. Gongquan Wang disclaims
beneficial ownership of any of the shares held by CDH Courtyard
Limited except to the extent of his pecuniary interest therein.
The address of CDH Courtyard Limited is 1503, Level 15,
International Commerce Centre, 1 Austin Road West, Kowloon,
Hong Kong.
(10)
Includes 6,590,216, 1,346,774 and 613,959 ordinary shares
issuable upon conversion of the same numbers of Series B
preferred shares held by IDG-Accel China Growth Fund L.P.,
IDG-Accel China Growth Fund-A L.P. and IDG-Accel China Investors
L.P., respectively, collectively referred to as the IDG Funds.
Each of the IDG Funds is an exempted limited partnership
incorporated in the Cayman Islands. IDG-Accel China Growth
Fund GP Associates Ltd., a Cayman Islands limited company,
is the general partner of IDG-Accel China Growth
Fund Associates L.P., a Cayman
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Islands limited partnership, which
in turn is the general partner of IDG-Accel China Growth
Fund L.P. and IDG-Accel China Growth Fund-A L.P. Each of
the two directors of IDG-Accel China Growth Fund GP
Associates Ltd., Mr. Patrick J. McGovern and Mr. Quan
Zhou, owns 50% of IDG-Accel China Growth Fund GP Associates
Ltd.s voting shares. IDG-Accel China Investors Associates
Ltd., a Cayman Islands limited company, is the general partner
of IDG-Accel China Investors L.P. Mr. James Breyer is the sole
shareholder and one of the two directors of
IDG-Accel
China Investors Associates Ltd. Mr. Quan Zhou is the other
director of IDG-Accel China Investors Associates Ltd. The
address of the IDG Funds is Unit 1509, the Center, 99
Queens Road Central, Hong Kong.
(11)
Includes 4,769,269, 523,720, and 1,047,439 ordinary shares
issuable upon conversion of the same numbers of Series B
preferred shares held by Northern Light Venture Fund, L.P.,
Northern Light Partners Fund, L.P., and Northern Light Strategic
Fund, L.P., respectively, collectively referred to as the
Northern Light Funds. Each of the Northern Light Funds is an
exempted limited partnership incorporated in the Cayman Islands.
Northern Light Venture Capital Limited, a Cayman Islands
exempted limited liability company, is the general partner of
Northern Light Partners, L.P., a Cayman Islands limited
partnership, which in turn is the general partner of the
Northern Light Funds. Feng Deng, Yan Ke and Jeffrey Lee,
directors of Northern Light Venture Capital Limited, hold voting
and dispositive power over the Northern Light Funds. The address
of the Northern Light Funds is 2440 Sand Hill Road
Suite 201, Menlo Park, CA 94025, USA.
(12)
Includes 2,139,134 ordinary shares issuable upon conversion of
the same number of Series B preferred shares. Pinpoint
Capital 2006 A Limited is a company incorporated in the British
Virgin Islands. All of the issued and outstanding shares of
Pinpoint Capital 2006 A Limited are wholly owned by Pinpoint
China Direct Investment Fund, L.P., a Cayman Islands exempted
limited partnership. Pinpoint Capital Limited, a Cayman Islands
exempted limited liability company, is the general partner of
Pinpoint China Direct Investment Fund, L.P. and has the power to
direct Pinpoint China Direct Investment Fund, L.P. as to the
voting and disposition of shares directly and indirectly held by
Pinpoint China Direct Investment Fund, L.P.. Mr. Jiyi Weng
and Mr. Qiang Wang are directors and members of the
investment committee of Pinpoint Capital Limited. Mr. Jiyi Weng
and Mr. Qiang Wang are also directors of Pinpoint Capital
2006 A Limited. The address of Pinpoint Capital 2006 A Limited
is 2nd Floor, Abbott Building, Road Town, Tortola, British
Virgin Islands.
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is a company that conducts its business outside the Cayman
Islands;
is exempted from certain requirements of the Companies Law,
including the filing of an annual return of its shareholders
with the Registrar of Companies;
does not have to make its register of shareholders open to
inspection; and
may obtain an undertaking against the imposition of any future
taxation.
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increase our capital by such sum, to be divided into shares of
such amounts, as the resolution shall prescribe;
consolidate and divide all or any of our share capital into
shares of larger amount than our existing shares;
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 subject to the provisions of
the Companies Law;
sub-divide
our shares or any of them into shares of smaller amount than is
fixed by our amended and restated memorandum of association,
subject nevertheless to the Companies Law, and so that the
resolution whereby any share is
sub-divided
may determine that, as between the holders of the shares
resulting from such subdivision, one or more of the shares may
have any such preferred or other special rights, over, or may
have such deferred rights or be subject to any such restrictions
as compared with the others as we have power to attach to
unissued or new shares; and
divide shares into several classes and without prejudice to any
special rights previously conferred on the holders of existing
shares, attach to the shares respectively any preferential,
deferred, qualified or special rights, privileges, conditions or
such restrictions that in the absence of any such determination
in general meeting may be determined by our directors.
the instrument of transfer is lodged with us accompanied by the
certificate for the shares to which it relates and such other
evidence as our directors may reasonably require to show the
right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of
share;
the instrument of transfer is properly stamped (in circumstances
where stamping is required);
in the case of a transfer to joint holders, the number of joint
holders to whom the share is to be transferred does not exceed
four; and
fee of such maximum sum as the NASDAQ Global Market may
determine to be payable or such lesser sum as our directors may
from time to time require is paid to us in respect thereof.
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all checks or warrants in respect of dividends of such shares,
not being less than three in number, for any sums payable in
cash to the holder of such shares have remained un-cashed for a
period of 12 years prior to the publication of the
advertisement and during the three months referred to in third
bullet point below;
we have not during that time received any indication of the
whereabouts or existence of the shareholder or person entitled
to such shares by death, bankruptcy or operation of law; and
we have caused an advertisement to be published in newspapers in
the manner stipulated by our amended and restated articles of
association, giving notice of our intention to sell these
shares, and a period of three months has elapsed since such
advertisement and the NASDAQ Global Market has been notified of
such intention.
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a company is acting or proposing to act illegally or beyond the
scope of its authority;
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the act complained of, although not beyond the scope of its
authority, could be effected duly if authorized by more than a
simple majority vote which has not been obtained; or
those who control the company are perpetrating a fraud on
the minority.
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the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, conversion rights and
voting rights; and
the rights and terms of redemption and liquidation preferences.
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At least 25% of all registrable securities requested by the
holders of Series B preferred shares to be included in the
underwriting are included; and
All shares that are not held by the holders of Series B
preferred shares are first excluded from the registration,
following which all shares that are not held by the holders of
Series A preferred shares are subsequently excluded from
the registration.
The number of registrable securities held by holders of
Series B preferred shares included in such registration is
not reduced below 25% of the aggregate number of securities
included in such registration statement; and
The number of shares that may be included in the registration
shall be allocated, first, to us, second, to each of the
requesting holders of Series B preferred shares, third, to
each of the requesting holders of Series A preferred
shares, and fourth, to holders of our other securities.
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We do not timely request that the rights be distributed to you
or we request that the rights not be distributed to you; or
We fail to deliver satisfactory documents to the
depositary; or
It is not reasonably practicable to distribute the rights.
We do not request that the property be distributed to you or if
we ask that the property not be distributed to you; or
We do not deliver satisfactory documents to the
depositary; or
The depositary determines that all or a portion of the
distribution to you is not reasonably practicable.
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The ordinary shares are duly authorized, validly issued, fully
paid, non-assessable and legally obtained.
All preemptive (and similar) rights, if any, with respect to
such ordinary shares have been validly waived or exercised.
You are duly authorized to deposit the ordinary shares.
The ordinary shares presented for deposit are free and clear of
any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such
deposit will not be, restricted securities (as
defined in the deposit agreement).
The ordinary shares presented for deposit have not been stripped
of any rights or entitlements.
127
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ensure that the surrendered ADR certificate is properly endorsed
or otherwise in proper form for transfer;
provide such proof of identity and genuineness of signatures as
the depositary deems appropriate;
provide any transfer stamps required by the State of New York or
the United States; and
pay all applicable fees, charges, expenses, taxes and other
government charges payable by ADR holders pursuant to the terms
of the deposit agreement, upon the transfer of ADRs.
Temporary delays that may arise because (i) the transfer
books for the ordinary shares or ADSs are closed, or
(ii) ordinary shares are immobilized on account of a
shareholders meeting or a payment of dividends.
Obligations to pay fees, taxes and similar charges.
Restrictions imposed because of laws or regulations applicable
to ADSs or the withdrawal of securities on deposit.
128
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Service
Fees
Issuance of ADSs
Up to U.S. 5¢ per ADS issued
Cancellation of ADSs
Up to U.S. 5¢ per ADS canceled
Distribution of cash dividends or other cash distributions
Up to U.S. 5¢ per ADS held
Distribution of ADSs pursuant to stock dividends, free stock
distributions or exercise of rights
Up to U.S. 5¢ per ADS held
Distribution of securities other than ADSs or rights to
purchase additional ADSs
Up to U.S. 5¢ per ADS held
Depositary Services
Up to U.S. 5¢ per ADS held on the applicable record
date(s) established by the Depositary
Fees for the transfer and registration of ordinary shares
charged by the registrar and transfer agent for the ordinary
shares in the Cayman Islands (
i.e.
, upon deposit and
withdrawal of ordinary shares).
Expenses incurred for converting foreign currency into
U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery
of securities.
Taxes and duties upon the transfer of securities (
i.e.
,
when ordinary shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or
servicing of ordinary shares on deposit.
129
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130
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We and the depositary are obligated only to take the actions
specifically stated in the deposit agreement without negligence
or bad faith.
The depositary disclaims any liability for any failure to carry
out voting instructions, for any manner in which a vote is cast
or for the effect of any vote, provided it acts in good faith
and in accordance with the terms of the deposit agreement.
The depositary disclaims any liability for any failure to
determine the lawfulness or practicality of any action, for the
content of any document forwarded to you on our behalf or for
the accuracy of any translation of such a document, for the
investment risks associated with investing in ordinary shares,
for the validity or worth of the ordinary shares, for any tax
consequences that result from the ownership of ADSs, for the
credit-worthiness of any third party, for allowing any rights to
lapse under the terms of the deposit agreement, for the
timeliness of any of our notices or for our failure to give
notice.
We and the depositary will not be obligated to perform any act
that is inconsistent with the terms of the deposit agreement.
We and the depositary disclaim any liability if we are prevented
or forbidden from acting on account of any law or regulation,
any provision of our amended and restated Memorandum and
Articles of Association, any provision of any securities on
deposit or by reason of any act of God or war or other
circumstances beyond our control.
We and the depositary disclaim any liability by reason of any
exercise of, or failure to exercise, any discretion provided for
the deposit agreement or in our amended and restated Memorandum
and Articles of Association or in any provisions of securities
on deposit.
We and the depositary further disclaim any liability for any
action or inaction in reliance on the advice or information
received from legal counsel, accountants, any person presenting
ordinary shares for deposit, any holder of ADSs or authorized
representatives thereof, or any other person believed by either
of us in good faith to be competent to give such advice or
information.
We and the depositary also disclaim liability for the inability
by a holder to benefit from any distribution, offering, right or
other benefit which is made available to holders of ordinary
shares but is not, under the terms of the deposit agreement,
made available to you.
We and the depositary may rely without any liability upon any
written notice, request or other document believed to be genuine
and to have been signed or presented by the proper parties.
We and the depositary also disclaim liability for any
consequential or punitive damages for any breach of the terms of
the deposit agreement.
131
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Convert the foreign currency to the extent practical and lawful
and distribute the U.S. dollars to the holders for whom the
conversion and distribution is lawful and practical.
Distribute the foreign currency to holders for whom the
distribution is lawful and practical.
Hold the foreign currency (without liability for interest) for
the applicable holders.
132
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133
Table of Contents
134
Table of Contents
135
Table of Contents
certain financial institutions;
dealers or traders in securities who use a
mark-to-market
method of tax accounting;
136
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persons holding ordinary shares or ADSs as part of a hedging
transaction, straddle, wash sale, conversion transaction or
integrated transaction or persons entering into a constructive
sale with respect to the ordinary shares or ADSs;
persons whose functional currency for U.S. federal income
tax purposes is not the U.S. dollar;
entities classified as partnerships for U.S. federal income
tax purposes;
tax-exempt entities, including individual retirement
accounts or Roth IRAs;
persons that own or are deemed to own ten percent or more of our
voting stock; or
persons holding shares in connection with a trade or business
conducted outside of the United States.
a citizen or resident of the United States;
a corporation, or other entity taxable as a corporation, created
or organized in or under the laws of the United States, any
state therein or the District of Columbia; or
an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source.
137
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138
Table of Contents
139
Table of Contents
Number of ADSs
No Exercise
Full Exercise
US$
US$
US$
US$
140
Table of Contents
141
Table of Contents
142
Table of Contents
to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than A43,000,000 and
(3) an annual net turnover of more than A50,000,000, as
shown in its last annual or consolidated accounts;
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer;
or in any other circumstances which do not require the
publication by the company of a prospectus pursuant to
Article 3 of the Prospectus Directive.
143
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144
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a corporation (which is not an accredited investor as defined in
Section 4A of the SFA) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or
a trust (where the trustee is not an accredited investor) whose
sole purpose is to hold investments and each beneficiary of the
trust is an individual who is an accredited investor,
to an institutional investor (for corporations, under 274 of the
SFA) or to a relevant person defined in Section 275(2) of
the SFA, or to any person pursuant to an offer that is made on
terms that such shares, debentures and units of shares and
debentures of that corporation or such rights and interest in
that trust are acquired at a consideration of not less than
S$200,000 (or its equivalent in a foreign currency) for each
transaction, whether such amount is to be paid for in cash or by
exchange of securities or other assets, and further for
corporations, pursuant to Section 275(1A), and in
accordance with the conditions specified in Section 275 of
the SFA;
where no consideration is or will be given for the
transfer; or
where the transfer is by operation of law.
145
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US$
US$
146
Table of Contents
147
Table of Contents
148
Table of Contents
F-2
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In Renminbi, except share and per share data, unless otherwise
stated)
As of December 31,
2007
2008
2009
2009
2009
2009
RMB
RMB
RMB
US$
RMB
US$
(Note 2)
(pro forma
(pro forma
Note 2)
Note 2)
173,635,533
183,245,953
270,587,296
39,641,263
270,587,296
39,641,263
23,649,851
5,597,087
500,000
73,250
500,000
73,250
4,474,877
12,561,853
15,157,758
2,220,624
15,157,758
2,220,624
7,710,712
5,383,680
4,632,338
678,641
4,632,338
678,641
39,933,563
76,146,217
69,618,106
10,199,110
69,618,106
10,199,110
9,525,296
22,650,516
8,883,092
1,301,380
8,883,092
1,301,380
11,832,305
12,101,324
28,974,813
4,244,835
28,974,813
4,244,835
11,129,810
12,237,797
18,272,303
2,676,908
18,272,303
2,676,908
281,891,947
329,924,427
416,625,706
61,036,011
416,625,706
61,036,011
465,186,042
957,406,825
1,028,266,722
150,641,926
1,028,266,722
150,641,926
21,451,215
21,968,917
20,394,760
2,987,849
20,394,760
2,987,849
15,691,670
19,550,138
18,452,163
2,703,257
18,452,163
2,703,257
35,195,077
53,475,709
61,170,258
8,961,493
61,170,258
8,961,493
16,629,545
50,614,278
36,221,906
5,306,539
36,221,906
5,306,539
836,045,496
1,432,940,294
1,581,131,515
231,637,075
1,581,131,515
231,637,075
Liabilities, mezzanine equity and equity (deficit)
37,800,000
80,000,000
-
-
-
-
-
2,000,000
57,000,000
8,350,547
57,000,000
8,350,547
83,778,041
182,802,970
141,570,710
20,740,226
141,570,710
20,740,226
15,852,646
1,508,860
927,584
135,892
927,584
135,892
13,282,933
33,754,970
29,596,685
4,335,939
29,596,685
4,335,939
3,710,888
16,007,757
43,203,003
6,329,276
43,203,003
6,329,276
68,451,945
147,140,993
89,383,392
13,094,741
89,383,392
13,094,741
3,008,467
5,128,662
3,869,445
566,877
3,869,445
566,877
8,536,094
-
-
-
-
-
234,421,014
468,344,212
365,550,819
53,553,498
365,550,819
53,553,498
-
27,500,000
80,000,000
11,720,066
80,000,000
11,720,066
46,084,073
138,207,438
174,775,327
25,604,730
174,775,327
25,604,730
3,403,163
16,141,135
31,557,934
4,623,263
31,557,934
4,623,263
3,619,012
8,246,385
20,452,463
2,996,303
20,452,463
2,996,303
5,534,566
6,938,951
6,538,231
957,856
6,538,231
957,856
293,061,828
665,378,121
678,874,774
99,455,716
678,874,774
99,455,716
F-3
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In Renminbi, except share and per share data, unless otherwise
stated)
As of December 31,
2007
2008
2009
2009
2009
2009
RMB
RMB
RMB
US$
RMB
US$
(Note 2)
(pro forma
(pro forma
Note 2)
Note 2)
437,829,389
796,803,452
796,803,452
116,732,365
-
-
41,792
41,792
46,490
6,811
124,918
18,300
34,136
34,136
34,136
5,001
-
-
260,251,508
265,066,530
351,994,132
51,567,431
1,148,753,292
168,293,308
(151,838,975
)
(288,001,442
)
(245,456,912
)
(35,959,641
)
(245,456,912
)
(35,959,641
)
(5,667,361
)
(12,493,880
)
(12,529,459
)
(1,835,576
)
(12,529,459
)
(1,835,576
)
102,821,100
(35,352,864
)
94,088,387
13,784,026
890,891,839
130,516,392
2,333,179
6,111,585
11,364,902
1,664,968
11,364,902
1,664,968
105,154,279
(29,241,279
)
105,453,289
15,448,994
902,256,741
132,181,359
836,045,496
1,432,940,294
1,581,131,515
231,637,075
1,581,131,515
231,637,075
F-4
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Renminbi, except share and per share data,
unless otherwise stated)
Year Ended December 31
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
248,198,634
797,814,566
1,288,897,954
188,824,617
1,209,782
12,039,268
44,964,749
6,587,373
249,408,416
809,853,834
1,333,862,703
195,411,990
14,103,419
45,605,227
73,671,579
10,792,947
235,304,997
764,248,607
1,260,191,124
184,619,043
228,361,572
687,364,048
1,004,472,153
147,156,002
17,581,275
40,810,261
57,818,168
8,470,409
65,653,021
81,665,318
83,665,425
12,257,054
61,019,864
108,062,318
37,821,018
5,540,811
372,615,732
917,901,945
1,183,776,764
173,424,276
(137,310,735
)
(153,653,338
)
76,414,360
11,194,767
1,219,045
3,786,416
1,870,177
273,983
-
1,248,509
8,787,096
1,287,317
(145,096
)
(13,883,784
)
(59,677
)
(8,743
)
5,235,236
8,536,094
-
-
(131,001,550
)
(156,463,121
)
69,437,764
10,172,690
(17,262,118
)
(23,879,778
)
17,989,675
2,635,502
(113,739,432
)
(132,583,343
)
51,448,089
7,537,188
(2,116,309
)
3,579,124
8,903,559
1,304,379
(111,623,123
)
(136,162,467
)
42,544,530
6,232,809
(17,499,012
)
-
-
-
(129,122,135
)
(136,162,467
)
42,544,530
6,232,809
(2.85
)
(2.52
)
0.24
0.03
(2.85
)
(2.52
)
0.23
0.03
45,248,223
54,071,135
57,562,440
57,562,440
45,248,223
54,071,135
183,631,885
183,631,885
0.24
0.03
0.23
0.03
179,621,359
179,621,359
183,631,885
183,631,885
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(In Renminbi, except share and per share data, unless otherwise
stated)
Accumulated
Ordinary
Series A
Additional
Other
Shares
Preferred Shares
Paid-in
Accumulated
Comprehensive
Noncontrolling
Total
Comprehensive
Share
Amount
Share
Amount
Capital
deficit
Income (loss)
interest
equity (deficit)
income (loss)
40,000,000
31,045
40,000,000
31,045
144,648,748
(40,740,038
)
755,675
546,487
105,272,962
-
-
-
-
-
524,186
(755,675
)
-
(231,489
)
-
-
-
-
1,552,260
-
-
-
1,552,260
4,000,000
3,091
4,000,000
3,091
37,976,801
-
-
-
37,982,983
7,840,001
5,973
-
-
76,180,000
-
-
-
76,185,973
1,843,500
1,389
-
-
9,201,288
-
-
518,001
9,720,678
387,634
294
-
-
8,191,423
-
-
-
8,191,717
-
-
-
-
-
-
-
3,385,000
3,385,000
-
-
-
-
-
(111,623,123
)
-
(2,116,309
)
(113,739,432
)
(111,623,123
)
-
-
-
-
(17,499,012
)
-
-
-
(17,499,012
)
-
-
-
-
-
-
(5,667,361
)
-
(5,667,361
)
(5,667,361
)
54,071,135
41,792
44,000,000
34,136
260,251,508
(151,838,975
)
(5,667,361
)
2,333,179
105,154,279
(117,290,484
)
-
-
-
-
4,815,022
-
-
-
4,815,022
-
-
-
-
-
-
-
580,000
580,000
-
-
-
-
-
-
-
627,615
627,615
-
-
-
-
-
(136,162,467
)
-
3,579,124
(132,583,343
)
(136,162,467
)
-
-
-
-
-
-
-
(1,008,333
)
(1,008,333
)
-
-
-
-
-
-
(6,826,519
)
-
(6,826,519
)
(6,826,519
)
54,071,135
41,792
44,000,000
34,136
265,066,530
(288,001,442
)
(12,493,880
)
6,111,585
(29,241,279
)
(142,988,986
)
6,141,878
4,195
-
-
75,702,439
-
-
-
75,706,634
735,000
503
-
-
3,764,755
-
-
-
3,765,258
-
-
-
-
7,955,166
-
-
-
7,955,166
-
-
-
-
(494,758
)
-
-
(1,450,242
)
(1,945,000
)
-
-
-
-
-
42,544,530
-
8,903,559
51,448,089
42,544,530
-
-
-
-
-
-
-
(2,200,000
)
(2,200,000
)
-
-
-
-
-
-
(35,579
)
-
(35,579
)
(35,579
)
60,948,013
46,490
44,000,000
34,136
351,994,132
(245,456,912
)
(12,529,459
)
11,364,902
105,453,289
42,508,951
F-6
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Renminbi, except share and per share date,
unless otherwise stated)
Year Ended December 31,
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
(113,739,432
)
(132,583,343
)
51,448,089
7,537,188
14,785,372
4,815,022
7,955,166
1,165,438
32,901,981
90,835,965
145,571,393
21,326,330
(19,746,205
)
(34,126,710
)
7,957,146
1,165,728
500,000
423,368
1,252,275
183,459
(5,235,236
)
(8,536,094
)
-
-
30,974,828
92,123,365
36,567,889
5,357,226
-
-
1,947,873
285,365
1,191,869
(8,891,721
)
(2,848,180
)
(417,261
)
(27,492,705
)
(35,792,771
)
6,528,111
956,374
(7,612,112
)
(12,823,253
)
13,767,424
2,016,939
-
-
374,203
54,821
38,913,118
2,133,771
(16,873,489
)
(2,471,980
)
(26,100,307
)
(18,280,632
)
(8,694,549
)
(1,273,759
)
(5,303,367
)
(8,938,700
)
4,254,720
623,320
567,611
668,275
(581,276
)
(85,157
)
10,313,853
20,023,538
(4,158,285
)
(609,192
)
6,319,058
25,032,969
42,612,045
6,242,700
(3,372,300
)
3,125,029
(1,994,232
)
(292,157
)
2,409,901
2,120,195
(1,259,217
)
(184,476
)
1,470,369
4,934,203
12,512,907
1,833,152
(68,253,704
)
(13,737,524
)
296,340,013
43,414,058
(257,701,910
)
(469,501,431
)
(263,775,540
)
(38,643,335
)
(2,132,000
)
(848,077
)
(1,005,300
)
(147,277
)
-
-
3,280,000
480,523
(2,024,152
)
(1,619,753
)
-
-
1,493,729
2,327,032
377,139
55,251
(23,649,850
)
18,052,764
5,097,087
746,727
(284,014,183
)
(451,589,465
)
(256,026,614
)
(37,508,111
)
F-7
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Renminbi, except share and per share date, unless otherwise
stated)
Year Ended December 31,
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
(14,923,921
)
-
-
-
1,552,260
-
-
-
76,185,973
-
24,432,215
3,579,340
-
-
30,512,946
4,470,172
310,383,483
270,804,804
-
-
86,321,354
74,274,859
-
-
30,472,000
-
-
-
-
-
3,765,258
551,613
158,220,000
262,200,000
150,000,000
21,975,124
(157,920,000
)
(220,000,000
)
(230,000,000
)
(33,695,190
)
-
30,000,000
142,000,000
20,803,118
-
(500,000
)
(34,500,000
)
(5,054,279
)
15,124,635
6,749,121
14,215,330
2,082,558
(4,823,135
)
(3,483,400
)
(7,930,550
)
(1,161,832
)
(716,993
)
-
(1,945,000
)
(284,944
)
(2,400,000
)
-
-
-
(1,554,165
)
(402,861
)
-
-
3,385,000
580,000
-
-
-
105,264,538
-
-
-
(42,000,000
)
(42,503,065
)
(6,226,734
)
-
(1,008,333
)
(2,200,000
)
(322,302
)
-
-
1,216,389
178,201
499,306,491
482,478,728
47,063,523
6,894,845
(6,675,561
)
(7,541,319
)
(35,579
)
(5,213
)
140,363,043
9,610,420
87,341,343
12,795,579
33,272,490
173,635,533
183,245,953
26,845,684
173,635,533
183,245,953
270,587,296
39,641,263
3,680,512
7,840,117
10,473,755
1,534,414
423,842
6,306,496
11,315,848
1,657,781
14,692,432
-
-
-
61,854
-
-
-
37,979,892
-
-
-
30,803,215
-
-
-
-
13,894,400
-
-
8,366,787
-
-
-
9,201,288
-
-
-
16,030,885
-
-
-
73,629,452
170,897,262
125,410,282
18,372,710
-
-
20,761,473
3,041,573
F-8
Table of Contents
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
1.
ORGANIZATION
AND PRINCIPAL ACTIVITIES
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
1.
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
Percentage of
Date of
Place of
Ownership
or acquisition
incorporation
100
%
October 22, 2008
Hong Kong Special Administrative region of PRC
100
%
November 17, 2004
PRC
100
%
March 3, 2006
PRC
100
%
January 16, 2008
PRC
100
%
April 12, 2007
PRC
Leased-and-operated
hotels
Franchised-and-managed
hotels
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES
Basis
of presentation
Basis
of consolidation
Use of
estimates
Cash
and cash equivalents
Restricted
cash
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Accounts
receivable, net of allowance
Inventories
Property
and equipment, net
over the shorter of the lease term or their estimated useful
lives
40 years
3-5 years
5 years
Intangible
assets, net and unfavorable lease
Goodwill
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Goodwill
(continued)
Impairment
of long-lived assets
Accruals
for customer loyalty program
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Accruals
for customer loyalty program (continued)
Deferred
revenue
Revenue
recognition
Business
tax and related taxes
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Advertising
and promotional expenses
Government
grants
Leases
Capitalization
of interest
Income
taxes
Foreign
currency translation and comprehensive loss
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Foreign
currency translation and comprehensive loss
(continued)
Concentration
of credit risk
Fair
value
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Fair
value (continued)
Warrants
Share-based
compensation
At December 31,
2007
2008
2009
23,938
115,576
523,208
107,616
178,090
465,239
14,653,818
4,521,356
6,966,719
14,785,372
4,815,022
7,955,166
Earnings
(Loss) per share
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Earnings
(Loss) per share (continued)
Segment
reporting
Recently
issued accounting pronouncements
Future
Adoption of Accounting Standards
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Future
Adoption of Accounting Standards (continued)
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
2.
SUMMARY
OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Future
Adoption of Accounting Standards (continued)
Unaudited
pro forma information
Unaudited
pro forma net earnings per share
Translation
into United States Dollars
3.
ACQUISITIONS
(i) Yiju
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
3.
ACQUISITIONS
(CONTINUED)
(i) Yiju
(continued)
Amortization period
7,288,686
(40,751,037
)
48,144,045
5-10 years
15,184,140
remaining lease term
12,503,372
(786,917
)
remaining lease term
(3,599,306
)
37,982,983
(ii) Others
2007
2008
11,517,502
4,230,000
9,202,677
-
20,720,179
4,230,000
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
3.
ACQUISITIONS
(CONTINUED)
(ii) Others
(continued)
Amortization
2007
2008
period
19,174,542
3,539,708
(44,704,897
)
(12,152,725
)
41,138,602
8,297,038
5-10 years
5,110,772
1,753,501
remaining lease term
357,413
-
3,188,298
3,858,468
(1,536,980
)
-
remaining lease term
(1,250,862
)
(438,375
)
(756,709
)
(627,615
)
20,720,179
4,230,000
(iii) Pro
forma (unaudited)
Year ended
December 31,
2007
(Unaudited)
262,850,688
(136,312,072
)
(3.01
)
(3.01
)
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
3.
ACQUISITIONS
(CONTINUED)
(iii) Pro
forma (unaudited) (continued)
(iv)
In
2009 the Group acquired noncontrolling interests in five
existing subsidiaries for cash consideration of RMB1,945,000.
The acquisitions of the noncontroling interests were accounted
for as equity transactions. The difference between the purchase
consideration and the related carrying value of the
noncontrolling interests amount of RMB494,758 was recorded as a
reduction of additional paid-in capital.
4.
PROPERTY
AND EQUIPMENT, NET
As of December 31,
2007
2008
2009
11,859,649
11,859,649
11,859,649
351,378,761
901,755,476
1,096,753,728
73,271,951
157,911,986
182,790,955
552,060
191,967
191,967
437,062,421
1,071,719,078
1,291,596,299
(46,933,302
)
(135,992,221
)
(277,529,412
)
390,129,119
935,726,857
1,014,066,887
75,056,923
21,679,968
14,199,835
465,186,042
957,406,825
1,028,266,722
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
5.
INTANGIBLE
ASSETS, NET AND UNFAVORABLE LEASE
As of December 31,
2007
2008
2009
20,294,912
22,048,413
21,538,254
2,132,000
2,980,077
3,985,377
22,426,912
25,028,490
25,523,631
(975,697
)
(3,059,573
)
(5,128,871
)
21,451,215
21,968,917
20,394,760
As of December 31,
2007
2008
2009
2,323,897
2,323,897
2,323,897
(175,255
)
(482,084
)
(788,913
)
2,148,642
1,841,813
1,534,984
Amortization for
Amortization for
Net
intangible assets
unfavorable lease
Amortization
2,202,306
(306,829
)
1,895,477
2,202,306
(306,829
)
1,895,477
2,198,827
(306,829
)
1,891,998
2,152,766
(208,180
)
1,944,586
2,028,240
(167,806
)
1,860,434
9,610,315
(238,511
)
9,371,804
20,394,760
(1,534,984
)
18,859,776
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
6.
GOODWILL
Gross
Accumulated
Net
Amount
Impairment Loss
Amount
-
-
-
15,691,670
-
15,691,670
-
-
-
15,691,670
-
15,691,670
3,858,468
-
3,858,468
-
-
-
19,550,138
-
19,550,138
-
-
-
-
(1,097,975
)
(1,097,975
)
19,550,138
(1,097,975
)
18,452,163
7.
DEBT
As of December 31,
2007
2008
2009
37,800,000
80,000,000
-
-
2,000,000
57,000,000
37,800,000
82,000,000
57,000,000
-
27,500,000
80,000,000
37,800,000
109,500,000
137,000,000
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
7.
DEBT
(CONTINUED)
57,000,000
80,000,000
137,000,000
8.
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
As of December 31,
2007
2008
2009
-
63,264,538
-
6,529,795
8,450,430
12,471,140
1,160,288
6,271,534
1,875,817
21,902,401
25,168,122
31,452,902
11,986,188
18,073,418
11,108,184
17,543,265
10,392,775
11,562,013
3,622,436
8,881,883
12,235,690
5,707,572
6,638,293
8,677,646
68,451,945
147,140,993
89,383,392
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
9.
CONVERTIBLE
NOTES
10.
PREFERRED
SHARES, WARRANT I and WARRANT II
Series B Shares
Warrant I
Warrant II
Proceeds
29,008,007
10,565,952
3,136,001
RMB281,866,019 (US$37,000,003
)
3,136,002
1,142,266
-
RMB 30,472,014 (US$4,000,001
)
3,729,526
1,358,452
-
-
35,873,535
13,066,670
3,136,001
RMB312,338,033 (US$41,000,004
)
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
10.
PREFERRED
SHARES, WARRANT I and WARRANT II (CONTINUED)
Dividends
Voting
Rights
Conversion
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
10.
PREFERRED
SHARES, WARRANT I and WARRANT II (CONTINUED)
Redemption
Liquidation
Preferences
Investor
Put Option
Warrant I
Warrant II
1 year
1 year
45.386
%
45.386
%
-
-
5.329
%
5.329
%
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
10.
PREFERRED
SHARES, WARRANT I and WARRANT II (CONTINUED)
Warrant I
Warrant II
Warrant III*
Proceeds
1,142,266
3,136,001
4,704,001
RMB86,321,354 (US$
11,748,367
)
7,069,778
-
-
RMB74,274,859 (US$
10,821,087
)
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
10.
PREFERRED
SHARES, WARRANT I and WARRANT II (CONTINUED)
Amount
Share
(in Renminbi)
-
-
32,144,009
310,383,483
3,729,526
30,803,215
-
(15,544,462
)
8,982,268
86,321,354
-
8,366,787
-
17,499,012
44,855,803
437,829,389
24,826,671
270,804,804
1,306,667
13,894,400
7,069,778
74,274,859
78,058,919
796,803,452
78,058,919
796,803,452
11.
ORDINARY
SHARES and WARRANT III
1 year
45.386
%
-
5.329
%
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
11.
ORDINARY
SHARES and WARRANT III (CONTINUED)
12.
HOTEL
OPERATING COSTS
Year Ended December 31,
2007
2008
2009
94,035,579
263,332,528
418,543,806
18,751,449
59,476,726
90,034,744
34,411,037
137,230,935
169,248,048
33,234,234
92,838,032
141,599,824
35,597,064
82,662,332
119,055,974
12,332,209
51,823,495
65,989,757
228,361,572
687,364,048
1,004,472,153
13.
PRE-OPENING
EXPENSES
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
13.
PRE-OPENING
EXPENSES (CONTINUED)
Year Ended December 31,
2007
2008
2009
41,515,191
77,764,122
29,906,758
11,585,041
16,401,710
3,584,149
7,919,632
13,896,486
4,330,111
61,019,864
108,062,318
37,821,018
14.
SHARE-BASED
COMPENSATION
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
14.
SHARE-BASED
COMPENSATION (CONTINUED)
2007
2008
2009
2.5
2.5
2.5
5.12 to 5.30%
5.22 to 5.58%
3.95 to 4.58%
41.38 to 47.61%
41.77 to 43.30%
52.33 to 55.12%
-
-
-
10 years
10 years
10 years
Weighted-
Weighted-average
Number of
average
remaining
Aggregate
options
exercise price
contractual life
intrinsic value
US$
Years
US$
12,677,410
0.92
6,305,975
1.53
(281,912
)
1.30
(735,000
)
0.75
17,966,473
1.13
7.01
19,695,659
16,169,826
1.13
7.01
17,726,094
8,664,265
0.70
7.28
12,839,688
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
15.
EARNINGS
(LOSS) PER SHARE
Year Ended December 31,
2007
2008
2009
(129,122,135
)
(136,162,467
)
13,634,052
-
-
28,910,478
(129,122,135
)
(136,162,467
)
42,544,530
45,248,223
54,071,135
57,562,440
-
-
4,010,526
-
-
122,058,919
45,248,223
54,071,135
183,631,885
(2.85
)
(2.52
)
0.24
(2.85
)
(2.52
)
0.23
57,562,440
122,058,919
179,621,359
4,010,526
183,631,885
0.24
0.23
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
15.
EARNINGS
(LOSS) PER SHARE (CONTINUED)
Year Ended December 31,
2007
2008
2009
44,000,000
44,000,000
-
44,855,803
78,058,919
-
11,924,404
-
-
11,785,340
12,677,410
11,260,935
112,565,547
134,736,329
11,260,935
16.
INCOME
TAXES
Cayman
Islands
Hong
Kong
PRC
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
16.
INCOME
TAXES (CONTINUED)
PRC
(continued)
As of December 31,
2007
2008
2009
2,484,087
10,246,932
10,032,529
(19,746,205
)
(34,126,710
)
7,957,146
(17,262,118
)
(23,879,778
)
17,989,675
Year
Ended
December 31,
2007
2008
2009
33
%
25
%
25
%
(8
)%
(1
)%
3
%
(2
)%
(2
)%
1
%
(9
)%
-
-
(1
)%
(7
)%
(3
)%
13
%
15
%
26
%
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
16.
INCOME
TAXES (CONTINUED)
As of December 31,
2007
2008
2009
8,796,195
61,143,357
45,046,819
14,403,598
344,433
1,341,553
1,171,698
5,602,416
11,346,999
5,442,259
7,320,959
7,756,106
329,437
278,057
226,677
-
105,842
168,911
290,072
1,567,884
468,954
(2,673,904
)
(13,510,873
)
(11,861,810
)
27,759,355
62,852,075
54,494,209
4,628,955
4,630,054
4,100,055
905,611
2,308,897
2,438,176
5,534,566
6,938,951
6,538,231
11,129,810
12,237,797
18,272,303
16,629,545
50,614,278
36,221,906
27,759,355
62,852,075
54,494,209
-
-
-
5,534,566
6,938,951
6,538,231
5,534,566
6,938,951
6,538,231
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
16.
INCOME
TAXES (CONTINUED)
Future reversals of existing taxable temporary differences;
Further taxable income exclusive of reversing temporary
differences and carryforwards;
Future taxable income arising from implementing tax planning
strategies.
17.
MAINLAND
CHINA CONTRIBUTION PLAN AND PROFIT APPROPRIATON
18.
RESTRICTED
NET ASSETS
19.
RELATED
PARTY TRANSACTIONS AND BALANCES
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
19.
RELATED
PARTY TRANSACTIONS AND BALANCES (CONTINUED)
Related Party
Nature of the party
Commercial leasing business
Controlled by Qi Ji
Commercial leasing business
Controlled by Qi Ji
Online travel services provider
Qi Ji is a director
Investment Company
Controlled by Qi Ji
Investment Company
Controlled by Qi Ji
Founder
Founder
(a) Related
party balances
At December 31,
2007
2008
2009
3,000,000
-
-
4,710,712
5,006,541
4,632,338
-
377,139
-
7,710,712
5,383,680
4,632,338
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
19.
RELATED
PARTY TRANSACTIONS AND BALANCES (CONTINUED)
(a) Related
party balances (continued)
At December 31,
2007
2008
2009
840,585
1,508,860
927,584
14,609,200
-
-
402,861
-
-
15,852,646
1,508,860
927,584
(b) Related
party transactions
Year Ended December 31,
2007
2008
2009
3,450,799
3,542,963
3,613,509
5,569,353
7,515,618
9,949,158
20.
COMMITMENTS
AND CONTINGENCIES
(a) Operating
lease commitments
459,778,942
461,692,798
469,555,727
463,524,584
465,113,186
2,884,821,462
5,204,486,699
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 and 2009
(In Renminbi, except share and per share data, unless otherwise
stated)
20.
COMMITMENTS
AND CONTINGENCIES (CONTINUED)
(b) Purchase
Commitments
(c) Contingencies
21.
SUBSEQUENT
EVENTS
F-42
Table of Contents
CHINA LODGING GROUP, LIMITED
FINANCIAL INFORMATION FOR PARENT COMPANY
BALANCE SHEETS
(In Renminbi, except share and per share data, unless otherwise
stated)
As of December 31,
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
123,643,114
5,516,776
8,847,298
1,296,136
-
13,669,200
13,654,400
2,000,381
136,564
-
51,827,668
7,592,796
123,779,678
19,185,976
74,329,366
10,889,313
428,349,063
765,868,852
817,568,539
119,774,469
552,128,741
785,054,828
891,897,905
130,663,782
-
1,075,237
-
-
2,942,158
22,529,003
1,006,068
147,391
8,536,094
-
-
-
11,478,252
23,604,240
1,006,068
147,391
437,829,389
796,803,452
796,803,452
116,732,365
41,792
41,792
46,490
6,811
34,136
34,136
34,136
5,001
260,251,508
265,066,530
351,994,132
51,567,431
(151,838,975
)
(288,001,442
)
(245,456,912
)
(35,959,641
)
(5,667,361
)
(12,493,880
)
(12,529,459
)
(1,835,576
)
102,821,100
(35,352,864
)
94,088,387
13,784,026
552,128,741
785,054,828
891,897,907
130,663,782
F-43
Table of Contents
CHINA LODGING GROUP, LIMITED
FINANCIAL INFORMATION FOR PARENT COMPANY
STATEMENTS OF OPERATIONS
(In Renminbi, except share and per share data, unless otherwise
stated)
Year Ended December 31
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
22,776,088
7,756,402
9,663,763
1,415,749
22,776,088
7,756,402
9,663,769
1,415,749
(22,776,088
)
(7,756,402
)
(9,663,769
)
(1,415,749
)
836,659
1,178,661
13,097
1,919
331,215
-
-
-
(1,740
)
(10,478,098
)
-
-
5,235,236
8,536,094
-
-
(94,585,975
)
(127,642,722
)
52,195,196
7,646,639
(111,623,123
)
(136,162,467
)
42,544,530
6,232,809
(17,499,012
)
-
-
-
(129,122,135
)
(136,162,467
)
42,544,530
6,232,809
F-44
Table of Contents
CHINA LODGING GROUP, LIMITED
FINANCIAL INFORMATION FOR PARENT COMPANY
STATEMENTS OF CASH FLOWS
(In Renminbi, except share and per share date, unless otherwise
stated)
Year Ended December 31,
2007
2008
2009
2009
RMB
RMB
RMB
US$
(Note 2)
(111,623,123
)
(136,162,467
)
42,544,530
6,232,809
14,785,372
4,815,022
7,955,166
1,165,438
(5,235,236
)
(8,536,094
)
-
-
94,585,975
127,642,722
(52,195,196
)
(7,646,639
)
331,215
-
-
-
(136,564
)
136,564
(487,056
)
(71,354
)
-
1,075,237
(1,075,237
)
(157,523
)
2,941,011
(2,677,694
)
(264,466
)
(38,744
)
(4,351,350
)
(13,706,710
)
(3,552,259
)
(516,013
)
(371,253,245
)
(465,162,510
)
(51,340,612
)
(7,521,442
)
(371,253,245
)
(465,162,510
)
(51,340,612
)
(7,521,442
)
(14,885,029
)
-
-
-
1,552,260
-
-
-
76,185,973
-
24,432,215
3,579,340
-
-
30,512,946
4,470,172
-
-
3,765,258
551,613
310,383,483
270,804,804
-
-
86,321,354
74,274,859
-
-
30,472,000
-
-
-
-
22,264,538
-
-
-
-
(1,503,065
)
(220,200
)
-
-
1,006,068
147,390
490,030,041
367,344,201
58,213,422
8,528,315
(5,667,361
)
(6,601,319
)
(20,029
)
(2,934
)
108,758,085
(118,126,338
)
3,330,522
487,924
14,885,029
123,643,114
5,516,776
808,212
123,643,114
5,516,776
8,847,298
1,296,136
13,715,546
-
-
-
61,854
-
-
-
37,979,892
-
-
-
30,803,215
-
-
-
. -
13,894,400
-
-
8,366,787
-
-
-
9,201,288
-
-
-
-
-
20,761,473
3,041,573
F-45
Table of Contents
CHINA LODGING GROUP, LIMITED
FINANCIAL INFORMATION FOR PARENT COMPANY
F-46
Table of Contents
(In Renminbi)
Charge
Charge to
taken
Balance at end
Balance at
costs and
against
of
Beginning of year
expenses
allowance
year
-
500,000
-
500,000
500,000
423,368
-
923,368
923,368
1,252,275
-
2,175,643
1,082,187
1,591,717
-
2,673,904
2,673,904
10,836,969
-
13,510,873
13,510,873
8,472,009
(10,121,072
)
11,861,810
F-47
Table of Contents
Your home on the journey HANTING INNS & HOTELS
Table of Contents
Table of Contents
ITEM 6
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
ITEM 7
RECENT
SALES OF UNREGISTERED SECURITIES
II-1
Table of Contents
Underwriting
Date of Sale or
Number of
Consideration in
Discount and
Purchaser
Issuance
Securities
U.S. dollars
Commission
February 4, 2007
40,000,000, of
which 20,000,000
held on behalf of
Qi Ji and
20,000,000 held on
behalf of Tongtong
Zhao
US$20,000,000 ((i)
in the form of 100%
of registered
capital of HanTing
Xingkong
(Shanghai)
Hotel Management
Co., Ltd. and
Shanghai HanTing Hotel
Management Group, Ltd.,
representing 100%
shares of such
companies, and (ii)
payment of
US$200,000 in cash
to us)
-
February 4, 2007
4,000,000
US$2,000,000 (in
the form of 100%
registered capital
of Yiju (Shanghai)
Hotel Management
Co., Ltd.
-
June 20, 2007
466,480
US$594,999.90
-
June 20, 2007
11,446,755
US$14,600,450.47
-
June 20, 2007
1,414,768
US$1,804,550.73
-
June 20, 2007
13,328,003
US$17,000,001.11
-
June 20, 2007
1,568,001
US$2,000,000.96
-
June 20, 2007
1,179,450
US$1,504,400.27
-
June 20, 2007
129,517
US$165,200.23
-
June 20, 2007
259,034
US$330,400.46
-
June 20,2007
4,687,033
US$5,428,408.85
(including
US$2,312,100.43 in
cash and
US$3,116,308.42 in
cancellation of an
outstanding
convertible
promissory note)
-
June 20, 2007
957,840
US$1,109,347.18
(including
US$472,499.41 in
cash and
US$636,847.77 in
cancellation of an
outstanding
convertible
promissory note)
-
June 20, 2007
436,654
US$505,722.19
(including
US$215,400.48 in
cash and
US$290,321.71 in
cancellation of an
outstanding
convertible
promissory note)
-
December 21, 2007
4,704,001
US$6,000,000
Table of Contents
Underwriting
Date of Sale or
Number of
Consideration in
Discount and
Purchaser
Issuance
Securities
U.S. dollars
Commission
December 21, 2007
1,440,865
US$1,837,837.72
-
December 21, 2007
571,133
US$874,183.02
-
December 21, 2007
429,606
US$657,560.10
-
December 21, 2007
47,176
US$72,208.15
-
December 21, 2007
94,351
US$144,414.77
-
December 30, 2007
50,430
US$64,323.97
December 30, 2007
1,237,487
US$1,578,427.04
-
December 30, 2007
152,948
US$195,086.70
-
December 30, 2007
195,966
US$249,956.59
-
December 30, 2007
40,048
US$51,081.62
-
December 30, 2007
18,257
US$23,286.99
-
February 5, 2008
7,513,335
US$11,500,000
-
February 5, 2008
3,266,667
US$5,000,000
-
February 5, 2008
980,000
US$1,500,000
-
March 15, 2008
11,760,002
US$18,000,000
-
May 31, 2008
1,306,667
US$2,000,000 (all
in the form of
assignment of loan
to us)
-
May 31, 2008
1,306,667
US$2,000,000
-
July, 4 2008
3,160,213
US$4,837,059.97
-
July 4, 2008
347,027
US$531,163.46
-
July 4, 2008
694,054
US$1,062,326.92
-
July 4, 2008
1,707,217
US$2,613,086.83
-
July 4, 2008
348,886
US$534,009.10
-
July 4, 2008
159,048
US$243,440.78
-
July 4, 2008
653,333
US$1,000,000
-
January 4, 2007
1
US$0.0001
-
February 4, 2007
3,999,999
US$400
-
February 4, 2007
25,000,000
US$2,500
-
February 4, 2007
15,000,000
US$1,500
-
June 20, 2007
7,840,001
US$9,999,996.68
-
Yongbin Cai, Yangqing Shi, Wenying Yang and Hui Zhu
August 14, 2007
1,550,533
US$1,977,718.06
Jihua Ma, Shengli Wang and Rongying Xue
December 21, 2007
680,601
US$1,129,864.07
May 22, 2009
811,539
US$1,464,236
-
May 22, 2009
807,418
US$1,456,800
-
May 22, 2009
554,241
US$1,000,000
-
May 22, 2009
405,770
US$732,118
-
May 22, 2009
358,435
US$646,713
-
May 22, 2009
243,462
US$439,271
-
May 22, 2009
113,616
US$204,993
-
May 22, 2009
81,154
US$146,424
-
August 6, 2009
735,000
US$551,250
August 6, 2009
1,982,509
US$3,576,981
-
August 6, 2009
482,866
US$871,220
-
August 6, 2009
162,308
US$292,847
-
August 6, 2009
138,560
US$250,000
-
Table of Contents
Underwriting
Date of Sale or
Number of
Consideration in
Discount and
Purchaser
Issuance
Securities
U.S. dollars
Commission
February 8, 2010
1,500,000
US$2,310,000
-
February 8, 2010
200,000
US$308,000
-
(1)
Include Series B preferred shares issued as a result of the
exercise of warrants.
(2)
Include ordinary shares issued as a result of the exercise of
warrants.
Number of Series B
Preferred Shares
Per Share Exercise
Purchaser
Covered
Price
Current Status
Chengwei Partners, L.P.
169,912
US$1.530612
Exercised in full
Chengwei Ventures Evergreen Fund, L.P.
4,169,396
US$1.530612
Exercised in full
Chengwei Ventures Evergreen Advisors Fund, LLC
515,319
US$1.530612
Exercised in full
CDH Courtyard Limited
4,854,626
US$1.530612
Expired. Not exercised.
Pinpoint Capital 2006 A Limited
571,133
US$1.530612
Exercised in full
Northern Light Venture Fund, L.P.
429,606
US$1.530612
Exercised in full
Northern Light Partners Fund, L.P.
47,176
US$1.530612
Exercised in full
Northern Light Strategic Fund, L.P.
94,351
US$1.530612
Exercised in full
IDG-Accel China Growth Fund L.P.
1,707,217
US$1.530612
Exercised in full
IDG-Accel China Growth Fund-A L.P.
348,886
US$1.530612
Exercised in full
IDG-Accel China Investors L.P.
159,048
US$1.530612
Exercised in full
Chengwei Partners, L.P.
50,430
US$1.27551
Exercised in full
Chengwei Ventures Evergreen Fund, L.P.
1,237,487
US$1.27551
Exercised in full
Chengwei Ventures Evergreen Advisors Fund, LLC
152,948
US$1.27551
Exercised in full
CDH Courtyard Limited
1,440,865
US$1.27551
Exercised in full
IDG-Accel China Growth Fund L.P.
195,966
US$1.27551
Exercised in full
IDG-Accel China Growth Fund-A L.P.
40,048
US$1.27551
Exercised in full
IDG-Accel China Investors L.P.
18,257
US$1.27551
Exercised in full
Winner Crown Holdings Limited
4,704,001
US$1.27551
Exercised in full
Underwriting
Discount and
Purchaser
Principal Amount
Consideration
Commission
Growth Fund L.P.
US$3,082,800
US$3,082,800
-
Growth Fund-A L.P.
US$630,000
US$630,000
-
Investors L.P.
US$287,200
US$287,200
-
Table of Contents
Number of
Ordinary
Per Share
Purchaser
Shares Covered
Exercise Price
Current Status
Everlasting Investment Management Co., Ltd.
1,500,000
US$1.54
Exercised in full
Tongren Investment Holdings Limited
200,000
US$1.54
Exercised in full
ITEM 8
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a)
Exhibits
(b)
Financial Statement Schedules
ITEM 9
UNDERTAKINGS
II-5
Table of Contents
Executive Chairman of the Board of Directors
Chief Executive Officer
(principal executive officer)
Chief Financial Officer
(principal financial and accounting officer)
Director
Director
Independent Director
Independent Director
II-6
Table of Contents
Name:
Donald J. Puglisi
Title:
Managing Director
II-7
Table of Contents
Exhibit Number
Description
1
.1*
Form of Underwriting Agreement
3
.1
Amended and Restated Memorandum and Articles of Association of
the Registrant, as currently in effect
3
.2*
Amended and Restated Memorandum and Articles of Association of
the Registrant, to become effective upon the completion of this
offering
4
.1*
Form of the Registrants American Depositary Receipt
(included in Exhibit 4.3)
4
.2
Specimen Certificate for Ordinary Shares of the Registrant
4
.3*
Form of Deposit Agreement among the Registrant, the Depositary
and all Holders and Beneficial Owners of the American Depositary
Shares issued thereunder
4
.4
Ordinary Share and Series A Preferred Share Purchase
Agreement, dated February 4, 2007
4
.5
Supplemental Agreement of Ordinary Share and Series A
Preferred Share Purchase Agreement, dated April 18, 2007
4
.6
Series A Preferred Shareholders Agreement, dated
February 4, 2007
4
.7
Series B Preferred Share Purchase Agreement, dated
June 20, 2007
4
.8
Amended and Restated Shareholders Agreement, dated June 20,
2007
4
.9
Form of Certificate of Warrant to Purchase Series B
Preferred Stock
4
.10
Form of Series B Convertible Preferred Shares Subscription
Agreement and its amendment
4
.11
Warrant for the Purchase of Shares of Common Stock of the
Registrant, dated January 8, 2010
4
.12
Warrant for the Purchase of Shares of Common Stock of the
Registrant, dated January 15, 2010
5
.1*
Opinion of Conyers Dill & Pearman regarding the
validity of the ordinary shares being registered
8
.1*
Opinion of Conyers Dill & Pearman regarding certain
Cayman Islands tax matters
8
.2
Opinion of Davis Polk & Wardwell LLP regarding certain
U.S. tax matters
10
.1
Amended and Restated 2007 Global Share Plan, amended and
restated as of December 12, 2007
10
.2
Amended and Restated 2008 Global Share Plan, amended and
restated as of October 31, 2008
10
.3
Amended and Restated 2009 Share Incentive Plan, amended and
restated as of October 1, 2009
10
.4
Form of Indemnification Agreement with the Registrants
Directors
10
.5
Form of Employment Agreement between the Registrant and
Executive Officers of the Registrant
10
.6
Facility Agreement between China Merchants Bank and HanTing
Xingkong (Shanghai) Hotel Management Co., Ltd., dated
June 19, 2009
10
.7
Fixed Assets Loan Agreement between the Industrial and
Commercial Bank of China and Shanghai HanTing Hotel Management
Group, Ltd. (formerly known as Lishan Senbao (Shanghai)
Investment Management Co., Ltd.), dated September 22, 2008
10
.8
Fixed Assets Loan Contract between the Industrial and Commercial
Bank of China and HanTing Xingkong (Shanghai) Hotel Management
Co., Ltd., dated January 4, 2010
16
.1
Letter from Ernst & Young Hua Ming regarding change in
certifying accountant
21
.1
Subsidiaries of the Registrant
23
.1
Consent of Deloitte Touche Tohmatsu CPA Ltd.
23
.2*
Consent of Conyers Dill & Pearman (included in
Exhibit 5.1 and 8.1)
23
.3
Consent of Davis Polk & Wardwell LLP (included in
Exhibit 8.2)
23
.4
Consent of Jun He Law Offices
23
.5
Consent of Shanghai Inntie Hotel Management Consulting Co., Ltd.
23
.6
Consent of Euromonitor International
23
.7
Consent of Smith Travel Research
23
.8
Consent of iResearch Consulting Group
24
.1
Powers of Attorney (included on the signature page in
Part II of this registration statement)
99
.1
Code of Business Conduct and Ethics of the Registrant
II-8
1. | The name of the Company is China Lodging Group, Limited. | |
2. | The Registered Office of the Company shall be at the offices of Offshore Incorporations (Cayman) Limited of Scotia Centre, 4th Floor, PO Box 2804, George Town, Grand Cayman, KY1-1112, Cayman Islands. | |
3. | Subject to the following provisions of this Memorandum, the objects for which the Company is established are unrestricted. | |
4. | Subject to the following provisions of this Memorandum, the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided by Section 27(2) of The Companies Law. | |
5. | Nothing in this Memorandum shall permit the Company to carry on a business for which a license is required under the laws of the Cayman Islands unless duly licensed. | |
6. | The Company shall not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this clause shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. | |
7. | The liability of each member is limited to the amount from time to time unpaid on such members shares. | |
8. | The share capital of the Company is US$45,000.0000 divided into 300,000,000 Ordinary Shares of a nominal or par value of US$0.0001 each and 150,000,000 Preferred Shares of a nominal or par value of US$0.0001 each, further divided into 44,000,000 Series A Preferred Shares and 106,000,000 Series B Preferred Shares. | |
9. | The Company may exercise the power contained in the Companies Law to deregister in the Cayman Islands and be registered by way of Continuation in another jurisdiction. |
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11
12
12
31
31
31
32
32
32
33
33
34
35
36
36
37
37
38
38
38
38
39
39
40
40
40
41
41
41
42
42
43
43
43
44
44
45
45
45
46
46
46
47
47
47
48
49
49
49
49
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China Lodging Group, Limited | Page 1 | |
1. | Definitions |
1.1 | In these Articles, the following words and expressions shall, where not inconsistent with the context, have the following meanings, respectively: |
2007 Global Share Plan
|
means the global share plan adopted by the Board on February 4th, 2007 and approved by the then Shareholders on February 4th, 2007, under which 10,000,000 Ordinary Shares are reserved for issuance as of the date hereof; | |
|
||
2008 Global Share Plan
|
means the global share plan adopted by the Board on June 15 2007 and approved by the then Shareholders on June 15, 2007, under which 3,000,000 Ordinary Shares are reserved for issuance as of the date hereof; | |
|
||
Additional Ordinary Shares
|
means, with respect to Series A Preferred Share or Series B Preferred Share, all Ordinary Shares issued (or, pursuant to Article 4.2.6(e)(2), deemed to be issued) by the Company after the Original Issue Date for Series A Preferred Share or Series B Preferred Share, as applicable, other than the Exempted Securities; | |
|
||
Affiliate
|
means, with respect to any given Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person and, where the given Person is an individual, the spouse, parent, sibling, or child thereof; | |
|
||
Alternate Director
|
means an alternate director appointed in accordance with these Articles; | |
|
||
Approve or Approval
|
Approval means, when used with respect to the Series B Shareholders, the approval in writing of such matter by (i) the holders of a majority of the Series B Preferred Shares then outstanding, |
China Lodging Group, Limited
Page 2
including at least one of Chengwei and CDH (for so long as Chengwei
or CDH remains a Series B Shareholder), or (ii) both of Chengwei and
CDH (for so long as each of Chengwei and CDH remains a Series B
Shareholder) and the term Approved has meanings correlative to the
foregoing;
means these Articles of Association as altered from time to time;
means any Person appointed to serve as the auditor for the Group;
means the board of directors appointed or elected pursuant to these
Articles and acting at a meeting of directors at which there is a
quorum or by written resolution in accordance with these Articles;
means a day, excluding Saturdays, on which banks in Hong Kong are
generally open for business;
means CDH Courtyard Limited, a company incorporated under the laws of
the British Virgin Islands;
means the chairman of the Board;
means, collectively, Chengwei Partners, L.P., an exempted limited
partnership organized and existing under the laws of the Cayman
Islands, Chengwei Ventures Evergreen Fund, L.P., an exempted limited
partnership organized and existing under the laws of the Cayman
Islands, and Chengwei Ventures Evergreen Advisors Fund, LLC, an
exempted limited liability company organized and existing under the
laws of the Cayman Islands;
means Ms. Tong Tong ZHAO and Mr. John Jiong WU;
means the company for which these Articles are approved and confirmed;
means, with respect to any Person, the Certificate of Incorporation,
Memorandum of Association, Articles of Association, Joint Venture
Agreement, or
China Lodging Group, Limited
Page
3
similar constitutive documents for such Person;
means, when used with respect to any Person, the
power to direct the management and policies of
such Person, directly or indirectly, whether
through the ownership of voting securities, by
contract or otherwise, and the terms
Controlling and Controlled have meanings
correlative to the foregoing;
means any consent, approval, authorization,
waiver, permit, grant, franchise, concession,
agreement, license, exemption or order of,
registration, certificate, declaration or filing
with, or report or notice to, any Person,
including any Government Entity.
has the meaning as defined in Article 4.2.5(a)(1).
has the meaning as defined in Article 4.2.5.
has the meaning as defined in Article 4.2.5(c).
has the meaning as defined in Article 4.2.5(c).
means any evidences of indebtedness, shares or
other securities or instruments directly or
indirectly convertible into or exchangeable for
Ordinary Shares, but excluding Options;
has the meaning as defined in Article 4.2.15;
means a director of the Company duly elected in
accordance to these Articles and shall include
where applicable an Alternate Director;
means and includes any option, right to acquire,
right of pre-emption, mortgage, charge, pledge,
lien, hypothecation, title retention, right of
set off, counterclaim, trust arrangement or other
security or any equity or restriction (including
any restriction imposed under the laws of any
applicable jurisdiction) of any nature
whatsoever;
means the Securities Exchange Act of 1934, as
amended, and the rules and regulations
promulgated
China Lodging Group, Limited
Page 4
thereunder;
means (i) a distribution payable solely in Ordinary
Shares, (ii) upon termination of such services, the
repurchase of Ordinary Shares at or below cost from
employees, officers, directors, consultants or other
persons retained to provide services for any Group
Company as permitted by the terms of their
engagement by the Group Company approved by the
Board, (iii) any conversion or exchange of Preferred
Shares pursuant to the rights thereof, and (iv) any
redemption or other repurchase of Preferred Shares
pursuant to the rights thereof;
means Ordinary Shares issued or issuable as follows.
(i) Ordinary Shares issued as a dividend or
distribution on Preferred Shares;
(ii) Ordinary
Shares issued by reason of a share dividend, share
split, or other distribution on Ordinary Shares that
is covered by Article 4.2.5;
(iii) Ordinary Shares
issued to employees or directors of, or consultants
or advisors to, the Company or any of its
subsidiaries pursuant to the Share Option Plan; or
(iv) Ordinary Shares issued upon the exercise,
conversion or exchange of duly authorized and issued
Options and Convertible Securities pursuant to the
terms thereof;
means Mr. Qi JI;
means any government or any agency, bureau, board,
commission, court, department, official, political
subdivision, tribunal or other instrumentality of
any government;
means the Company and all other Group Companies;
means the Company or any Person (other than a
natural Person) Controlled by the Company;
China Lodging Group, Limited
Page 5
has the meaning as defined in Article 4.2.18;
means an initial public offering of the Companys
Ordinary Shares on the New York Stock Exchange,
the NASDAQ Global Market, the Main Board of the
Hong Kong Stock Exchange or any other exchange of
recognized international reputation and standing
duly approved by the Board;
means each of the following positions in any
Group Company: (i) the Chief Executive Officer
(responsible for general strategic direction with
emphasis on sales, marketing and business
development), (ii) the Chief Financial Officer
(responsible for fund raising, financial control
and management), (iii) the Chief Operating
Officer or Head of Operations (responsible for
operations, public relations and corporate
marketing), and (iv) the Executive Vice President
of any functional department;
means the Companies Law of the Cayman Islands and
every modification, reenactment or revision
thereof for the time being in force;
means, with respect to any Person, liabilities
owing by such Person of any nature, whether
accrued, absolute, contingent or otherwise, and
whether due or to become due;
means the Amended and Restated Memorandum of
Associate of the Company as amended from time to
time;
has the meaning as defined in Article 4.2.16;
means calendar month;
means IDG-Accel China Growth Fund
L.P., IDG-Accel
China Growth Fund-A L.P. and IDG-Accel China
Investors L.P., each an exempted limited
partnership organized and existing under the laws
of the Cayman Islands;
means the Convertible Note Purchase Agreement
entered into by and between the Company and the
China Lodging Group, Limited
Page 6
Noteholders on March 28, 2007 and the Convertible
Promissory Note, dated March 30, 2007, issued by the
Company thereunder;
means written notice as further provided in these
Articles unless otherwise specifically stated;
means any person appointed by the Board to hold an
office in the Company;
means rights, options or warrants to subscribe for,
purchase or otherwise acquire Ordinary Shares or
Convertible Securities;
means a resolution of the Shareholders passed by a
simple majority of the votes cast at a duly
constituted general meeting (or, if so specified, a
meeting of Shareholders holding a class or series of
shares) of the Company where a quorum was present, or
passed in lieu of a meeting by the unanimous written
consent of all Shareholders entitled to vote;
means the legal or beneficial holders of Ordinary
Shares, as recognized on the Register of
Shareholders;
means the ordinary shares of par value of US$0.0001
each in the capital of the Company;
means, (i) with respect to Series A Preferred Shares,
the date on which the first Series A Preferred Share
was issued and (ii) with respect to Series B
Preferred Shares, the Closing Date under the Series
P Purchase Agreement;
means paid-up or credited as paid-up;
means any individual, partnership, corporation, trust
or other entity (including, without limitation, any
unincorporated joint venture and whether or not
having separate legal personality);
means the Peoples Republic of China (and unless the
context requires or specifies otherwise shall exclude
Hong Kong, Macau and Taiwan);
means the Series A Director and the Series B
China Lodging Group, Limited
Page 7
Directors.
means the Series A
Shareholders and Series B Shareholders;
means the Series A Preferred Shares and Series B Preferred Shares;
means a firm commitment, underwritten IPO by the Company of its
Ordinary Shares with (i) a market capitalization of the Company
equal to no less than US$495 million (or the equivalent thereof
in other currencies) immediately prior to the IPO, and (ii) total
offering proceeds to the Company, before deduction of selling
expenses, of not less than US$50 million (or the equivalent
thereof in other currencies);
means a real estate company that may be established in the PRC by
the Founder, the Company or any Affiliate of the Founder or the
Company (i) for the purpose of acquiring, owning, enhancing,
managing, operating or maintaining assets, real property or other
facilities for use in lodging-related business activities,
including but not limited to limited service, deluxe, luxury,
upscale, and midscale with food and beverage service, and (ii)
deriving no less than 50% of its gross revenue from leasing and
other transactions with the Group.
means the register of Directors and Officers referred to in these
Articles;
means the register of Shareholders referred to in these Articles;
means the registered office for the time being of the Company;
means, with respect to any specified Person, the holder of any
equity interest in such Person, or any director, officer or
employee of such Person, or any Affiliate of any of the
foregoing; notwithstanding the foregoing, Related Parties of any
Group Company or the Founder shall also include any real estate
investment fund or similar business that is a Related
China Lodging Group, Limited
Page 8
Party of any Group Company or the Founder, any RE
Company, or any Affiliate thereof;
means not more than 7,000,000 Ordinary Shares or
options, warrants, rights (including conversion
or preemptive rights and rights of first refusal)
for the purchase of such Ordinary Shares issuable
for such purposes and in such amounts and at such
prices and upon such other terms that shall be
determined from time to time by the Board
(including at least a majority of the Preferred
Directors, if any) in accordance with these
Articles and the Shareholders Agreement.
means the common seal or any official or
duplicate seal of the Company;
means the person appointed to perform any or all
of the duties of secretary of the Company and
includes any deputy or assistant secretary and
any person appointed by the Board to perform any
of the duties of the Secretary;
has the meaning as defined in Article 37.2;
means the Series A Preferred Shares of par value
US$0.0001 each in the capital of the Company;
means the purchase agreement dated
February 4
th
, 2007
entered into among the Company, Winner Crown
Holdings Limited, Ms. Tong Tong ZHAO, Mr. John
Jiong WU and the Investors listed on schedule C
thereto;
means the legal or beneficial holders of Series A
Shares, as recognized on the Register of
Shareholders;
means the subscription price per share of the
Series A Preferred Shares under the Series A
Purchase Agreement, subject to appropriate
adjustment in the event of any share dividend,
share split, combination or other similar
recapitalization with respect to the Series A
Preferred Shares;
has the meaning as defined in Article 37.2;
China Lodging Group, Limited
Page 9
means the Series B Preferred Shares of par value
US$0.0001 each in the capital of the Company;
means the Series B Preferred Shares Purchase
Agreement, dated June 20, 2007, entered into among
the Company, the WFOEs, certain founders named
therein, Chengwei, CDH and certain other
subscribers to the Series B Preferred Shares;
means the legal or beneficial holders of Series B
Shares, as recognized on the Register of
Shareholders;
means the subscription price per share of the
Series B Preferred Shares under the Series B
Purchase Agreement, subject to appropriate
adjustment in the event of any share dividend,
share split, combination or other similar
recapitalization with respect to the Series B
Preferred Shares;
means the shares in the capital of the Company,
including Series B Preferred Shares, Series A
Preferred Shares, Ordinary Shares and shares of
any other series or class issued in the Company;
means the Companys 2007 Global Share Plan, 2008
Global Share Plan and any other share option,
share appreciation, share purchase, phantom share
or other equity-based plan, arrangement,
agreement, policy or understanding, whether
written or unwritten, duly authorized by the Board
pursuant to Article 4.2.3(k) and the Shareholders
Agreement;
means the person registered in the Register of
Shareholders as the holder of shares in the
Company, including Ordinary Shareholders and
Preferred Shareholders and, when two or more
persons are so registered as joint holders of
shares, means the person whose name stands first
in the Register of Shareholders as one of such
joint holders or all of such persons, as the
context so requires;
means the Amended and Restated Shareholders
Agreement, dated June 20, 2007 by and among the
Company and the other parties listed therein;
means a resolution passed by a majority of not less
China Lodging Group, Limited
Page 10
than two thirds of the votes cast at a duly constituted
general meeting (or, if so specified, a meeting of
Shareholders holding a class or series of shares) of
the Company where a quorum was present, or passed in
lieu of a meeting by the unanimous written consent of
all Shareholders entitled to vote;
means, with respect to any Series A Preferred Share or
Series B Preferred Share, respectively, the Series A
Subscription Price and Series B Subscription Price;
means, with respect to any given Person, any other
Person (other than a natural Person) Controlled by such
given Person;
means any national, provincial or local income, sales
and use, excise, franchise, real and personal property,
gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, severance
or withholding tax or charge imposed by any government
entity, any interest and penalties (civil or criminal)
related thereto or to the nonpayment thereof, and any
loss or Tax Liability incurred in connection with the
determination, settlement or litigation of any
Liability arising therefrom;
means any tax return, declaration, reports, estimates,
claim for refund, claim for extension, information
returns, or statements relating to Taxes, including any
schedule or attachment thereto;
means (i) Hanting Xingkong Hotel Management (Shanghai)
Co., Ltd.
, a wholly foreign-owned enterprise registered
in Shanghai, PRC;
(ii) Lishan Senbao Investment Management (Shanghai)
Co., Ltd.
, a wholly foreign-owned enterprise registered
in Shanghai, PRC; and
(iii) Yiju Hotel Management (Shanghai) Co., Ltd.
, a
wholly foreign-owned enterprise registered in Shanghai,
China Lodging Group, Limited | Page 11 | |
|
PRC; | |
|
||
written resolution
|
means a resolution passed in accordance with Article 35 or 60 (as the case may be); and | |
|
||
year
|
means calendar year. |
1.2 | In these Articles, where not inconsistent with the context: |
(a) | words denoting the plural number include the singular number and vice versa; | ||
(b) | words denoting the masculine gender include the feminine and neuter genders; | ||
(c) | words importing persons include companies, associations or bodies of persons whether corporate or not; | ||
(d) | the words:- |
(i) | may shall be construed as permissive; and | ||
(ii) | shall shall be construed as imperative; |
(e) | a reference to statutory provision shall be deemed to include any amendment or re-enactment thereof; and | ||
(f) | unless otherwise provided herein, words or expressions defined in the Law shall bear the same meaning in these Articles. |
1.3 | In these Articles expressions referring to writing or its cognates shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in visible form. | ||
1.4 | Headings used in these Articles are for convenience only and are not to be used or relied upon in the construction hereof. |
2. | Power to Issue Shares |
2.1 | Subject to these Articles, the Board shall have the power to issue any unissued shares of the Company on such terms and conditions as it may determine and any shares or class of shares (including the issue or grant of options, warrants and other rights, renounceable or otherwise in respect of shares) may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital, or otherwise as the Company may by resolution of the Shareholders prescribe, provided that no share shall be issued at a discount except in accordance with the Law. |
China Lodging Group, Limited | Page 12 | |
3. | Redemption and Purchase of Shares |
3.1 | Subject to the Law as then in effect and the other provisions of these Articles, the Company is authorised to issue shares which are to be redeemed or are liable to be redeemed at the option of the Company or a Shareholder. | ||
3.2 | Subject to the Law as then in effect and the other provisions of these Articles, the Company is hereby authorised to make payments in respect of the redemption of its shares out of capital or out of any other account or fund which is authorised for such purpose. | ||
3.3 | Every share certificate representing a redeemable share shall indicate that the share is redeemable. | ||
3.4 | In the case of shares redeemable at the option of a Shareholder a redemption notice from a Shareholder may not be revoked without the agreement of the Board. | ||
3.5 | Subject to the Law as then in effect and the other provisions of these Articles, the redemption price may be paid in any manner authorized by these Articles for the payment of dividends. | ||
3.6 | The Directors may exercise as they think fit the powers conferred on the Company by Section 37(5) of the Law (payment out of capital) but only if and to the extent that the redemption could not otherwise be made (or not without making a fresh issue of shares for this purpose). | ||
3.7 | No share may be redeemed unless it is fully paid-up. | ||
3.8 | Subject to the Law as then in effect and the other provisions of these Articles, the Board may exercise all the powers of the Company to purchase all or any part or its own shares in accordance with the Law. Shares purchased by the Company shall be cancelled and shall cease to confer any right or privilege on the Shareholder from whom the shares are purchased. |
4. | Rights Attaching to Shares |
4.1 | Ordinary Shares . The Ordinary Shareholders shall, subject to the other provisions of these Articles: |
(a) | be entitled to one vote per Ordinary Share; | ||
(b) | be entitled to such dividends as the Board may from time to time declare; | ||
(c) | in the event of a winding-up, dissolution or liquidation of the Company, whether voluntary or involuntary or for the purpose of a reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and | ||
(d) | generally be entitled to enjoy all of the rights attaching to the Ordinary Shares. |
4.2 | Preferred Shares . The Preferred Shareholders shall, subject to the provisions of these Articles, be entitled to the following rights and preferences: |
China Lodging Group, Limited | Page 13 | |
4.2.1 | On any matter presented to the shareholders for their action or consideration at any meeting of shareholders (or by written resolution of shareholders in lieu of meeting), (i) each Series B Shareholder shall be entitled to cast the number of votes equal to the number of Ordinary Shares into which the Series B Preferred Shares held by such Series B Shareholder are convertible as of the record date for determining shareholders entitled to vote on such matter, and (ii) each Series A Shareholder shall be entitled to cast the number of votes equal to one-half (1/2) the number of Ordinary Shares into which the Series A Preferred Shares held by such Series A Shareholder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by Law or by the other provisions of these Articles, holders of Preferred Shares shall vote together with the holders of Ordinary Shares as a single class. |
4.2.2 | For so long as the Series A Preferred Shares are in issue, the following acts shall require the prior written approval or affirmative vote (in addition to any other vote or consent required by the Law or these Articles) of the Series A Director: |
(a) | any amendment to, cancellation, waiver or other change in respect of, the rights, preferences, privileges, powers, obligations or liabilities arising in connection with the Series A Preferred Shares if such amendment, cancellation, waiver or other change would materially and adversely affect the holders thereof. |
4.2.3 | Notwithstanding anything to the contrary in the Constitutional Documents of any Group Company, so long as any Series B Preferred Shares remain outstanding, the Company shall not, and shall ensure that none of the other Group Companies, whether directly or indirectly, take any of the actions described below unless Approved by the Series B Shareholders: |
(a) | any amendment to, cancellation, waiver or other change in respect of, the rights, preferences, privileges, powers, obligations or liabilities arising in connection with the Series B Preferred Shares or otherwise adversely affecting the holders thereof; | ||
(b) | any increase or decrease in the authorized number of Series B Preferred Shares; | ||
(c) | the creation, or authorization of shares, securities or instruments convertible, exchangeable or exercisable for or into shares (including convertible debt), having rights, privileges or preferences superior to or on parity with the Series B Preferred Shares with respect to voting, dividends, redemption, conversion or liquidation or any other rights (including and without limitation, registration rights); | ||
(d) | the purchase or redemption of, payment or declaration of any dividend on, or making of any distribution on, any equity interest therein, other than (i) redemption of the Series B Preferred Shares as expressly authorized herein, (ii) dividends or |
China Lodging Group, Limited | Page 14 | |
(e) | amendment, alteration or repeal of any provision of the Constitutional Documents thereof; | ||
(t) | liquidation, dissolution or winding up of the business and affairs thereof; | ||
(g) | any Deemed Liquidation Event; | ||
(h) | the issuance or agreement to issue shares or other securities or instruments exchangeable, convertible or exercisable for any equity interest therein, other than the Reserved Shares and shares issuable under the Transaction Documents (as defined in the Series B Purchase Agreement) and the Share Option Plan; | ||
(i) | raising or authorization of any indebtedness or debt financing by the Company, and the raising or authorization of any indebtedness or debt financing by any other member of the Group if after such indebtedness or debt financing the aggregate amount of indebtedness and debt financing by all members of the Group would exceed US$20 million, provided that this clause (i) shall not apply to any loan extended to a Group Company by a shareholder of the Company if (i) such loan is made on terms no less favorable to the Group Company than the terms that would be customary in an arms-length loan extended by a commercial bank, (ii) such loan is subordinate to any amounts that are or may become payable to any Investor by the Group Company, whether by virtue of the Investors ownership of securities of the Company or pursuant to any of the Transaction Documents, including without limitation any indemnification by the Company pursuant to the Series B Purchase Agreement, and (iii) after receipt of such loan, the aggregate amount of all such loans from shareholders of the Company to the Group Companies does not exceed US$15 million; | ||
(j) | any increase or decrease in the number of positions on the Board; | ||
(k) | the adoption or termination of any Share Option Plan or amendment to any provision of any Share Option Plan or increase in the amount of Ordinary Shares reserved for future issuance pursuant to any Share Option Plan; | ||
(l) | any action that effects a reclassification or recapitalization of the issued and outstanding shares of the Company; | ||
(m) | except as specifically contemplated in the Series B Purchase Agreement, the entry into any transaction or series of transactions (or the termination, extension, continuation after expiry, renewal, amendment, variation or waiver of any term |
China Lodging Group, Limited | Page 15 | |
(n) | the sale, transfer, lease, assignment, parting with or disposal by the Company or any Group Company, whether directly or indirectly, of all or substantially all of the property, assets or revenues of the Company or such Group Company; | ||
(p) | the merger, consolidation, reorganization, or amalgamation of any Group Company with or into any other Person or any scheme of arrangement or other business combination with or into any other Person; | ||
(q) | the purchase or other acquisition by any of the Company or the Group Companies, or any combination of the foregoing, of another Person or all (or substantially all) of the business and/or assets of another Person through a single transaction or series of related transactions (i) with aggregate value of at least US$2,500,000, (ii) for which any required Consent has not been obtained, or (iii) if the target company of such transaction has not obtained any Consent required in connection with the conduct of its business; | ||
(r) | the re-domestication, continuance or removal thereof to any other jurisdiction; and | ||
(s) | any repayment or retirement of all or any portion of any indebtedness of any Group Company whether incurred before or after the date hereof, other than customary interest and maintenance payments. |
4.2.4 | Notwithstanding anything to the contrary in the Constitutional Documents of the Company or any Group Company, the Company shall not, and shall ensure that none of the other Group Companies, whether directly or indirectly, take any of the actions described below unless approved in a resolution adopted by a majority of the Board, including at least two (2) Series B Directors: |
(a) | approval of any annual operating plan, budgets or any changes thereto; | ||
(b) | the guarantee, directly or indirectly, of any indebtedness, or the indemnification to any Person regarding or in connection with any indebtedness, except for trade accounts or any Group Company arising in the ordinary course of business; | ||
(c) | alteration or amendment of the accounting principles thereof except as required by applicable law; | ||
(d) | appointment, dismissal or change in the appointment of independent public accountants, Auditor or counsels thereof; | ||
(e) | the making of any loan or advance to any Person or granting any credit to any |
China Lodging Group, Limited | Page 16 | |
(f) | the sale, transfer, lease, assignment or disposal of any assets (whether by a single transaction or a series of related transactions) the aggregate fair market value of which exceeds US$3,000,000; | ||
(g) | the purchase or acquisition of any assets thereof (whether by a single transaction or a series of related transactions) the aggregate purchase price or cost to acquire of which exceeds US$3,000,000; | ||
(h) | the commencement or settlement of any litigation the amount in controversy with respect to which exceeds US$3,000,000; | ||
(i) | any change to the principal business thereof, entry into new lines of business thereby, or exiting a line of business thereby; | ||
(j) | hiring or termination of the CEO, CFO, chief operating officer or any other officer with the position of executive vice president or higher of any Group Company or any change to the compensation of any such officer of any Group Company, including the award of any option grants or share awards; | ||
(k) | amendment, alteration or repeal of any provision of the Constitutional Documents of any Group Company (other than the Company); | ||
(l) | the creation of any mortgage, charge, pledge, lien or other encumbrance with respect to assets thereof other than in the ordinary course of business or as imposed by operation of law; | ||
(m) | the formation of any committee of the Board of Directors of any Group Company and any changes to the powers granted to any such committee; | ||
(n) | any increase or decrease in the size or any change in the member(s) of the Board of Directors of any Group Company other than the Company; and | ||
(o) | the prescription of any regulation in general meeting that would limit the powers of the Board of Directors of any of the Group Companies. |
4.2.5 | The holders of the Preferred Shares shall have conversion rights as follows (the Conversion Rights ): |
(a) | Optional Conversion . |
(1) | Conversion Ratio . Each Preferred Share shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the |
China Lodging Group, Limited | Page 17 | |
(2) | Termination of Conversion Rights . In the event of a notice of redemption of any Preferred Shares pursuant to Article 4.2.7 and Article 4.2.8, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Company or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Shares. |
(b) | Mandatory Conversion . The Preferred Shares shall automatically be converted into Ordinary Shares at the then effective conversion rate (i) upon a Qualified IPO, and (ii) upon the date and time, or the occurrence of an event, as Approved by the Series B Shareholders. | ||
(c) | Mechanics of Conversion . |
(1) | Reservation of Shares . The Company shall at all times when the Preferred Shares shall be outstanding, reserve and keep available out of its authorized but unissued share capital, for the purpose of effecting the conversion of the Preferred Shares, such number of its duly authorized Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares; and if at any time the number of authorized but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, the Company shall take such corporate action as may be necessary to increase its authorized but unissued Ordinary Shares to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to the Memorandum and these Articles. Before taking any action which would cause an adjustment reducing the Conversion Price of any Preferred Share below the then par value of the Ordinary Shares issuable upon conversion of such Preferred Share, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company |
China Lodging Group, Limited | Page 18 | |
may validly and legally issue fully paid and nonassessable Ordinary Shares at such adjusted Conversion Price. | |||
(2) | Notice of Optional Conversion . In order for a Preferred Shareholder to voluntarily convert its Preferred Shares into Ordinary Shares, such Preferred Shareholder shall surrender the certificate or certificates for such Preferred Shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit), at the office of the transfer agent for the Preferred Shares (or at the principal office of the Company if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the Preferred Shares represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such Preferred Shareholders name or the names of the nominees in which such Preferred Shareholder wishes the certificate or certificates for Ordinary Shares to be issued. If required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Company if the Company serves as its own transfer agent) of such certificates (or lost certificate affidavit) and notice shall be the time of conversion, and the Ordinary Shares issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Company shall, as soon as practicable after the time of conversion, issue and deliver to such Preferred Shareholder, or to his, her or its nominees, a certificate or certificates for the number of full Ordinary Shares issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the Preferred Shares represented by the surrendered certificate that were not converted into Ordinary Shares, and payment of any declared but unpaid dividends on the Preferred Shares converted. | ||
(3) | Notice of Mandatory Conversion . All holders of Preferred Shares to be converted shall be sent written notice of the time of conversion and the place designated for conversion of all such Preferred Shares pursuant to Article 4.2.5(b). Such notice need not be sent in advance of the occurrence of the time of conversion. Promptly following receipt of such notice, each holder of Preferred Shares subject to conversion shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit) to the Company at the place designated in such notice. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to |
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the Preferred Shares converted pursuant to Article 4.2.5(b), including the rights, if any, to receive notices and vote (other than as a holder of Ordinary Shares), will terminate at the time of conversion designated in the notice (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of Article 4.2.5(b). As soon as practicable after the time of conversion and the surrender of the certificate or certificates (or lost certificate affidavit) for the Preferred Shares, the Company shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full Ordinary Shares issuable on conversion of any Preferred Shares in accordance with the provisions hereof, together with the payment of any declared but unpaid dividends on the Preferred Shares converted. | |||
(4) | The Company shall redeem any Preferred Share to be converted (the Conversion Share ) for aggregate consideration (the Conversion Redemption Amount ) equal to (a) the aggregate par value of any capital shares of the Company to be issued upon such conversion and (b) the aggregate value, as determined by the Board, of any other assets which are to be distributed upon such conversion. | ||
(5) | Concurrent with the redemption of the Conversion Share, the Company shall apply the Conversion Redemption Amount for the benefit of the holder of the Conversion Share to pay for any capital shares of the Company issuable, and any other assets distributable, to such holder in connection with such conversion. | ||
(6) | Upon application of the Conversion Redemption Amount, the Company shall issue to the holder of the Conversion Share all capital shares issuable, and distribute to such holder all other assets distributable, upon such conversion. |
(d) | Effect of Conversion . |
(1) | All Preferred Shares which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the time of conversion, except only the right of the holders thereof to receive Ordinary Shares in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any Series A Preferred Shares or Series B Preferred Shares so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Company may thereafter take such appropriate action (without the need for shareholder action) as may be necessary to reduce the authorized number of Series A |
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Preferred Shares or Series B Preferred Shares, as applicable, accordingly. | |||
(2) | The Ordinary Shares to which a Preferred Shareholder is entitled in exercising the Conversion Right shall, subject to each Preferred Share being fully paid up by the holder thereof: |
(i) | be credited as fully paid; and | ||
(ii) | rank pari passu in all respects and form one class with the Ordinary Shares in issue. |
(e) | No Further Adjustment . Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends on any Preferred Shares surrendered for conversion or on the Ordinary Shares delivered upon conversion. | ||
(f) | Taxes . The Company shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of Ordinary Shares upon conversion of Preferred Shares pursuant to this Article 4.2.5. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Ordinary Shares in a name other than that in which the Preferred Shares so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid. | ||
(g) | Notice of Record Date . In the event: |
(i) | the Company shall take a record of the holders of its Ordinary Shares (or other securities at the time issuable upon conversion of the Preferred Shares) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other security; or | ||
(ii) | of any capital reorganization of the Company, any reclassification of the Ordinary Shares of the Company, or any Deemed Liquidation Event; or | ||
(iii) | of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, |
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4.2.6 | Adjustments to Conversion Price |
(a) | Adjustment for Share Splits and Combinations . If the Company shall at any time or from time to time after the Original Issue Date for any series of Preferred Shares effect a subdivision of the outstanding Ordinary Shares, the Conversion Price for such series of Preferred Shares in effect immediately before that subdivision shall be proportionately decreased so that the number of Ordinary Shares issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of Ordinary Shares outstanding. If the Company shall at any time or from time to time after the Original Issue Date for any series of Preferred Shares combine the outstanding Ordinary Shares, the Conversion Price for such series of Preferred Shares in effect immediately before the combination shall be proportionately increased so that the number of Ordinary Shares issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of Ordinary Shares outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective. | ||
(b) | Adjustment for Certain Dividends and Distributions . In the event the Company at any time or from time to time after the Original Issue Date for any series of Preferred Shares shall make or issue, or fix a record date for the determination of holders of Ordinary Shares entitled to receive, a dividend or other distribution payable on the Ordinary Shares in the form of additional Ordinary Shares, then and in each such event the Conversion Price for such series of Preferred Shares in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for such series of Preferred Shares then in effect by a fraction: |
(i) | the numerator of which shall be the total number of Ordinary Shares issued and outstanding immediately prior to the time of such issuance on the close of business on such record date, and | ||
(ii) | the denominator of which shall be the total number of Ordinary Shares |
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issued and outstanding immediately prior to the time of such issuance on the close of business on such record date plus the number of Ordinary Shares issuable in payment of such dividend or distribution. |
Notwithstanding the foregoing, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price for such series of Preferred Shares shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price for such series of Preferred Shares shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and no such adjustment on the Conversion Price for such series of Preferred Shares shall be made if the holders of such series of Preferred Shares simultaneously receive a dividend or other distribution of Ordinary Shares in a number equal to the number of Ordinary Shares as they would have received if all outstanding Preferred Shares of such series had been converted into Ordinary Shares on the date of such event. | |||
(c) | Adjustments for Other Dividends and Distributions . In the event the Company at any time or from time to time after the Original Issue Date for any series of Preferred Shares shall make or issue, or fix a record date for the determination of holders of Ordinary Shares entitled to receive, a dividend or other distribution payable in securities of the Company (other than a distribution in the form of Ordinary Shares) or in other property and the provisions of Article 4.2.10 and Article 4.2.11 do not apply to such dividend or distribution, then and in each such event the holders of such series of Preferred Shares, shall receive, simultaneously with the distribution to the holders of Ordinary Shares, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding Preferred Shares of such series had been converted into Ordinary Shares on the date of such event. | ||
(d) | Adjustment for Merger or Reorganization, etc . Subject to the provisions of Article 4.2.15, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Company in which the Ordinary Shares (but not the Preferred Shares of any series) are converted into or exchanged for securities, cash or other property (other than a transaction covered by Article 4.2.6(a) to 4.2.6(c)), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each Preferred Share of such series shall thereafter be convertible (in lieu of the Ordinary Shares into which it was convertible prior to such event) into the kind and amount of securities, cash or other property which a holder of the number of Ordinary Shares of the Company issuable upon conversion of such Preferred Share immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in Article 4.2.5 and Article 4.2.6 with respect to the rights and interests |
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thereafter of the holders of such series of Preferred Shares, to the end that the provisions set forth in Article 4.2.5 and Article 4.2.6 (including provisions with respect to changes in and other adjustments of the Conversion Price for such series) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Shares. | |||
(e) | Anti-Dilution Provisions . In the event the Company shall at any time after the Original Issue Date for any series of Preferred Shares, issue Additional Ordinary Shares (including Additional Ordinary Shares deemed to be issued pursuant to Article 4.2.6(e)(2)), without consideration or for a consideration per share less than the applicable Conversion Price for such series of Preferred Shares in effect immediately prior to such issuance, then the Conversion Price for such series of Preferred Shares shall be reduced, concurrently with such issuance, to the consideration per share received by the Company for such issuance or deemed issuance of the Additional Ordinary Shares; provided that if such issuance or deemed issuance was without consideration, then the Company shall be deemed to have received an aggregate of $0.0001 of consideration for all such Additional Ordinary Shares issued or deemed to be issued. |
(1) | Determination of Consideration . For purposes of this Article 4.2.6(e), the consideration received by the Company for the issuance of any Additional Ordinary Shares shall be computed as follows: |
(A) | Cash and Property . Such consideration shall: |
(i) | insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest; | ||
(ii) | insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined and certified by the Auditor; and | ||
(iii) | in the event Additional Ordinary Shares are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined and certified by the Auditor. |
(B) | Options and Convertible Securities . The consideration per share received by the Company for Additional Ordinary Shares deemed to have been issued pursuant to Article 4.2.6(e)(2), relating to Options and Convertible Securities, shall be determined by dividing |
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(i) | the total amount, if any, received or receivable by the Company as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by | ||
(ii) | the maximum number of Ordinary Shares (as determined below) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. |
(2) | Deemed Issuance of Additional Ordinary Shares . |
(A) | If the Company from time to time after the Original Issue Date, shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then for purposes of calculating any adjustment to the Conversion Price of the Preferred Shares, the maximum number of Ordinary Shares (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Ordinary Shares issued as of the time of such issuance or, in case such a record date shall have been fixed, as of the close of business on such record date. | ||
(B) | If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price for a series of Preferred Shares, pursuant to the terms of Article 4.2.6(e), are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (including, without limitation, automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of Ordinary Shares issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the |
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consideration payable to the Company upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price for such series of Preferred Shares computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Conversion Price for such series of Preferred Shares to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Ordinary Shares (other than deemed issuances of Additional Ordinary Shares as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date. | |||
(C) | If the terms of any Option or Convertible Security, the issuance of which did not result in an adjustment to the Conversion Price for a series of Preferred Shares pursuant to the terms of Article 4.2.6(e) (either because the consideration per share of the Additional Ordinary Shares subject thereto was equal to or greater than the Conversion Price for such series of Preferred Shares then in effect, or because such Option or Convertible Security was issued before the Original Issue Date for such series of Preferred Shares), are revised after the Original Issue Date for such series of Preferred Shares, as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) an increase or decrease in the number of Ordinary Shares issuable upon the exercise, conversion or exchange of such Option or Convertible Security or (2) an increase or decrease in the consideration payable to the Company upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Ordinary Shares subject thereto (determined in the manner provided in Article 4.2.6(e)(2)(A)) shall be deemed to have been issued effective upon such increase or decrease becoming effective. | ||
(D) | Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a |
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revision of its terms) in an adjustment to the Conversion Price for a series of Preferred Shares pursuant to the terms of Article 4.2.6(e), the Conversion Price for such series of Preferred Shares shall be readjusted to such Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued. | |||
(E) | If the number of Ordinary Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price provided for in this Article 4.2.6(e)(2) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Article 4.2.6(e)(2)). If the number of ordinary Shares issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Company upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price that would result under the terms of this Article 4.2.6(e)(2) at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made. |
(3) | Multiple Closing Dates . In the event the Company shall issue on more than one date Additional Ordinary Shares that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price for any series of Preferred Shares, pursuant to the terms of Article 4.2.6(e), then, upon the final such issuance, the Conversion Price for such series of Preferred Shares shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period). |
(f) | In case any event shall occur as to which the other provisions of this Article are not strictly applicable, but the failure to make any adjustment to the Conversion Price would not fairly protect the conversion rights of the Preferred Shares in accordance with the essential intent and principles hereof, then, in each such case, the |
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Company, in good faith, shall determine the appropriate adjustment to be made, on a basis consistent with the essential intent and principles established in this Article, necessary to preserve, without dilution, the conversion rights of such Preferred Shares. If any Preferred Shareholder shall reasonably and in good faith disagree with such determination by the Company, then the Company shall appoint an internationally recognized investment banking firm, which shall give their opinion as to the appropriate adjustment, if any, on the basis described above. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Preferred Shareholders and shall make the adjustments described therein. | |||
(g) | Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price for any series of Preferred Shares pursuant to this Article 4.2.6, the Company at its expense shall, as promptly as reasonably practicable but in any event not later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Shares of such series, a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Shares are convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, as promptly as reasonably practicable after the written request at any time of any holder of such series of Preferred Shares (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Conversion Price for such series of Preferred Shares then in effect, and (ii) the number of Ordinary Shares and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Shares. |
4.2.7 | Series A Redemption . Series A Preferred Shares shall not be redeemable. | ||
4.2.8 | Series B Redemption . Series B Preferred Shares shall be redeemed by the Company out of funds lawfully available therefor at a price equal to the Series B Subscription Price per share, plus all declared but unpaid dividends thereon (the Redemption Price ), after receipt by the Company at any time on or after May 1, 2012, from the holders of at least a majority of the then outstanding Series B Preferred Shares, of written notice requesting redemption of all Series B Preferred Shares and setting forth the date for such redemption (the Redemption Date ). Such notice shall be given no less than sixty (60) days in advance of the Redemption Date. On the Redemption Date, the Company shall redeem all outstanding Series B Preferred Shares. The Company shall pay one-third (1/3) of the Redemption Price in cash on the Redemption Date and issue to each Series B Shareholder a promissory note in form and substance reasonably satisfactory to the holders representing a majority in voting power of the Series B Preferred Shares being redeemed, for the balance or the Redemption Price, which shall be due and payable in two equal installments on the first and second anniversaries of the Redemption Date, respectively. |
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(a) | Redemption Notice . Written notice of the mandatory redemption (the Redemption Notice ) shall be sent to each Series B Shareholder not less than forty (40) days prior to the Redemption Date. Each Redemption Notice shall state: |
(1) | the number of Series B Preferred Shares held by the Series B Shareholder as of record on the Register of Shareholders; | ||
(2) | the Redemption Date and the Redemption Price; and | ||
(3) | that the Series B Shareholder is to surrender to the Company, in the manner and at the place designated, his, her or its certificate or certificates representing the Series B Preferred Shares to be redeemed. |
(b) | Surrender of Certificates; Payment . In connection with the redemption of any Series B Preferred Share, the holder thereof shall surrender to the Company, in the manner and at the place designated by the Company for that purpose, the certificate representing such Series B Preferred Share. Upon receipt of any such certificate for Series B Preferred Shares, the Company shall promptly pay the redemption price with respect to such shares to the order of the holder whose name appears on such certificate, and such certificate shall be cancelled. In the case of any lost, stolen or destroyed certificate, the Company shall promptly pay the redemption price to the holder of the Series B Preferred Shares that would have been evidenced by such certificate upon such holder executing an agreement reasonably satisfactory to the Company to indemnify the Company for any loss incurred by it in connection with such lost, stolen or destroyed certificate. |
4.2.9 | Redeemed or Otherwise Acquired Shares . Any shares that are redeemed or otherwise acquired by the Company or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries may exercise any voting or other rights granted to the holders of redeemed shares following redemption. |
4.2.10 | Except for an Exempted Distribution, no dividend or other distribution (whether in cash or in kind) shall be declared or paid with respect to any other class or series of shares of the Company unless and until a distribution is likewise declared or paid with respect to the outstanding Series B Preferred Shares which in amount and kind, on a per share, as-if converted basis (assuming conversion as of the date of such declaration or as of the record date for such payment), is equal to the distribution paid on each share of such other class or series of shares (where such class or series of shares are not the Ordinary Shares, treating such other class or series on an as-if converted basis, assuming conversion as of the date of such declaration or as of the record date for such payment). | ||
4.2.11 | Except for an Exempted Distribution, no dividend or other distribution (whether in cash or in kind) shall be declared or paid with respect to any other class or series of shares of the |
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Company unless and until a distribution is likewise declared or paid with respect to the outstanding Series A Preferred Shares which in amount and kind, on a per share, as-if converted basis (assuming conversion as of the date of such declaration or as of the record date for such payment), is equal to the distribution paid on each share of such other class or series of shares (where such class or series of shares are not the Ordinary Shares, treating such other class or series on an as-if converted basis, assuming conversion as of the date of such declaration or as of the record date for such payment). |
4.2.12 | Payments on Series B Preferred Shares . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event, the Series B Shareholders shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment shall be made to the Series A Shareholders or Ordinary Shareholders, an amount per Series B Preferred Share equal to the Series B Subscription Price, plus all accrued or declared but unpaid dividends thereon. If upon any such liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event, the assets of the Company available for distribution to its shareholders shall be insufficient to pay the Series B Shareholders the full amount to which they shall be entitled under this Article 4.2.12, the Series B Shareholders shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the Series B Preferred Shares held by them upon such distribution if all amounts payable on or with respect to such Series B Preferred Shares were paid in full. | ||
4.2.13 | Payments on Series A Preferred Shares . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the Series B Shareholders, the Series A Shareholders shall be entitled to be paid out of the remaining assets of the Company available for distribution to its shareholders before any payment shall be made to the Ordinary Shareholders, an amount per Series A Preferred Share equal to Series A Subscription Price, plus all accrued or declared but unpaid dividends thereon. If upon any such liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the Series B Shareholders, the remaining assets of the Company available for distribution to its shareholders shall be insufficient to pay the Series A Shareholders the full amount to which they shall be entitled under this Article 4.2.13, the Series A Shareholders shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the Series A Preferred Shares held by them upon such distribution if all amounts payable on or with respect to such Series A Preferred Shares were paid in full. | ||
4.2.14 | Distribution of Remaining Assets . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the Series B Shareholders and Series A Shareholders, the remaining assets of the Company available for distribution to |
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its shareholders shall be distributed among the holders of any Preferred Shares and/or Ordinary Shares pro rata, based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to Ordinary Shares pursuant to the terms of these Articles immediately prior to such dissolution, liquidation or winding up of the Company, or the Deemed Liquidation Event. |
4.2.15 | Definition . Each of the following events shall be considered a Deemed Liquidation Event unless holders representing at least a majority in voting power of the Series A Preferred Shares have approved in writing, and the Series B Shareholders have Approved, a waiver waiving the treatment of such event as a Deemed Liquidation Event: |
(1) | any consolidation or merger of the Company with or into any other person, or any other corporate reorganization, in which the Shareholders immediately prior to such consolidation, merger or reorganization, own less than fifty percent of the Companys voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions involving the Company pursuant to which in excess of fifty percent of the Companys voting power is transferred; or | ||
(2) | a sale, transfer, lease, exclusive licensing or other disposition of all or substantially all of the property, assets or revenues of the Company. |
4.2.16 | Requirement . The Company shall not enter into or permit any transaction that would constitute a Deemed Liquidation Event referred to in Article 4.2.15(1) unless the agreement or plan of merger or consolidation for such transaction (the Merger Agreement ) provides that the consideration payable to the shareholders of the Company shall be allocated among the shareholders of the Company in accordance with Articles 4.2.12 to 4.2.14. | ||
4.2.17 | Amount Deemed Paid or Distributed . The amount deemed paid or distributed to the shareholders of the Company upon any such merger, consolidation, sale, transfer, exclusive license, other disposition shall be the cash or the value of the property, rights or securities paid or distributed to such shareholders by the Company or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined and certified by an independent investment bank of international repute and standing appointed by the Hong Kong International Arbitration Centre. | ||
4.2.18 | Allocation of Escrow . In the event of a Deemed Liquidation Event pursuant to Subsection Article 4.2.15(1), if any portion of the consideration payable to the shareholders of the Company is placed into escrow and/or is payable to the shareholders of the Company subject to contingencies, the Merger Agreement shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the Initial Consideration ) shall be allocated among the shareholders of the Company in accordance with Article 4.2.12 through Article 4.2.14 as if the Initial Consideration were the only |
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consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration which becomes payable to the shareholders of the Company upon release from escrow or satisfaction of contingencies shall be allocated among the shareholders of the Company in accordance with Article 4.2.12 through Article 4.2.14 after taking into account the previous payment of the Initial Consideration as part of the same transaction. |
5. | Calls on Shares |
5.1 | The Board may make such calls as it thinks fit upon the Shareholders in respect of any monies (whether in respect of nominal value or premium) unpaid on the shares allotted to or held by such Shareholders and, if a call is not paid on or before the day appointed for payment thereof, the Shareholder may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls. | ||
5.2 | The Company may accept from any Shareholder the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up. | ||
5.3 | The Company may make arrangements on the issue of shares for a difference between the Shareholders in the amounts and times of payments of calls on their shares. |
6. | Joint and Several Liabilities to Pay Calls |
7.1 | Forfeiture of Shares |
7.1 | If any Shareholder fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Shareholder, the Board may, at any time thereafter during such time as the call remains unpaid, forward (or direct the Secretary to forward) such Shareholder a notice in writing in the form, or as near thereto as circumstances admit, of the following: |
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7.2 | If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine. Without limiting the generality of the foregoing, the disposal may take place by sale, repurchase, redemption or any other method of disposal permitted by and consistent with these Articles and the Law. | ||
7.3 | A Shareholder whose share or shares have been forfeited as aforesaid shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture and all interest due thereon. | ||
7.4 | The Board may accept the surrender of any shares which it is in a position to forfeit on such terms and conditions as may be agreed. Subject to those terms and conditions, a surrendered share shall be treated as if it had been forfeited. |
8. | Share Certificates |
8.1 | Every Shareholder shall be entitled to a certificate under the seal of the Company (or a facsimile thereof) specifying the number and, where appropriate, the class of shares held by such Shareholder and whether the same are fully paid up and, if not, how much has been paid thereon. The Board may by resolution determine, either generally or in a particular case, that any or all signatures on certificates may be printed thereon or affixed by mechanical means. | ||
8.2 | If any share certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid, or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit. | ||
8.3 | Share certificates may not be issued in bearer form. |
9. | Fractional Shares |
10. | Register of Shareholders |
(a) | the name and address of each Shareholder, the number, and (where appropriate) the class of shares |
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held by such Shareholder and the amount paid or agreed to be considered as paid on such shares; |
(b) | the date on which each person was entered in the Register of Shareholders; and | ||
(c) | the date on which any person ceased to be a Shareholder. |
11. | Registered Holder Absolute Owner |
11.1 | The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable claim or other claim to, or interest in, such share on the part of any other person. | ||
11.2 | No person shall be entitled to recognition 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 other right in respect of any share except an absolute right to the entirety of the share in the holder. If, notwithstanding this Article, notice of any trust is at the holders request entered in the Register or on a share certificate in respect of a share, then, except as aforesaid: |
(a) | such notice shall be deemed to be solely for the holders convenience; | ||
(b) | the Company shall not be required in any way to recognise any beneficiary, or the beneficiary, of the trust as having an interest in the share or shares concerned; | ||
(c) | the Company shall not be concerned with the trust in any way, as to the identity or powers of the trustees, the validity, purposes or terms of the trust, the question of whether anything done in relation to the shares may amount to a breach of trust or otherwise; and | ||
(d) | the holder shall keep the Company fully indemnified against any liability or expense which may be incurred or suffered as a direct or indirect consequence of the Company entering notice of the trust in the Register or on a share certificate and continuing to recognise the holder as having an absolute right to the entirety of the share or shares concerned. |
12. | Transfer of Registered Shares |
12.1 | An instrument of transfer shall be in writing in the form of the following, or as near thereto as circumstances admit, or in such other form as the Board may accept: |
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12.2 | Such instrument of transfer shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been transferred to the transferee in the Register of Shareholders. | ||
12.3 | The Board shall refuse to register the transfer of any share prohibited pursuant to the Shareholders Agreement. | ||
12.4 | The Board may refuse to recognise any instrument of transfer unless it is accompanied by the certificate in respect of the shares to which it relates and by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer. | ||
12.5 | The joint holders of any share may transfer such share to one or more of such joint holders, and the surviving holder or holders of any share previously held by them jointly with a deceased Shareholder may transfer any such share to the executors or administrators of such deceased Shareholder. |
13. | Transmission of Registered Shares |
13.1 | In the case of the death of a Shareholder, the survivor or survivors where the deceased Shareholder was a joint holder, and the legal personal representatives of the deceased Shareholder where the deceased Shareholder was a sole holder, shall be the only persons recognised by the Company as having any title to the deceased Shareholders interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Shareholder with other persons. Subject to the provisions of Section 39 of the Law, for the purpose of this Article, legal personal representative means the executor or administrator of a deceased Shareholder or such other person as the Board may, in its absolute discretion, decide as being properly authorised to deal with the shares of a deceased Shareholder. | ||
13.2 | Any person becoming entitled to a share in consequence of the death or bankruptcy of any Shareholder may be registered as a Shareholder upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favour of such nominee an instrument of |
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transfer in writing in the form, or as near thereto as circumstances admit, of the following: |
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13.3 | On the presentation of the foregoing materials to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Shareholder. Notwithstanding the foregoing, the Board shall, in any case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Shareholder before such Shareholders death or bankruptcy, as the case may be. | ||
13.4 | Where two or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be absolutely entitled to the said share or shares and the Company shall recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders. |
14. | Power to Alter Capital |
14.1 | Subject to the Law and these Articles, the Company may from time to time by ordinary resolution alter the conditions of the Memorandum to increase its share capital by new shares of such amount as it thinks expedient or, if the Company has shares without par value, increase its share capital by such number of shares without nominal or par value, or increase the aggregate consideration for which its shares may be issued, as it thinks expedient. | ||
14.2 | Subject to the Law and these Articles, the Company may from time to time by ordinary resolution |
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alter the conditions of the Memorandum to: |
(a) | consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; | ||
(b) | subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; or | ||
(c) | cancel 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 or, in the case of shares without par value, diminish the number of shares into which its capital is divided. |
14.3 | For the avoidance of doubt it is declared that paragraph 14.2(a) and (b) above do not apply if at any time the shares of the Company have no par value. | ||
14.4 | Subject to the Law and these Articles, the Company may from time to time by special resolution reduce its share capital in any way or, subject to Article 73, alter any conditions of the Memorandum relating to share capital. |
15. | Variation of Rights Attaching to Shares |
15.1 | Subject to these Articles, if, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class at which meeting the necessary quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class. Subject to these Articles, 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. |
16. | Dividends |
16.1 | The Board may, subject to these Articles and any direction of the Company in general meeting, declare a dividend to be paid to the Shareholders, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets. No unpaid dividend shall bear interest as against the Company. | ||
16.2 | Dividends may be declared and paid out or profits of the Company, realised or unrealised, or from any reserve set aside from profits which the Directors determine is no longer needed, or not in the same amount. Dividends may also be declared and paid out or share premium account or any other |
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fund or account which can be authorised for this purpose in accordance with the Law. |
16.3 | With the sanction of an ordinary resolution of the Company and subject to these Articles, the Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the foregoing generally and subject to these Articles, the Directors may fix the value of such specific assets, may determine that cash payments shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit. | ||
16.4 | Subject to these Articles, the Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others. | ||
16.5 | Subject to these Articles, the Board may declare and make such other distributions (in cash or in specie) to the Shareholders as may be lawfully made out of the assets of the Company. No unpaid distribution shall bear interest as against the Company. | ||
16.6 | The Board may fix any date as the record date for determining the Shareholders entitled to receive any dividend or other distribution, but, unless so fixed, the record date shall be the date of the Directors resolution declaring same. |
17. | Power to Set Aside Profits |
17.1 | The Board may, before declaring a dividend, set aside out of the surplus or profits of the Company, such sum as it thinks proper as a reserve to be used to meet contingencies or for equalising dividends or for any other purpose. Pending application, such sums may be employed in the business of the Company or invested, and need not be kept separate from other assets of the Company. The Directors may also, without placing the same to reserve, carry forward any profit which they decide not to distribute. | ||
17.2 | Subject to any direction from the Company in general meeting, the Directors may on behalf of the Company exercise all the powers and options conferred on the Company by the Law in regard to the Companys share premium account. |
18. | Method of Payment |
18.1 | Any dividend, interest, or other monies payable in cash in respect of the shares may be paid by cheque or draft sent through the post directed to the Shareholder at such Shareholders address in the Register of Shareholders, or to such person and to such address as the holder may in writing direct. | ||
18.2 | In the case of joint holders of shares, any dividend, interest or other monies payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the address of the holder first named in the Register of Shareholders, or to such person and to such address as the |
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joint holders may in writing direct. If two or more persons are registered as joint holders of any shares any one can give an effectual receipt for any dividend paid in respect of such shares. |
18.3 | The Board may deduct from the dividends or distributions payable to any Shareholder all monies due from such Shareholder to the Company on account of calls or otherwise. |
19. | Capitalization |
19.1 | The Board may resolve to capitalise any sum for the time being standing to the credit of any of the Companys share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Shareholders. | ||
19.2 | The Board may resolve to capitalise any sum for the time being standing to the credit of a reserve account or sums otherwise available for dividend or distribution by applying such amounts in paying up in full partly paid or nil paid shares of those Shareholders who would have been entitled to such sums if they were distributed by way of dividend or distribution. |
20. | Annual General Meetings |
21. | Extraordinary General Meetings |
21.1 | General meetings other than annual general meetings shall be called extraordinary general meetings. | ||
21.2 | Any two Directors or any Director and the Secretary or the Board may convene an extraordinary general meeting of the Company whenever in their judgment such a meeting is necessary. |
22. | Requisitioned General Meetings |
22.1 | The Board shall, on the requisition of Shareholders holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings of the Company, forthwith proceed |
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to convene an extraordinary general meeting of the Company. To be effective the requisition shall state the objects of the meeting, shall be in writing, signed by the requisitionists, and shall be deposited at the Registered Office. The requisition may consist of several documents in like form each signed by one or more requisitionists. | |||
22.2 | If the Directors do not within twenty-one days from the date of the requisition duly proceed to call an extraordinary general meeting, the requisitionists, or any of them representing more than one half of the total voting rights of all of them, may themselves convene an extraordinary general meeting; but any meeting so called shall not be held more than ninety days after the requisition. An extraordinary general meeting called by requisitionists shall be called in the same manner, as nearly as possible, as that in which general meetings are to be called by the Directors. |
23. | Notice |
23.1 | At least fourteen Business Days notice of an annual general meeting shall be given to each Shareholder entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held and if different, the record date for determining Shareholders entitled to attend and vote at the general meeting, and, as far as practicable, the other business to be conducted at the meeting. | ||
23.2 | At least ten Business Days notice of an extraordinary general meeting shall be given to each Shareholder entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held and the general nature of the business to be considered at the meeting. | ||
23.3 | The Board may fix any date as the record date for determining the Shareholders entitled to receive notice of and to vote at any general meeting of the Company but, unless so fixed, as regards the entitlement to receive notice of a meeting or notice of any other matter, the record date shall be the date of dispatch of the notice and, as regards the entitlement to vote at a meeting, and any adjournment thereof, the record date shall be the date of the original meeting. | ||
23.4 | A general meeting of the Company shall, notwithstanding that it is called on shorter notice than that specified in these Articles, be deemed to have been properly called if it is so agreed by (i) all the Shareholders entitled to attend and vote thereat in the case of an annual general meeting; and (ii) in the case of an extraordinary general meeting, by seventy-five percent of the Shareholders entitled to attend and vote thereat. | ||
23.5 | The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting. |
24. | Giving Notice |
24.1 | A notice may be given by the Company to any Shareholder either by delivering it to such Shareholder in person or by sending it to such Shareholders address in the Register of |
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Shareholders or to such other address given for the purpose. For the purposes of this Article, a notice may be sent by letter mail, courier service, cable, telex, telecopier, facsimile, electronic mail or other mode of representing words in a legible form. | |||
24.2 | Any notice required to be given to a Shareholder shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Shareholders and notice so given shall be sufficient notice to all the holders of such shares. | ||
24.3 | Any notice shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted, and the time when it was posted, delivered to the courier or to the cable company or transmitted by telex, facsimile, electronic mail, or such other method as the case may be. |
25. | Postponement of General Meeting | |
The Board may postpone any general meeting called in accordance with the provisions of these Articles provided that notice of postponement is given to each Shareholder before the time for such meeting. Fresh notice of the date, time and place for the postponed meeting shall be given to each member in accordance with the provisions of these Articles. | ||
26. | Participating in Meetings by Telephone | |
Shareholders may participate in any general meeting by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. | ||
27. | Quorum at General Meetings |
27.1 | A general meeting of the Company is duly constituted if, at the commencement of and throughout the meeting, there are present in person or by proxy | ||
two members holding not less than an aggregate of 50% in voting power of the shares of the Company, including not less than 50% in voting power of the Series B Preferred Shares, | |||
provided that (i) if the Company shall at any time have only one Shareholder, one Shareholder present in person or by proxy shall form a quorum for the transaction of business at any general meeting of the Company held during such time and (ii) if the business of the general meeting includes considering a special resolution to wind-up the Company or to alter or add to these Articles or the Memorandum, the quorum must include shareholders representing not less than two-thirds in voting power of the then issued and outstanding Preferred Shares. | |||
27.2 | If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Board may determine. |
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28 | Chairman to Preside | |
Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the Chairman, if there be one, shall act as chairman at all meetings of the Shareholders at which such person is present. In his absence a chairman shall be appointed or elected by those present at the meeting and entitled to vote. | ||
29 | Voting on Resolutions |
29.1 | Subject to the provisions of the Law and these Articles, any question proposed for the consideration of the Shareholders at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with the provisions of these Articles and in the case of an equality of votes the resolution shall fail. | ||
29.2 | No Shareholder shall be entitled to vote at a general meeting unless such Shareholder has paid all the calls on all shares held by such Shareholder. | ||
29.3 | At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to the provisions of these Articles, every Shareholder present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his hand. | ||
29.4 | At any general meeting if an amendment shall be proposed to any resolution under consideration and the chairman of the meeting shall rule on whether the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling. | ||
29.5 | At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration 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 a book containing the minutes of the proceedings of the Company shall, subject to the provisions of these Articles, be conclusive evidence of that fact. |
30 | Power to Demand a Vote on a Poll |
30.1 | Notwithstanding the foregoing, a poll may be demanded by the Chairman or at least one Shareholder. |
30.2 | Where a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have one vote for each share of which such person is the holder or for which such person holds a proxy and such vote shall be counted by ballot as described herein, or in the case of a general meeting at which one or more Shareholders are present by telephone, in such manner as the chairman of the meeting may direct and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands. A person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. |
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30.3 | A poll demanded for the purpose of electing a chairman of the meeting or on a question of adjournment shall be taken forthwith and a poll demanded on any other question shall be taken in such manner and at such time and place at such meeting as the chairman of the meeting may direct and any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll. | ||
30.4 | Where a vote is taken by poll, each person present and entitled to vote shall be furnished with a ballot paper on which such person shall record his vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialed or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. At the conclusion of the poll, the ballot papers shall be examined and counted by a committee of not less than two Shareholders or proxy holders appointed by the chairman for the purpose and the result of the poll shall be declared by the chairman. |
31 | Voting by Joint Holders of Shares | |
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 other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Shareholders. |
32 | Instrument of Proxy |
32.1 | An instrument appointing a proxy shall be in writing or transmitted by electronic mail in substantially the following form or such other form as the chairman of the meeting shall accept: |
I/We, [insert names here], being a Shareholder of the Company with [number] shares, HEREBY APPOINT [name] of [address] or failing him, [name] of [address) to be my/our proxy to vote for me/us at the meeting of the Shareholders held on the [ ] day of [ ], 20[ ] and at any adjournment thereof. (Any restrictions on voting to be inserted here.) | |||
Signed this [ ] day of [ ], 20[ ] | |||
Shareholder(s) | |||
32.2 | The instrument of proxy shall be signed or, in the case of a transmission by electronic mail, electronically signed in a manner acceptable to the chairman, by the appointor or by the appointors attorney duly authorised in writing, or if the appointor is a corporation, either under its seal or signed or, in the case of a transmission by electronic mail, electronically signed in a manner acceptable to the chairman, by a duly authorised officer or attorney. | ||
32.3 | A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf. | ||
32.4 | The decision of the chairman of any general meeting as to the validity of any appointment of a proxy shall be final. |
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33 | Representation of Corporate Shareholder |
33.1 | A corporation which is a Shareholder may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting of the Shareholders and any person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Shareholder, and that Shareholder shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives. | ||
33.2 | Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Shareholder. |
34 | Adjournment of General Meeting | |
The chairman of a general meeting may, with the consent of a majority in number of those present at any general meeting at which a quorum is present, and shall if so directed, adjourn the meeting. Unless the meeting is adjourned for more than 60 days fresh notice of the date, time and place for the resumption of the adjourned meeting shall be given to each Shareholder entitled to attend and vote thereat, in accordance with the provisions of these Articles. | ||
35 | Written Resolutions |
35.1 | Anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Shareholders may, without a meeting and without any previous notice being required, be done by resolution in writing signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Law, on behalf of, all the Shareholders who at the date of the resolution would be entitled to attend the meeting and vote on the resolution. | ||
35.2 | A resolution in writing may be signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Law, on behalf of, all the Shareholders, or all the Shareholders of the relevant class thereof, in as many counterparts as may be necessary. | ||
35.3 | A resolution in writing made in accordance with this Article is as valid as if it had been passed by the Company in general meeting or by a meeting or the relevant class of Shareholders, as the case may be, and any reference in any Article to a meeting at which a resolution is passed or to Shareholders voting in favour of a resolution shall be construed accordingly. | ||
35.4 | A resolution in writing made in accordance with this Article shall constitute minutes for the purposes of the Law. | ||
35.5 | For the purposes of this Article, the date of the resolution is the date when the resolution is signed by, or in the case of a Shareholder that is a corporation whether or not a company within the meaning of the Law, on behalf of, the last Shareholder to sign and any reference in any Article to the date of passing of a resolution is, in relation to a resolution made in accordance with this Article, a reference to such date. |
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36 | Directors Attendance at General Meetings | |
The Directors of the Company shall be entitled to receive notice of, attend and be heard at any general meeting. |
37 | Election and Appointment of Directors |
37.1 | The Board shall be elected or appointed in writing in the first place by the subscribers to the Memorandum or by a majority of them. There shall be no shareholding qualification for Directors unless prescribed by special resolution. | ||
37.2 | The composition of the Board shall be determined as follows: |
(a) | The Board shall consist of five Directors or such other number as all Shareholders may determine by unanimous resolution. | ||
(b) | Shareholders representing a majority in voting power of the Ordinary Shares shall have the right to nominate, from time to time, individuals to occupy two (2) of the five positions on the Board. | ||
(c) | For so long as any Series A Preferred Shares remain outstanding, Shareholders representing a majority in voting power of the Series A Preferred Shares shall have the right to nominate, from time to time, an individual to occupy one (1) of the five positions on the Board ( Series A Director ); and | ||
(d) | For so long as any Series B Preferred Shares remain outstanding, Shareholders representing a majority in voting power of the Series B Preferred Shares shall have the right to nominate, from time to time, individuals to occupy two (2) of the five positions on the Board ( Series B Directors ); provided that: |
(1) | For so long as Chengwei holds no less than 25% of the total number of issued and outstanding Series B Preferred Shares, Chengwei shall have the right to nominate, from time to time, an individual to occupy one (1) of the two positions as a Series B Director; and | ||
(2) | For so long as CDH holds no less than 25% of the total number of issued and outstanding Series B Preferred Shares, CDH shall have the right to nominate, from time to time, an individual to occupy one (1) of the two positions as a Series B Director. |
(e) | For so long as the Noteholders hold any Series B Preferred Shares, the Noteholders shall be entitled, by notice in writing to the Company, to jointly appoint one (1) person, as observer to attend and speak at, either in person or by teleconference, any and all meetings of the |
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Board. The Company shall provide to such observer the same information concerning the Company, and access thereto, provided to members of the Board. | |||
(f) | Each of Chengwei and CDH, respectively, for so long as it holds any Series B Preferred Shares, shall be entitled by notice in writing to the Company, to appoint one (1) person, as observer to attend and speak at, either in person or by teleconference, any and all meetings of the Board. The Company shall provide to such observer the same information concerning the Company, and access thereto, provided to members of the Board. |
37.3 | If Series B Shareholders or Series A Shareholders, as the case may be, fail to elect a sufficient number of Directors to fill all directorships for which they are entitled to elect Directors pursuant to Article 37.2, then any directorship not so filled shall remain vacant until such time as the Series B Shareholders or Series A Shareholders, as the case may be, elect a person to fill such directorship by vote or written resolution in lieu of a meeting; and no such directorship may be filled by shareholders of the Company other than by the shareholders of the Company that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. At any meeting held for the purpose of electing a Director, the presence in person or by proxy of the holders of a majority of the outstanding shares entitled to elect such Director shall constitute a quorum for the purpose of electing such Director. Except as otherwise provided in this Article 37, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written resolution in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Article 37. |
38 | [Reserved.] | |
39 | Term of Office of Directors | |
An appointment of a Director may be on terms that the Director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period; but no such term shall be implied in the absence of express provision. | ||
40 | Alternate Directors |
40.1 | A Director may at any time appoint any person (including another Director) to be his Alternate Director and may at any time terminate such appointment. An appointment and a termination of appointment shall be by notice in writing signed by the Director and deposited at the Registered Office or delivered at a meeting of the Directors. | ||
40.2 | The appointment of an Alternate Director shall determine on the happening of any event which, if he were a Director, would cause him to vacate such office or if his appointor ceases for any reason to be a Director. | ||
40.3 | An Alternate Director shall be entitled to receive notices of meetings of the Directors and shall be entitled to attend and vote as a Director at any such meeting at which his appointor is not |
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personally present and generally at such meeting to perform all the functions of his appointor as a Director; and for the purposes of the proceedings at such meeting these Articles shall apply as if he (instead of his appointor) were a Director, save that he may not himself appoint an Alternate Director or a proxy. | |||
40.4 | If an Alternate Director is himself a Director or attends a meeting of the Directors as the Alternate Director of more than one Director, his voting rights shall be cumulative. | ||
40.5 | Unless the Directors determine otherwise, an Alternate Director may also represent his appointor at meetings of any committee of the Directors on which his appointor serves; and the provisions of this Article shall apply equally to such committee meetings as to meetings of the Directors. | ||
40.6 | If so authorised by an express provision in his notice of appointment, an Alternate Director may join in a written resolution of the Directors adopted pursuant to these Articles and his signature of such resolution shall be as effective as the signature of his appointor. | ||
40.7 | Save as provided in these Articles an Alternate Director shall not, as such, have any power to act as a Director or to represent his appointor and shall not be deemed to be a Director for the purposes of these Articles. | ||
40.8 | A Director who is not present at a meeting of the Directors, and whose Alternate Director (if any) is not present at the meeting, may be represented at the meeting by a proxy duly appointed, in which event the presence and vote of the proxy shall be deemed to be that of the Director. All the provisions of these Articles regulating the appointment of proxies by Shareholders shall apply equally to the appointment of proxies by Directors. |
41 | [Reserved] | |
42 | Vacancy in the Office of Director | |
The office of Director shall be vacated if the Director: |
(a) | is removed from office pursuant to these Articles; | ||
(b) | dies or becomes bankrupt, or makes any arrangement or composition with his creditors generally; | ||
(c) | is or becomes of unsound mind or an order for his detention is made under the Mental Health Law of the Cayman Islands or any analogous law of a jurisdiction outside the Cayman Islands, or dies; or | ||
(d) | resigns his office by notice in writing to the Company. |
43 | Remuneration of Directors | |
The remuneration (if any) of the Directors shall, subject to any direction that may be given by the Company in general meeting, be determined by the Directors as they may from time to time determine and |
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shall be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other expenses properly incurred by them in attending and returning from the meetings of the Board, any committee appointed by the Board, general meetings of the Company, or in connection with the business of the Company or their duties as Directors generally. | ||
44 | Defect in Appointment of Director | |
All acts done in good faith by the Board or by a committee of the Board 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 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. | ||
45 | Directors to Manage Business | |
Subject to Articles 46, the business of the Company shall be managed and conducted by the Board. Except as otherwise provided by Law or these Articles, in managing the business of the Company, the Board may exercise all the powers of the Company. | ||
46 | Powers of the Board of Directors | |
Without limiting the generality of Article 45, except as otherwise provided by Law or these Articles, the Board may: |
(a) | appoint, suspend, or remove any manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties; | ||
(b) | 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, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party; | ||
(c) | appoint one or more Directors to the office of managing director or chief executive officer of the Company, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company; | ||
(d) | appoint a person to act as manager of the Companys day-to-day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business; | ||
(e) | by power of attorney, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power or attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney. Such |
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attorney may, if so authorised under the seal of the Company, execute any deed or instrument under such attorneys person seal with the same effect as the affixation of the seal of the Company; | |||
(f) | procure that the Company pays all expenses incurred in promoting and incorporating the Company; | ||
(g) | delegate any of its powers (including the power to sub-delegate) to a committee of one or more persons appointed by the Board and every such committee shall conform to such directions as the Board shall impose on them. Subject to any directions or regulations made by the Directors for this purpose, the meetings and proceedings of any such committee shall be governed by the provisions of these Articles regulating the meetings and proceedings of the Board, including provisions for written resolutions; | ||
(h) | delegate any of its powers (including the power to sub-delegate) to any person on such terms and in such manner as the Board sees fit; | ||
(i) | present any petition and make any application in connection with the liquidation or reorganisation of the Company; | ||
(j) | in connection with the issue of any share, pay such commission and brokerage as may be permitted by law; and | ||
(k) | authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any agreement, document or instrument on behalf of the Company. |
Without limiting the foregoing, the Company shall not, and shall not permit any other Group Company, to appoint or dismiss any Key Management Personnel without the prior approval of the Board. | ||
47 | Register of Directors and Officers |
47.1 | The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers in accordance with the Law and shall enter therein the following particulars with respect to each Director and Officer: |
(a) | first name and surname; and | ||
(b) | address. |
47.2 | The Board shall, within the period of thirty days from the occurrence of: |
(a) | any change among its Directors and Officers; or | ||
(b) | any change in the particulars contained in the Register of Directors and Officers, |
cause to be entered on the Register of Directors and Officers the particulars of such change and the date on which such change occurred, and shall notify the Registrar of Companies of any such change that takes place. |
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48 | Officers | |
The Officers shall consist of a Secretary and such additional Officers as the Board may determine all of whom shall be deemed to be Officers for the purposes of these Articles. | ||
49 | Appointment of Officers | |
The Secretary (and additional Officers, if any) shall be appointed by the Board from time to time. | ||
50 | Duties of Officers | |
The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time. | ||
51 | Remuneration of Officers | |
The Officers shall receive such remuneration as the Board may determine. | ||
52 | Conflicts of Interest |
52.1 | Any Director, or any Directors firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Directors firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorise a Director or Directors firm, partner or company to act as Auditor to the Company. | ||
52.2 | A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by law. | ||
52.3 | Following a declaration being made pursuant to this Article, and unless disqualified by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting. |
53 | Indemnification and Exculpation of Directors and Officers |
53.1 | The Directors, Officers and Auditors of the Company and any trustee for the time being acting in relation to any of the affairs of the Company and every former director, officer, auditor or trustee and their respective heirs, executors, administrators, and personal representatives (each of which persons being referred to in this Article as an indemnified party ) shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed |
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duty, or in their respective offices or trusts, and no indemnified party shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of the said persons. Each Shareholder agrees to waive any claim or right of action such Shareholder 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 Officer, or the failure of such Director or Officer 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 with may attach to such Director or Officer. | |||
53.2 | The Company may purchase and maintain insurance for the benefit of any Director or Officer of the Company against any liability incurred by him in his capacity as a Director or Officer of the Company or indemnifying such Director or Officer in respect of any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or Officer may be guilty in relation to the Company or any subsidiary thereof. | ||
53.3 | The rights conferred on any person by this Article 53 shall not be exclusive of any other rights which such person may have or hereafter acquire under any applicable law, Constitutional Document of the Company, agreement, vote of the Shareholders or Directors or otherwise. |
54 | Board Meetings | |
Board meetings shall be held at least once every fiscal quarter. Subject thereto, the Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit. A resolution put to the vote at a meeting shall be passed by a majority of the Board unless these Articles provide otherwise. | ||
55 | Notice of Board Meetings | |
At least seven Business Days notice (or such other period of notice as may be agreed on any occasion or from time to time by all the Directors) of a board meeting shall be given to each Director stating the date, time and place of the meeting and the business to be transacted thereat. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director in writing and sent to such Director by post, cable, telex, telecopier, facsimile, electronic mail or other mode of representing words in a legible form at such Directors last known address or any other address given by such Director to the Company for this purpose. |
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56 | Participation in Meetings by Telephone | |
Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. | ||
57 | Quorum at Board Meetings | |
The quorum necessary for the transaction of business at a meeting of the Board shall be three (3) Directors, including at least one (1) Series B Director for so long as any Series B Preferred Shares remain outstanding and one (1) Series A Director of so long as any Series A Preferred Shares remain outstanding. If within thirty (30) minutes of the time appointed for a meeting, a quorum is not present the meeting shall stand adjourned until the same time and place on the same day in the next week and if at such adjourned meeting a quorum is not present within thirty (30) minutes from the time appointed for such adjourned meeting (or such longer interval as the chairman of the meeting may think fit to allow) the Director(s) present in person or by his alternates shall constitute a quorum. | ||
58 | Board to Continue in the Event of Vacancy | |
The Board may act notwithstanding any vacancy in its number. | ||
59 | Chairman to Preside | |
Unless otherwise agreed by a majority of the Directors attending, the Chairman, if there be one, shall act as chairman at all meetings of the Board at which such person is present. In his absence a chairman shall be appointed or elected by the Directors present at the meeting. The Chairman shall not have a casting vote. | ||
60 | Written Resolutions |
60.1 | Anything which may be done by resolution of the Directors may, without a meeting and without any previous notice being required, be done by resolution in writing signed by, or in the case of a Director that is a corporation whether or not a company within the meaning of the Law, on behalf of, all the Directors. | ||
60.2 | A resolution in writing may be signed by, or in the case of a Director that is a corporation whether or not a company within the meaning of the Law, on behalf of, all the Directors in as many counterparts as may be necessary. | ||
60.3 | A resolution in writing made in accordance with this Article is as valid as if it had been passed by the Directors in a directors meeting, and any reference in any Article to a meeting at which a resolution is passed or to Directors voting in favour of a resolution shall be construed accordingly. | ||
60.4 | A resolution in writing made in accordance with this Article shall constitute minutes for the purposes of the Law. | ||
60.5 | For the purposes of this Article, the date of the resolution is the date when the resolution is signed |
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by, or in the case of a Director that is a corporation whether or not a company within the meaning of the Law, on behalf of, the last Director to sign (or Alternate Director to sign if so authorised under Article 40.6), and any reference in any Article to the date of passing of a resolution is, in relation to a resolution made in accordance with this Article, a reference to such date. |
61 | Validity of Prior Acts of the Board | |
No regulation or alteration to these Articles made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made. |
62 | Minutes |
62.1 | The Board shall cause minutes to be duly entered in books provided for the purpose: |
62.1.1 | of all elections and appointments of Officers; | ||
62.1.2 | of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and | ||
62.1.3 | of all resolutions and proceedings of general meetings of the Shareholders, meetings of the Board, meetings of managers and meetings of committees appointed by the Board; |
62.2 | Minutes of all meetings of the Board shall be sent to all Directors within thirty (30) days following the meeting. |
63 | Register of Mortgages and Charges |
63.1 | The Directors shall cause to be kept the Register of Mortgages and Charges required by the Law. | ||
63.2 | The Register of Mortgages and Charges shall be open to inspection in accordance with the Law, at the office of the Company on every Business Day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each such Business Day be allowed for inspection. |
64 | Form and Use of Seal |
64.1 | The Seal shall only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors in that behalf; and, until otherwise determined by the Directors, the Seal shall be affixed in the presence of a Director or the Secretary or an assistant secretary or some other person authorised for this purpose by the Directors or the committee of Directors. | ||
64.2 | Notwithstanding the foregoing, the Seal may without further authority be affixed by way of |
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authentication to any document required to be filed with the Registrar of Companies in the Cayman Islands, and may be so affixed by any Director, Secretary or assistant secretary of the Company or any other person or institution having authority to file the document as aforesaid. | |||
64.3 | The Company may have one or more duplicate Seals, as permitted by the Law; and, if the Directors think fit, a duplicate Seal may bear on its face of the name of the country, territory, district or place where it is to be issued. |
65 | Books of Account |
65.1 | The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to: |
(a) | all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates; | ||
(b) | all sales and purchases of goods by the Company; and | ||
(c) | all assets and liabilities of the Company. |
65.2 | Such records of account shall be kept and proper books of account shall not be deemed to be kept with respect to the matters aforesaid if there are not kept, at such place as the Board thinks fit, such books as are necessary to give a true and fair view of the state of the Companys affairs and to explain its transactions. | ||
65.3 | No Shareholder (not being a Director) shall have any right of inspecting any account or book or document of the Company. |
66 | Financial Year End | |
The financial year end of the Company shall be 31 st December in each year but, subject to these Articles and any direction of the Company in general meeting, the Board may from time to time prescribe some other period to be the financial year, provided that the Board may not without the sanction of an ordinary resolution prescribe or allow any financial year longer than eighteen months. |
67 | [Reserved] | |
68 | Appointment of Auditors |
68.1 | Subject to the rights and powers of any class or series of Preferred Shares and subject to prior |
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written resolution being obtained from the holder(s) representing at least two-thirds in voting power of the then issued and outstanding Preferred Shares, the Company may in general meeting appoint Auditors to hold office for such period as such holder(s) of Preferred Shares may determine. | |||
68.2 | The Auditor may be a Shareholder but no Director, Officer or employee of the Company shall, during his continuance in office, be eligible to act as an Auditor of the Company. |
69 | Remuneration of Auditors | |
Unless fixed by the Company in general meeting the remuneration of the Auditor shall be as determined by the Directors subject always to the prior written resolution of the holder(s) representing at least two-thirds in voting power of the then issued and outstanding Preferred Shares. | ||
70 | Duties of Auditor | |
The Auditor shall make a report to the Shareholders on the accounts examined by him and on every set of financial statements laid before the Company in general meeting, or circulated to Shareholders, pursuant to these Articles during the Auditors tenure of office. | ||
71 | Access to Records |
71.1 | The Auditor shall at all reasonable times have access to the Companys books, accounts and vouchers and shall be entitled to require from the Companys Directors and Officers such information and explanations as the Auditor thinks necessary for the performance of the Auditors duties and, if the Auditor fails to obtain all the information and explanations which, to the best of his knowledge and belief, are necessary for the purposes of their audit, he shall state that fact in his report to the Shareholders. | ||
71.2 | The Auditor shall be entitled to attend any general meeting at which any financial statements which have been examined or reported on by him are to be laid before the Company and to make any statement or explanation he may desire with respect to the financial statements. |
72 | Winding-Up |
72.1 | Subject to these Articles, the Company may be voluntarily wound-up by a special resolution of the Shareholders. | ||
72.2 | If the Company shall be wound up the liquidator may, with the sanction of a special resolution and subject to these Articles, divide amongst the Shareholders in specie or in 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 Shareholders or different |
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classes of Shareholders. The liquidator may, with the like sanction and subject to these Articles, vest the whole or any part of such assets in the trustees upon such trusts for the benefit of the Shareholders as the liquidator shall think fit, but so that no Shareholder shall be compelled to accept any shares or other securities or assets whereon there is any liability. |
73 | Changes to Articles | |
Subject to the Law, the Memorandum and these Articles, the Company may, by special resolution, alter or add to these Articles. | ||
74 | Changes to the Memorandum of Association | |
Subject to the Law and the Articles, the Company may from time to time by special resolution alter the Memorandum with respect to any objects, powers or other matters specified therein. | ||
75 | Discontinuance | |
Subject to these Articles, the Board may exercise all the powers of the Company to transfer by way of continuation the Company to a named country or jurisdiction outside the Cayman Islands pursuant to the Law. |
1. | WINNER CROWN HOLDINGS LIMITED, a company incorporated in the British Virgin Islands under company No. 618532 having its registered office at Akara Bldg., 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands (Party A); |
2. | MS. TONG TONG ZHAO, (Canadian passport number: JW698597), 5-22C, 118 Ziyun Road, Shanghai, 200051, P.R.China (Party B); |
3. | MR. JOHN JIONG WU, (United States passport number: 302014663), 774 Mays Blvd. #Ste 10 337, Incline Village, NV 89452, USA (Party C); |
4. | MR. QI JI, (PRC passport number: G11395585), B1-1102, Haitian Garden, 1481 Huqingping Road, Shanghai, 201702, P.R.China; |
5. | Each of the holder of the Series A Preferred Shares (persons or entities) listed on Schedule C hereto (collectively Investors and each the Investor) |
6. | CHINA LODGING GROUP, LIMITED, a company incorporated in Cayman Islands under company No. 179930 having its registered office at the office of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4 th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands(the Company). |
A. | The Company has, at the date of this Agreement, an authorised share capital of US$20,000 divided into 200,000,000 Shares, of which one (1) Share has been issued and is fully paid or credited as fully paid. Particulars of the Company are set out in Schedule A . |
B. | The Company desires to issue and sell to the Founders and the Founders desire to purchase from the Company 43,999,999 Ordinary Shares, par value of US$0.0001 per share, of the Company on the terms and conditions set forth in this Agreement; |
C. | The Company desires to issue and sell to the Investors and the Investors desire to purchase from the Company 44,000,000 Series A preferred shares, par value of US$0.0001 per share, of the Company (the Series A Shares) on the terms and conditions set forth in this Agreement; |
D. | The Investors own 100% of the equity interest of the WFOEs (as defined below) under the laws of the Peoples Republic of China on the date of this Agreement; and |
E. | The WFOEs will be engaged in the business of property management, hotel management, property conversion and property improvement (the Principal Business). |
1
2
3
1.2 | Save as otherwise expressly stated herein, references to any statute or statutory provision includes a reference to that statute, statutory provision or Listing Rule as from time to time amended, extended or re-enacted. | ||
1.3 | In this Agreement, references to: |
1. | Recitals and Clauses are to the recitals and clauses of this Agreement; | ||
2. | the singular includes the plural and vice versa; | ||
3. | words importing gender or the neuter include both genders and the neuter; and |
4
4. | persons include bodies corporate or unincorporated. |
1.4 | Headings are for convenience only and shall not affect the interpretation of this Agreement. |
5
6
7
8
9
10
(a) | contravene, violate, conflict with nor result in any breach of any of his/her obligations to any person (including without limitation, under any contract, security document, undertaking, agreement, instrument or otherwise) nor any order or decree directly or indirectly relating to him; nor | ||
(b) | contravene, violate nor result in any breach of any laws or regulations applicable to him/her. |
11
12
13
14
| business expansion, and | ||
| working capital. |
(a) | Each Founder shall not at any time during his employment with the Company and for forty-eight (48) months thereafter (the Restricted Period) have any ownership interest (of record or beneficial) in or have any interest as an employee, consultant, officer or director in, or otherwise aid or assist in any manner, any person other than the Group Company that engages in the Principal Business or any business similar to the Principal Business or any business that would reasonably be expected to prevent such Founders from participating as full-time employees of the Company; provided , however , that (i) each Founder may keep directly or indirectly, solely as an investment, the securities of any person which are publicly traded on any national or regional securities exchange if such Founder is not a controlling person of, or a member of a group which controls, such person, and such securities was obtained and disclosed by such Founder before the execution day of this Agreement; or (ii) each Founder may own directly or indirectly, solely as an investment, up to 1% of the securities of any person which are publicly traded on any national or regional securities exchange if such Founder is not a controlling person of, or a member of a group which controls, such person. |
15
(b) | During the Restricted Period, each Founder shall not solicit or assist any other person to solicit any business (other than for the Group Company) from any present or past customer of the Group Company; or request or advise any present or future customer of the Group Company to withdraw, curtail or cancel its business dealings with the Group Company; or commit any other act or assist others to commit any other act which might adversely affect the business of the Group Company. | ||
(c) | During the Restricted Period, each Founder shall not directly or indirectly, (i) solicit or encourage any employee of the Group Company to leave the employ of the Group Company; (b) cause the hiring of any employee of the Group Company by any other person if such hiring is proposed to occur within twelve (12) months after the termination of such employees employment with the Group Company; or (c) solicit or encourage any consultant then under contract with the Group Company to cease work for the Group Company. |
(a) | Register of Members. The Founders and Investors shall have received copies of the Companys register of members, certified by a director of the Company as true and complete as of the date of the Completion, updated to show such Founders and Investors as the holders of the respective number of shares of the Company issued pursuant to this Agreement. | ||
(b) | Register of Directors. The Founders and Investors shall have received copies of the Companys register of directors, certified by a director of the Company as true and complete as of the date of the Completion, updated to show such nominees of the Founders and Investors has been valid appointed as directors of the Company. |
16
17
18
19
SIGNED by | ) | |||
for and on behalf of
WINNER
|
) | |||
CROWN HOLDINGS LIMITED
|
) | |||
in the presence of:-
|
) | |||
SIGNED by
|
) | |||
|
||||
MS. TONG TONG ZHAO
|
) | |||
in the presence of:-
|
) | |||
SIGNED by
|
) | |||
MR. JOHN JIONG WU
|
) | |||
in the presence of:-
|
) | |||
SIGNED by
|
) | |||
for and on behalf of
POWERHILLS
|
) | |||
HOLDING LIMITED
|
) | |||
in the presence of:-
|
) | |||
SIGNED by
|
) | |||
for and on behalf of
CHINA
|
) | |||
LODGING GROUP LIMITED
|
) | |||
in the presence of:-
|
) |
:
January 4
th
2007, Cayman Islands
:
20,000 divided into 200,000,000 Shares
:
1 share
:
the office of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4
th
Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands
:
Mr. John Jiong WU (as to 1 Share)
:
Mr. John Jiong WU
Consideration for
Ordinary Shares
Ordinary Shares
Founder(s)
Subscribed
(US$)
25,000,000
2,500.00
15,000,000
1,500.00
3,999,999
400.00
43,999,999
4,400.00
INVESTORS
Series A
Consideration
Preferred
for Series A
Shares
Shares
Investor(s)
Identification
Address
Subscribed
(US$)
(refer to as Investor A)
Company No.
571975
P.O. Box 957, Offshore
Incorporations Centre,
Road Town, Tortola,
British Virgin Islands
40,000,000
20,000,000
(refer to as Investor B)
United States
passport No.
302014663
774 Mays Blvd. #Ste 10
337, Incline Village, NV
89452, USA
4,000,000
2,000,000
44,000,000
22,000,000
Name of Shareholders
Ordinary Shares
Series A Shares
Remarks
25,000,000
NIL
N/A
15,000,000
NIL
N/A
4,000,000
4,000,000
N/A
NIL
40,000,000
20,000,000 Series A
Shares is held on behalf of
Mr. Qi JI and 20,000,000
Series A Shares is held on
behalf of Ms. Tong Tong
ZHAO
44,000,000
44,000,000
N/A
Exhibit A
Exhibit B
Exhibit C
1. | WINNER CROWN HOLDINGS LIMITED , a company incorporated in the British Virgin Islands under company No. 618532 having its registered office at Akara Bldg., 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands (Party A); | |
2. | MS. TONG TONG ZHAO, (Canadian passport number: JW698597), 5-22C, 118 Ziyun Road, Shanghai, 200051, P.R.China (Party B); | |
3. | MR. JOHN JIONG WU , (United States passport number: 302014663), 774 Mays Blvd. #Ste 10 337, Incline Village, NV 89452, USA (Party C); | |
4. | MR. QI JI, (PRC passport number: G11395585), B1-1102, Haitian Garden, 1481 Huqingping Road, Shanghai, 201702, P.R.China; | |
5. | Each of the holder of the Series A Preferred Shares (persons or entities) listed on Schedule A hereto (collectively Investors and each the Investor) | |
6. | CHINA LODGING GROUP, LIMITED , a company incorporated in Cayman Islands under company No. 179930 having its registered office at the office of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4 th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands(the Company). |
A. | All parties have entered into an Ordinary Share and Series A Preferred Share Purchase Agreement (the SPA) dated February 4 th 2007; | |
B. | In the section 9 (the Section) of the SPA, all parties agreed that unless all the conditions precedent set out in section 5 and section 6 of the SPA is fulfilled or waived on or before 1 st May, 2007, the SPA shall be terminated on 1 st May, 2007; | |
C. | All parties agreed to enter into this Agreement to modify the Section . |
1. | Definitions and Interpretation | |
Unless otherwise stated in this Agreement, terms defined in the SPA shall have the same meanings when used herein. |
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2. | Modification of the Section | |
All Parties agreed to modify the Section as following: |
3. | Governing Law and Dispute Resolution. | |
This Agreement shall be construed and governed by the laws of the Peoples Republic of China. Any dispute or difference arising out of or in connection with this Agreement shall be referred to and determined by arbitration at China International Economic and Trade Arbitration Commission in accordance with its applicable Arbitration Rules if the dispute cannot be settled through amicable consultation. The arbitration shall be conducted in Shanghai, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on the Parties. |
4. | Counterparts. | |
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. | ||
5. | Entire Agreement. | |
This Agreement constitutes the entire agreement and understanding between the parties and, unless express stated herein otherwise, supersedes all previous proposals, representations, warranties, agreements or undertakings relating thereto, whether oral, written or otherwise. |
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SIGNED by
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for and on behalf of
WINNER
|
) | |||
CROWN HOLDINGS LIMITED
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) | |||
in the presence of:-
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SIGNED by |
) | |||
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MS. TONG TONG ZHAO
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) | |||
in the presence of:-
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SIGNED by |
) | |||
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MR. JOHN JIONG WU
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in the presence of:-
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) | |||
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SIGNED by
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) | |||
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for and on behalf of
POWERHILLS
|
) | |||
HOLDING LIMITED
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in the presence of:-
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SIGNED by
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) | |||
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for and on behalf of
CHINA
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) | |||
LODGING GROUP LIMITED
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in the presence of:-
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) |
Series A
Preferred
Shares
Investor(s)
Identification
Address
Subscribed
Company No. 571975
P.O. Box 957,
Offshore
Incorporations
Centre, Road Town,
Tortola, British
Virgin Islands
40,000,000
United States passport No. 302014663
774 Mays Blvd. #Ste
10 337, Incline
Village, NV 89452,
USA
4,000,000
Total
44,000,000
1. | WINNER CROWN HOLDINGS LIMITED , a company incorporated in British Virgin Islands under company No. 618532 having its registered office at Akara Bldg., 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands (Party A); | |
2. | MS. TONG TONG ZHAO , (Canadian passport number: JW698597), 5-22C, 118 Ziyun Road, Shanghai, 200051, P.R.China (Party B); | |
3. | MR. JOHN JIONG WU , (United States passport number: 302014663), 774 Mays Blvd. #Ste 10 337, Incline Village, NV 89452, USA (Party C); | |
4. | Each of the persons or entities listed on Exhibit A hereto (collectively Investors and each the Investor); and |
5. | CHINA LODGING GROUP , LIMITED , a company incorporated in Cayman Islands under company No. 179930 having its registered office at the office of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4 th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands (the Company). |
A. | The Company is a private limited company incorporated under the laws of Cayman Islands and as at the date hereof has an authorised share capital of US$20,000 divided into 200,000,000 shares of US$0.0001 each. One Ordinary Share has been issued and is fully paid up or credited as fully paid. Corporate information of the Company is set out in Exhibit B. | |
B. | Each Investor has agreed to purchase from the Company, and the Company has agreed to sell to such Investor, certain Series A Preferred Shares, par value US$0.0001 per share, of the Company (the Series A Preferred Shares), on the terms and conditions set forth in that certain Series A Preferred Share Purchase Agreement dated as of February 4 th , 2007 by and among the parties (the Purchase Agreement). | |
C. | The Purchase Agreement provides that the execution and delivery of this Agreement by the parties shall be a condition precedent to the consummation of the transactions contemplated under the Purchase Agreement. |
1. | INFORMATION RIGHTS; BOARD REPRESENTATIONS | |
1.1 | Information Rights . The Company covenants and agrees that, commencing on the Date of this Agreement, for so long as an Investor holds any Series A Preferred Shares, or any Ordinary Shares, par value US$0.0001 per share, of the Company (the Ordinary |
1
Shares), the Company will make available and deliver to such Investor upon written request: |
(a) | audited annual consolidated financial statements as soon as such documents become available but no later than ninety (90) days after the end of each fiscal year, prepared in accordance with Generally Accepted Accounting Principles (GAAP) of the United States. | ||
(b) | unaudited quarterly consolidated financial statements, within forty-five (45) days after the end of each fiscal quarter, certified by the Chief Executive Officer of the Company (the CEO) and Chief Financial Officer of the Company (the CFO); |
The Information Rights shall terminate upon consummation of a Qualified Public Offering. For purpose of this Agreement, Qualified Public Offering shall mean (i) an underwritten public offering of Ordinary Shares or Ordinary Share equivalents registered under the US Securities Act of 1933 having a gross offering size to the public of at least US$300 million; or (ii) a listing of Ordinary Shares or Ordinary Share equivalents on the Singapore and/or London and/or Hong Kong Stock Exchanges, or on any combination of such stock exchanges, accompanied by a public offering of Ordinary Shares or Ordinary Shares equivalent meeting the above size thresholds. | ||
1.2 | Board Representation . |
(a) | The Companys Amended and Restated Memorandum and Articles of Association (the Memorandum and Articles) shall provide that the Companys Board of Directors (the Board) shall consist of three (3) members; for as long as any Series A Preferred Shares are outstanding, the Investors shall have the right to appoint and remove One (1) Director; and the Founders shall have the right to appoint and remove two (2) Directors. | ||
(b) | Notice of any appointment or removal under this clause shall be given to the other Shareholders and to the Company at their addresses given in this Agreement and within seven (7) days after receipt of such notice the parties hereto shall join in procuring (so far as that lies within their respective powers) that such action is taken as is necessary under the Articles to effect the appointment or removal concerned. | ||
(c) | Meetings of the Board shall (unless the Shareholders shall otherwise agree) take place either in Shanghai or in a place to be agreed by all the Directors but not in any event less frequently than two (2) times in each calendar year. Notice of any such meeting of the Board shall be of not less than seven (7) days and shall be in writing and the quorum for Board meetings shall be two (2) Directors. | ||
(d) | A quorum must be present at the beginning of and throughout each meeting of the Board. If within thirty (30) minutes of the time appointed for a meeting, a quorum is not present, the meeting shall stand adjourned until the same time and place on the same day in the next week and if at such adjourned meeting a quorum is not present within thirty (30) minutes from the time appointed for such adjourned meeting (or such longer interval as the chairman of the meeting may think fit to allow) the Director(s) present in person or by his/their alternates shall constitute a quorum. |
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(e) | Notices. The Company shall procure that a notice of each meeting, agenda of the business to be transacted at the meeting and all documents and materials to be circulated at or presented to the meeting are sent to all directors entitled to receive notice of the meeting at least seven (7) days before the meeting and a copy of the minutes of the meeting is sent to such persons within thirty (30) days following the meeting. |
1.3 | Board Decision |
(a) | The Board shall be responsible for (i) appointment and dismissal of Key Management Personnel (as defined below); (ii) the issuance of stock options as performance incentive for allotment to the key management executives, key employees and other contributors of the Company ( ESOP ), provided that the issued ESOP shall not be over 10,000,000 shares; (iii) any Key Matters (as defined below) of the Company. The decision of the Board of the Company shall be made by a simple majority vote of board members, unless the director nominated by the Investor use its veto right according to the Protection Provisions of this Agreement. | ||
(b) | Under the circumstance of any deadlock, the deadlocked matters shall be reverted to the decisions of a shareholders meeting and to be decided by simple majority vote of the shareholders. | ||
(c) | The Key Management Personnel shall means: (i) the Chief Executive Officer (responsible for general strategic direction with emphasis on sales, marketing and business development), (ii) the Chief Financial Officer (responsible for fund raising, financial control and management), (iii) the Chief Operating Officer or Head of Operations (responsible for operations, public relations and corporate marketing), and (iv) Executive Vice President of various functional departments. | ||
(d) | Notwithstanding any provisions hereof to the contrary, the Key Matters shall means the following issues related to the Group Company and any subsidiaries Controlled by the Group Company (as defined in the Purchase Agreement). However, the Key Matters shall exclude any natural termination of any entity, business, lease, contract, agreement, deal, transaction or other matter as appropriate: |
i) | save as contemplated in this Agreement, direct or indirect provision of any loans and/or guarantees to any parties, excluding among the Company, the Group Company, and subsidiaries; | ||
ii) | entering into any Related Party Transaction(s); | ||
iii) | commencing or acquiring any new line of business which does not fall within the Business or engaging in any other business activities; | ||
iv) | engaging in any material investments or disposals. For this purpose, a material investment or a material disposal means an investment or a disposal which exceeding US$3,000,000; | ||
v) | varying, modifying or abrogating any of the rights attaching to any of the Shares or modifying or varying the Articles; |
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vi) | any merger, consolidation, reconstruction or amalgamation, provided that such merger, consolidation, reconstruction or amalgamation shall not be exceeded US$3,000,000 of investment or US$3,000,000 of liability; | ||
vii) | winding up the Company and/or the Group Company, and/or its subsidiary(s) (including any indirectly invested and materially controlled subsidiary(s) of the Company), or passing of any resolution to liquidate them, or applying to any court of competent jurisdiction for an order to convene a meeting of creditors or any class of creditors or members or any class of members or to sanction any such compromise or arrangement; | ||
viii) | altering its accounting year end from 31st December or changing its secretary, auditors or accounting policies and practices; | ||
ix) | entering into any leasing contract or arrangement involving an annual payment exceeding US$3,000,000, or entering into any other contract or arrangement involving a sum exceeding US$3,000,000 otherwise than on normal commercial terms and in the ordinary and usual course of the business of the Company; | ||
x) | indebtedness, pledges or guarantees by the Company exceeding US$3,000,000; | ||
xi) | approval of annual budget; | ||
xii) | approval of any capital expenditure, excluding any expenditure for leasing property improvement, involving a sum exceeding US$3,000,000; | ||
xiii) | doing or failing to do anything which has the effect of breaching, varying or modifying the terms of the Shares Subscription Agreement; | ||
xiv) | decision for a Qualified Public Offering, listing place, and sponsors; | ||
xv) | adoption or amendment of the ESOP; and | ||
xvi) | adoption or amendment of any other employee (other than the Key Management Personnel) equity incentive plan of the Company. |
i) | Review, and make recommendations for approval by the members of the Board regarding, corporate goals and objectives relevant to the compensation of the Corporations executive officers; | ||
ii) | Review, and make recommendations for approval by the members of the Board regarding, the compensation for the Key Management Personnel, including, as applicable, (a) base salary, (b) bonus, (c) |
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long-term incentive and equity compensation, and (d) any other compensation, perquisites, and special or supplemental benefits; | |||
iii) | Establish and modify the terms and conditions of employment of Key Management Personnel of the Company, by contract or otherwise; and | ||
iv) | Make recommendations to the full Board regarding the fees and other compensation to be paid to members of the Board for their service as directors and as members of committees of the Board. |
2. | REGISTRATION RIGHTS | |
2.1 | Applicability of Rights . The Investors shall be entitled to the following rights with respect to any potential public offering of the Series A Preferred Shares or the Companys Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of the Companys securities in any other jurisdiction in which the Company undertakes to publicly offer or list such securities for trading on a recognized securities exchange. The Company shall not grant registration rights superior to or in parity with those granted to the Series A preferred Shares to any other holder of the Companys securities without the prior approval of the holders of a majority of the Series A Preferred Shares. | |
2.2 | Definitions . For purposes of this Section 2: |
(a) | Registration . The terms register, registered, and registration refer to a registration effected by filing a registration statement which is in a form which complies with, and is declared effective by the SEC (as defined below) in accordance with the Securities Act. | ||
(b) | Registrable Securities . The term Registrable Securities means: (1) any Ordinary Shares of the Company issued or issuable pursuant to conversion of any shares of Series A Preferred Shares issued (A) under the Purchase Agreement, or (B) pursuant to the Right of Participation (defined in Section 3), (2) any Ordinary Shares issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, or in exchange for or in replacement of, any Series A Preferred Shares described in clause (1) of this subsection (b), and (3) any other Ordinary Shares of the Company owned or hereafter acquired by an Investor. Notwithstanding the foregoing, Registrable Securities shall exclude any Registrable Securities sold by a person in a transaction in which rights under this Section 2 are not assigned in accordance with this Agreement, and any Registrable Securities which are sold in a registered public offering under the Securities Act or analogous statute of another jurisdiction, or sold pursuant to Rule 144 promulgated under the Securities Act or analogous rule of another jurisdiction. | ||
(c) | Registrable Securities Then Outstanding . The number of shares of Registrable Securities then outstanding shall mean the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding, issuable upon conversion of Series A Preferred Shares then issued and outstanding or issuable upon conversion or exercise of any warrant, right or other security then outstanding. | ||
(d) | Holder . For purposes of this Section 2, the term Holder means any person owning or having the rights to acquire Registrable Securities or any permitted |
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assignee of record of such Registrable Securities to whom rights under this Section 2 have been duly assigned in accordance with this Agreement. | |||
(e) | Form F-3 . The term Form F-3 means such respective form under the Securities Act or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. | ||
(f) | SEC . The term SEC or Commission means the U.S. Securities and Exchange Commission. | ||
(g) | Registration Expenses . The term Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 2.3, 2.4 and 2.5 hereof, including, without limitation, all registration and filing fees, printing expenses, fees, and disbursements of counsel for the Company, reasonable fees and disbursements of counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). | ||
(h) | Selling Expenses . The term Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to Sections 2.3, 2.4 or 2.5 hereof. | ||
(i) | Exchange Act . The term Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and any successor statute. | ||
(j) | Qualified Public Offering . The term Qualified Public Offering shall have the same meaning as in Clause 1.1. |
2.3. | Demand Registration . |
(a) | Request by Holders . If the Company shall, at any time after the earlier of (i) the second anniversary of the date of this Agreement or (ii) six (6) months following the taking effect of a registration statement for a Qualified Public Offering, receive a written request from the Holders of at least 25% of the Series A Preferred Shares that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 2.3, then the Company shall, within ten (10) business days of the receipt of such written request, give written notice of such request ( Request Notice ) to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2.3; provided that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 2.3 or Section 2.5 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 2.4, other than a registration from which the Registrable Securities of the Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Section 2.4(a). For purposes of this Agreement, |
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at the election of Holders of at least 75% of the Series A Preferred Shares in connection with the exercise of any registration right in this Agreement, reference to registration of securities under the Securities Act and the Exchange Act shall be deemed to mean the equivalent registration in a jurisdiction other than the United States as designated by such Holders, it being understood and agreed that in each such case all references in this Agreement to the Securities Act, the Exchange Act and rules, forms of registration statements and registration of securities thereunder, U.S. law and the SEC, shall be deemed to refer, to the equivalent statutes, rules, forms of registration statements, registration of securities and laws of and equivalent government authority in the applicable non-U.S. jurisdiction. | |||
(b) | Underwriting . If the Holders initiating the registration request under this Section 2.3 (the Initiating Holders ) intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.3 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Holders of a majority of the Registrable Securities being registered and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each Holder requesting registration (including the Initiating Holders); provided , however , that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities are first entirely excluded from the underwriting and registration including, without limitation, all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company or any subsidiary of the Company; provided further , that at least twenty-five percent (25)% of shares of Registrable Securities requested by the Holders to be included in such underwriting and registration shall be so included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. | ||
(c) | Maximum Number of Demand Registrations . The Company shall not be obligated to effect more than three (3) such demand registration pursuant to this Section 2.3. |
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(d) | Deferral . Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2.3, a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its shareholders for such registration statement to be filed at such time, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided , however , that the Company may not utilize this right more than once in any twelve (12) month period; provided further , that the Company shall not register any other of its shares during such twelve (12) month period. A demand right shall not be deemed to have been exercised until such deferred registration shall have been effected. |
2.4 | Piggyback Registrations . |
(a) | The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.3 or Section 2.5 of this Agreement or to any employee benefit plan or a corporate reorganization), and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. | ||
(b) | Underwriting . If a registration statement under which the Company gives notice under this Section 2.4 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holders Registrable Securities to be included in a registration pursuant to this Section 2.4 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Agreement but subject to Section 2.12, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first , to the Company, second , to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder, and third , to holders of |
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other securities of the Company; provided , however , that the right of the underwriter(s) to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that (i) the number of Registrable Securities included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of shares of Registrable Securities for which inclusion has been requested; and (ii) all shares that are not Registrable Securities and are held by any other person, including, without limitation, any person who is an employee, officer or director of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice in the Company and the underwriter(s), delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. | |||
(c) | Not Demand Registration . Registration pursuant to this Section 2.4 shall not be deemed to be a demand registration as described in Section 2.3 above. There shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.4. |
2.5 | Form F-3 Registration . In case the Company shall receive from any Holder or Holders of a majority of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form F-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will: |
(a) | Notice . Promptly give written notice of the proposed registration and the Holders or Holders request therefore, and any related qualification or compliance, to all other Holders of Registrable Securities; and | ||
(b) | Registration . As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders or Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after the Company provides the notice contemplated by Section 2.5(a); provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.5: |
(1) | if Form F-3 is not available for such offering by the Holders; | ||
(2) | if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than US$500,000; | ||
(3) | if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Form F-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form F-3 |
9
registration statement no more than once during any twelve (12) month period for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.5; provided that the Company shall not register any of its other shares during such ninety (90) day period. | |||
(4) | if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Sections 2.3(b) and 2.4(a); or | ||
(5) | in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. | ||
Subject to the foregoing, the Company shall file a Form F-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. |
(c) | Not Demand Registration . Form F-3 registrations shall not be deemed to be demand registrations as described in Section 2.3 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.5. |
2.6 | Expenses . All Registration Expenses incurred in connection with any registration pursuant to Sections 2.3, 2.4 or 2.5 (but excluding Selling Expenses) shall be borne by the Company. Each Holder participating in a registration pursuant to Sections 2.3, 2.4 or 2.5 shall bear such Holders proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all Selling Expenses or other amounts payable to underwriter(s) or brokers, in connection with such offering by the Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree that such registration constitutes the use by the Holders of one (1) demand registration pursuant to Section 2.3 (in which case such registration shall also constitute the use by all Holders of Registrable Securities of one (1) such demand registration); provided further , however , that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration pursuant to Section 2.3. | |
2.7 | Obligations of the Company . Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible: |
(a) | Registration Statement . Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such |
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registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or, in the case of Registrable Securities registered under Form F-3 in accordance with Rule 415 under the Securities Act or a successor rule, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such ninety (90) day period shall be extended for a period of time equal to the period any Holder refrains from selling any securities included in such registration at the request of the underwriter(s), and (ii) in the case of any registration of Registrable Securities on Form F-3 which are intended to be offered on a continuous or delayed basis, such ninety (90) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold. | |||
(b) | Amendments and Supplements . Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. | ||
(c) | Prospectuses . Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. | ||
(d) | Blue Sky . Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act. | ||
(e) | Underwriting . In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. | ||
(f) | Notification . Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of (i) the issuance of any stop order by the SEC in respect of such registration statement, or (ii) the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of a supplement or amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to |
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make the statements therein not misleading or incomplete in light of the circumstances then existing. | |||
(g) | Opinion and Comfort Letter . Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriter(s) for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) letters dated as of (x) the effective date of the registration statement covering such Registrable Securities and (y) the closing date of the offering, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. |
2.8 | Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.3, 2.4 or 2.5 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities. | |
2.9 | Indemnification . In the event any Registrable Securities are included in a registration statement under Sections 2.3, 2.4 or 2.5: |
(a) | By the Company . To the extent permitted by law, the Company will indemnify and hold harmless each Holder, its partners, officers, directors, legal counsel, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against all losses, claims, damages, and liabilities (joint or several; or actions, proceedings or settlements in respect thereof) to which they may become subject under the Securities Act, the Exchange Act, or other United States federal or state law, insofar as such losses, claims, damages, or liabilities (or actions, proceedings or settlements in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a Violation ): |
(i) | any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; | ||
(ii) | the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or | ||
(iii) | any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any United States federal or state securities law, or any rule or regulation promulgated under the Securities Act, the |
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Exchange Act, or any United States federal or state securities law in connection with the offering covered by such registration statement; |
and the Company will reimburse each such Holder, and its respective partners, officers, directors, legal counsel, underwriter and controlling person for any legal or other expenses reasonably incurred by them, as such expenses are incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this subsection 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, legal counsel, underwriter or controlling person of such Holder. | |||
(b) | By Selling Holders . To the extent permitted by law, each selling Holder will, if Registrable Securities held by Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holders partners, directors, officers, legal counsel or any person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, legal counsel, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other United States federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this subsection 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided , further , that in no event shall any indemnity under this Section 2.9(b) exceed the net proceeds received by such Holder in the registered offering out of which the applicable Violation arises. | ||
(c) | Notice . Promptly after receipt by an indemnified Party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified Party will, if a claim in respect thereof is to be made against any indemnifying Party under this Section 2.9, deliver to the indemnifying Party a written notice of the commencement thereof and the indemnifying Party shall have the right to participate in, and, to the extent the indemnifying |
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Party so desires, jointly with any other indemnifying Party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying Party, as incurred, if representation of such indemnified Party by the counsel retained by the indemnifying Party would be inappropriate due to actual or potential conflict of interests between such indemnified Party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying Party within a reasonable time of the commencement of any such action shall relieve such indemnifying Party of liability to the indemnified Party under this Section 2.9 to the extent the indemnifying Party is prejudiced as a result thereof, but the omission to so deliver written notice to the indemnifying Party will not relieve it of any liability that it may have to any indemnified Party otherwise than under this Section 2.9. | |||
(d) | Contribution . In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any indemnified Party makes a claim for indemnification pursuant to this Section 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified Party in circumstances for which indemnification is provided under this Section 2.9; then, and in each such case, the indemnified Party and the indemnifying Party will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that a Holder (together with its related persons) is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion. The relative fault of the indemnifying Party and of the indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying Party or by the indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case: (A) no Holder will be required to contribute any amount in excess of the net proceeds to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. | ||
(e) | Survival; Consents to Judgments and Settlements . The obligations of the Company and Holders under this Section 2.9 shall survive the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes. No indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term |
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thereof the giving by the claimant or plaintiff to such indemnified Party of a release from all liability in respect to such claim or litigation. |
2.10 | No Registration Rights to Third Parties . Without the prior written consent of a majority of the Investors, the Company covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any person or entity any registration rights of any kind (whether similar to the demand, piggyback or Form F-3 registration rights described in this Section 2, or otherwise) relating to any securities of the Company which are senior to, or on a parity with, those granted to the Holders of Registrable Securities. | |
2.11 | Market Stand-Off . Each Founder and each Investor agrees that, so long as it holds any voting securities of the Company, upon request by the Company or the underwriters managing the initial public offering of the Companys securities, it will not sell or otherwise transfer or dispose of any securities of the Company (other than those permitted to be included in the registration and other transfers to affiliates permitted by law) without the prior written consent of the Company or such underwriters, as the case may be, for a period of time specified by the representative of the underwriters not to exceed 180 days from the effective date of the registration statement covering such initial public offering or the pricing date of such offering as may be requested by the underwriters. The foregoing provision of this Section 2.11 shall not apply to the sale of any securities of the Company to an underwriter pursuant to any underwriting agreement, and shall only be applicable to the Holders if all officers, directors and holders of one percent (1%) or more of the Companys outstanding share capital enter into similar agreements, and if the Company or any underwriter releases any officer, director or holder of one percent (1%) or more of the Companys outstanding share capital from his or her sale restrictions so undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released to the same proportional extent. The Company shall require all future acquirers of the Companys securities holding at least one percent (1%) of the then outstanding share capital of the Company to execute prior to a Qualified Public Offering a market stand-off agreement containing substantially similar provisions as those contained in this Section 2.11. | |
2.12 | Listing in Hong Kong . Without limiting the generality of the foregoing provisions in this Section 2, in the event of a listing of the Companys Ordinary Shares in Hong Kong (the Listing ): |
(a) | The selection of Hong Kong as the jurisdiction, and the relevant exchange as the exchange for the Listing shall be subject to the prior written approval of Holders of at least 75% of the Registrable Securities; | ||
(b) | The selection of the sponsor and/or lead manager (and any co-managers) for the Listing shall be subject to the prior written approval of Holders of at least 75% of the Registrable Securities; | ||
(c) | Each Holder of Registrable Securities shall have the right to include and sell all of the Ordinary Shares (as-converted) held by it in such Listing; | ||
(d) | Each Holder of Registrable Securities shall have the right to attend all meetings in connection with the Listing where the Company is present; | ||
(e) | The determination of the price at which the Ordinary Shares are to be listed in such Listing shall be subject to the prior written approval of Holders of at least 75% of the Registrable Securities; |
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(f) | All expenses incurred in connection with the inclusion and sale of any Ordinary Shares held by any Holder (including all reasonable fees and disbursements of counsel for the Investor) shall be borne by the Company; | ||
(g) | At any time after the Second anniversary of the date of this Agreement, at the written request from Holders of at least 75% of the Registrable Securities for a Listing, the Company shall use its best efforts to effect such Listing on terms and subject to conditions as agreed upon between the Company and such Holder; and | ||
(h) | The Company shall not require any Holder to hold, or refrain from transferring, any of its shares in the Company beyond the specific period(s) as set forth in the listing rules applicable to such Listing. |
2.13 | Rule 144 Reporting . With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form F-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to: |
(a) | Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; | ||
(b) | File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and | ||
(c) | So long as a Holder owns any Registrable Securities, to furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the Companys initial public offering), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or its qualification as a registrant whose securities may be resold pursuant to Form F-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to Form F-3. |
2.14 | Termination . The Company shall have no obligations pursuant to Sections 2.3, 2.4, 2.5 and 2.12 with respect to any Registrable Securities proposed to be sold by a Holder in a registration or listing pursuant to Section 2.3, 2.4, 2.5 or 2.12 at the later of seven (7) years after the date hereof or five (5) years after a Qualified Public Offering, or, if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may then be sold without registration in any ninety (90) day period pursuant to Rule 144 promulgated under the Securities Act. |
3. | RIGHT OF PARTICIPATION. |
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3.1 | General . An Investor and any Investor (or Ordinary Shares issued upon conversion of the Series A Preferred Shares) to which rights under this Section 3 have been duly assigned in accordance with Section 5 (such Investor and each such assignee hereinafter referred to as a Participation Rights Holder ) shall have the right of first offer to purchase such Participation Rights Holders Pro Rata Share (as defined below), of all (or any part) of any New Securities (as defined in Section 3.3) that the Company may from time to time issue after the date of this Agreement (the Right of Participation ). | |
3.2 | Pro Rata Share . A Participation Rights Holders Pro Rata Share for purposes of the Right of Participation is the ratio of (a) the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by such Participation Rights Holder, to (b) the total number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) then outstanding (immediately prior to the issuance of New Securities giving rise to the Right of Participation). | |
3.3 | New Securities . New Securities shall mean any Series A Preferred Shares or Ordinary Shares whether now authorized or not, and rights, options or warrants to purchase such Series A Preferred Shares, Ordinary Shares and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Series A Preferred Shares, provided, however, that the term New Securities shall not include: |
(a) | Ordinary Shares up to 10,000,000 shares (and/or options or warrants therefore) issued to employees, officers, directors, contractors, advisors or consultants of the Company pursuant to the ESOP approved by the Board; | ||
(b) | any shares of Series A Preferred Shares issued under the Purchase Agreement, as such agreement may be amended and any Ordinary Shares issued pursuant to the conversion thereof; | ||
(c) | any securities issued in connection with any share split, share dividend or other similar event in which all Participation Rights Holders are entitled to participate on a pro rata basis; | ||
(d) | any securities issued upon the exercise, conversion or exchange of any outstanding security if such outstanding security constituted a New Security; | ||
(e) | any securities issued pursuant to a Qualified Public Offering; or | ||
(f) | any securities issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all assets of such other corporation or entity, or fifty percent (50%) or more of the equity ownership or voting power of such other corporation or entity. |
3.4 | Procedures . |
(a) | First Participate Notice . In the event that the Company proposes to undertake an issuance of New Securities (in a single transaction or a series of related transactions), it shall give to each Participation Rights Holder written notice of its intention to issue New Securities (the First Participation Notice ), describing the amount and type of New Securities, the price and the general terms upon which the Company proposes to issue such New Securities. Each Participation Rights Holder shall have ten (10) business days from the date of |
17
receipt of any such First Participation Notice to agree in writing to purchase such Participation Rights Holders Pro Rata Share of such New Securities for the price and upon the terms and conditions specified in the First Participation Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Participation Rights Holders Pro Rata Share). If any Participation Rights Holder fails to so agree in writing within such ten (10) business day period to purchase such Participation Rights Holders full Pro Rata Share of an offering of New Securities, then such Participation Rights Holder shall forfeit the right hereunder to purchase that part of its Pro Rata Share of such New Securities that it did not agree to purchase. | |||
(b) | Second Participation Notice; Oversubscription . If any Participating Rights Holder fails or declines to exercise its Right of Participation in accordance with subsection (a) above, the Company shall promptly give notice (the Second Participation Notice ) to other Participating Rights Holders who exercised their Right of Participation (the Right Participants ) in accordance with subsection (a) above. Each Right Participant shall have five (5) business days from the date of the Second Participation Notice (the Second Participation Period ) to notify the Company of its desire to purchase more than its Pro Rata Share of the New Securities, stating the number of the additional New Securities it proposes to buy (the Additional Number ). Such notice may be made by telephone if confirmed in writing within in two (2) business days. If, as a result thereof, such oversubscription exceeds the total number of the remaining New Securities available for purchase, each oversubscribing Right Participant will be cut back by the Company with respect to its oversubscription to that number of remaining New Securities equal to the lesser of (x) the Additional Number and (y) the product obtained by multiplying (i) the number of the remaining New Securities available for subscription by (ii) a fraction, the numerator of which is the number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by such oversubscribing Right Participant and the denominator of which is the total number of Ordinary Shares (calculated on a fully-diluted and as-converted basis) held by all the oversubscribing Right Participants. Each Right Participant shall be obligated to buy such number of New Securities as determined by the Company pursuant to this Section 3.4 and the Company shall so notify the Right Participants within fifteen (15) business days following the date of the Second Participation Notice. |
3.5 | Failure to Exercise . Upon the expiration of the Second Participation Period, or in the event no Participation Rights Holder exercises the Right of Participation within ten (10) days following the issuance of the First Participation Notice, the Company shall have 120 days thereafter to sell the New Securities described in the First Participation Notice (with respect to which the Right of Participation hereunder were not exercised) at the same or higher price and upon non-price terms not materially more favorable to the purchasers thereof than specified in the First Participation Notice. In the event that the Company has not issued and sold such New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Participation Rights Holders pursuant to this Section 3. | |
3.6 | Termination . The Right of Participation for each Participation Rights Holder shall not terminate so long as any Investor and its Affiliates (as defined in Rule 144 under the Securities Act) collectively hold any Series A Preferred Shares or Ordinary Shares; |
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provided , however , that the Right of Participation shall terminate upon a Qualified Public Offering | ||
3.7 | Anti-dilution . Upon the occurrence of any Adjustment Events, the specific number of Series A Preferred Shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of shares by such Adjustment Events on a full ratchet basis. | |
For the purpose of this agreement, the Adjustment Events shall, but only include: |
(i) | any stock splits, | ||
(ii) | any stock dividend of the Series A Preferred Shares; and | ||
(iii) | any issuance of new shares or equivalents at a price below the purchase price (except for issuance from the Companys ESOP). |
4. | TRANSFER RESTRICTIONS. | |
4.1 | Certain Definitions . For purposes of this Section 4, Ordinary Shares means (i) the Companys outstanding Ordinary Shares, (ii) the Ordinary Shares issued or issuable upon conversion of the Companys outstanding Preferred Shares, (iii) the Ordinary Shares issuable upon exercise of outstanding options or warrants and (iv) the Ordinary Shares issuable upon conversion of any outstanding convertible securities; Restricted Shares means any of the Companys securities now owned or subsequently acquired by any Founder or Permitted Transferee (as defined in Section 4.5 below). | |
4.2 | Sale by Founder; Notice of Sale . Subject to Section 4.6 of this Agreement, if a Founder or Permitted Transferee (the Selling Shareholder ) proposes to sell or transfer any Restricted Shares held by it, then the Selling Shareholder shall promptly give written notice (the Transfer Notice ) to each Investor prior to such sale or transfer. The Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the number of Restricted Shares to be sold or transferred (the Offered Shares ), the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. | |
4.3 | Right of First Refusal . Each Investor will have the right, exercisable upon written notice (the First Refusal Notice ) to the Selling Shareholder, the Company and each other Investor within twenty (20) days after receipt of the Transfer Notice (the First Refusal Period ) of its election to exercise its right of first refusal hereunder. The First Refusal Notice shall set forth the number of Offered Shares that such Investor wishes to purchase, which amount shall not exceed the First Refusal Allotment (as defined below) of such Investor. Such right of first refusal may be exercised as follows: |
(a) | First Refusal Allotment . Each Investor shall have the right to purchase that number of the Offered Shares (the First Refusal Allotment ) equivalent to the product obtained by multiplying the aggregate number of the Offered Shares by a fraction, the numerator of which is the number of Ordinary Shares held by such Investor at the time of the transaction and the denominator of which is the total number of Ordinary Shares owned by all the Investors at the time of the transaction. Any Investor will not have a right to purchase any of the Offered Shares unless it exercises its right of first refusal within the First Refusal Period to purchase up to all of its First Refusal Allotment of the Offered Shares. To the extent that any Investor does not exercise its right of first refusal to the full extent of its First Refusal Allotment, the Selling Shareholder and the Investors shall, within five (5) days after the end of the First Refusal Period, make such adjustments to the First Refusal Allotment of |
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each exercising Investor so that any remaining Offered Shares may be allocated to those Investors exercising their rights of first refusal on a pro rata basis. | |||
(b) | Expiration Notice . Within ten (10) days after expiration of the First Refusal Period the Company will give written notice (the First Refusal Expiration Notice ) to the Selling Shareholder specifying either (i) that all of the Offered Shares was subscribed by the Investors exercising their rights of first refusal or (ii) that the Investors have not subscribed for all of the Offered Shares in which case the First Refusal Expiration Notice will specify the Co-Sale Pro Rata Portion (as defined below) of the remaining Offered Shares for the purpose of their co-sale right described in Section 4.4 below. | ||
(c) | Purchase Price . The purchase price for the Offered Shares to be purchased by the Investors exercising their right of first refusal will be the price set forth in the Transfer Notice, but will be payable as set forth in Section 4.3(d) below. If the purchase price in the Transfer Notice includes consideration other than cash, the cash equivalent value of the non-cash consideration will be as previously determined by the Board in good faith, which determination will be binding upon the Company, the Investors, and the Selling Shareholder, absent fraud or error. | ||
(d) | Payment . Payment of the purchase price for the Offered Shares purchased by the Investors shall be made within ten (10) days following the date of the First Refusal Expiration Notice. Payment of the purchase price will be made by wire transfer or check as directed by the Selling Shareholder. | ||
(e) | Rights as a Founder or Investor . If any Investor exercises its right of first refusal to purchase the Offered Shares, then, upon the date the notice of such exercise is given by such Investor, the Selling Shareholder will have no further rights as a holder of such Offered Shares except the right to receive payment for such Offered Shares from such Investor in accordance with the terms of this Agreement, and the Selling Shareholder will forthwith cause all certificate(s) evidencing such Offered Shares to be surrendered to the Company for transfer to such Investor. | ||
(f) | Application of Co-Sale Right . If the Investors have not elected to purchase all of the Offered Shares, then the sale of the remaining Offered Shares will become subject to the co-sale right set forth in Section 4.4 below. |
4.4 |
Co-Sale Right
. To the extent that the Investors have not exercised their right of first
refusal with respect to all the Offered Shares, each Investor shall have the right, exercisable
upon written notice to the Selling Shareholder, the Company and each other Investor (the
Co-Sale Notice ) within twenty (20) days after receipt of the First Refusal Expiration Notice (the Co-Sale Right Period ), to participate in such sale of the Restricted Shares at the same price as set forth in the Transfer Notice. The Co-Sale Notice shall set forth the number of Company securities (on both an absolute and as-converted to Ordinary Shares basis) that such participating Investor wishes to include in such sale or transfer, which securities shall correspond to the class of securities constituting the Offered Shares and which amount shall not exceed the Co-Sale Pro Rata Portion (as defined below) of such Investor. To the extent one or more of the Investors exercise such right of participation in accordance with the terms and conditions set forth below, the number of Restricted Shares that the Selling Shareholder may sell in the transaction shall be correspondingly reduced. The only representations, warranties or covenants that any Investor shall be required to make in connection with a sale pursuant to such co-sale right are representations and warranties |
20
with respect to its own ownership of the Companys securities to be sold by it and its ability to convey title thereto free and clear of liens, encumbrances or adverse claims and reasonable covenants regarding confidentiality, publicity and similar matters. The co-sale right of each Investor shall be subject to the following terms and conditions: |
(a) | Co-Sale Pro Rata Portion . Each Investor may sell all or any part of that number of Ordinary Shares held by it that is equal to the product obtained by multiplying (x) the aggregate number of the Offered Shares subject to the co-sale right hereunder by (y) a fraction, the numerator of which is the number of Ordinary Shares (on an as-converted basis) owned by the Investor at the time of the sale or transfer and the denominator of which is the combined number of Ordinary Shares (on an as-converted basis) at the time owned by all Investors ( Co-Sale Pro Rata Portion ). To the extent that any Investor does not participate in the sale to the full extent of its Co-Sale Pro Rata Portion, the Selling Shareholder and the participating Investors shall, within five (5) days after the end of such Co-Sale Right Period, make such adjustments to the Co-Sale Pro Rata Portion of each participating Investor so that any remaining Offered Shares may be allocated to other participating Investors on a pro rata basis. | ||
(b) | Transferred Shares . Each participating Investor shall effect its participation in the sale by promptly delivering to the Selling Shareholder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: |
(i) | the number of Company securities which such Investor elects to sell; | ||
(ii) | Series A Preferred Shares, in the event that the participating Investor delivers that number of Series A Preferred Shares which is at such time convertible into the number of Ordinary Shares that such Investor elects to sell; provided in such case that, if the prospective purchaser objects to the delivery of Series A Preferred Shares in lieu of Ordinary Shares, such Investor shall convert such Series A Preferred Shares into Ordinary Shares and deliver Ordinary Shares as provided in Subsection 4.4(b)(i) above. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser; or | ||
(iii) | or a combination of the above. |
(c) | Payment to Investors . The share certificate or certificates that the participating Investor delivers to the Selling Shareholder pursuant to Section 4.4(b) shall be transferred to the prospective purchaser in consummation of the sale of the Restricted Shares pursuant to the terms and conditions specified in the Transfer Notice, and the Selling Shareholder shall concurrently therewith remit to such Investor that portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from an Investor exercising its co-sale right hereunder, the Selling Shareholder shall not sell to such prospective purchaser or purchasers any Restricted Shares unless and until, simultaneously with such sale, the Selling Shareholder shall purchase such shares or other securities from such Investor. | ||
(d) | Right to Transfer . To the extent the Investors do not elect to purchase, or to participate in the sale of, the Restricted Shares subject to the Transfer Notice, |
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the Selling Shareholder may, not later than ninety (90) days following delivery to the Company and each of the Investors of the Transfer Notice, conclude a transfer of the Restricted Shares covered by the Transfer Notice and not elected to be purchased by the Investors, which in each case shall be on substantially the same terms and conditions as those described in the Transfer Notice. Any proposed transfer on terms and conditions which are materially different from those described in the Transfer Notice, as well as any subsequent proposed transfer of any Restricted Shares by the Selling Shareholder, shall again be subject to the right of first refusal and the co-sale rights of the Investors and shall require compliance by the Selling Shareholder with the procedures described in Section 4.3 and Section 4.4 of this Agreement. |
4.5 | Exempt Transfers . The right of first refusal and co-sale rights of the Investors shall not apply to (a) any sale or transfer of the Restricted Shares to the Company pursuant to a repurchase right held by the Company in the event of a termination of employment or consulting relationship; or (b) any transfer to the parents, children or spouse, or to trusts for the benefit of such persons, of a Founder (each a Permitted Transferee ) for bona fide estate planning purposes (each a Permitted Transfer ); provided that adequate documentation therefore is provided to the Investors to their satisfaction and that any such Permitted Transferee agrees in writing to be bound by this Agreement in place of the relevant Founder; provided, further, that such transferor shall remain liable for any breach by such Permitted Transferee of any provision hereunder. | |
Any of Founders or their Permitted Transferees shall be allowed to transfer its shares of the Company to the Permitted Transferees, provided that such transfers have been approved by the Board of the Company. | ||
4.6 | Prohibited Transfers . |
(a) | Subject to Section 4.5, none of the Founder or its beneficial owners and or their Permitted Transferees shall sell, assign, transfer through one or a series of transactions any Company securities now held by such Founder or Permitted Transferee (directly or indirectly) to any person before the closing of a Qualified Liquidation Event (as defined in the Memorandum and Articles). | ||
(b) | Any attempt by a Founder and/or its beneficial owners to transfer Restricted Shares in violation of this Section 4 shall be void and the Company hereby agrees it will not affect such a transfer nor will it treat any alleged transferee as the holder of such shares. |
4.7 | Legend . |
(a) | Each certificate representing the Restricted Shares now or hereafter owned by a Founder or issued to any person in connection with a transfer in compliance with this Section 4 shall be endorsed with the following legend: | ||
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. |
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(b) | Each Founder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 4.7(a) above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed upon termination of the provisions of this Section 4. |
5. | ASSIGNMENT AND AMENDMENT. | |
5.1 | Assignment . Notwithstanding anything herein to the contrary: |
(a) | Information Rights and Registration Rights . The rights of the Investors under Section 1.1 may be assigned to any Investor, and the registration rights of the Holders under Section 2 may be assigned to any Holder or to any person acquiring Registrable Securities in a permitted transfer; provided, however, that in either case no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 5. | ||
(b) | Rights of Participation; Right of First Refusal; Co-Sale Rights . The rights of each Investor or each Investor under Sections 3 and 4 are fully assignable in connection with a permitted transfer of shares of the Company by such Investor or Investor; provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by such Investor or Investor at the time of such assignment, stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further, that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement. |
5.2 | Amendment of Rights . Any provision in this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) as to the Company, only by the Company; (ii) as to the Investors, by persons or entities holding 75% of the Series A Preferred Shares pursuant to Section 5.1 hereof; provided, however, that any Investor may waive any of its rights hereunder without obtaining the consent of any other Investor; and (iii) as to the Founders, by persons or entities holding a majority of the Ordinary Shares held by the Founders and their Permitted Transferees (on an as-converted basis); provided, however, that any Founder may waive any of its rights hereunder without obtaining the consent of any other Founder. Any amendment or waiver effected in accordance with this Section 5.2 shall be binding upon the Company, each Investor, each Founder and their respective assigns. | |
6. | CONFIDENTIALITY AND NON-DISCLOSURE. | |
6.1 | Disclosure of Terms . The terms and conditions of this Agreement and the Purchase Agreement, and all exhibits and schedules attached to such agreements (collectively, the Financing Terms ), including their existence, shall be considered confidential information and shall not be disclosed by any party hereto to any third party except in accordance with the provisions set forth below; provided that such confidential |
23
information shall not include any information that is in the public domain other than caused by the breach of the confidentiality obligations hereunder. | ||
6.2 | Press Releases, Etc . Any press release issued by the Company shall not disclose any of the Financing Terms and the final form of such press release shall be approved in advance in writing by the Investors. No other announcement regarding any of the Financing Terms in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the Investors prior written consent. | |
6.3 | Permitted Disclosures . Notwithstanding the foregoing, any party may disclose any of the Financing Terms to its current or bona fide prospective investors, employees, investment bankers, lenders, partners, accountants and attorneys, in each case only where such persons or entities are under appropriate nondisclosure obligations. Without limiting the generality of the foregoing, each Investor shall, without disclosing the identities of the other Investors or the Financial Terms of their respective investments in the Company without their consent, be entitled to disclose the Financing Terms for the purposes of fund reporting or inter-fund reporting or to its fund manager, other funds managed by its fund manager and their respective auditors, counsel, directors, officers, employees, shareholders or investors. | |
6.4 | Legally Compelled Disclosure . In the event that any party is requested or becomes legally compelled (including without limitation, pursuant to securities laws and regulations) to disclose the existence of this Agreement and the Purchase Agreement, any of the exhibits and schedules attached to such agreements, or any of the Financing Terms hereof in contravention of the provisions of this Section 6, such party (the Disclosing Party ) shall provide the other parties (the Non-Disclosing Parties ) with prompt written notice of that fact and use all reasonable efforts to seek (with the cooperation and reasonable efforts of the other parties) a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information which is legally required to be disclosed and shall exercise reasonable efforts to keep confidential such information to the extent reasonably requested by any Non-Disclosing Party. | |
6.5 | Other Information . The provisions of this Section 6 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by any of the parties with respect to the transactions contemplated hereby. | |
6.6 | Notices . All notices required under this section shall be made pursuant to Section 10.1 of this Agreement. | |
7. | PROTECTIVE PROVISIONS. | |
7.1 | Acts of the Company . In addition to such other limitations as may be provided in the Memorandum and Articles and this Agreement, the following acts of the Company shall require the affirmative vote of the Director nominated by the Investors, unless such acts or any related entity, business, lease, contract, agreement, deal, transaction or other matter (as appropriate) was terminated as a result of the term specified therein: |
a) | Any pledge, hypothecate, mortgage, encumber of the Company securities; | ||
b) | Any merger, consolidation, reconstruction or amalgamation of any business or assets of the Company; |
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c) | The purchase or lease by the Group Company of any real property valued in excess of US$20,000,000. | ||
d) | Any amendments to the Memorandum and Articles of Association of the Company and any changes to the rights of the Investors; | ||
e) | Authorization or issuance any other securities (including convertible debt) or reclassify any issued securities of the Company into securities, having rights, preferences or privileges senior to or on a parity with the Series A Preferred as to liquidation, dividend, voting (including without limitation, board representation) or redemption rights, or any action that increases, decreases or alters the existing issued share capital of the Company; | ||
f) | Any related party transactions involving the Founders or employees; | ||
g) | Any purchase or acquisition by the Company, whether for cash, securities, or other consideration, of any other entity or business, or the investment in or purchase of any securities or equity interest in any other entity, if such acquisition or investment would be material to the financial condition or operations of the Company as a whole not to exceed US$30,000,000; | ||
h) | Any sale, conveyance, lease, entrustment, or other transfer or disposal by the Company of any economic interest in any material business, product line, or subsidiary with amount exceeding US$30,000,000, excluding the natural termination of lease, contract, and subsidiary created solely to own such lease and/or contract. | ||
i) | Initiation and settlement of any litigation expected amount exceeds US$10,000,000 | ||
j) | Liquidation or dissolution of the Company; | ||
k) | The declaration and payment of any dividend or other distribution to any shareholders; |
8. | REPURCHASE RIGHTS | |
8.1 | Repurchase Right. Upon the occurrence of any of the following Repurchase Events with respect to a Founder, the Company shall purchase and such Founder shall sell, in accordance with this Section 8, all, but not less than all, of the Non-Vested Ordinary Shares (as defined below) then beneficially owned by the Founder (the Repurchase Right) at its pro rata of the original purchase price (the Repurchase Price). For purposes hereof, each of the following shall be a Repurchase Event: |
(a) | the filing by a Founder of a petition for relief under the Bankruptcy laws in any jurisdiction; or | ||
(b) | the death or permanent incapacity of a Founder; or | ||
(c) | the voluntary or involuntary termination of full-time employment of a Founder with the Company for any reason, with or without cause (including death or disability). |
8.2 | Vesting. |
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(a) | For purposes of this Section 8, the term vest shall mean with respect to any Ordinary Shares owned by the Founder as of the date of this Agreement, has adjusted for any stock dividend, stock split, recapitalization, merger, reorganization, exchange or the like (the Founder Shares) that such Founder Shares are no longer Non-Vested Ordinary Shares subject to the Repurchase Right. If a Founder would become vested in any fraction of a share of Stock on any date, such fractional share shall not vest and shall remain Non-Vested Stock until Founder becomes vested in the entire share. | ||
(b) | Each Founders Shares shall start to vest based on the terms and conditions as specified in his or her employment agreement with the Company. | ||
(c) | Founders shall have the full voting rights for both vested and non-vested Ordinary Shares of the Company. |
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conclusively deemed to have been duly given (a) when hand delivered to the other party, upon delivery; (b) when sent by facsimile at the number as the parties have been given, upon receipt of confirmation of error-free transmission; (c) seven (7) business days after deposit in the mail as air mail or certified mail, receipt requested, postage prepaid and addressed to the other party as the parties have been given; or (d) three (3) business days after deposit with an international overnight delivery service, postage prepaid, addressed to the parties with next business day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. | ||
Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 10.1 by giving the other party written notice of the new address in the manner set forth above. | ||
10.2 | Entire Agreement . This Agreement and the Purchase Agreement, any Ancillary Agreements (as defined in the Purchase Agreement), together with all the exhibits hereto and thereto, constitute and contain the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to supersede the provisions of any confidentiality and nondisclosure agreements executed between any party hereto prior to the date of this Agreement, all of which agreements shall continue in full force and effect until terminated in accordance with their respective terms. | |
10.3 | Governing Law and Dispute Resolution This Agreement shall be construed and governed by the laws of the Peoples Republic of China. Any dispute or difference arising out of or in connection with this Agreement shall be referred to and determined by arbitration at China International Economic and Trade Arbitration Commission in accordance with its applicable Arbitration Rules if the dispute cannot be settled through amicable consultation. The arbitration shall be conducted in Shanghai, and the language used in arbitration shall be Chinese. The arbitration award shall be final and binding on the Parties. | |
10.4 | Severability . If any provision of this Agreement is found to be invalid or unenforceable, then such provision shall be construed, to the extent feasible, so as to render the provision enforceable and to provide for the consummation of the transactions contemplated hereby on substantially the same terms as originally set forth herein, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential to the rights or benefits intended by the parties. In such event, the parties shall use best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly effects the parties intent in entering into this Agreement. | |
10.5 | Third Parties . Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their permitted successors and assigns any rights or remedies under or by reason of this Agreement. |
27
10.6 | Successors and Assigns . Subject to the provisions of Section 5.1, the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. | |
10.7 | Interpretation; Captions . This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. Unless otherwise expressly provided herein, all references to Sections and Exhibits herein are to Sections and Exhibits of this Agreement. | |
10.8 | Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. | |
10.9 | Aggregation of Shares . All Series A Preferred Shares or Ordinary Shares held or acquired by Affiliated entities or persons (as defined in Rule 144 under the Securities Act) shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. | |
10.10 | Shareholders Agreement to Control . If and to the extent that there are inconsistencies between the provisions of this Agreement and those of the Memorandum and Articles, the terms of this Agreement shall control. The parties agree to take all actions necessary or advisable, as promptly as practicable after the discovery of such inconsistency (including without limitation passing special resolutions or other resolutions), to amend the Memorandum and Articles so as to eliminate such inconsistency. | |
10.11 | Waiver of Reliance among Investors . Each Investor stipulates that it is not relying upon any person or entity other than the Company and its officers and directors and the Founders in entering into this Agreement or investing in the Company, and, specifically and without limitation, is not relying on any other Investor or any other Investors controlling persons, members, shareholders, officers, directors, employees, agents, or professional advisers, or on any advice, representations, or work product of any of them. Each Investor hereby waives any claim against, and covenants not to sue, any other Investor or the respective controlling persons, members, shareholders, officers, directors, employees, agents, or professional advisers of any Investor on account of any action heretofore or hereafter taken or omitted to be taken in connection with this Agreement or any transaction contemplated hereby. |
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31
32
Schedule of Investors
Corporate Information of the Company
Number of
Purchase
Series A
Price
Investors
Identification
Address
Shares
(US$)
Holding
Limited
(on behalf of
Mr. Qi JI)
(on behalf of
Ms. Tong Tong
ZHAO)
Company
No. 571975
P.O. Box 957, Offshore Incorporations Centre, Road Town,
Tortola, British
Virgin Islands
20,000,000
20,000,000
10,000,000
10,000,000
United
States
passport No.
302014663
774 Mays Blvd. #Ste
10 337, Incline
Village, NV 89452,
USA
4,000,000
2,000,000
:
China Lodging Group, Limited
:
4
th
January 2007
:
the office of Offshore Incorporations (Cayman)
Limited, Scotia Centre, 4th Floor, P.O. Box 2804,
George Town, Grand Cayman, Cayman Islands
:
Mr. John Jiong WU
Mr. Qi JI
Ms. Tong Tong ZHAO
:
Name of Shareholders
Ordinary Shares
25,000,000
15,000,000
4,000,000
44,000,000
A. | The Founders and the Co-Founders (as defined below) own legally or beneficially all of the issued and outstanding share capital of the Company. | ||
B. | The Company is (or prior to October 1, 2007 the Company will be) the holding company and 100% parent company of each of the WFOEs, which engage in the business of property management, hotel management, property conversion and property improvement (the Business ). | ||
C. | The Founders and the Company seek to induce the Investors to invest in the Company and the Group Companies (as defined below). | ||
D. | The Investors wish to invest in the Company and the Group Companies and, to that end, wish to subscribe for certain preferred shares to be newly issued by the Company pursuant to the terms and subject to the conditions of this Agreement. |
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a) | (x) influencing any act or decision of such Government Official, political party, party official, or candidate in his or its official capacity, (y) inducing such Government Official, political party, party official or candidate to do or omit to do any act in violation of the lawful duty of such Government Official, political party, party official or candidate, or (z) securing any improper advantage, or | ||
b) | inducing such Government Official, political party, party official, or candidate to use his or its influence with any Government Entity to affect or influence any act or decision of such Government Entity, in order to assist any Group Company in obtaining or retaining business for or with, or directing business to any Group Company. |
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(a) | In the event of two or more arbitrations having been commenced under any of the Transaction Documents, the tribunal in the arbitration first filed (the Principal Tribunal) may in its sole discretion, upon the application of any party to the arbitrations, order that the proceedings be consolidated before the Principal Tribunal if (1) there are issues of fact and/or law common to the arbitrations, (2) the interests of justice and efficiency would be served by such a consolidation, and (3) no prejudice would be caused to any party in any material respect as a result of such consolidation, whether through undue delay or otherwise. Such application shall be made as soon as practicable and the party making such application shall give notice to the other parties to the arbitrations. | ||
(b) | The Principal Tribunal shall be empowered to (but shall not be obliged to) order at its discretion, after inviting written (and where desired |
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oral) representations from the parties that all or any of such arbitrations shall be consolidated or heard together and/or that the arbitrations be heard immediately after another and shall establish a procedure accordingly. All parties shall take such steps as are necessary to give effect and force to any orders of the Principal Tribunal. | |||
(c) | If the Principal Tribunal makes an order for consolidation, it: (1) shall thereafter, to the exclusion of other arbitral tribunals, have jurisdiction to resolve all disputes forming part of the consolidation order; (2) shall order that notice of the consolidation order and its effect be given immediately to any arbitrators already appointed in relation to the disputes that were consolidated under the consolidation order; and (3) may also give such directions as it considers appropriate (i) to give effect to the consolidation and make provision for any costs which may result from it (including costs in any arbitration rendered functus officio under Section 9.12) ; and (ii) to ensure the proper organisation of the arbitration proceedings and that all the issues between the parties are properly formulated and resolved. | ||
(d) | Upon the making of the consolidation order, any appointment of arbitrators relating to arbitrations that have been consolidated by the Principal Tribunal (except for the appointment of the arbitrators of the Principal Tribunal itself) shall for all purposes cease to have effect and such arbitrators are deemed to be functus officio, on and from the date of the consolidation order. Such cessation is without prejudice to (1) the validity of any acts done or orders made by such arbitrators before termination, (2) such arbitrators entitlement to be paid their proper fees and disbursements and (3) the date when any claim or defence was raised for the purpose of applying any limitation period or any like rule or provision. | ||
(e) | The Parties hereby waive any objections they may have as to the validity and/or enforcement of any arbitral awards made by the Principal Tribunal following the consolidation of disputes or arbitral proceedings in accordance with this Section 9.12 where such objections are based solely on the fact that consolidation of the same has occurred. |
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SIGNED BY
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) | |||||
for and on behalf of
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) | |||||
CHINA LODGING GROUP, LIMITED
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) | |||||
in the presence of :
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) | |||||
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Address:
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Floor 5, Building 57
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No. 461 Hongcao Road
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Shanghai 200233
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The Peoples Republic of China
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INVESTORS
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SIGNED BY
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) | |||||
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for and on behalf of
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) | |||||
CHENGWEI PARTNERS, L.P.
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) | |||||
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in the presence of :
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SIGNED BY
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) | |||||
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for and on behalf of
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) | |||||
CHENGWEI VENTURES
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) | |||||
EVERGREEN FUND, L. P.
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) | |||||
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in the presence of :
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SIGNED BY
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) | |||||
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for and on behalf of
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) | |||||
CHENGWEI VENTURES
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) | |||||
EVERGREEN ADVISORS FUND, LLC
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) | |||||
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in the presence of :
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) |
SIGNED BY
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) | |||||
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for and on behalf of
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) | |||||
CDH COURTYARD LIMITED
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) | |||||
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in the presence of :
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) |
SIGNED BY
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) | |||||
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for and on behalf of
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) | |||||
PINPOINT CAPITAL 2006 A LIMITED
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) | |||||
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||||||
in the presence of :
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) |
SIGNED BY
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) | |||||
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for and on behalf of
NORTHERN LIGHT VENTURE FUND, L.P. |
)
) ) |
|||||
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||||||
in the presence of :
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) |
SIGNED BY
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) | |||||
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for and on behalf of
NORTHERN LIGHT PARTNERS FUND, L.P. |
)
) ) |
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in the presence of :
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) |
SIGNED BY
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) | |||||
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for and on behalf of
NORTHERN LIGHT STRATEGIC FUND, L.P. |
)
) ) |
|||||
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in the presence of :
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) |
SIGNED BY
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) | |||||
|
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for and on behalf of
IDG-ACCEL CHINA GROWTH FUND GP ASSOCIATES LTD. for and on behalf of IDG-ACCEL CHINA GROWTH FUND ASSOCIATES L.P. |
)
) ) ) ) ) |
|||||
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for and on behalf of
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) | |||||
IDG-ACCEL CHINA GROWTH FUND L.P.
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) | |||||
|
||||||
in the presence of :
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) |
SIGNED BY
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) | |||||
|
||||||
for and on behalf of
IDG-ACCEL CHINA GROWTH FUND GP ASSOCIATES LTD. for and on behalf of IDG-ACCEL CHINA GROWTH FUND ASSOCIATES L.P. |
)
) ) ) ) ) |
|||||
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for and on behalf of
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) | |||||
IDG-ACCEL CHINA GROWTH FUND-A L.P.
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) | |||||
|
||||||
in the presence of :
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) | |||||
|
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Address:
|
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c/o IDG VC Management Ltd.
|
||||||
10/F Effectual Building
|
||||||
16 Hennessy Road
|
||||||
Wanchai, Hong Kong
|
||||||
Fax:
(852) 25291619
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SIGNED BY
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) | |||||
|
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for and on behalf of
IDG-ACCEL CHINA INVESTORS ASSOCIATES LTD. for and on behalf of IDG-ACCEL CHINA INVESTORS L.P. in the presence of : |
)
) ) ) ) ) |
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Address:
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c/o
IDG VC Management Ltd.
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10/F Effectual Building
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16 Hennessy Road
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Wanchai, Hong Kong
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Fax:
(852) 25291619
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Series B | ||||||||
Preferred | Consideration | |||||||
Shares | for Series B | |||||||
Investors | Subscribed | Shares (US$) | ||||||
Chengwei Partners, L.P.
|
466,480 | $ | 594,999.90 | |||||
Chengwei Ventures Evergreen Fund, L.P.
|
11,446,755 | $ | 14,600,450.47 | |||||
Chengwei Ventures Evergreen Advisors Fund, LLC
|
1,414,768 | $ | 1,804,550.73 | |||||
CDH Courtyard Limited
|
13,328,003 | $ | 17,000,001.11 | |||||
Pinpoint Capital 2006 A Limited
|
1,568,001 | $ | 2,000,000.96 | |||||
Northern Light Venture Fund, L.P.
|
1,179,450 | $ | 1,504,400.27 | |||||
Northern Light Partners Fund, L.P.
|
129,517 | $ | 165,200.23 | |||||
Northern Light Strategic Fund, L.P.
|
259,034 | $ | 330,400.45 | |||||
IDG-Accel China Growth Fund L.P.
|
1,812,687.03 | $ | 2,312,100.43 | |||||
IDG-Accel China Growth Fund-A L.P.
|
370,439.60 | $ | 472,499.41 | |||||
IDG-Accel China Investors L.P.
|
168,874.01 | $ | 215,400.48 | |||||
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Investors as Noteholders
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IDG-Accel China Growth Fund L.P.
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2,874,345.97 | $ | 3,116,308.42 | |||||
IDG-Accel China Growth Fund-A L.P.
|
587,400.40 | $ | 636,847.77 | |||||
IDG-Accel China Investors L.P.
|
267,779.99 | $ | 290,321.71 | |||||
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|
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Total:
|
35,873,535.00 | $ | 45,043,482.34 |
Purchase Price | Aggregate Purchase | |||||||||||
Investors | Warrant Shares | per Share (US$) | Price (US$) | |||||||||
Chengwei Partners, L.P.
|
169,912 | $ | 1.530612 | $ | 260,069.35 | |||||||
Chengwei
Ventures Evergreen Fund, L.P.
|
4,169,396 | $ | 1.530612 | $ | 6,381,727.55 | |||||||
Chengwei Ventures
Evergreen Advisors Fund, LLC
|
515,319 | $ | 1.530612 | $ | 788,753.45 | |||||||
CDH Courtyard Limited
|
4,854,626 | $ | 1.530612 | $ | 7,430,548.81 | |||||||
Pinpoint Capital 2006 A
Limited
|
571,133 | $ | 1.530612 | $ | 874,183.02 | |||||||
Northern Light Venture
Fund, L.P.
|
429,606 | $ | 1.530612 | $ | 657,560.10 | |||||||
Northern Light Partners
Fund, L.P.
|
47,176 | $ | 1.530612 | $ | 72,208.15 | |||||||
Northern Light Strategic
Fund, L.P.
|
94,351 | $ | 1.530612 | $ | 144,414.77 | |||||||
IDG-Accel China Growth
Fund L.P.
|
1,707,217 | $ | 1.530612 | $ | 2,613,086.83 | |||||||
IDG-Accel China Growth
Fund-A L.P.
|
348,886 | $ | 1.530612 | $ | 534,009.10 | |||||||
IDG-Accel China Investors
L.P.
|
159,048 | $ | 1.530612 | $ | 243,440.78 | |||||||
Total:
|
13,066,670 | | $ | 20,000,001.91 |
Purchase Price | Aggregate Purchase | |||||||||||
Investors | Warrant Shares | per Share (US$) | Price (US$) | |||||||||
Chengwei Partners, L.P.
|
50,430 | $ | 1.27551 | $ | 64,323.97 | |||||||
Chengwei Ventures
Evergreen Fund, L.P.
|
1,237,487 | $ | 1.27551 | $ | 1,578,427.04 | |||||||
Chengwei Ventures
Evergreen Advisors Fund, LLC
|
152,948 | $ | 1.27551 | $ | 195,086.70 | |||||||
CDH Courtyard Limited
|
1,440,865 | $ | 1.27551 | $ | 1,837,837.72 | |||||||
IDG-Accel China Growth
Fund L.P.
|
195,966 | $ | 1.27551 | $ | 249,956.59 | |||||||
IDG-Accel China Growth
Fund-A L.P.
|
40,048 | $ | 1.27551 | $ | 51,081.62 | |||||||
IDG-Accel China Investors
L.P.
|
18,257 | $ | 1.27551 | $ | 23,286.99 | |||||||
Total:
|
3,136,001 | | $ | 4,000,000.63 |
No. | Name | Position | ||
1.
|
Ji Qi
|
Chief Executive Officer
|
||
2.
|
Lee A. Wang
|
Chief Financial Officer
|
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3.
|
Zhiyong Yuan
|
Executive Vice President of Management Department
|
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4.
|
Cheng Jun
|
Executive Vice President of Marketing and Business Development
|
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5.
|
Haijun Wang
|
Executive Vice President of Management Department
|
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6.
|
Jiamin Shi
|
Executive Vice President of Human Resource Department
|
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7.
|
Zhiping Li
|
Executive Vice President; President of Hanting College
|
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8.
|
Ling Wang
|
Director of Sales Department
|
||
9.
|
Hui Jin
|
Senior Manager of Business Development Department
|
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10.
|
Juan Cao
|
Director of Operation
|
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11.
|
Xining Rui
|
General Manager of Shanghai Hanting Decoration Engineering Co., Ltd.
|
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12.
|
Jun Chen
|
General Manager of Shanghai Hanting Decoration Engineering Co., Ltd.
|
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13.
|
Peigen Zhang
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General Manager of Shanghai Hanting Decoration Engineering Co., Ltd.
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China Lodging Group, Limited
|
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By: | ||||
Name: | Ji Qi | |||
Title: | Chief Executive Officer | |||
RECITALS
|
1 | |||
|
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CERTAIN DEFINITIONS
|
1 | |||
|
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1. INFORMATION RIGHTS; BOARD REPRESENTATION
|
8 | |||
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2. REGISTRATION RIGHTS
|
16 | |||
|
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3. RIGHT OF PARTICIPATION
|
28 | |||
|
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4. TRANSFER RESTRICTIONS
|
30 | |||
|
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5. DRAG-ALONG RIGHTS
|
39 | |||
|
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6. ASSIGNMENT AND AMENDMENT
|
40 | |||
|
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7. CONFIDENTIALITY AND NON-DISCLOSURE
|
41 | |||
|
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8. OTHER COVENANTS
|
42 | |||
|
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9. REPURCHASE RIGHTS
|
43 | |||
|
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10. COMPLIANCE WITH PRC LAW; PUT OPTION
|
44 | |||
|
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11. ADMINISTRATION
|
46 | |||
|
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12. TAX MATTERS
|
46 | |||
|
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13. GENERAL PROVISIONS
|
48 | |||
|
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EXHIBIT A
|
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EXHIBIT B
|
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EXHIBIT C
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|
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EXHIBIT D
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EXHIBIT E
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Page 1
A. | The Company is a private limited company incorporated under the laws of the Cayman Islands. Corporate information of the Company is set out in Exhibit B . | |
B. | The Company, the Ordinary Holders (as defined below) and the Series A Holders (as defined below) were parties to that certain Shareholders Agreement dated February 4, 2007 (the Prior Agreement ). | |
C. | The Investors listed in Exhibit A hereto (the Investors ) are parties to that certain Series B Preferred Shares Purchase Agreement, of even date herewith, between the Company and the Investors (the Series B Purchase Agreement ), under which certain of the Companys and such Investors obligations are conditioned upon the execution and delivery of this Agreement by the parties hereto. | |
D. | The Company, the Ordinary Holders and the Series A Holders desire to amend and restate the Prior Agreement in its entirety as set forth in this Agreement. | |
E. | The Founder and Co-Founders desire to make certain covenants as set forth in this Agreement. |
2007 Global Share Plan means the global share plan adopted by the Companys Board of Directors on February 4th, 2007 and approved by the then Shareholders on February 4th, 2007, under which 10,000,000 Ordinary Shares are reserved for issuance as of the date hereof. | ||
2008 Global Share Plan means the global share plan adopted by the Companys Board of Directors on June 15, 2007 and approved by the then Shareholders on June 15, 2007, under which 3,000,000 Ordinary Shares are reserved for issuance as of the date hereof. | ||
Affiliates means, with respect to any given Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person and, |
Page 2
where the given Person is an individual, the spouse, parent, sibling, or child thereof. | ||
Applicable Securities Law means (i) with respect to any offering of securities in the United States of America, or any other act or omission within that jurisdiction, the securities law of the United States, including the Exchange Act and the Securities Act, and any applicable law of any State of the United States, and (ii) with respect to any offering of securities in any jurisdiction other than the United States of America, or any related act or omission in that jurisdiction, the applicable laws of that jurisdiction. | ||
Approval means, when used with respect to the Series B Holders, the approval in writing of such matter by (i) the holders of a majority of the Series B Preferred Shares then outstanding, including at least one of Chengwei and CDH (for so long as Chengwei or CDH remains a Series B Holder), or (ii) both of Chengwei and CDH (for so long as each of Chengwei and CDH remains a Series B Holder) and the term Approved has meanings correlative to the foregoing. | ||
Articles means the Amended and Restated Articles of Association of the Company adopted by the Shareholders as of the date hereof. | ||
Auditor means any Person appointed to serve as the auditor for the Group pursuant to the Articles. | ||
Board means the Board of Directors of the Company. | ||
Business Day means any day of the week other than Saturday or Sunday that banks are generally open for business in the PRC, Hong Kong and New York. | ||
Buyback Notice has the meaning ascribed thereto in Section 10.2 . | ||
CDH means CDH Courtyard Limited, a company incorporated under the laws of the British Virgin Islands. | ||
CEO has the meaning ascribed thereto in Section 1.1(a)(ii) . | ||
CFO has the meaning ascribed thereto in Section 1.1(a)(ii) . | ||
Chengwei means, collectively, Chengwei Partners, L.P., an exempted limited partnership organized and existing under the laws of the Cayman Islands, Chengwei Ventures Evergreen Fund, L.P., an exempted limited partnership organized and existing under the laws of the Cayman Islands, and Chengwei Ventures Evergreen Advisors Fund, LLC, an exempted limited liability company organized and existing under the laws of the Cayman Islands. | ||
Co-Founders means the persons listed as Co-Founders on Exhibit A . | ||
Company Securities means any shares in the share capital of the Company and any Share Equivalents. | ||
Compensation Committee has the meaning ascribed thereto in Section 1.3 . |
Page 3
Constitutional Documents means, with respect to any Person, the Certificate of Incorporation, Memorandum of Association, Articles of Association, Joint Venture Agreement, or similar constitutive documents for such Person. | ||
Control means, when used with respect to any Person, the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms Controlling and Controlled have meanings correlative to the foregoing. | ||
Deemed Liquidation Event means (i) any consolidation or merger of the Company with or into any other person, or any other corporate reorganization, in which the Shareholders immediately prior to such consolidation, merger or reorganization, own less than fifty percent of the Companys voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions involving the Company pursuant to which in excess of fifty percent of the Companys voting power is transferred; or (ii) a sale, transfer, lease, exclusive licensing or other disposition of all or substantially all of the property, assets or revenues of the Company; unless holders representing at least a majority in voting power of the Series A Preferred Shares have approved in writing, and the Series B Shareholders have Approved, a waiver waiving the treatment of such event as a Deemed Liquidation Event. | ||
Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. | ||
Founder Warrant means the warrant to purchase Series B Preferred Shares issued by the Company to Winner Crown Holdings Limited pursuant to the Series B Purchase Agreement. | ||
Founder means the person listed as Founder on Exhibit A . | ||
Form F-3 means such respective form under the Securities Act or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. | ||
GAAP means generally accepted accounting principles of the United States, consistently applied. | ||
Group means the Company and all other Group Companies, including but not limited to Hanting Xingkong Hotel Management (Shanghai) Co., Ltd. , a wholly foreign-owned enterprise registered in Shanghai, PRC, Lishan Senbao Investment Management (Shanghai) Co., Ltd. , a wholly foreign-owned enterprise registered in Shanghai, PRC, Yiju Hotel Management (Shanghai) Co., Ltd. , a wholly foreign-owned enterprise registered in Shanghai, PRC; Group Company means the Company or any Person (other than a natural Person) Controlled by the Company. | ||
Holder means each of the Series A Holders and the Investors, and the permitted |
Page 4
transferees and assigns of any Holder. | ||
Hong Kong means the Hong Kong Special Administrative Region. | ||
IPO means an initial public offering of the Companys Ordinary Shares on the New York Stock Exchange, the NASDAQ Global Market, the Main Board of the Hong Kong Stock Exchange or any other exchange of recognized international reputation and standing duly approved by the Board. | ||
Investor Warrants means the warrants to purchase Series B Preferred Shares issued by the Company to the Investors pursuant to the Series B Purchase Agreement. | ||
Investors means the Shareholders listed as Investors on Exhibit A . | ||
Key Management Personnel means each of the following positions in any Group Company: (i) the Chief Executive Officer (responsible for general strategic direction with emphasis on sales, marketing and business development), (ii) the Chief Financial Officer (responsible for fund raising, financial control and management), (iii) the Chief Operating Officer or Head of Operations (responsible for operations, public relations and corporate marketing), and (iv) the Executive Vice President of any functional department. | ||
Management Holders means the Founder, Persons who become a party hereto in accordance with Section 4.8 and any Person Controlled by any of the foregoing. | ||
Material Adverse Effect has the meaning ascribed thereto in the Series B Purchase Agreement. | ||
Memorandum means the Amended and Restated Memorandum of Association of the Company adopted by the Shareholders as of the date hereof. | ||
New Securities means any Company Securities; provided that the term New Securities shall not include: (a) any Series B Preferred Shares issued pursuant to the terms of the Series B Purchase Agreement, the Note Agreement, the Founder Warrant or the Investor Warrants, (b) securities issued upon conversion of the Series A Preferred Shares; (c) securities issued upon conversion of the Series B Preferred Shares; (d) not more than 13,000,000 Ordinary Shares issued or issuable pursuant to any Share Option Plan and/or in connection with the exercise of any Share Equivalents issued or issuable in any Share Option Plan; (e) Reserved Shares the issuance of which was approved by the Board, including at least a majority of the Preferred Directors, if any; (f) any securities issued in connection with any share split, share dividend or other similar event in which all Participation Rights Holders are entitled to participate on a pro rata basis; (g) any securities issued pursuant to a Qualified Public Offering; or (h) as may otherwise be consented to in writing by Participation Rights Holders representing not less than 80% in voting power of the Company Securities held by Participation Rights Holders. | ||
Noteholders shall mean IDG-Accel China Growth Fund L.P., IDG-Accel China Growth Fund-A L.P. and IDG-Accel China Investors L.P., each an exempted limited partnership organized and existing under the laws of the Cayman Islands. |
Page 5
Note Agreement means the Convertible Note Purchase Agreement entered into by and between the Company and the Noteholders on March 28, 2007 and the Convertible Promissory Note, dated March 30, 2007, issued by the Company thereunder. | ||
Ordinary Holders means the holders of Ordinary Shares. | ||
Ordinary Shares means the Ordinary Shares, par value US$0.0001 per share, of the Company. | ||
Participation Rights Holder means each of the Series B Holders party to this Agreement as of the date hereof, together with any Person to whom the rights of any Participation Rights Holder under Section 3 have been duly assigned in accordance with Section 6 . | ||
Permitted Transferee has the meaning ascribed thereto in Section 4.9 . | ||
Person means any individual, partnership, corporation, trust or other entity (including, without limitation, any unincorporated joint venture and whether or not having separate legal personality). | ||
PRC means the Peoples Republic of China, solely for purposes of this definition, excluding the Hong Kong, the Macau Special Administrative Region and Taiwan. | ||
Preferred Directors means the Series A Directors and the Series B Directors. | ||
Preferred Holders means the Series A Holders and Series B Holders. | ||
Preferred Shares means the Series A Preferred Shares and Series B Preferred Shares. | ||
Put Option Shares has the meaning ascribed thereto in Section 10.2 . | ||
Qualified IPO means a firm commitment, underwritten IPO by the Company of its Ordinary Shares with (i) a market capitalization of the Company equal to no less than US$495 million (or the equivalent thereof in other currencies) immediately prior to the IPO, and (ii) total offering proceeds to the Company, before deduction of Selling Expenses, of not less than US$50 million (or the equivalent thereof in other currencies). | ||
RE Company means a real estate company that may be established in the PRC by the Founder, the Company or any Affiliate of the Founder or the Company (i) for the purpose of acquiring, owning, enhancing, managing, operating or maintaining assets, real property or other facilities for use in lodging-related business activities, including but not limited to limited service, deluxe, luxury, upscale, and midscale with food and beverage service, and (ii) deriving no less than 50% of its gross revenue from leasing and other transactions with the Group. | ||
register , registered , and registration when used in Section 2 , refer to a registration effected by filing a registration statement which is in a form which complies with, and is declared effective by the SEC in accordance with the Securities Act. |
Page 6
Registrable Securities means (i) the Preferred Shares, (ii) any Ordinary Shares issuable or issued upon conversion of the Preferred Shares, (iii) all Equity Securities which may be from time to time acquired by a Holder of Preferred Shares after the date hereof, and (iv) any Company Securities issued as (or issuable upon the conversion, exchange or exercise of any Share Equivalent) a dividend or other distribution with respect to, or in exchange for, or in replacement of the Company Securities referenced in clauses (i), (ii), and (iii), excluding in all cases any Registrable Securities sold by a Person in a transaction in which rights under Section 2 are not assigned in accordance with this Agreement. | ||
Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 2.3, 2.4 and 2.5 , including, without limitation, all registration and filing fees, printing expenses, fees, and disbursements of counsel for the Company, reasonable fees and disbursements of counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). | ||
Related Party shall mean, with respect to any specified Person, the holder of any equity interest in such Person, or any director, officer or employee of such Person, or any Affiliate of any of the foregoing; notwithstanding the foregoing, Related Parties of any Group Company or the Founder shall also include any real estate investment fund or similar business that is a Related Party of any Group Company or the Founder, any RE Company, or any Affiliate thereof. | ||
Reserved Shares means not more than 7,000,000 Ordinary Shares or options, warrants, rights (including conversion or preemptive rights and rights of first refusal) for the purchase of such Ordinary Shares issuable for such purposes and in such amounts and at such prices and upon such other terms that shall be determined from time to time by the Board (including at least a majority of the Preferred Directors, if any) in accordance with this Agreement. | ||
Restricted Shareholder means any of the SPV Entities, Founder, Co-Founders or Key Management Personnel, or their respective Permitted Transferees. | ||
Sale of the Company means either a Stock Sale or a Deemed Liquidation Event. | ||
SEC or Commission means the U.S. Securities and Exchange Commission. | ||
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. | ||
Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to Sections 2.3, 2.4 or 2.5 . | ||
Series A Director means any individual nominated to serve on the Board as of right pursuant to Section 1.2 by Shareholders representing a majority in voting power of the Series A Preferred Shares. |
Page 7
Series A Holders means the holders of Series A Preferred Shares. | ||
Series A Preferred Shares means the Series A Preferred Shares, par value of US$0.0001 per share, of the Company. | ||
Series B Director means any individual nominated to serve on the Board as of right pursuant to Section 1.2 . | ||
Series B Holders means the holders of Series B Preferred Shares. | ||
Series B Preferred Shares means the Series B Preferred Shares, par value of US$0.0001 per share, of the Company. | ||
Series B Purchase Agreement means that certain Series B Preferred Shares Purchase Agreement, of even date herewith, among the Company and certain subscribers to the Series B Preferred Shares of the Company. | ||
Share Equivalents means warrants, options and rights exercisable for shares in the share capital of the Company and instruments convertible or exchangeable for shares in the share capital of the Company. | ||
Share Option Plan means the Companys 2007 Global Share Plan, 2008 Global Share Plan and any other share option, share appreciation, share purchase, phantom share or other equity-based plan, arrangement, agreement, policy or understanding, whether written or unwritten, duly authorized by the Board pursuant to the Articles and this Agreement. | ||
Shares means the Ordinary Shares and Preferred Shares. | ||
Shareholder Loan Agreement means the Loan Repayment and Share Purchase Agreement of even date herewith entered into by and among the Company, the Founder and the Co-Founders. | ||
Shareholders means the Ordinary Holders and Preferred Holders. | ||
SPV Holders means the Founder and Co-Founders. | ||
SPV Entities means any Person (other than a natural Person) though which any of the SPV Holders may hold indirect ownership interest in the Company, including without limitation the Ordinary Holders and Series A Holders as listed on Exhibit A hereto. | ||
Stock Sale means a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from Shareholders Shares representing more than fifty percent (50%) of the outstanding voting power of the Company. | ||
Transaction Documents has the meaning ascribed thereto in the Series B Purchase Agreement. |
Page 8
1. | INFORMATION RIGHTS; BOARD REPRESENTATION | |
1.1 | Information Rights and Inspection Rights . |
(a) | For so long as a Preferred Holder holds no less than 1,500,000 Preferred Shares (adjusted for share splits, reverse share splits, share dividends, recapitalizations and the like), the Company shall make available and deliver to such Preferred Holder: |
(i) | as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Company, (i) consolidated and consolidating balance sheets for the Group, as of the end of such fiscal year, (ii) consolidated and consolidating statements of income and of cash flows for the Group for such fiscal year, (iii) consolidated and consolidating statements of shareholders equity for the Group as of the end of such fiscal year, all such financial statements audited and certified by the Auditor in accordance with GAAP; | ||
(ii) | as soon as practicable, but in any event within forty five (45) days after the end of each quarter of any fiscal year of the Company, consolidated and consolidating unaudited statements of income and of cash flows for the Group for such fiscal quarter, consolidated and consolidating unaudited balance sheets for the Group as of the end of such fiscal quarter and consolidated and consolidating statements of shareholders equity for the Group as of the end of such fiscal quarter, all certified by the Chief Executive Officer of the Company (the CEO ) and Chief Financial Officer of the Company (the CFO ) as having been prepared in accordance with GAAP and as fairly presenting the financial condition of the Company and its results of operation; | ||
(iii) | as soon as practicable, but in any event within ten (10) business days after the end of each month, a monthly report substantially in the form attached hereto as Exhibit E or any other form mutually agreed by the Company and the Investors, which shall be certified by the Chief Financial Officer of the Company; | ||
(iv) | as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of any fiscal year, a comparison of the actual financials for the Group for such quarter against the financials projected for the Group for such quarter in the applicable Budget; | ||
(v) | as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the Group for the next fiscal year (collectively, the Budget ), which shall include projected consolidated income statements and statements of cash flow for the Group for each month in the next fiscal year and projected consolidated balance sheets for the Group as of the end of each month in the next fiscal year; and | ||
(vi) | as soon as practicable, but within fifteen (15) days after duly being |
Page 9
approved by the Board, any amendment, revision, supplement or other change to the then-existing Budget for the Group. |
(b) | For so long as a Preferred Holder holds no less than 1,500,000 Preferred Shares (adjusted for share splits, reverse share splits, share dividends, recapitalizations and the like), the Company shall permit such Preferred Holder to visit and inspect any of the properties and examine the books of account and records of the Company and the Group Companies and discuss the affairs, finances and accounts of the Company and the Group Companies with the directors, officers, employees, accountants, legal counsel and investment bankers of the Company and the Group Companies, all at such reasonable times as may be requested by the Preferred Holder. If any Group Company intends to dispose of any of its books of account or corporate records, it shall, prior to such disposition, give such Preferred Holder reasonable notice and opportunity to segregate, remove or retain such books and records as the Preferred Holder may select. |
1.2 | Board Representation . |
(a) | The composition of the Board shall be determined as follows: |
(i) | the Company shall maintain a five (5) member Board of Directors; | ||
(ii) | Shareholders representing a majority in voting power of the Ordinary Shares shall have the right to nominate, from time to time, individuals to occupy two (2) of the five positions on the Board. | ||
(iii) | For so long as any Series A Preferred Shares remain outstanding, Shareholders representing a majority in voting power of the Series A Preferred Shares shall have the right to nominate, from time to time, an individual to occupy one (1) of the five positions on the Board; and | ||
(iv) | For so long as any Series B Preferred Shares remain outstanding, Shareholders representing a majority in voting power of the Series B Preferred Shares shall have the right to nominate, from time to time, individuals to occupy two (2) of the five positions on the Board; provided that: |
(x) | For so long as Chengwei holds no less than 25% of the total number of issued and outstanding Series B Preferred Shares, Chengwei shall have the right to nominate, from time to time, an individual to occupy one (1) of the two positions as a Series B Director; and | ||
(y) | For so long as CDH holds no less than 25% of the total number of issued and outstanding Series B Preferred Shares, CDH shall have the right to nominate, from time to time, an individual to occupy one (1) of the two positions as a Series B Director. |
(v) | For so long as the Noteholders hold any Series B Preferred Shares, the Noteholders shall be entitled, by notice in writing to the Company, to |
Page 10
jointly appoint one (1) person, as observer to attend and speak at, either in person or by teleconference, any and all meetings of the Board. The Company shall provide to such observer the same information concerning the Company, and access thereto, provided to members of the Board. | |||
(vi) | Each of Chengwei and CDH, respectively, for so long as it holds any Series B Preferred Shares, shall be entitled by notice in writing to the Company, to appoint one (1) person, as observer to attend and speak at, either in person or by teleconference, any and all meetings of the Board. The Company shall provide to such observer the same information concerning the Company, and access thereto, provided to members of the Board. |
(b) | Upon the death, resignation, removal or incapacity of any director nominated as of right hereunder to the Board by any party hereto, such party shall be entitled to nominate such directors replacement to the Board. Upon the death, resignation, removal or incapacity of any director nominated as of right hereunder to the Board by Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares, then Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares, respectively, shall be entitled to nominate such directors replacement to the Board. Any director nominated as of right hereunder by any party hereto to the Board shall be removed from office upon motion by such party. Any director nominated as of right hereunder by Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares to the Board of Directors of any of the Companies shall be removed from office upon motion by Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares, respectively. | ||
(c) | Except as provided in paragraph (e) below, (i) no director appointed by any party as of right hereunder shall be removed from the Board unless the appointing party consents to the removal and (ii) no director appointed by Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares shall be removed from the Board unless Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares, respectively, consents to the removal. If any of Chengwei, CDH, the Series A Holders or Series B Holders, as the case may be, fail to nominate a sufficient number of individuals to fill all positions on the Board in respect of which they are entitled to nominate directors pursuant to this Section 1.2 , then any such position not so filled shall remain vacant until an individual shall be duly nominated to fill such position in accordance with the terms of this Agreement. | ||
(d) | Each party agrees to vote all Equity Securities owned by it in favor of the election of any director nominated to the Board pursuant to this Section 1.2 . Upon a motion to remove any director from the Board in accordance with this Section 1.2 , each party agrees to vote all Equity Securities owned thereby to effect removal of such director from the Board. |
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(e) | Any director nominated by a party hereto as of right hereunder to a position on the Board, following such time as the party shall cease to hold the right hereunder to nominate individuals to occupy such position, shall be promptly removed therefrom as if a motion had been duly made for such removal under this Section 1.2 . Any director nominated as of right hereunder to a position on the Board by Shareholders representing a majority in voting power of the Series A Preferred Shares or the Series B Preferred Shares, following such time as the Series A Holders or the Series B Holders, respectively, shall cease to hold the right hereunder to nominate individuals to occupy such position, shall be promptly removed therefrom as if a motion had been duly made for such removal under this Section 1.2 . | ||
(f) | Ms. Ping PING, with Mr. Eric LI as her alternate, and Mr. Yan HUANG, with Mr. Gongquan WANG as his alternate, shall hereby be deemed nominated to the Board by the Series B Holders. Mr. Qi JI shall hereby be deemed nominated to the Board by Shareholders representing a majority in voting power of the Series A Preferred Shares. Mr. Eric LI and Mr. Gongquan WANG shall hereby be deemed nominated as Board observers by Chengwei and CDH, respectively. | ||
(g) | Notice of any appointment or removal under this clause shall be given to the other Shareholders and to the Company at their addresses given in this Agreement and within seven (7) days after receipt of such notice the parties hereto shall join in procuring (so far as that lies within their respective powers) that such action is taken as is necessary under the Articles to effect the appointment or removal concerned. | ||
(h) | Meetings of the Board shall (unless the Shareholders shall otherwise agree) take place either in Shanghai or in a place to be agreed by all the Directors but not in any event less frequently than once every fiscal quarter. Notice of any such meeting of the Board shall be of not less than seven (7) days and shall be in writing and the quorum for Board meetings shall be three (3) Directors, including at least one (1) Series B Director for so long as any Series B Preferred Shares remain outstanding and one(1) Series A Director of so long as any Series A Preferred Shares remain outstanding. | ||
(i) | A quorum must be present at the beginning of and throughout each meeting of the Board. If within thirty (30) minutes of the time appointed for a meeting, a quorum is not present, the meeting shall stand adjourned until the same time and place on the same day in the next week and if at such adjourned meeting a quorum is not present within thirty (30) minutes from the time appointed for such adjourned meeting (or such longer interval as the chairman of the meeting may think fit to allow) the Director(s) present in person or by his/their alternates shall constitute a quorum. | ||
(j) | The Company shall procure that a notice of each meeting, agenda of the business to be transacted at the meeting and all documents and materials to be circulated at or presented to the meeting are sent to all directors entitled to receive notice of the meeting at least seven (7) days before the meeting and a copy of the minutes of the meeting is sent to such persons within thirty (30) |
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days following the meeting. | |||
(k) | The Board of Directors of each Group Company other than the Company shall consist of one (1) executive director, who shall be the Founder. | ||
(l) | Notwithstanding any other provisions hereof, upon presentation to the Board for a vote any proposed resolutions in connection with the entry into any transaction or series of transactions (or the termination, extension, continuation after expiry, renewal, amendment, variation or waiver of any term under agreement with respect to any transaction or series of transactions) between any Group Company, on the one hand, and any Person (other than another Group Company), on the other hand, any member of the Board who is a Related Party of such Person shall not participate in such vote and, to the extent such members vote is required hereunder or under the Memorandum and Articles, shall be deemed to have voted along with the majority of the members of the Board who have participated in such vote. |
1.3 | Compensation Committee and Audit Committee . A Compensation Committee (the Compensation Committee ) and an Audit Committee (the Audit Committee ) shall be set up under the Board. The Compensation Committee and the Audit Committee shall each consist of no less than one Series B Director and one Series A Director. | |
The Compensation Committee shall be responsible for: |
(i) | Reviewing, and making recommendations for approval by the Board regarding, corporate goals and objectives relevant to the compensation of the Group Companies executive officers; | ||
(ii) | Reviewing, and making recommendations for approval by the Board regarding, compensation of Key Management Personnel, including, as applicable, (a) base salary, (b) bonus, (c) long-term incentive and equity compensation, and (d) any other compensation, perquisites, and special or supplemental benefits; and | ||
(iii) | Recommending the terms and conditions for employment of Key Management Personnel for approval by the Board. |
The Audit Committee shall be responsible for: |
(i) | overseeing the financial reporting process of the Group Companies; | ||
(ii) | monitoring the choice of accounting standards and practices of the Group Companies; | ||
(iii) | monitoring the internal accounting control process of the Group Companies; | ||
(iv) | ensuring open communication among the Key Management Personnel, internal auditors, external auditors, and the Audit Committee of the |
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Group Companies; and | |||
(v) | overseeing the hiring and performance of the external auditors. |
1.4 | Board Indemnification . The Company shall enter into an indemnification agreement with each director serving on the Board of Directors of the Company, in form and substance as attached as Exhibit G of the Series B Purchase Agreement or as otherwise Approved by the Series B Holders, providing for the indemnification of such director by the Company to the fullest extent allowed under applicable law (as it presently exists or may hereafter be amended) with respect to all liability and loss suffered and expenses (including attorneys fees) incurred by such director by reason of the fact that he or she is a director of the Group Company. | |
1.5 | Protective Provisions . |
(a) | Notwithstanding anything to the contrary in the Constitutional Documents of any Group Company, the parties hereto shall ensure that none of the Group Companies shall, whether directly or indirectly, take any of the actions described below unless Approved by the Series B Holders: |
(i) | any amendment to, cancellation, waiver or other change in respect of, the rights, preferences, privileges, powers, obligations or liabilities arising in connection with the Series B Preferred Shares or otherwise adversely affecting the holders thereof; | ||
(ii) | any increase or decrease in the authorized number of Series B Preferred Shares; | ||
(iii) | the creation, or authorization of shares, securities or instruments convertible, exchangeable or exercisable for or into shares (including convertible debt), having rights, privileges or preferences superior to or on parity with the Series B Preferred Shares with respect to voting, dividends, redemption, conversion or liquidation or any other rights (including and without limitation, registration rights); | ||
(iv) | the purchase or redemption of, payment or declaration of any dividend on, or making of any distribution on, any equity interest therein, other than (i) redemption of the Series B Preferred Shares as expressly authorized herein, (ii) dividends or other distributions payable on the Ordinary Shares solely in the form of additional Ordinary Shares, (iii) upon termination of such services, repurchases of shares at below cost from former employees, officers, directors, consultants or other persons who performed services for any Group Company as permitted by the terms of their engagement by such Group Company approved by the Board, and (iv) repurchases of equity securities by the Company pursuant to Section 9 ; | ||
(v) | amendment, alteration or repeal of any provision of the Constitutional Documents of the Company; |
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(vi) | liquidation, dissolution or winding up of the business and affairs thereof; | ||
(vii) | any Deemed Liquidation Event; | ||
(viii) | the issuance or agreement to issue shares or other securities or instruments exchangeable, convertible or exercisable for any equity interest therein other than the Reserved Shares and shares issuable under the Transaction Documents and the Share Option Plan; | ||
(ix) | raising or authorization of any indebtedness or debt financing by the Company, and the raising or authorization of any indebtedness or debt financing by any other member of the Group if after such indebtedness or debt financing the aggregate amount of indebtedness and debt financing by all members of the Group would exceed US$20 million, provided that this clause (ix) shall not apply to any loan extended to a Group Company by a shareholder of the Company if (i) such loan is made on terms no less favorable to the Group Company than the terms that would be customary in an arms-length loan extended by a commercial bank, (ii) such loan is subordinate to any amounts that are or may become payable to any Investor by the Group Company, whether by virtue of the Investors ownership of securities of the Company or pursuant to any of the Transaction Documents, including without limitation any indemnification by the Company pursuant to the Series B Purchase Agreement, and (iii) after receipt of such loan, the aggregate amount of all such loans from shareholders of the Company to the Group Companies does not exceed US$15 million; | ||
(x) | any increase or decrease in the number of positions on the Board; | ||
(xi) | the adoption or termination of any Share Option Plan or amendment to any provision of any Share Option Plan or increase in the amount of Ordinary Shares reserved for future issuance pursuant to any Share Option Plan; | ||
(xii) | any action that effects a reclassification or recapitalization of the issued and outstanding shares of the Company; | ||
(xiii) | except as specifically contemplated in the Series B Purchase Agreement, the entry into any transaction or series of transactions (or the termination, extension, continuation after expiry, renewal, amendment, variation or waiver of any term under agreement with respect to any transaction or series of transactions) between any Group Company, on the one hand, and any Related Party of any Group Company (other than another Group Company), on the other hand; | ||
(xiv) | the sale, transfer, lease, assignment, parting with or disposal by the Company or any Group Company, whether directly or indirectly, of all or substantially all of the property, assets or revenues of the Company or such Group Company; |
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(xv) | the merger, consolidation, reorganization, or amalgamation of any Group Company with or into any other Person or any scheme of arrangement or other business combination with or into any other Person; | ||
(xvi) | the purchase or other acquisition by any of the Company or the Group Companies, or any combination of the foregoing, of another Person or all (or substantially all) of the business and/or assets of another Person through a single transaction or series of related transactions (i) with aggregate value of at least US$2,500,000, (ii) for which any required Consent has not been obtained, or (iii) if the target company of such transaction has not obtained any Consent required in connection with the conduct of its business; | ||
(xvii) | the re-domestication, continuance or removal thereof to any other jurisdiction; and | ||
(xviii) | any prepayment or early retirement of all or any portion of any indebtedness of any Group Company whether incurred before or after the date hereof, other than scheduled interest and principal payments and any payments made in accordance with Section 7.1 of the Series B Purchase Agreement. |
(b) | Notwithstanding anything to the contrary in the Constitutional Documents of the Company or any Group Company, the parties hereto shall ensure that none of the Company or the Group Companies shall take any of the actions described below unless approved in a resolution adopted by a majority of the Board, including at least two (2) Series B Directors: |
(i) | approval of any annual operating plan, budgets or any changes thereto; | ||
(ii) | the guarantee, directly or indirectly, of any indebtedness, or the indemnification to any Person regarding or in connection with any indebtedness, except for trade accounts of any Group Company arising in the ordinary course of business; | ||
(iii) | alteration or amendment of the accounting principles thereof except as required by applicable law; | ||
(iv) | appointment, dismissal or change in the appointment of independent public accountants, Auditor or counsels thereof; | ||
(v) | the making of any loan or advance to any Person or granting any credit to any Person, except accounts receivable arising in the ordinary course of business; | ||
(vi) | the sale, transfer, lease, assignment or disposal of any assets (whether by a single transaction or a series of related transactions) the aggregate fair market value of which exceeds US$3,000,000; |
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(vii) | the purchase or acquisition of any assets thereof (whether by a single transaction or a series of related transactions) the aggregate purchase price or cost to acquire of which exceeds US$3,000,000; | ||
(viii) | the commencement or settlement of any litigation the amount in controversy with respect to which exceeds US$3,000,000; | ||
(ix) | any change to the principal business thereof, entry into new lines of business thereby, or exiting a line of business thereby; | ||
(x) | hiring or termination of the CEO, CFO, chief operating officer or any other officer with the position of executive vice president or higher of any Group Company or any change to the compensation of any such officer of any Group Company, including the award of any option grants or share awards; | ||
(xi) | amendment, alteration or repeal of any provision of the Constitutional Documents of any Group Company (other than the Company); | ||
(xii) | the creation of any mortgage, charge, pledge, lien or other encumbrance with respect to assets thereof other than in the ordinary course of business or as imposed by operation of law; | ||
(xiii) | the formation of any committee of the Board of Directors of any Group Company and any changes to the powers granted to any such committee; | ||
(xiv) | any increase or decrease in the size or any change in the member(s) of the Board of Directors of any Group Company other than the Company; and | ||
(xv) | the prescription of any regulation in general meeting that would limit the powers of the Board of Directors of any of the Group Companies. |
2. | REGISTRATION RIGHTS | |
2.1 | Applicability of Rights . The Preferred Holders shall be entitled to the following rights with respect to any potential public offering of the Preferred Shares or the Ordinary Shares in the United States and shall be entitled to reasonably analogous or equivalent rights with respect to any other offering of any Company Securities in any other jurisdiction in which the Company undertakes to publicly offer or list Company Securities for trading on a recognized securities exchange. The Company shall not grant registration rights superior to or in parity with those granted to the Preferred Holders to any other holder of the Company Securities without the prior Approval of the Series B Holders. | |
2.2 | [Reserved] | |
2.3. | Demand Registration . |
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(a) | Request by Holders . | ||
If the Company shall, at any time after the earlier of (i) the third anniversary of the date of this Agreement or (ii) the closing of the Qualified IPO, receive a written request from the Holders of at least 50% of the Registrable Securities then held by all Holders of Series B Preferred Shares that the Company file a registration statement under the Securities Act covering the registration of at least 50% of the Registrable Securities then held by such requesting Holders pursuant to this Section 2.3 , then the Company shall, within ten (10) Business Days of the receipt of such written request, give written notice of such request to all Holders, and use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after the Companys delivery of written notice thereto, subject only to the limitations of this Section 2.3 ; provided that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 2.3 or Section 2.5 or in which the Holders had an opportunity to participate pursuant to the provisions of Section 2.4 , other than a registration from which the Registrable Securities of the Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Section 2.4(a) . The Company shall not be obligated to effect more than three (3) such demand registrations pursuant to this Section 2.3(a) . | |||
(b) | Underwriting . If the Holders initiating the registration request under this Section 2.3 (the Initiating Holders ) intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.3 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in voting power of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Holders representing a majority in voting power of the Registrable Securities held by the Initiating Holders. Notwithstanding any other provision of this Section 2.3 , if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each Holder |
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requesting registration (including the Initiating Holders); provided , however , that the number of Registrable Securities held by Holders of Series B Preferred Shares to be included in such underwriting and registration shall not be reduced unless all other securities are first excluded from the underwriting and registration (including, without limitation, any Company Securities which the Company may seek to include in the underwriting for its own account) and that the number of Registrable Securities held by Holders of Series A Preferred Shares to be included in such underwriting and registration shall not be reduced unless all other securities (other than Registrable Securities held by Holders of Series B Preferred Shares) are first excluded from the underwriting and registration (including, without limitation, any Company Securities which the Company may seek to include in the underwriting for its own account); provided further , that at least 25% of any Registrable Securities requested by the Holders of Series B Preferred Shares to be included in such underwriting and registration shall be so included. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. | |||
(c) | Deferral . Notwithstanding the foregoing, if the Company shall furnish to Holders requesting registration pursuant to this Section 2.3 , a certificate signed by the CEO stating that in the good faith judgment of the Board, it would be materially detrimental to the Company and its Shareholders for such registration statement to be filed at such time, then the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided , however , that the Company may not utilize this right more than once in any twelve (12) month period; provided further , that the Company shall not register any other of its Shares during such twelve (12) month period. A demand right shall not be deemed to have been exercised until such deferred registration shall have been effected. |
2.4 | Piggyback Registrations . |
(a) | The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of Company Securities (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.5 of this Agreement or to any employee benefit plan or a corporate reorganization), and shall afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a |
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Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. | |||
(b) | Underwriting . If a registration statement under which the Company gives notice under this Section 2.4 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holders Registrable Securities to be included in a registration pursuant to this Section 2.4 shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Agreement but subject to Section 2.12 , if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of Shares to be underwritten, then the managing underwriter(s) may exclude Shares from the registration and the underwriting, and the number of Shares that may be included in the registration and the underwriting shall be allocated, first , to the Company, second , to each of the Holders of Series B Preferred Shares requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder, third , to each of the Holders of Series A Preferred Shares requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of shares of Registrable Securities then held by each such Holder and fourth , to holders of other securities of the Company; provided , however , that the right of the underwriter(s) to exclude Shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that the number of Registrable Securities held by Holders of Series B Preferred Shares included in any such registration is not reduced below twenty-five percent (25%) of the aggregate number of Company Securities included in such registration statement. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice in the Company and the underwriter(s), delivered at least ten (10) Business Days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. | ||
(c) | Not Demand Registration . Registration pursuant to this Section 2.4 shall not be deemed to be a demand registration as described in Section 2.3 above. There shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.4 . |
2.5 | Form F-3 Registration . |
(a) | In case the Company shall receive from Holders of the Series B Preferred |
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Shares a written request or requests that the Company effect a registration on Form F-3 (and any related qualification or compliance) with respect to all or a part of the Registrable Securities owned by such Holders, then the Company shall promptly give written notice of the proposed registration and the Holders request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of such Registrable Securities of such Holder as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within twenty (20) days after the Company provides the notice contemplated above | |||
(b) | Notwithstanding anything to the contrary provided above, the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.5 : |
(1) | if Form F-3 is not available for such offering by the Holders; | ||
(2) | if the aggregate anticipated price to the public of any Registrable Securities which such Holders propose to sell pursuant to such registration, together with the aggregate anticipated price to the public of any other securities of the Company entitled to inclusion in such registration, is less than US$500,000 (or the equivalent thereof in other currencies); | ||
(3) | if the Company shall furnish to the Holders a certificate signed by the CEO stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its Shareholders for such Form F-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form F-3 registration statement no more than once during any twelve (12) month period for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.5 ; provided that the Company shall not register any of its other Shares during such ninety (90) day period; or | ||
(4) | if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Sections 2.3(b) and 2.4(a) . |
(d) | Not Demand Registration . Form F-3 registrations shall not be deemed to be demand registrations as described in Section 2.3 above. Except as otherwise provided herein, there shall be no limit on the number of times the Holders may request registration of Registrable Securities under this Section 2.5 . |
2.6 | Expenses . All Registration Expenses incurred in connection with any registration |
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pursuant to Sections 2.3, 2.4 or 2.5 (but excluding Selling Expenses) shall be borne by the Company. Each Holder participating in a registration pursuant to Sections 2.3, 2.4 or 2.5 shall bear such Holders proportionate share (based on the total number of Shares sold in such registration) of all Selling Expenses in connection with such registration. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority in voting power of the Registrable Securities held by the Holders that requested the registration, unless the Holders of a majority in voting power of the Registrable Securities held by the Holders that requested the Registration agree that such registration constitutes the use by the Holders of one (1) demand registration available to the Holders of Registrable Securities, as the case may be, pursuant to Section 2.3 ; provided further , however , that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and such registration shall not constitute the use of a demand registration by the Holders of Registrable Securities, as the case may be, pursuant to Section 2.3 . | ||
2.7 | Obligations of the Company . Whenever required to effect the registration of any Registrable Securities under this Agreement the Company shall, as expeditiously as reasonably possible: |
(a) | Registration Statement . Prepare and file with the SEC a registration statement with respect to such Registrable Securities, use its best efforts to cause such registration statement to become effective and keep such registration statement effective for a period of up to 120 days or, in the case of Registrable Securities registered under Form F-3 in accordance with Rule 415 under the Securities Act or a successor rule, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such 120 day period shall be extended for a period of time equal to the period any Holder refrains from selling any securities included in such registration at the request of the underwriter(s), and (ii) in the case of any registration of Registrable Securities on Form F-3 which are intended to be offered on a continuous or delayed basis, such 120 day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold. | ||
(b) | Amendments and Supplements . Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. | ||
(c) | Prospectuses . Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. |
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(d) | Blue Sky . Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act. | ||
(e) | Underwriting . In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. | ||
(f) | Notification . Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of (i) the issuance of any stop order by the SEC in respect of such registration statement, or (ii) the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of a supplement or amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing. | ||
(g) | Opinion and Comfort Letter . Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriter(s) for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to Holders representing a majority in voting power of the Registrable Securities held by the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a comfort letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to Holders representing a majority in voting power of the Registrable Securities held by the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. |
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(h) | Transfer Agent and CUSIP . Provide a transfer agent and registrar for all Registrable Securities covered by such registration statement and, where applicable, a CUSIP number for all those Registrable Securities, in each case not later than the effective date of the Registration. | ||
(i) | Further Actions . Take all reasonable action necessary to list the Registrable Securities on the primary exchange upon which the Companys securities are traded or, in connection with any IPO, the primary exchange upon which the Companys securities will be traded. |
2.8 | Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.3, 2.4 or 2.5 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities. | |
2.9 | Indemnification . In the event any Registrable Securities are included in a registration statement under Sections 2.3, 2.4 or 2.5 : |
(a) | By the Company . To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, its partners, officers, directors, legal counsel, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against all losses, claims, damages, and liabilities (joint or several; or actions, proceedings or settlements in respect thereof) to which they may become subject under laws which are applicable to the company and relate to action or inaction required of the Company in connection with any registration, qualification, or compliance, insofar as such losses, claims, damages, or liabilities (or actions, proceedings or settlements in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a Violation ): |
(i) | any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; | ||
(ii) | the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or | ||
(iii) | any violation or alleged violation by the Company of the Applicable Securities Law, or any rule or regulation promulgated under the Applicable Securities Law; |
and the Company shall reimburse each such Holder, and its respective partners, officers, directors, legal counsel, underwriter and controlling Person for any legal or other expenses reasonably incurred by them, as such expenses are incurred, in connection with investigating or defending any such loss, claim, |
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damage, liability or action; provided , however , that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, legal counsel, underwriter or controlling Person of such Holder. | |||
(b) | By Selling Holders . To the extent permitted by law, each selling Holder shall, if Registrable Securities held by Holder are included in the securities as to which such registration, qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holders partners, directors, officers, legal counsel or any Person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, legal counsel, controlling Person, underwriter or other such Holder, partner or director, officer or controlling Person of such other Holder may become subject under the Securities Act, the Exchange Act or other United States federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any of the following statements, omissions or violations, in each case to the extent (and only to the extent) that such statement, omission or violation occurs in sole reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration: |
(i) | untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or | ||
(ii) | omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, |
and each such Holder shall reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling Person, underwriter or other Holder, partner, officer, director or controlling Person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder, which consent shall not be unreasonably withheld; and provided, further, that except for liability for willful |
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fraud or misrepresentation, in no event shall any indemnity under this Section 2.9(b) exceed the net proceeds received by such Holder in such registration. | |||
(c) | Notice . Promptly after receipt by an indemnified Party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified Party shall, if a claim in respect thereof is to be made against any indemnifying Party under this Section 2.9 , deliver to the indemnifying Party a written notice of the commencement thereof and the indemnifying Party shall have the right to participate in, and, to the extent the indemnifying Party so desires, jointly with any other indemnifying Party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying Party, as incurred, if representation of such indemnified Party by the counsel retained by the indemnifying Party would be inappropriate due to actual or potential conflict of interests between such indemnified Party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying Party within a reasonable time of the commencement of any such action shall relieve such indemnifying Party of liability to the indemnified Party under this Section 2.9 to the extent the indemnifying Party is prejudiced as a result thereof, but the omission to so deliver written notice to the indemnifying Party shall not relieve it of any liability that it may have to any indemnified Party otherwise than under this Section 2.9 . | ||
(d) | Contribution . In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any indemnified Party makes a claim for indemnification pursuant to this Section 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified Party in circumstances for which indemnification is provided under this Section 2.9 ; then, and in each such case, the indemnified Party and the indemnifying Party shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that a Holder (together with its Affiliated Persons) is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion. The relative fault of the indemnifying Party and of the indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying Party or by the indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided , however , that, except for liability for willful fraud or misrepresentation, (A) no Holder shall be required to contribute any amount in excess of the net proceeds |
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to such Holder from the sale of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no Person guilty of willful fraud or misrepresentation (within the meaning of Section 12(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such willful fraud or misrepresentation. | |||
(e) | Survival; Consents to Judgments and Settlements . The obligations of the Company and Holders under this Section 2.9 shall survive the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitation or extensions of such statutes. No indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Party of a release from all liability in respect to such claim or litigation. |
2.10 | No Registration Rights to Third Parties . Without the prior written consent of Holders holding a majority in voting power of the Registrable Securities then outstanding, the Company covenants and agrees that it shall not grant, or cause or permit to be created, for the benefit of any Person any registration rights of any kind (whether similar to the demand, piggyback or Form F-3 registration rights described in this Section 2 , or otherwise) relating to any Company Securities. | |
2.12 | Market Stand-Off . The Founder, each of the Co-Founders and each Holder agrees that, and the Founder and the Co-Founders shall cause each Key Management Personnel to agree that, so long as it holds any voting Company Securities, whether directly or indirectly, upon request by the Company or the underwriters managing a Qualified IPO of the Company Securities, it shall not sell or otherwise transfer or dispose of any Company Securities (other than those permitted to be included in the registration and other transfers to affiliates permitted by law), whether directly or indirectly, without the prior written consent of the Company or such underwriters, as the case may be, for a period of time specified by the representative of the underwriters not to exceed 180 days from the effective date of the registration statement covering such initial public offering or the pricing date of such offering as may be requested by the underwriters. Notwithstanding anything to the contrary herein, the foregoing provision of this Section 2.12 shall not apply to the sale of any Company Securities to an underwriter pursuant to any underwriting agreement and shall not be applicable to the Holders unless all officers and directors of the Group Companies and holders of one percent (1%) or more of the Companys outstanding share capital enter into similar agreements. If the Company or any underwriter releases any such officer, director or holder of one percent (1%) or more of the Companys outstanding share capital from such sale restrictions once undertaken, then each Holder shall be notified prior to such release and shall itself be simultaneously released. The Company shall require all future acquirers of Company Securities holding at least one percent (1%) of the then outstanding share capital of the Company to execute prior to a Qualified IPO a market stand-off agreement containing provisions substantially similar to those contained in this Section 2.12 . | |
2.12 | Listing in Hong Kong . Without limiting the generality of the foregoing provisions in this Section 2 , in the event of a listing of the Companys Ordinary Shares in Hong Kong |
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(the Listing ): |
(a) | The selection of Hong Kong as the jurisdiction, and the relevant exchange as the exchange for the Listing shall be subject to the prior written approval of Holders of a majority in voting power of the Registrable Securities then outstanding; | ||
(b) | The selection of the sponsor and/or lead manager (and any co-managers) for the Listing shall be subject to the prior written approval of Holders of a majority in voting power of the Registrable Securities then outstanding; | ||
(c) | Each Holder of Registrable Securities shall have the right to include and sell all of the Registrable Securities held by it in such Listing; | ||
(d) | Each Holder of Registrable Securities shall have the right to attend all meetings in connection with the Listing where the Company is present; | ||
(e) | The determination of the price at which the Ordinary Shares are to be listed in such Listing shall be subject to the prior written approval of Holders of a majority in voting power of the Registrable Securities then outstanding; | ||
(f) | All expenses incurred in connection with the inclusion and sale of any Ordinary Shares held by any Holder (including all reasonable fees and disbursements of counsel for the Holder) shall be borne by the Company; | ||
(g) | At any time after the second anniversary of the date of this Agreement, at the written request from Holders of a majority in voting power of the Registrable Securities then outstanding, the Company shall use its best efforts to effect such Listing on terms and subject to conditions as agreed upon between the Company and such Holders; and | ||
(h) | The Company shall not require any Holder to hold, or refrain from transferring, any of its Shares in the Company beyond the specific period(s) as set forth in the listing rules applicable to such Listing. |
2.13 | Rule 144 Reporting . With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration or pursuant to a registration on Form F-3, after such time as a public market exists for the Ordinary Shares, the Company agrees to: |
(a) | Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; | ||
(b) | File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and | ||
(c) | So long as a Holder owns any Registrable Securities, to furnish to such Holder |
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forthwith upon request (i) a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 (at any time after ninety (90) days
after the effective date of the Companys initial public offering), the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), or its qualification as a registrant whose securities may
be resold pursuant to Form F-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC that permits the selling of
any such securities without registration or pursuant to
Form F-3. |
2.14 | Termination . The Company shall have no obligations pursuant to Sections 2.3, 2.4 and 2.5 with respect to any Registrable Securities proposed to be sold by a Holder in a registration or listing pursuant to Section 2.3, 2.4 or 2.5 if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may then be sold without registration in any ninety (90) day period pursuant to Rule 144 promulgated under the Securities Act. | |
3. | RIGHT OF PARTICIPATION. | |
3.1 | General . Each Participation Rights Holder shall have a right of first offer to purchase its pro rata share of any New Securities the Company may from time to time issue after the date of this Agreement (the Right of Participation ) as provided below: |
(a) | If the then outstanding Series B Preferred Shares (calculated on a fully-diluted and as-if converted basis) represent more than 49% of the total number of Shares then outstanding (calculated on a fully-diluted and as-if converted basis), then each Participation Rights Holders pro rata share of any New Securities for purposes of determining its Right of Participation shall be a portion of the aggregate number of New Securities equal to the number of Series B Preferred Shares (calculated on a fully-diluted and as-if converted basis) held by such Participation Rights Holder in relation to the total number of Shares outstanding (calculated on a fully-diluted and as-if converted basis) immediately prior to the issuance of such New Securities. | ||
(b) | If the then outstanding Series B Preferred Shares (calculated on a fully-diluted and as-if converted basis) represent 49% or less of the total number of Shares then outstanding (calculated on a fully-diluted and as-if converted basis), then each Participation Rights Holders pro rata share of any New Securities for purposes of determining its Right of Participation shall be a portion of 49% of the aggregate number of New Securities equal to the number of Series B Preferred Shares (calculated on a fully-diluted and as-if converted basis) held by such Participation Rights Holder in relation to the total number of Series B Preferred Shares outstanding (calculated on a fully-diluted and as-if converted basis) immediately prior to the issuance of such New Securities. |
3.2 | Procedures . |
(a) | First Participate Notice . In the event that the Company proposes to undertake |
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an issuance of New Securities, it shall give written notice thereof (the First Participation Notice ) to each Participation Rights Holder describing the amount and type of such New Securities, the price and general terms upon which the Company proposes to issue the New Securities, and each Participation Rights Holders pro rata share of such New Securities. Each Participation Rights Holder shall have ten (10) Business Days from the date of receipt of such First Participation Notice to elect in writing to purchase up to such Participation Rights Holders pro rata share of such New Securities for the price and upon the terms and conditions specified in the First Participation Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. | |||
(b) | Second Participation Notice; Oversubscription . If any Participating Rights Holder fails to timely exercise its Right of Participation in respect of any New Securities in accordance with Section 3.2(a) , the Company shall promptly give notice (the Second Participation Notice ) to each Participating Rights Holder who exercised its Right of Participation to purchase its full pro rata share of such New Securities in accordance with Section 3.2(a) (the Rights Participants ), which notice shall describe the remaining New Securities with respect to which any Participating Rights Holder failed to exercise its Right of Participation. Each Rights Participant shall have five (5) Business Days from the date of the Second Participation Notice (the Second Participation Period ) within which it may elect to purchase any or all of the remaining New Securities by giving notice of such election to the Company stating the maximum number of remaining New Securities which such Rights Participant is willing to purchase. Such notice may be made in writing or by telephone (if confirmed in writing within two (2) Business Days thereafter). If the sum of the remaining New Securities which the Rights Participants elect to purchase exceed the actual number of remaining New Securities, then the number of remaining New Securities that any Rights Participant shall purchase shall be reduced to such number as is necessary to eliminate such excess; provided that there shall be no reduction in the number of remaining New Securities that any Rights Participant shall purchase to the extent that, after giving effect to such reduction, the number of remaining New Securities which such Rights Participant is entitled to purchase, in relation to the number of remaining New Securities to be purchased by any other Rights Participant, would be less than the proportion that the number of Ordinary Shares held such Rights Participant (determined on a fully-diluted, as-if converted basis) prior to acquiring any of the New Securities bears to the number of Ordinary Shares held by such other Rights Participant (determined on a fully-diluted, as-if converted basis) prior to acquiring any of the New Securities. |
3.3 | Failure to Exercise . Upon the expiration of the Second Participation Period, or in the event no Participation Rights Holder timely exercises its Right of Participation within ten (10) Business Days following the issuance of the First Participation Notice, the Company shall have 120 days thereafter to sell the New Securities described in the First Participation Notice at the same or higher price and upon non-price terms not materially more favorable to the purchasers thereof than specified in the First Participation Notice. In the event that the Company has not issued and sold such New Securities within such 120-day period, then the Company shall not thereafter issue or |
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sell any New Securities without again first offering such New Securities to the Participation Rights Holders pursuant to this Section 3 . | ||
4. | TRANSFER RESTRICTIONS. | |
4.1 | Prohibition on Transfers of Interest in the Company . |
(a) | Except as otherwise provided in Section 4.1(b), Section 4.8 and Section 4.9 , no Restricted Shareholder shall sell, assign, transfer, pledge, hypothecate, or otherwise encumber or dispose of in any way (a Transfer ), all or any part of any interest in any Company Securities now or hereafter owned or held thereby. Any Transfer of Company Securities by any Restricted Shareholder not made in conformance with this Agreement shall be null and void, shall not be recorded on the books of the Company, and shall not be recognized by the Company. | ||
(b) | The SPV Holders shall not Transfer all or any part of their ownership interests in any SPV Entity now or hereafter owned or held thereby. In the event of any Transfer of all or any part of any SPV Holders ownership interest in any SPV Entity, the Company shall be entitled to repurchase all and any of the Company Securities directly or indirectly held by such SPV Entity at the par value thereof. Notwithstanding the foregoing, the following transfers shall not be subject to any restriction contained in this Agreement except as specifically set forth below: (i) any transfer of all or any part of the ownership interests in any SPV Entity from time to time from a Co-Founder to the Founder, (ii) any transfer of all or any part of the ownership interests in any SPV Entity from time to time from the Founder to another SPV Entity Controlled by the Founder and (iii) any transfer approved by the Board in good faith of all or any part of the ownership interests in any SPV Entity from time to time from the Founder to the parents, children or spouse of the Founder, or to trusts for the benefit of such Persons for bona fide estate planning purposes. In the case of any transfer pursuant to the clause (ii) or (iii) of the preceding sentence, (A) the transferee shall execute a Deed of Adherence, in the form of Exhibit C hereto, agreeing to be bound by this Agreement in place of the transferring SPV Holder, and (B) the Restricted Shareholder shall remain liable for any breach by such transferee of any provision hereunder. |
4.2 | Right of First Refusal . Subject to Section 4.9 of this Agreement, if a Restricted Shareholder proposes to sell or transfer any Company Securities held by it (a Selling Shareholder ), then it shall promptly give written notice (an Offer Notice ) to the Company and each Preferred Holder prior to such sale or transfer. The Offer Notice shall state the Selling Shareholders bona fide intention to transfer the number of Restricted Shares to be sold or transferred (the Offered Shares ), the total number of Ordinary Shares owned by the Selling Shareholder (determined on a fully-diluted, as-if converted basis), the terms and conditions of the proposed sale or transfer (including, without limitation, the sale price), the nature of such proposed sale or transfer, the name and address of the prospective purchaser or transferee (the Prospective Transferee ), and any other material facts relating to such proposed sale or transfer. The Offer Notice shall certify that the Selling Shareholder has received a firm offer from the Prospective Transferee and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Offer Notice. The Offer Notice shall also include a copy of |
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any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer. | ||
4.3 | Companys Option . The Company shall have an option for a period of thirty (30) days from receipt of the Offer Notice to elect to purchase the Offered Shares at the same price and subject to the same material economic terms and conditions as are described in the Offer Notice. The Company may exercise such purchase option and, thereby, purchase all or a portion of the Offered Shares by notifying the Selling Shareholder in writing before expiration of the thirty-day period as to the number of such shares which it wishes to purchase. If the Company gives the Selling Shareholder notice that it desires to purchase such shares, then payment for the Offered Shares shall be by check or wire transfer, against delivery of the Offered Shares to be purchased, at a place agreed upon between the parties and at the time of the scheduled closing therefor, which shall be no later than sixty (60) days after the Companys receipt of the Offer Notice, unless the Offer Notice contemplated a later closing with any prospective third party transferee or unless the value of the purchase price has not yet been established pursuant to Section 4.6 . | |
4.4 | Series B Holders Option . |
(a) | Additional Offer Notice . If the Company has declined to purchase all, or a portion of, the Offered Shares in connection with a proposed Transfer, then the Selling Shareholder shall give each Series B Holder a written Additional Offer Notice , which shall include all of the information and certifications required in an Offer Notice, and shall additionally identify the Offered Shares which the Company has declined to purchase (the Remaining Shares ) and briefly describe the Series B Holders rights of first refusal with respect to the proposed Transfer. | ||
(b) | Option . |
(i) | Each Series B Holder shall have an option for a period of thirty (30) days from the Series B Holders receipt of the Additional Offer Notice to elect to purchase its respective pro rata share of the Remaining Shares at the same price and subject to the same material terms and conditions as described in the Additional Offer Notice. | ||
(ii) | Each Series B Holder may exercise such purchase option and, thereby, purchase all or any portion of its pro rata share of the Remaining Shares, by notifying the Selling Shareholder and the Company in writing, before expiration of the thirty-day period as to the number of such shares which it wishes to purchase. For purposes of this clause (ii), each Series B Holders pro rata share of the Remaining Shares shall be a fraction of the Remaining Shares, of which the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by such Series B Holder on the date of the Offer Notice shall be the numerator and the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) held by all Series B Holders on the date of the Offer Notice shall be the denominator. |
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(iii) | If any Series B Holder fails to exercise its option to purchase its full pro rata share of the Remaining Shares, the Selling Shareholder shall give written notice (a Series B Reallotment Notice ) to each Series B Holder who has fully exercised its option to purchase a pro rata portion of the Remaining Shares. The Series B Reallotment Notice shall include all of the information and certifications required in an Offer Notice and briefly describe the Series B Holders rights of reallotment. The Series B Reallotment Notice shall further identify the Remaining Shares in respect of which any Series B Holder has failed to exercise its right of first refusal (or in the case where there has been a prior Series B Reallotment Period, in respect of which any Series B Holder has failed to exercise its right of reallotment) (the Series B Reallotment Shares ). | ||
(iv) | Each Series B Holder entitled to receive a Series B Reallotment Notice (a Participating Series B Holder ) shall have an option to purchase, at the same price and subject to the same material terms and conditions as described in any Series B Reallotment Notice, all or part of its pro rata share of the Series B Reallotment Shares described in such Series B Reallotment Notice. Such option shall be exercisable by each Participating Series B Holder by notifying the Company and the Selling Shareholder in writing, within thirty (30) days after delivery to the Participating Series B Holder of the Series B Reallotment Notice (a Series B Reallotment Period ). For purposes of this clause (iv), each Participating Series B Holders pro rata share of the Series B Reallotment Shares shall be a fraction of the Series B Reallotment Shares, of which the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by such Participating Series B Holder on the date of the Offer Notice shall be the numerator and the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) held by all Participating Series B Holders on the date of the Offer Notice shall be the denominator. | ||
(v) | On expiration of any Series B Reallotment Period, the Company shall issue a new Series B Reallotment Notice to each of the Series B Holders that have exercised their right of reallotment in such period, and such Series B Holders shall be given an additional right of reallotment under clause (iv) above, unless either (x) the Series B Holders have exercised any rights of first refusal and rights of reallotment with respect to all the Remaining Shares or (y) no Series B Holder shall have exercised its right of reallotment during such Series B Reallotment Period. | ||
(vi) | Each Series B Holder shall be entitled to apportion Remaining Shares to be purchased among its partners and Affiliates, provided that such Series B Holder notifies the Selling Shareholder of such allocation. | ||
(vii) | If any Series B Holder exercises its option under this paragraph (b) to purchase any Remaining Shares, then payment for the Remaining Shares shall be by check or wire transfer, against delivery of the Remaining Shares to be purchased at a place agreed by the parties and at |
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the time of the scheduled closing therefor, which shall be no later than thirty (30) days after the expiration of any period for exercise by such Series B Holders of their right of first refusal with respect to the Remaining Shares and all periods for exercise by the Series B Holders of any right of reallotment, unless the Additional Offer Notice contemplated a later closing with any prospective third party transferee or unless the value of the purchase price has not yet been established pursuant to Section 4.6 . |
4.5 | Series A Holders Option . |
(a) | Further Offer Notice. If the Company and the Series B Holders have declined to purchase all, or a portion of, the Offered Shares in connection with a proposed Transfer, then the Selling Shareholder shall give each Series A Holder a written Further Offer Notice , which shall include all of the information and certifications required in an Offer Notice, and shall additionally identify the Offered Shares which the Company and the Series B Holders have declined to purchase (the Balance Shares ) and briefly describe the Series A Holders rights of first refusal with respect to the proposed Transfer. | ||
(b) | Option . |
(i) | Each Series A Holder shall have an option for a period of thirty (30) days from the Series A Holders receipt of the Further Offer Notice to elect to purchase its respective pro rata share of the Balance Shares at the same price and subject to the same material terms and conditions as described in the Further Offer Notice. | ||
(ii) | Each Series A Holder may exercise such purchase option and, thereby, purchase all or any portion of its pro rata share of the Balance Shares, by notifying the Selling Shareholder and the Company in writing, before expiration of the thirty-day period as to the number of such shares which it wishes to purchase. For purposes of this clause (ii), each Series A Holders pro rata share of the Balance Shares shall be a fraction of the Balance Shares, of which the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by such Series A Holder on the date of the Offer Notice shall be the numerator and the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) held by all Series A Holders on the date of the Offer Notice shall be the denominator. | ||
(iii) | If any Series A Holder fails to exercise its option to purchase its full pro rata share of the Balance Shares, the Selling Shareholder shall give written notice (a Series A Reallotment Notice ) to each Series A Holder who has fully exercised its option to purchase a pro rata portion of the Balance Shares. The Series A Reallotment Notice shall include all of the information and certifications required in an Offer Notice and briefly describe the Series A Holders rights of reallotment. The Series A Reallotment Notice shall further identify the Balance Shares in respect of which any Series A Holder has failed to exercise its right of |
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first refusal (or in the case where there has been a prior Series A Reallotment Period, in respect of which any Series A Holder has failed to exercise its right of reallotment) (the Series A Reallotment Shares ). | |||
(iv) | Each Series A Holder entitled to receive a Series A Reallotment Notice (a Participating Series A Holder ) shall have an option to purchase, at the same price and subject to the same material terms and conditions as described in any Series A Reallotment Notice, all or part of its pro rata share of the Series A Reallotment Shares described in such Series A Reallotment Notice. Such option shall be exercisable by each Participating Series A Holder by notifying the Company and the Selling Shareholder in writing, within thirty (30) days after delivery to the Participating Series A Holder of the Series A Reallotment Notice (a Series A Reallotment Period ). For purposes of this clause (iv), each Participating Series A Holders pro rata share of the Series A Reallotment Shares shall be a fraction of the Series A Reallotment Shares, of which the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by such Participating Series A Holder on the date of the Offer Notice shall be the numerator and the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) held by all Participating Series A Holders on the date of the Offer Notice shall be the denominator. | ||
(v) | On expiration of any Series A Reallotment Period, the Company shall issue a new Series A Reallotment Notice to each of the Series A Holders that have exercised their right of reallotment in such period, and such Series A Holders shall be given an additional right of reallotment under clause (iv) above, unless either (x) the Series A Holders have exercised any rights of first refusal and rights of reallotment with respect to all the Series B Balance Shares or (y) no Series A Holder shall have exercised its right of reallotment during such Series A Reallotment Period. | ||
(vi) | If any Series A Holder exercises its option under this paragraph (c) to purchase any Balance Shares, then payment for the Balance Shares shall be by check or wire transfer, against delivery of the Balance Shares to be purchased at a place agreed by the parties and at the time of the scheduled closing therefor, which shall be no later than thirty (30) days after the expiration of any period for exercise by such Series A Holders of their right of first refusal with respect to the Balance Shares and all periods for exercise by the Series A Holders of any right of reallotment, unless the Further Offer Notice contemplated a later closing with any prospective third party transferee or unless the value of the purchase price has not yet been established pursuant to Section 4.6 . |
4.6 | Valuation of Property . |
(a) | Right to Pay Cash Value of Consideration . Should the purchase price specified in the Offer Notice, Additional Offer Notice or Further Offer Notice be payable in property other than cash or evidences of indebtedness, the Company, the |
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Series A Holders and/or the Series B Holders, as applicable, shall have the right to pay the purchase price in connection with the exercise of their right of first refusal hereunder in the form of cash equal in amount to the fair market value of such property. | |||
(b) | Valuation of Non-Cash Consideration . Such fair market cash value shall be determined in the first instance by the Board acting in good faith, and the Company shall notify the Selling Shareholder, Series A Holders and Series B Holders in writing of such determination within three (3) Business Days thereafter. If any of the Selling Shareholder, Series A Holders representing a majority in voting power of the Series A Preferred Shares or Series B Holders representing a majority in voting power of the Series B Preferred Shares disagrees with such determination, then within ten (10) Business Days after receiving the Companys notification thereof, it may apply to the Hong Kong International Arbitration Centre to appoint an appraiser of recognized international reputation and standing, who shall determine such cash value. The cost of such appraisal (and the appointment of an appraiser) shall be borne by the Selling Shareholder. | ||
(c) | Adjustment to Time for Closing . If the time for the closing of the Companys, Series A Holders or Series B Holders purchase has expired but for the determination of the value of the purchase price offered by the Prospective Transferee, such closing shall be held on or prior to the fifth (5th) Business Day after such valuation shall have been made pursuant to this Section 4.6 . |
4.7 | Co-Sale Rights . To the extent that the Company, Series A Holders and/or Series B Holders have not exercised their respective rights of first refusal to purchase all the Offered Shares under this Section 4 , then subject to this Section 4.7 , the Selling Shareholder may sell the remaining Offered Shares in respect of which such rights were not exercised (the Co-Sale Shares ). |
(a) | Co-Sale Notice . Within ten (10) days after expiration of the time for exercise by the Company and the Preferred Holders of any rights of first refusal hereunder (and any right of reallotment) in respect of the Offered Shares, the Selling Shareholder shall give written notice to each Series B Holder who has not exercised its right under Section 4.4 (an Eligible Preferred Holder ), which notice shall indicate the number of Co-Sale Shares and advise such Series B Holder of its co-sale rights with respect to such Co-Sale Shares. | ||
(b) | Exercise . Each such Series B Holder that notifies the Selling Shareholder in writing within twenty (20) Business Days after the receipt of such co-sale notice (a Co-Sale Participant ) shall have a right to participate in any sale by the Selling Shareholder of the Co-Sale Shares and sell a pro rata number of its Company Securities on the same economic terms and conditions as specified in the Offer Notice. Such Co-Sale Participants notice to the Selling Shareholder shall indicate the number of Company Securities the Co-Sale Participant wishes to sell pursuant to such right to participate. For purposes of this paragraph (b), the pro rata number of Company Securities each Co-Sale Participant may elect to sell pursuant to its right of participation shall equal (on a fully-diluted, as-if converted basis) (i) the aggregate number of Ordinary Shares covered by the |
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Offer Notice (determined on a fully-diluted, as-if converted basis) by (ii) a fraction, the numerator of which is the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by the Co-Sale Participant on the date of the Offer Notice, and the denominator of which is the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by the Selling Shareholder and all of the Eligible Preferred Holders. | |||
If any Eligible Preferred Holder fails to exercise its option to sell its full pro rata share of its Company Securities pursuant to its co-sale right under this Section, the Selling Shareholder shall give written notice (a Co-Sale Reallotment Notice ) to each Eligible Preferred Holder who has fully exercised its option to sell a pro rata portion of its Company Securities. The Co-Sale Reallotment Notice shall state the sum (determined on a fully-diluted, as-if converted basis) of all Company Securities that any Eligible Preferred Holder was entitled to sell in the exercise of its co-sale right under this Section where such Eligible Preferred Holder failed to exercise such right (or in the case where there has been a prior Co-Sale Reallotment Period, in respect of which any Co-Sale Participating Holder has failed to exercise its right of reallotment) (the Co-Sale Reallotment Shares ). |
(i) | Each Eligible Preferred Holder entitled to receive a Co-Sale Reallotment Notice (a Re-Allotment Participant ) shall have a right to include such additional number of its Company Securities in any sale by the Selling Shareholder of the Co-Sale Shares, and sell such additional Company Securities on the same economic terms and conditions as specified in the Offer Notice, as is equal (on a fully-diluted, as-if converted basis) to the number of Co-Sale Reallotment Shares (determined on a fully-diluted, as-if converted basis) multiplied by a fraction, the numerator of which is which is the number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by the Re-Allotment Participant on the date of the Offer Notice, and the denominator of which is the total number of Ordinary Shares (determined on a fully-diluted, as-if converted basis) owned by all Re- Allotment Participants. Such right shall be exercisable by any Re-Allotment Participant notifying the Company and the Selling Shareholder in writing within thirty (30) days after delivery to the Re-Allotment Participant of the Co-Sale Re-Allotment Notice (the Co-Sale Re-Allotment Period ). | ||
(ii) | On expiration of any Co-Sale Reallotment Period, the Company shall issue a new Co-Sale Reallotment Notice to each Re-Allotment Participant that has exercised its full right of reallotment in such period, and such Re-Allotment Participant shall be given an additional right of reallotment under clause (i) above, unless either (x) there are no remaining Co-Sale Re-Allotment Shares or (y) no Re-Allotment Participant shall have exercised its right of reallotment during such Co-Sale Reallotment Period. |
(c) | Reduction of Co-Sale Shares . To the extent one or more of the Series B Holders exercises its right of participation in accordance with the terms and conditions |
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set forth above, the number of Restricted Shares that the Selling Shareholder may sell in the transaction shall be correspondingly reduced. | |||
(d) | Transferred Shares . Each Co-Sale Participant shall effect its participation in the sale by promptly delivering to the Selling Shareholder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent the type and number of Company Securities which such Co-Sale Participant elects to sell; provided that, if the Prospective Transferee objects to the delivery of Share Equivalents in lieu of Ordinary Shares, such Co-Sale Participant shall convert such Share Equivalents into Ordinary Shares and deliver certificates corresponding to such Ordinary Shares. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer. The share certificate or certificates that a Co-Sale Participant delivers to the Selling Shareholder pursuant to this paragraph shall be transferred to the Prospective Transferee in consummation of the sale of the Company Securities evidenced thereby pursuant to the terms and conditions specified in the Offer Notice, and the Selling Shareholder shall concurrently therewith remit to such Co-Sale Participant that portion of the sale proceeds to which the Co-Sale Participant is entitled by reason of its participation in such sale. | ||
(e) | Special Terms of Sale . Notwithstanding anything to the contrary provided in this Agreement, the only representations, warranties or covenants that any Co-Sale Participant shall be required to make in connection with a sale pursuant to its co-sale rights under this Section are representations and warranties with respect to its ownership of the Company Securities to be sold by it pursuant to the exercise of such rights and its ability to convey title thereto free and clear of liens, encumbrances or adverse claims and reasonable covenants regarding confidentiality, publicity and similar matters. | ||
(f) | Refusal by Prospective Transferee to Take Co-Sale Shares . To the extent that any Prospective Transferee prohibits the participation of a Co-Sale Participant exercising its co-sale rights hereunder in a proposed Transfer or otherwise refuses to purchase shares or other securities from a Co-Sale Participant exercising its co-sale rights hereunder, the Selling Shareholder shall not sell to such prospective purchaser any Company Securities unless and until, simultaneously with such sale, the Selling Shareholder shall purchase such shares or other securities from such Co-Sale Participant for the same consideration and on the same terms and conditions as the proposed transfer described in the Offer Notice. |
4.8 | Non-Exercise of Rights . To the extent that the Company and the Preferred Holders have not exercised their rights to purchase the Offered Shares within the time periods specified in Section 4.2 through Section 4.5 and any Eligible Preferred Holders have not exercised their rights to participate in the sale of the Offered Shares within the time periods specified in Section 4.7 , the Selling Shareholder shall have a period of ninety (90) days from the expiration of such rights in which to sell the Offered Shares to any third-party transferee identified in the Offer Notice so long as (i) the terms and conditions (including the purchase price) of such sale are no more favorable than those specified in the Offer Notice and (ii) such third-party transferee shall have executed a |
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binding instrument, in form and substance acceptable to Preferred Holders representing a majority in voting power of the Preferred Shares agreeing to be bound by all the terms of this Agreement as if it were originally a party hereto at the date hereof. Within fifteen (15) days of entering into any agreement to sell Offered Shares to a third-party transferee under this Section 4.8 , the Transferor shall furnish each Holder with a copy of all agreements relating to such sale. |
(a) | In the event the Selling Shareholder does not consummate the sale or disposition of the Offered Shares within ninety (90) days from the expiration of such rights, the Companys first refusal rights and the Preferred Holders first refusal rights and co-sale rights shall continue to be applicable to any subsequent disposition of the Offered Shares by the Selling Shareholder until such rights lapse in accordance with the terms of this Agreement. | ||
(b) | The exercise or non-exercise of the rights of the Company and the Preferred Holders under this Section 4 to purchase Company Securities from a Selling Shareholder or participate in the sale of Company Securities by a Selling Shareholder shall not adversely affect their rights to make subsequent purchases from the Restricted Shareholders of Company Securities or subsequently participate in sales of Company Securities by the Restricted Shareholders. |
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RESTATED SHAREHOLDERS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. | ||
The above restrictions on share transfer shall also be recorded in a notation to the entry for such Company Securities on the Companys share register. | ||
5. | DRAG-ALONG RIGHTS | |
5.1 |
Drag-Along Right
. Shareholders representing at least ninety percent (90%) in voting power of
the Company (a
Holder Supermajority
) may cause the sale (a
Compulsory Sale
) of the Company to
a third party (a
Compulsory Sale Purchaser
) in a bona-fide,
arms-length transaction. Without limiting the generality of the foregoing, in furtherance of a Compulsory Sale, a Holder Supermajority (i) may require the sale of all or a material part of the business, assets and undertaking as of any of the Group Companies, (ii) may require the continuation of the Company to another jurisdiction, (iii) may require the merger, amalgamation or consolidation of the Company with or into another Person, (iv) may require all Shareholders to sell all the Company Securities held thereby or (v) may require the Company and/or all Shareholders to take all such other actions as may as may be deemed appropriate by a Holder Supermajority to effect a Compulsory Sale. In connection with any Compulsory Sale, all Shareholders shall refrain from exercising, and each Shareholder hereby waives, any dissenters rights or rights of appraisal it may have under applicable law in relation to such transaction. |
|
5.2 | Further Assurances . Each Shareholder shall do and perform, or cause to be done and performed, all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as a Holder Supermajority may request in furtherance of any proposed Compulsory Sale, including, without limitation, |
(a) | Voting all Company Securities held by the Shareholder to approve any resolution which may be required to consummate such Compulsory Sale; and | ||
(b) | Delivering to any representative appointed by a Shareholder Supermajority all certificates evidencing any Company Securities held by such Shareholder, together with (x) an instrument of transfer, duly executed in blank and in proper form to permit the disposition of such securities to a Compulsory Sale Purchaser and (y) a limited power-of-attorney, in form and substance reasonably satisfactory to a Holder Supermajority, authorizing a representative appointed by such Shareholders Supermajority to effect the disposition of such securities to the Compulsory Sale Purchaser on such terms and conditions as shall be agreed between the Holder Supermajority and the Compulsory Sale Purchaser for the Compulsory Sale. If any Shareholder shall fail to deliver such certificates, instrument of transfer and limited power-of-attorney to the representative of a Holder Supermajority as required under this clause, the disposition of any Company Securities held by such Shareholder may be effected without the Shareholders consent or surrender of the certificate(s) for such Company Securities. |
5.3 | Distribution of Proceeds . Upon a Compulsory Sale, any proceeds therefrom payable to |
Page 40
the Shareholders shall be distributed as required under the Articles in relation to a Deemed Liquidation. | ||
6. | ASSIGNMENT AND AMENDMENT. | |
6.1 | Assignment . This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. Notwithstanding anything herein to the contrary: |
(a) | Information Rights and Registration Rights . The registration rights of the Holders under Section 2 may be assigned to any other Holder, to the Affiliates of any Holder or to any Person acquiring Registrable Securities equivalent (on a fully-diluted, as-if converted basis) to 400,000 Ordinary Shares (adjusted for any share splits, reverse share splits, share dividends, recapitalizations and the like) in a Transfer permitted hereunder; provided , however , that in either case no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party stating the name and address of the assignee and identifying the Company Securities as to which the rights in question are being assigned; and provided further , that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 6 . | ||
(b) | Rights of Participation; Right of First Refusal; Co-Sale Rights . A Series B Holder may assign its rights under Sections 3 and 4 in connection with a Transfer of Company Securities thereby; provided , however , that no Person may be assigned any of the foregoing rights unless the Company is given written notice by such Series B Holder at the time of such assignment, stating the name and address of the assignee and identifying the Company Securities as to which the rights in question are being assigned; and provided further , that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement. A Series A Holder may assign its rights under Section 4 in connection with a permitted Transfer of Company Securities thereby; provided , however , that no Person (other than the Founder or an SPV Entity Controlled by the Founder) may be assigned any of the foregoing rights unless Approved by the Series B Holders and the Company is given written notice by such Series A Holder at the time of such assignment, stating the name and address of the assignee and identifying the Company Securities as to which the rights in question are being assigned; and provided further , that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement. | ||
(c) | Other Rights and Obligations . None of the parties hereto shall Transfer all or any part of any interest in any Company Securities now or hereafter owned or held thereby unless the Person to whom such Equity Securities are Transferred shall have entered into a Deed of Adherence in the form of Exhibit C hereto to become bound by this Agreement as if it was originally party hereto as of the date hereof. Any attempted transfer in violation of this paragraph shall be void ab initio and of no force or effect. |
Except as provided above or as otherwise explicitly contemplated in this Agreement, |
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no party hereto shall assign its rights or obligations hereunder without the mutual written consent of the other parties hereto. | ||
6.2 | Amendment of Rights . Any provision in this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by (i) the written consent of the Company; (ii) the Approval of the Series B Holders and (iii) the written consent of Shareholders representing a majority in voting power of the Ordinary Shares and Series A Preferred Shares (voting together as a single class); provided , however, that any party (other than the Company) may waive any of its rights hereunder without obtaining the consent of any other party. Any amendment or waiver effected in accordance with this Section 6.2 shall be binding upon all the parties hereto. | |
7. | CONFIDENTIALITY AND NON-DISCLOSURE. | |
7.1 | Disclosure of Terms . The terms and conditions of this Agreement and the Series B Purchase Agreement, and all exhibits and schedules attached to such agreements (collectively, the Financing Terms ), including their existence, shall be considered confidential information and shall not be disclosed by any party hereto to any third party except in accordance with the provisions set forth below; provided that such confidential information shall not include any information that is in the public domain other than caused by the breach of the confidentiality obligations hereunder. | |
7.2 | Press Releases, Etc . Any press release issued by the Company shall not disclose any of the Financing Terms and the final form of such press release shall be approved in advance in writing by the Board, including at least a majority of the Preferred Directors, if any. No other announcement regarding any of the Financing Terms in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the Investors prior written consent. | |
7.3 | Permitted Disclosures . Notwithstanding the foregoing, any party may disclose any of the Financing Terms to its current or bona fide prospective purchasers of its interest in the Company, to bona fide prospective investors in such party and to such partys employees, investment bankers, lenders, partners, accountants and attorneys, in each case only where such Persons are under appropriate nondisclosure obligations. Without limiting the generality of the foregoing, each Preferred Holder shall, without disclosing the identities of the other Preferred Holders or the Financial Terms of their respective investments in the Company without their consent, be entitled to disclose the Financing Terms for the purposes of fund reporting or inter-fund reporting or to its fund manager, other funds managed by its fund manager and their respective auditors, counsel, directors, officers, employees, shareholders or investors. | |
7.4 | Legally Compelled Disclosure . In the event that any party is requested or becomes required by law or by the rules of any securities exchange (including without limitation, pursuant to securities laws and regulations) to disclose the existence of this Agreement and the Series B Purchase Agreement, any of the exhibits and schedules attached to such agreements, or any of the Financing Terms hereof in contravention of the provisions of this Section 6 , such party (the Disclosing Party ) shall provide the other parties (the Non-Disclosing Parties ) with prompt written notice of that fact and use |
all reasonable efforts to seek (with the cooperation and reasonable efforts of the other parties) a protective order, confidential treatment or other appropriate remedy. In such event, the Disclosing Party shall furnish only that portion of the information which is legally required to be disclosed and shall exercise reasonable efforts to keep confidential such information to the extent reasonably requested by any Non-Disclosing Party. |
7.5 | Other Information . The provisions of this Section 7 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by any of the parties with respect to the transactions contemplated hereby. |
8. | OTHER COVENANTS |
8.1 | Exclusivity . Each of the Company and the Founder covenants to the Investors that the Company shall be the exclusive vehicle through which all business related to hotel management shall be conducted by the Company and the Founder. |
8.2 | Founder Full Devotion and Non-Competition . The Founder shall devote his full business time and attention to the business of the Company for at least five (5) years from the date hereof, and shall not compete with the Company for at least three (3) years following the termination of his employment with the Company for any reason. |
8.3 | Non-Competition . The Company shall cause its current and future officers, directors and employees (other than the Founder) to enter into (i) a proprietary information and assignment of invention and patent agreement and (ii) a non-competition agreement with the Company, substantially in the forms approved by a majority of the Board, which majority shall include at least one Series B Director. |
8.4 | Future Management Holders . The Company shall give written notice to each Series B Holder of the issuance by the Company of any Company Securities to any Key Management Personnel and, as a condition precedent to such issuance, the Company shall require that such Key Management Personnel execute a Deed of Adherence in the form of Exhibit C hereto to become bound by this Agreement as if it was originally party hereto as of the date hereof. Each Key Management Personnel who shall become a party to this Agreement in accordance with the terms hereof shall be deemed to be a Management Holder hereunder for all purposes hereof. |
8.5 | Indebtedness . The parties hereto acknowledge and each of the Company and the Founder shall ensure that all indebtedness of the Company, whether incurred before or after the date hereof, shall at all times be junior in priority and subordinate to any amounts owed to the Investors by virtue of their ownership of securities of the Company or pursuant to any of the Transaction Documents, including without limitation any indemnification by the Company pursuant to the Series B Purchase Agreement. |
8.6 | Financing . The Company shall, before any proposed issuance of equity securities of the Company or instruments exchangeable, convertible or exercisable for any equity securities of the Company, except any issuance of Ordinary Shares and/or Series B Preferred Shares pursuant to the Transaction Documents or the Share Option Plan, seek the approval of the Board of such issuance and shall notify the Investors in writing of |
Page 43
such proposed issuance immediately after the Boards approval of such issuance. |
8.7 | Material Contracts . The Company shall inform each Investor promptly upon learning of any breach or default, alleged breach or default, or event which could reasonably be expected to (with the passage of time, notice or both) constitute a material breach or default under any of the Material Contracts (as defined in the Series B Purchase Agreement) by any party thereto. |
9. | REPURCHASE RIGHTS |
9.1 | Repurchase Right . Upon the occurrence of any of the following Repurchase Events with respect to the Founder, the Company shall have the right, but not the obligation, to purchase and the Founder shall, if requested by the Company, sell, in accordance with this Section 9 , all, but not less than all, of the non-vested Ordinary Shares then beneficially owned by the Founder (the Repurchase Right ) at (i) the par value of such non-vested Ordinary Shares in case of sub-clauses (a) or (b) below and (ii) the original subscription price for such non-vested Ordinary Shares in case of sub-clause (c) below (the Repurchase Price ). For purposes hereof, each of the following shall be a Repurchase Event : |
(a) | the filing by the Founder of a petition for relief under the bankruptcy laws in any jurisdiction; or |
(b) | the termination of full-time employment of the Founder with the Company unless such termination is made by the Company without cause; or |
(c) | the termination of full-time employment of the Founder with the Company by the Company without cause. |
9.2 | Vesting . |
(a) | For purposes of this Section 9 , the term vest shall mean, with respect to any Ordinary Shares beneficially owned by the Founder as of the date of this Agreement, together with any Company Securities issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of such Ordinary Shares (the Founders Shares ), that such Founders Shares are no longer subject to the Repurchase Right. If the Founder would become vested in any fraction of a Founders Share on any date, such fractional Share shall not vest and shall remain a Non-Vested Ordinary Share until the Founder becomes vested in the entire Share. |
(b) | The Founders Shares shall vest based on the terms and conditions as specified in the Founders employment agreement with the Company entered into in accordance with the Series B Purchase Agreement. |
(c) | The Founder shall have full voting rights for both vested and non-vested Ordinary Shares of the Company. |
9.3 | Manner of Exercise of Repurchase Right . The Repurchase Right shall be exercised by |
Page 44
the Company by delivery of a written notice (the Repurchase Notice ) of exercise to the Founder (or his estate or legal representative) subject to the Repurchase Right following a Repurchase Event. |
9.4 | Repurchase Procedure . After the Companys Repurchase Notice, the Founder shall promptly endorse and deliver to the Company the certificates representing the Ordinary Shares being repurchased, free and clear of any liens, claims or encumbrances (other than any such lien, claim or encumbrance held by or guaranteed to the Company), and the Company shall then pay promptly to the Founder (but in no event later than thirty (30) days after the date the notice of the Companys election to exercise the Right of Repurchase was delivered to the Founder), the total repurchase price. The Founder hereby authorizes any director of the Company to execute a transfer in his name to effect the transfer of Ordinary Shares pursuant to the Repurchase Right granted hereunder. |
9.5 | Binding Effect. The Companys Repurchase Right shall inure to the benefit of the successors and assigns of the Company and shall be binding upon any representative, executor, administrator, heir, or legatee of the Founder. |
10. | COMPLIANCE WITH PRC LAW; PUT OPION |
10.1 | Compliance with PRC Law . Prior to the twelve (12) month anniversary of this Agreement, the Founder and Co-Founders shall complete all required registrations, obtain all required approvals and otherwise comply with all rules and regulations of the PRC government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of the PRC government with respect to any Founders or Co-Founders shareholding interests in the Company and each of the transactions contemplated by the Series B Purchase Agreement, including without limitation, (i) the obligations as set forth in Sections 7.9, 7.12 and 7.13 of the Series B Purchase Agreement and (ii) all reporting obligations imposed by, and all consents, approvals and permits required by the PRC State Administration of Foreign Exchange ( SAFE ) pursuant to Circular on Issues Relating to the Administration of Foreign Exchange of Company Financing through Offshore Special Purpose Vehicles and Round-Trip Investment by PRC Resident issued by SAFE effective November 1, 2005 (the SAFE Circular ) and any applicable laws of the PRC in force from time to time which operate to restate, amend or repeal the aforesaid SAFE Circular or any part thereof. |
10.2 | Investor Put Option . In the event any Triggering Condition (as defined below) occurs, then from the date such Triggering Condition occurs (a Triggering Date ), each Investor shall have the right at any time after any Triggering Date and before the date of a Qualified IPO (the Expiration Date ), to require the Founder to purchase all or any portion of the Series B Preferred Shares held by such Investor at a per share purchase price equal to 105% of the per share purchase price paid by such Investor pursuant to the Series B Purchase Agreement. In the event that any Investor desires to exercise its right pursuant to this Section 10.2 , it shall, no later than the Expiration Date, give written notice (a Put Notice ) thereof to the Founder and the Company describing the number of Series B Preferred Shares to be sold to the Founder by such Investor (the Put Option Shares ). |
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For purposes of this Section 10.2 , a Triggering Condition includes any of the following: |
(i) | the obligations of the Founder and Co-Founders pursuant to Section 10.1 have not been met on or prior to the twelve (12) month anniversary of the date hereof, |
(ii) | the WFOEs are not wholly owned by the Company as of October 1, 2007, |
(iii) | the Audited Financials (as defined in the Series B Purchase Agreement) provided by the Company to the Investors have not been provided as of the six (6) month anniversary of the date hereof, or the Audited Financials differ materially and adversely from the Unaudited Pro Forma Financials (as defined in the Series B Purchase Agreement, and including any notes included therein) covering the same period, |
(iv) | any claim or demand of a third party with respect to any non-competition obligation of the Founder arises and has or may reasonably be expected to have, a Material Adverse Effect with respect to the Company, |
(v) | the Founders full-time employment with the Company is terminated at any time prior to the five (5) year anniversary of the date hereof, unless such termination is made by the Company without cause, or |
(vi) | there is any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by the Company under (a) Section 3.10 or Section 3.12 of the Series B Purchase Agreement regarding Leases (as defined in the Series B Purchase Agreement) or (b) Section 3.4 of the Series B Purchase Agreement, which, individually or in the aggregate, results in, or which may reasonably be expected to result in, a Material Adverse Effect with respect to the Company. |
Notwithstanding the foregoing, in case an Investor exercises his Put Option under this Section 10.2 and the Put Option has been consummated in accordance with the terms hereof, such Investor shall have no right to any indemnification pursuant to Section 9.1 of the Series B Purchase Agreement. In case an Investor seeks and receives indemnification from the Company pursuant to Section 9.1 of the Series B Purchase Agreement with respect to any Triggering Condition, such Investor shall have no right to exercise its Put Option in accordance with this Section 10.2 with respect to such Triggering Condition. |
10.3 | Closing . The closing of the sale and purchase of the Put Option Shares specified in any Put Notice shall take place at the office of the Company (or at such other place as mutually agreed to by the Founder and the Investor) on a date to be mutually agreed to by the Founder and the Investor, which date shall in no case be later than thirty (30) days after delivery of the Put Notice unless the Investor, in its sole discretion, agrees otherwise in writing. At such closing: |
(i) | the Founder shall pay the aggregate consideration for the Put Option Shares |
Page 46
pursuant to Section 10.2 by wire transfer in immediately available funds to an account designated by the Investor or by other payment method(s) mutually agreed to by the Founder and the Investor, |
(ii) | the Investor shall deliver to the Company share certificate(s) representing such Series B Preferred Shares, |
(iii) | each of the Founder and the Investor shall deliver to the Company a duly executed instrument of transfer with respect to the sale of the Put Option Shares to the Founder, |
(iv) | the Company shall deliver to the Founder and the Investor a copy of the Companys Register of Members certified by a director of the Company which reflects the Put Option Shares purchased by the Founder, and |
(v) | if at such closing, the Investor does not exercise its right pursuant to Section 10 with respect to all Series B Preferred Shares held by such Investor, the Founder shall deliver an irrevocable proxy in the form attached hereto as Exhibit D to such Investor, granting to the designee of such Investor the power to vote the Put Option Shares the Founder purchased from such Investor. |
The Founder acknowledges and agrees that no agreement, instrument or other document, other than those specified in this Section 10.3 , shall be necessary to consummate the sale and purchase of the Put Option Shares. |
11. | ADMINISTRATION |
11.1 | The accounts of the Company shall be kept in accordance with US GAAP and shall be audited annually by an international Big 4 accounting firm approved by the Board. The audited accounts and report of the auditors shall be made available to the Preferred Holders within fifteen (15) days after the issue thereof by the auditors. Periodic management accounts shall be prepared by the Company and these shall be forwarded to each Director. |
11.2 | The financial year of the Company shall end on 31st December in each year. |
11.3 | Bank accounts of the Company shall be operated by the CEO of the Company. Any withdrawal or transfer of fund from such bank accounts shall require the signature by the CEO. |
12. | TAX MATTERS |
12.1 | The Company will not take any action inconsistent with the treatment of the Company as a corporation for U.S. federal income tax purposes and will not elect to be treated as an entity other than a corporation for U.S. federal income tax purposes. |
12.2 | The Company will use, and will cause each Group Company to use, best efforts to avoid classification as a passive foreign investment company ( PFIC ) as defined in the Internal Revenue Code of 1986, as amended (the Code ) for the current year or any subsequent year. |
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12.3
The Company shall promptly provide each Series B Holder with written notice if it (or any
Group Company) becomes a PFIC or a controlled foreign corporation (
CFC
) as defined under the
Code. Such notice shall include a reasonably detailed analysis of the determination that the
Company (or the applicable Group Company) has become a PFIC or CFC.
12.4
The Company shall make due inquiry with its tax advisors on at least an annual basis
regarding its or any Group Companys status as a PFIC, and if Company is informed by its tax
advisors that any such entity has become a PFIC, or that there is a likelihood of any such entity
being classified as a PFIC for any taxable year, the Company shall promptly notify each Series B
Holder of such status or risk, as the case may be. The Company agrees to make available to each
Series B Holder upon request, the books and records of the Company and each Group Company, and to
provide information to such Series B Holder pertinent to the Companys or any Group Companys
status or potential status as a PFIC. Upon a determination by the Company, any Series B Holder or
any taxing authority that the Company or any Group Company has been or is likely to become a
PFIC, the Company will provide such Series B Holder with all information reasonably available to
the Company or any Group Company to permit such Series B Holder to (i) accurately prepare all tax
returns and comply with any reporting requirements as a result of such determination and (ii)
make any election (including, without limitation, a qualified electing fund election under
Section 1295 of the Code), with respect to the Company or any Group Company, and comply with any
reporting or other requirements incident to such election. If a determination is made by the
Company, any Series B Holder or any taxing authority that the Company or any Group Company is a
PFIC for a particular year, then for such year and for each year thereafter, the Company will
also provide such Series B Holder with a completed PFIC Annual Information Statement as
required by Treasury Regulation Section 1.1295-1(g) and otherwise comply with applicable Treasury
Regulation requirements. In the event that a Series B Holder who has made a Qualified Electing
Fund election must include in its gross income for a particular taxable year its pro rata share
of the Companys earnings and profits pursuant to Section 1293 of the Code, the Company agrees to
make a dividend distribution to such Series B Holder (no later than 90 days following the end of
the such Series B Holders taxable year) in an amount equal to 50% of the amount so included by
such Series B Holder.
12.5
The Company shall provide each Series B Holder with information relating to the transfer of
any equity interests of the Company (or any Group Company) and the issuance or redemption by the
Company (or any Group Company) of any equity interests. No later than two (2) months following
the end of the Companys taxable year, the Company shall provide the following information to
each Series B Holder: (i) the Companys capitalization table as of the end of the last day of
such taxable year and (ii) a report regarding the Company and each Group Companys status as a
CFC, if any. The Company shall: (A) furnish to each Series B Holder upon its reasonable request,
on a timely basis, all information necessary to satisfy the U.S. income tax return filing
requirements of such Series B Holder (and each United States shareholder of the Company as
defined by Section 951(b) of the Code that owns a direct or indirect interest in such Series B
Holder (a
U.S. Shareholder
)) arising from its investment in the Company and relating to the
Company or any Group Companys classification as a CFC; and (B) use commercially reasonable
efforts to avoid generating for any taxable
Page 48
year in which the Company or any Group Company is a CFC, amounts includible in the income of any Series B Holder or U.S. Shareholder pursuant to Section 951 of the Code (a Section 951 Inclusion ). If the Company or any Group Company ceases to be a CFC at any time, the Company will provide prompt written notice to each Series B Holder if at any time thereafter the Company becomes aware that it or any Group Company has become a CFC. Upon written request of a U.S. Series B Holder from time to time, subject to obtaining the consent of its shareholders to release such information, the Company will promptly provide in writing such information in its possession concerning its shareholders and, to the Companys actual knowledge, the direct and indirect interest holders in each shareholder sufficient for such U.S. Series B Holder to determine whether the Company is a CFC. If any Series B Holder or U.S. Shareholder has a Section 951 Inclusion for any taxable year (such Series B Holder or U.S. Shareholder, a Taxable CFC Shareholder ), the Company shall distribute cash pro rata with respect to each Share so that the aggregate amount distributed to each Taxable CFC Shareholder equals fifty percent (50%) of the Section 951 Inclusion of such Taxable CFC Shareholder for such taxable year. |
12.6 | The Company will comply and will cause the Group Companies to comply with all record-keeping, reporting, and other requests necessary for the Company and the Group Companies to allow each Series B Holder to comply with any applicable U.S. federal income tax law. |
12.7 | The cost incurred by the Company in providing the information that it is required to provide, or is required to cause to be provided, and the cost incurred by the Company in taking the action, or causing the action to be taken, as described in this Section 12 shall be borne by the Company. |
13. | GENERAL PROVISIONS |
13.1 | Notices . Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party, upon delivery; (b) when sent by facsimile at the number as the parties have been given, upon receipt of confirmation of error-free transmission; (c) seven (7) Business Days after deposit in the mail as air mail or certified mail, receipt requested, postage prepaid and addressed to the other party as the parties have been given; or (d) three (3) Business Days after deposit with an international overnight delivery service, postage prepaid, addressed to the parties with next Business Day delivery guaranteed, provided that the sending party receives a confirmation of delivery from the delivery service provider. |
Each Person making a communication hereunder by facsimile shall promptly confirm by telephone to the Person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this Section 13.1 by giving the other party written notice of the new address in the manner set forth above. |
13.2 | Entire Agreement . This Agreement, together with all the exhibits and schedules hereto, constitute and contain the entire agreement and understanding of the parties with |
Page 49
respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to supersede the provisions of any confidentiality and nondisclosure agreements executed between any party hereto prior to the date of this Agreement, all of which agreements shall continue in full force and effect until terminated in accordance with their respective terms. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect. |
13.3 | Governing Law and Dispute Resolution This Agreement shall be construed and governed by the laws of Hong Kong, without regard to principles of conflicts of law thereunder. |
(a) | Any dispute, controversy or claim (each, a Dispute ) arising out of or relating to this Agreement, or the interpretation, breach, termination or validity hereof, shall be resolved at the first instance through consultation between the parties to such Dispute. Such consultation shall begin immediately after any party has delivered written notice to any other party to the Dispute requesting such consultation. |
(b) | If the Dispute is not resolved within sixty (60) days following the date on which such notice is given, the Dispute shall be submitted to arbitration upon the request of any party to the Dispute with notice to each other party to the Dispute (the Arbitration Notice ). |
(c) | The arbitration shall be conducted in Hong Kong and shall be administered by the Hong Kong International Arbitration Centre ( HKIAC ) in accordance with the HKIAC Procedures for the Administration of International Arbitration in force at the time of the commencement of the arbitration. There shall be three (3) arbitrators. The claimants in the Dispute shall collectively choose one arbitrator, and the respondents shall collectively choose one arbitrator. The Secretary General of the Centre shall select the third arbitrator, who shall be qualified to practice law in Hong Kong. If any of the members of the arbitral tribunal have not been appointed within thirty (30) days after the Arbitration Notice is given, the relevant appointment shall be made by the Secretary General of the Centre. |
(d) | The arbitration proceedings shall be conducted in English. The arbitration tribunal shall apply the Arbitration Rules of the United Nations Commission on International Trade Law, as in effect at the time of the commencement of the arbitration. However, if such rules are in conflict with the provisions of this Section 13.3 , including the provisions concerning the appointment of arbitrators, the provisions of this Section 13.3 shall prevail. |
(e) | Each party to the arbitration shall cooperate with each other party to the arbitration in making full disclosure of and providing complete access to all information and documents requested by such other party in connection with such arbitration proceedings, subject only to any confidentiality obligations |
Page 50
binding on such party. |
(f) | The arbitrators shall decide any dispute submitted by the parties to the arbitration tribunal strictly in accordance with the substantive law of Hong Kong and shall not apply any other substantive law. |
(g) | Any party to the Dispute shall be entitled to seek preliminary injunctive relief, if possible, from any court of competent jurisdiction pending the constitution of the arbitral tribunal. |
(h) | The parties to this Agreement agree to the consolidation of arbitrations under the Transaction Documents in accordance with the Section 9.12(viii) of the Series B Purchase Agreement. |
(i) | During the course of the arbitration tribunals adjudication of the dispute, this Agreement shall continue to be performed except with respect to the part in dispute and under adjudication. |
(j) | The award of the arbitration tribunal shall be final and binding upon the parties, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award. |
13.4 | Severability . If any provision of this Agreement is found to be invalid or unenforceable, then such provision shall be construed, to the extent feasible, so as to render the provision enforceable and to provide for the consummation of the transactions contemplated hereby on substantially the same terms as originally set forth herein, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential to the rights or benefits intended by the parties. In such event, the parties shall use best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly effects the parties intent in entering into this Agreement. |
13.5 | Third Parties . Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto any rights or remedies under or by reason of this Agreement. |
13.6 | Successors and Assigns . Subject to the provisions of Section 5.1 , the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. |
13.7 | Interpretation; Captions . This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. Unless otherwise expressly provided herein, all references to Sections and Exhibits herein are to Sections and Exhibits of this Agreement. |
13.8 | Counterparts . This Agreement may be executed by facsimile and in counterparts, each |
Page 51
of which shall be deemed an original, but all of which together shall constitute one and the same instrument. |
13.9 | Aggregation of Shares . All Shares held or acquired by Affiliates of a Shareholder shall be aggregated together for the purpose of determining the availability of any rights of such Shareholder under this Agreement. |
13.10 | Waiver of Reliance among Investors . Each Investor stipulates that it is not relying upon any Person or entity other than the Company and its officers and directors and the Founder in entering into this Agreement or investing in the Company, and, specifically and without limitation, is not relying on any other Investor or any other Investors Controlling Persons, members, shareholders, officers, directors, employees, agents, or professional advisers, or on any advice, representations, or work product of any of them. Each Investor hereby waives any claim against, and covenants not to sue, any other Investor or the respective Controlling Persons, members, shareholders, officers, directors, employees, agents, or professional advisers of any Investor on account of any action heretofore or hereafter taken or omitted to be taken in connection with this Agreement or any transaction contemplated hereby. |
13.11 | Termination . This Agreement shall terminate upon a Qualified IPO; provided that the provisions of Section 2 , Section 7 and this Section 13 shall survive any termination of this Agreement. |
SIGNED
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for and on behalf of
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CHINA LODGING GROUP, LIMITED
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SIGNED BY
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for and on behalf of
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CDH COURTYARD LIMITED
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in the presence of :
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) Jeffery Lee CFO
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Name of Company
:
China Lodging Group, Limited
Date of Incorporation
:
4
th
January 2007
Registered Address
:
the office of Offshore Incorporations
(Cayman) Limited, Scotia Centre, 4th Floor, P.O.
Box 2804, George Town, Grand Cayman,
Cayman Islands
Directors
:
Mr. John Jiong WU
Mr. Qi JI
Ms. Tong Tong ZHAO
Ms. Ping PING
Mr. Yan HUANG
Shareholdings
:
Share Capital:
US$ 20,000 divided into 200,000,000 Shares at a par value of US$0.0001 each.
Issued Share Capital
i
ii
(1) | The Person whose name and address appears in Part 1 of Schedule 1 ( New Shareholder ); |
(2) | [The Person whose name and address appears in Part 2 of Schedule 1 ( Transferor );] |
(3) | China Lodging Group, Limited, a company incorporated in and existing under the laws of the Cayman Islands and whose registered office is situate at the office of Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands (the Company ). |
(A) | This Deed is supplemental to an amended and restated shareholders agreement date June 20, 2007 relating to the holding of Shares in the Company and made between the Company and certain parties listed on Exhibit A thereto (the Other Parties ) (the Principal Agreement ). |
(B) | The New Shareholder has agreed to [purchase from the Transferor / subscribe from the Company] Shares in the Company as more particularly set out in Schedule 3. |
(C) | The New Shareholder has agreed to execute this Deed as required pursuant to the terms of the Principal Agreement. |
1. | Adherence |
1.1 | The New Shareholder hereby acknowledges undertakes and covenants with the Company and the Other Parties that, with effect on and from the date of this Deed, the New Shareholder shall be bound by and shall observe and perform all the terms and conditions and obligations of the Principal Agreement to be observed and performed as if the New Shareholder had at all times been a party thereto and named therein as a Shareholder (including, where applicable, in place of or on a joint and several basis with the Transferor). |
[The New Shareholder further agrees and undertakes with the Company and the Other Parties that, if the Transferor remains a Shareholder following the transfer of Shares described in recital (B) above, then the New Shareholder shall, with effect on and from the date of this Deed, assume all obligations and liabilities expressed to be assumed on the part of the Transferor under the Principal Agreement on a joint and several basis with the Transferor.] |
[The New Shareholder further agrees and undertakes with the Company and the Other Parties that the New Shareholder shall be deemed a Management Holder under the Principal Agreement for all purposes.] |
1.2 | The Company acknowledge that, as from the Effective Date, the provisions of the Principal Agreement shall enure for the benefit of and shall be enforceable by the New Shareholder as if he had at all times been a party thereto and named as a Shareholder therein. |
2. | Interpretation |
2.1 | In this Deed where the context so admits : |
(A) | terms and expressions defined in the Principal Agreement shall bear the same meanings in this Deed unless the context requires otherwise; and | ||
(B) | references to clause(s) and schedule(s) are references to clause(s) and schedule(s) of this Deed and references to this Deed shall include the schedule. |
3. | Notices | |
3.1 | Any notice to be served on the New Shareholder shall be served on the New Shareholder at the address, facsimile number or telex number of the New Shareholder set out in Part 1 of Schedule 1 in accordance with the terms of this Deed. | |
4. | Miscellaneous | |
4.1 | The provisions of clauses 13.1 (Notices) and 13.3 (Governing Law) of the Principal Agreement shall apply mutates mutandis to this Deed as if set out herein and as if references therein to this Agreement were references to this Deed. |
Number of Shares | Class |
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CHINA LODGING GROUP, LIMITED | ||||||||
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WARRANT NO. |
o | Tenders herewith payment of the exercise price in full in the form of cash or a certified or official bank check in same-day funds in the amount of $ for such securities. |
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1.1 | Section 4 of the Agreement, shall be, and hereby is, amended to read as follows: | |
In connection with the subscription of Shares pursuant to this Agreement but subject to other definitive agreements to be entered into by and among the Company, Winner Crown, POWERHILL HOLDING LIMITED (Powerhill), a company incorporated in British Virgin Islands under company No. 571975 having its registered office at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, and other parties thereto, Winner Crown, Powerhill and Company hereby acknowledge and agree that Winner Crown and Powerhill will subscribe additional Series B Preferred Shares (the Additional Shares) of the Company at the price of US$1.530612 per share, and for a total subscription price up to US$22,000,000 at any time on or before May 31, 2008 (the Expiration Date). Winner Crown, Powerhill and Company hereby further |
1
acknowledge and agree that subscription of the Additional Shares can be in the form of cash or an assignment of loan. The Lead Investors shall have the right to call, and Winner Crown and Powerhill are obligated to purchase any or all of such further issuance of Additional Shares of the Company (the Call Option). The Lead Investors may exercise their Call Option in whole or in part by delivering to Winner Crown and Powerhill (including, without limitation, delivery by facsimile) of a Notice of Exercise attached hereto as Exhibit 1 (the Notice of Exercise) , duly executed by its authorized representatives of the Lead Investors, to the registered office of Winner Crown and Powerhill, with a copy to Ms. Zhang Min, CFO of the Company, at least five (5) days prior to the Expiration Date, provided that in the event the Call Option is exercised in part, the amount of capital called shall be no less than US$5,000,000 unless agreed to by Winner Crown and Powerhill in writing. Upon receiving the Notice of Exercise, Winner Crown and Powerhill shall either pay in cash (by check or by wire transfer of funds) or execute a loan assignment in an amount equivalent to the amount specified in the Notice of Exercise and shall execute an irrevocable proxy attached hereto as Exhibit 2 (the Proxy) in the same form and manner as set forth in Section 1 of this Agreement. As soon as practicable on or after the date of exercise, the Company shall issue and deliver to Winner Crown and Powerhill, as applicable, a certificate or certificates for the number of Additional Shares issuable upon such exercise. | ||
1.2 | Section 5 of the Agreement, shall be, and hereby is, amended to read as follows: | |
The Shares and the Additional Shares issuable upon exercise of the Call Option shall be subject to, and have the benefit of, the provisions of the Shareholders Agreement (as defined in the Series B Convertible Preferred Shares Purchase Agreement dated June 20, 2007 (Previous Purchase Agreement) by and among the Company and certain other parties thereto). The Company acknowledges and agrees that the Shares, Additional Shares and the Conversion Shares, are Registrable Securities entitling Winner Crown and Powerhill, as applicable, to registration rights under the Shareholders Agreement. | ||
1.3 | Section 6 of the Agreement, shall be, and hereby is, amended to read as follows: | |
Upon execution of this Agreement and excise of the Call Option, Winner Crown and Powerhill, as applicable, shall also execute and deliver a Proxy, which shall be executed by Mr. Qi Ji and Ms. Tongtong Zhao, to each Lead Investors (as defined in the Previous Purchase Agreement) granting to each Lead Investor or its designee, as the case may be, the power for each Lead Investor to vote 50% of the Shares and Additional Shares being purchased. For avoidance of doubt, pursuant to such Proxy, each Lead Investor shall be entitled to vote one-half of the number of Shares and Additional Shares purchased hereunder and the Lead Investors shall collectively vote 100% of the Shares and Additional Shares purchased hereunder. | ||
1.4 | Each Party hereby re-affirms that to the extent that the terms and conditions contained in the Agreement and its attached schedules and exhibits conflict in any way with this Amendment, the terms and conditions of this Amendment shall prevail. | |
1.5 | Except as otherwise provided in this Amendment, all other provisions of the Agreement shall continue to be in full force and effect and continue to be valid and binding upon the Parties. All references to the Agreement in the Agreement and its attached schedules and exhibits shall be deemed to be references to the Agreement as modified by this Amendment. |
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CHENGWEI VENTURES EVERGREEN FUND, L.P. | ||||
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CHENGWEI VENTURES EVERGREEN ADVISORS FUND, L.P. | ||||
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CDH COURTYARD LIMITED | ||||
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(Signature of Owner) | ||||
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Payment: | o US$__________ wire transfer of immediately available funds | |
o US$__________ certified or official bank or bank cashiers check |
(Signature of Owner) | ||||
(Street Address) | ||||
(City) (State) (Zip Code) | ||||
Securities and/or check to be issued to:
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Name:
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Street Address:
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Street Address:
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FOR VALUE RECEIVED, _____________________ hereby sells, assigns and transfers unto
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(please type or print in block letters) | ||
(the
Assignee
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Signature: | ||||
No. 1 |
Warrant to Purchase
1,500,000 Shares |
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CHINA LODGING GROUP, LIMITED
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By: | /s/ Tuo (Matthew) Zhang | |||
Name: | Tuo (Matthew) Zhang | |||
Title: | Chief Executive Officer | |||
Acknowledged and Agreed:
Everlasting Investment Management Co., Ltd. |
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By: | /s/ Wu Xushe | |||
Name: | Wu Xushe | |||
For and on behalf of Everlasting Investment Management Co., Ltd. | ||||
(Signature of Owner) | ||||
(Street Address) | ||||
(City) (State) (Zip Code) | ||||
Payment:
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o | US$ wire transfer of immediately available funds | ||
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o | US$ certified or official bank or bank cashiers check |
(Signature of Owner) | ||||
(Street Address) | ||||
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FOR VALUE RECEIVED, _____________________ hereby sells, assigns and transfers unto
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(please type or print in block letters) | ||
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No. 2 |
Warrant to Purchase
200,000 Shares |
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CHINA LODGING GROUP, LIMITED
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By: | /s/ Tuo (Matthew) Zhang | |||
Name: | Tuo (Matthew) Zhang | |||
Title: | Chief Executive Officer | |||
Tongren Investment Holdings Limited
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By: | /s/ Chen Xiangdong | |||
Name: | Chen Xiangdong | |||
For and on behalf of Tongren
Investment Holdings Limited |
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(Signature of Owner) | ||||
(Street Address) | ||||
(City) (State) (Zip Code) | ||||
Payment:
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o | US$ wire transfer of immediately available funds | ||
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o | US$ certified or official bank or bank cashiers check |
(Signature of Owner) | ||||
(Street Address) | ||||
(City) (State) (Zip Code) | ||||
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and transfers unto
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(the
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Very truly yours, | |||
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/s/ Davis Polk & Wardwell LLP | |||
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CHINA LODGING GROUP, LIMITED |
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Address: | |||
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5th Floor, Block 57, No. 461 Hongcao Road | |||
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Xuhui District | |||
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Shanghai 200233 | |||
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Peoples Republic of China | |||
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Email: | |||
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INDEMNITEE | |||
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[NAME] | |||
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(a) | The Employee, to: | ||||
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(b) | The Company, to: | ||||
Floor 5, Building 57 | |||||
No. 461 Hongcao Road | |||||
Shanghai 200233 | |||||
The Peoples Republic of China |
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China Lodging Group, Limited | ||||||||||||
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Title: |
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Party A: China Merchants Bank Co.,Ltd. Shanghai Jingansi Branch
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(chop) | |
Principal or authorized agent
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(signature/chop):
/s/ Xu Xuehong
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Party B: HanTing Xingkong (Shanghai) Hotel Management Co., Ltd.
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Legal representative/Principal or authorized agent
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(signature/chop):/s/
Zhang Tuo
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Party B: Lishan Senbao (Shanghai) Investment Management Co., Ltd.
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Legal representative/Principal or authorized agent
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(signature/chop):
/s/ Zhang Tuo
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Party B: Yiju (Shanghai) Hotel Management Co., Ltd.
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Legal representative/Principal or authorized agent
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(signature/chop):
/s/ Zhang Tuo
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Lender (Party B): | Shanghai Caohejing Hi-Tech Park Branch, Industrial and Commercial Bank of China Co., Ltd. |
Article I
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Party As statement and suretyship | |
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Article II
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Type of loans | |
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Article III
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Use of loans | |
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Article IV
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Amount and period of loans | |
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Article V
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Interest rate and interest-bearing of loans | |
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Article VI
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Withdrawal conditions | |
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Article VII
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Withdrawal arrangements | |
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Article VIII
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Source of repayment fund and repayment | |
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Article IX
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Guaranty | |
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Article X
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Rights and obligations | |
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Article XI
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Default and liabilites | |
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Article XII
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Effectiveness, amendment, dissolution and termination | |
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Article XIII
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Dispute resolution | |
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Article XIV
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Other issues agreed by parties | |
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Article XV
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Supplementary provisions |
1.1 | Party A is established in accordance with the law, is an entity with legal person qualifications (or is a branch legitimately authorized by a legal person institution), and has the right to perform the contract in accordance with the law. | |
1.2 | The projects to be constructed using the loans under the terms of the contract have obtained the approval or approbation of related government agencies. | |
1.3 | Various accountant statements and materials provided for the investigation, review, management of project loans shall be authentic, accurate and complete. |
2.1 | The loans under the contract are fixed assets loans. |
3.1 | The use of the loans granted under the contract is: alteration construction and decoration of the 44 stores owned by Party A. | |
3.2 | Without Party Bs written consent, Party A shall not change the use of the loans as defined in the contract. |
4.1 | The amount of the loans under the contract is RMB (amount in words) one hundred and seventy-two million (amount in figure) 172,000,000 Yuan (in case the amount in figure is inconsistent with the amount in words, the amount in words shall prevail, throughout the contract). | |
4.2 | The period of the loans under the contract is 36 months, from September 28, 2008 to September 27, 2011. In case of withdrawal through several transactions or maturity by multiple transactions, the maturity date of the last transaction shall be no later than the above mentioned deadline. |
5.1 | The interest of the loans under the contract shall be computed by day in accordance with the actual number of lending days starting from the actual day of withdrawal (daily interest rate= annual interest rate/360). The interest shall be settled by month (month/season). The day of interest settlement is the twentieth day of each month (the twentieth day of each month/the twentieth day of the last month of each season). If the day of interest settlement is not a working day of the bank, then it shall be prolonged accordingly to the next working day of the bank. When the loans expire, the interest shall be clear with the principal. | |
5.2 | The interest rate of the loans under the contract shall be determined by the terms specified in 5.2.2. |
Party B shall notify Party A in writing within 30 days from the day of the change of interest rate, while whether the notice is delivered or not shall not affect its implementation. |
5.3 | If the Peoples Bank of China adjusts the interest rate or the methods to determine the interest rate, then it shall be handled in accordance with the related regulations of the Peoples Bank of China. |
6.1 | Before each withdrawal transaction, Party A shall satisfy the following conditions: |
6.1.1 | The guaranty contract has been established in accordance with the law and come into effect; | ||
6.1.2 | The capital and other funds to be duly raised for the projects constructed using the loans under the terms of the contract are in place in accordance with the specified time and proportion; | ||
6.1.3 | No excessive costs had been resolved through self-financing; | ||
6.1.4 | The progress of projects has been achieved in accordance with the plan; | ||
6.1.5 | The withdrawal formalities have been processed in Party Bs premise according to the terms of the contract; | ||
6.1.6 | No breach of contract as specified by the contract has occurred; and | ||
6.1.7 | Other related materials have been provided to handle the loans in accordance with Party Bs requirements. |
7.1 | The terms of withdrawal for the loans under the contract shall be implemented in accordance with the following 7.1.3. |
7.1.1 | Party A withdraws the money in one time on Month Day, Year, and transfer all the loans to the account opened in Party Bs premise; | ||
7.1.2 | Party A withdraws the money through transactions, the specific amount and date of which are as follows: |
7.1.2.1 | Month Day, Year, amount (in words) Yuan (in figure: Yuan); | ||
7.1.2.2 | Month Day, Year, amount (in words) Yuan (in figure: Yuan); | ||
7.1.2.3 | Month Day, Year, amount (in words) Yuan (in figure: Yuan); | ||
7.1.2.4 | Month Day, Year, amount (in words) Yuan (in figure: Yuan); | ||
7.1.2.5 | Month Day, Year, amount (in words) Yuan (in figure: Yuan); |
7.1.3 | Other terms of withdrawal: | ||
The company withdraws the money through several transactions according to its need., the withdrawal period is from September 28, 2008 to June 27, 2009. The amount not withdrawn within the withdrawal period shall be regarded as quota surrendered by Party A. After the withdrawal period, Party A shall not withdraw the remaining amount for any reason. |
7.2 | Party A shall withdraw the loans according to the agreements as Article 7.1 of the contract. In case of a special circumstance, it shall issue a written application, and, upon a written consent |
of Party B, may advance or postpone the time of withdrawal by up to days. |
7.3 | If Party B requests to cancel all or part of the amount of money not withdrawn under the contract, it shall submit a written application to Party B 30 days in advance of the withdrawal date specified by the contract, and such amount may be cancelled after receiving a written consent of Party B. | |
7.4 | The specific withdrawal date and repayment date in the contract shall be the actual date recorded in the receipt for the borrowed money handled by Party A and Party B. The receipt for borrowed money or the loan withdrawal document comprises an indispensable part of the contract. The contract shall prevail in cases of inconsistencies, except for dates, between the receipt and the contract. |
8.1 | The capital for Party As repayment of the principal and interest of the loans under the contract is attributed but not limited to: |
8.1.1 | Revenue of Party As main business and other revenues ; | ||
8.1.2 | . |
8.2 | No agreement in which Party A is an interested party, concerning Party As source of repayment capital, shall affect Party As performance of its repayment obligation under this contract. Under no circumstances shall Party A cite Article 8.1 to refuse to perform its repayment obligation under the contract. | |
8.3 | Party A shall pay the interest on time and in full in accordance with the terms of the contract, and repay the principal of the loans in accordance with the following agreement as in Article 8.3.3 : |
8.3.1 | Repay the principal in one time, Party A shall repay all the principal of the loans on Month Day, Year; | ||
8.3.2 | Repay the principal by several times, the specific amount of repaid principal and date are as follows: |
8.3.2.1 | Month Day, Year, amount (in words) Yuan (in figures: Yuan); | ||
8.3.2.2 | Month Day, Year, amount (in words) Yuan (in figures: Yuan); | ||
8.3.2.3 | Month Day, Year, amount (in words) Yuan (in figures: Yuan); | ||
8.3.2.4 | Month Day, Year, amount (in words) Yuan (in figures: Yuan); | ||
8.3.2.5 | Month Day, Year, amount (in words) Yuan (in figures: Yuan); |
8.3.3 | Other terms of principal repayment: | ||
Repayment through multiple transactions: repay 35 million Yuan before the expiration of the first year period beginning the first day of withdrawal by Party A; repay 57 million Yuan before the expiration of the second year period beginning the first day of withdrawal by Party A; and repay 80 million Yuan before the deadline of |
the loans specified by the contract. The repayment shall be made per season. |
8.4 | If Party A intends to make the repayment in advance, it shall submit a written application to Party B 30 days prior to the date of the intended earlier repayment, and shall receive a written consent of Party B; | |
8.5 | If Party A intends to make the repayment in advance, it shall receive a consent of Party B, and the repaid principal shall be no less than Yuan (amount in words), and shall be the integral multiples of Yuan (amount in words). | |
8.6 | The principal that Party A repaid in advance shall offset in reverse order according to the repayment order set forth in Article 8.3.2 of the contract or according to the repayment order determined by the receipt of the loans. | |
8.7 | The deposit balance of the settlement account that is opened by Party A in Party Bs premise seven days prior to the interest settlement date or the principal repayment date specified by the contract or determined by the receipt of the loans shall be no less than the interest or/and the principal to be duly paid. Otherwise, Party B shall have the right to suspend or cancel the loans that Party A has not withdrawn or used, and shall have the right to collect part or all of the loans in advance; for the loans that cannot be collected, the liquidated damages shall be collected, computed on daily basis according to the interest rate of overdue loans. In addition, Party A authorizes Party B to collect the principal and interest of the loans to be duly paid by Party A from the account that Party A opens in Party Bs system on the specified interest settlement date or the principal repayment date. |
9.1 | The terms of the guarantee for the loans under the contract are: suretyship, mortgage. | |
9.2 | Party A is obliged to proactively assist Party B and prompt Party B and the surety to sign the guarantee contracts on the specific guarantee issues of this contract with No. 16084000557101, 16084000557102, 16084000557103 and 16084000557201 . | |
9.3 | If the guarantee under the contract changes negatively to the creditor rights of Party B, upon Party Bs notice, Party A shall separately provide a guarantee that satisfies Party B according to the requirements. |
10.1 | Rights and obligations of Party A: |
10.1.1 | Withdraw and use the loans according to the period and use of loans specified in the contract; | ||
10.1.2 | Do not repay the loans in advance without Party Bs consent; | ||
10.1.3 | Accept Party Bs investigation, understanding and supervision of the use situations of the loans under the contract in a timely manner; | ||
10.1.4 | Proactively cooperate with the investigation, understanding and supervision of its situations relating to production, operation, project construction and financial situations, and provide report materials such as the balance sheet, income statement , etc. of each period to Party B; | ||
10.1.5 | Proactively support Party B to participate in related issues such as three calculation |
review (budget estimates, budget, final accounts), engineering bidding and project completion acceptance, etc.; |
10.1.6 | Pay off the principal and interest of the loans under the contract according to the terms of the contract; | ||
10.1.7 | Assume the expenses of related costs under the contract, including but not limited to the costs of events such as notarization, authentication, evaluation, registration, etc.; | ||
10.1.8 | Send out the return receipt within 3 days after signing the collection letter or collection file delivered through mail or other forms by Party B; | ||
10.1.9 | When carrying out actions such as contracting, renting, shareholding reform, joint operation, merger, acquisition, joint-venture, separation, equity change, major assets transfer as well as other actions that suffice to affect the exercise of Party Bs rights and interests, Party A shall notify Party B at least 30 days in advance and receive a written consent of Party B, otherwise the abovementioned actions shall not be conducted before paying off all the debts; | ||
10.1.10 | In case of changes in items of business registration such as residence, correspondence address, business scope, legal representative, etc., Party A shall notify Party B in writing within 7 days after such changes; | ||
10.1.11 | In case of any other events that jeopardize its normal operations or have serious negative influence on its performance of the repayment obligations under the contract, including but limited to major economic disputes, bankruptcy, worsening financial situations, etc., Party A shall immediately notify Party B in writing; | ||
10.1.12 | Upon a business closure, dismissal, suspension and rectification, revocation or cancellation of the business license, Party A shall notify Party B in writing within 5 days after such event, and shall ensure to repay the principal and interest of the loans immediately; | ||
10.1.13 | Assume all the costs such as lawyers cost, etc. incurred during the exercise of Party Bs creditor rights under the contract; | ||
10.1.14 | Timely, completely and accurately disclose its related parties relationship and the associated transactions to Party B, in accordance with the Accounting Standards for Enterprises Disclosure of related parties relationship and their transactions, the related parties in this article refer to: |
10.1.14.1 | Enterprises directly or indirectly controlled by Party A, enterprises directly or indirectly control Party A, as well as enterprises the same enterprises that control Party A; | ||
10.1.14.2 | Party As cooperative enterprises; | ||
10.1.14.3 | Party As associated enterprises; | ||
10.1.14.4 | Party As major individual investors, key management personnel or their closely related family members; | ||
10.1.14.5 | Enterprises directly controlled by Party As major individual investors, key management personnel or their closely related family members. |
The other words in this article have the same meaning with the identical words in the Accounting Standards for Enterprises Disclosure of related parties relationship and their transactions. |
10.2 | Rights and obligations of Party B: |
10.2.1 | Ask Party A to provide all materials related to the loans; | ||
10.2.2 | Collect the principal, interest, compound interest, penalty interest of the loans and all other costs to be paid duly by Party A under the contract from Party As account in accordance with the terms of the contact as well as laws and regulations; | ||
10.2.3 | In cases of Party As evasion of Party Bs supervision, default of the principal and interest or other serious actions of breach, Party B shall have the right to carry out credit sanctions, shall have the right to notify related departments or units, and shall have the right to issue a collection notice through news media; | ||
10.2.4 | Provide Party A with the loans on time and in full, according to the terms of the contract (except delays caused by Party As fault); | ||
10.2.5 | Keep confidential the materials and situations provided by Party A related to its debts, finance, production, operation, etc., except as is otherwise regulated by the contract or laws and regulations. |
11.1 | After the contract comes into effect, the interested parties of Party A and Party B shall both perform the obligations specified in the contract. Any party who fails to perform all the obligations specified in the contract shall assume the liabilities for breach of contract in accordance with the law. | |
11.2 | If Party A fails to handle and withdraw the loans in accordance with Article 7.1 of the contract, Party B shall have the right to collect liquidated damages for delays computed on daily basis according to the interest rate in the contract; | |
11.3 | If Party B fails to grant the loans in accordance with Article 7.1 of the contract, it shall pay the liquidated damages for delays computed on daily basis according to the interest rate in the contract; | |
11.4 | If, without the written consent of Party B, Party A repays the loans under the contract in advance, Party B shall have the right to calculate and collect interests according to the loan period and interest rate as specified in the contract. | |
11.5 | If Party A fails to repay the principal and interest of the loans under the contract upon expiration, Party B shall have the right to clear off such loans within a time limit, whereas Party A authorizes Party B to confiscate the capital in all the accounts that Party A opens in the Industrial and Commercial Bank of China and all of its branch institutions to compensate for the debts under the contract. Meanwhile, for the overdue loans, the penalty interest shall be computed and collected by an additional 40 % plus the interest rate in the contract. For the overdue interests, the compound interest shall be computed and collected by an additional 40 % plus the interest rate in the contract. If the amount deducted is a foreign currency, it shall be computed according to the offer price of the foreign exchange publicized by Party B on the day of deduction. | |
11.6 | If Party B fails to use the loans as specified in the contract, Party B shall have the right to suspend granting of the loans, and shall have the right to collect part or all of the loans in advance or terminate the contract. For the loans that Party A uses in breach of the contract, Party B shall calculate and collect the penalty interest by an additional 70 % plus the interest rate in the contract according to the number of days of the uses in breach, and calculate and |
collect the compound interest by an additional 70 % plus the interest rate in the contract for the unpaid interest. |
11.7 | During the loan period, the compound interest shall be computed and collected by the interest rate in the contract for the interests not paid on time. After the loans become overdue, the compound interest shall be computed and collected by the interest rate specified in 11.5. | |
11.8 | If the circumstances listed in Articles 11.5 and 11.6 for the loans used by Party A occur simultaneously, Party B shall penalize according to the more serious measure of the two, and the two penalties shall not be imposed together. | |
11.9 | If Party A conducts one of the following behaviors, it shall correct and take remedial measures that satisfy Party B within 7 days after receiving Party Bs notice, otherwise, Party B shall have the right to suspend or cancel the loans that Party A has not withdrawn or used, and shall have the right to collect part or all of the loans in advance. For the loans that cannot be collected, the liquidated damages shall be collected by the day according to the interest rate of overdue loans; |
11.9.1 | Provide balance sheet, income statement and other financial materials that are false or conceal important facts; | ||
11.9.2 | Do not cooperate or refuse to accept Party Bs supervision of its use of the loans and related production, operation and financial activities; | ||
11.9.3 | Transfer or dispose, or threaten to transfer or dispose a material portion of its property without the consent of Party B; | ||
11.9.4 | A material portion or all of its property is occupied by other creditors or taken over by a designated trustee, recipient or similar personnel, or its property is detained or frozen, which might incur serious loss to Party B; | ||
11.9.5 | Without Party Bs consent, carry out contracting, renting, shareholding reform, joint operation, merger, acquisition, joint-venture, separation, equity change, major assets transfer as well as other actions that is material enough to affect the exercise of Party Bs rights and interests and jeopardizes the safety of Party Bs creditor rights; | ||
11.9.6 | Occur changes in items of business registration such as residence, correspondence address, business scope, legal representative, etc. or situations such as major external investment, etc. that seriously affect or threaten the exercise of Party Bs creditor rights; | ||
11.9.7 | Involvement in major economic disputes or worsening financial situations, etc. that seriously affect or threaten the exercise of Party Bs creditor rights; | ||
11.9.8 | Fail to perform the information disclosure obligations of Party A or its related parties are in one of the following situations, which might have negative influences on Party Bs performance of its obligations under the contract: |
11.9.8.1 | Worsening financial situation of Party As related parties; | ||
11.9.8.2 | Party A or any of its related parties is filed and punished or dealt with punishment measures in accordance with the law by the judiciary department or administrative law enforcement department of taxation, business, etc. and administrative management department; | ||
11.9.8.3 | The relationship of controlling and being controlled between Party A and its related parties changes; | ||
11.9.8.4 | Party As related parties are involved in or might be involved in major |
economic disputes, lawsuit and arbitration; |
11.9.8.5 | Party As major individual investors, key management personnel undergo abnormal changes or are investigated or restricted of personal freedom by the judiciary department in accordance with the law due to suspected crime activities; | ||
11.9.8.6 | Other situations occurred to Party As related parties that might have negative influences on Party A; |
11.9.9 | Failure to repay any other debts of money payment assumed by Party A after their maturity (including those announced as mature in advance), or failure to perform or breach any obliged agreement or document that might affect Party As capacity to perform the obligations under the contact; | ||
11.9.10 | Any other situations that might threaten the exercise of Party Bs creditor rights under the loan contact or lead to great loss to be suffered by Party B. |
12.1 | The contract shall come into effect from the day that legal representatives (responsible persons) of Party A and Party B or their authorized agents sign or stamp the seal and stamp the official seal, and shall come into effect after the guarantee contract comes into effect if there is guarantee. The contract shall terminate on the day the principal, interest, compound interest, penalty interest, liquidated damages and all other due costs are paid off. | |
12.2 | Under one of the following circumstances, Party B shall have the right to require Party A to repay the principal and interest of the loans in advance and compensate the loss: |
12.2.1 | When Party A undergoes a business closure, dismissal, business suspension and rectification, revocation or cancellation of the business license; | ||
12.2.1 | The guarantee under the contract has some negative changes on Party Bs creditor rights, and Party A fails to provide the necessary guarantee according to party Bs requirements; | ||
12.2.3 | Party A fails to repay the loans on time or fails to use the loans according to the use as agreed, incurs overdue interests, or commits other serious breach of contract. |
12.3 | If Party A requires an extension of the time limit of the loans, it shall submit a written application and the suretys written opinion of continuous suretyship to Party B 30 days prior to the termination of the contract. Upon Party Bs approval after review and the signing of an extension agreement, the time limit of the loans under the contract can be extended. Before the two parties sign the extension agreement, this loan contract shall continue to be implemented. | |
12.4 | After the contract comes into effect, other than the agreement already in the contract, neither Party A nor Party B shall unilaterally alter or terminate the contract in advance. If it is deemed necessary to alter or terminate the contract, it shall be based on a consensus between Party A and Party B through negotiations a resulting written agreement. Before the written agreement is reached, this contract shall continue to be implemented. |
13.1 | For the dispute occurred in the course of performing the contract between Party A and Party B, it shall first be resolved by Party A and Party B through negotiations. If the negotiations fail, then it shall be resolved according to Article 13.1.2: |
13.1.1 | Arbitration by ; | ||
13.1.2 | Resolution through lawsuit in the court with jurisdiction over Party B. |
14.1 | In case of overspending in Party As projects, Party A shall solve it by self-raised funds. | |
14.2 | Without the consent of Party B, it shall not add new external bank financing, provide guarantee and external investment in the name of the project constructed under the contract. | |
14.3 | If Hanting Xingkong (Shanghai) Hotel Management Co., Ltd, Shanghai Yiju Hotel Management Co., Ltd or Hanting (Tianjin) Investment Consultancy Co., Ltd commits a breach of any other loan contract with Party B or with other banks, or fails to repay any other debts of money payment after maturity (including those announced as mature in advance), then it shall be regarded that Party A has breached this contract, and Party B shall have the right to suspend or cancel the loans that Party A has not withdrawn or used, and shall have the right to collect part or all of the loans in advance. For the loans that cannot be collected, the liquidated damages shall be collected by the day according to the interest rate of overdue loans. | |
14.4 | Party A shall purchase proper property insurances for all the stores under the project (see the attachment for the specific names and locations of the stores), with Party B as the first beneficiary. The insurance period shall cover the loan period of the project. | |
14.5 | All the stores open for business of Hanting brand economic chain hotels (including all the stores owned by Party A and its related parties, see the attachment for details) shall be brought into Party Bs cash management platform (partner shop, contracting operation, joint-venture, joint-stock shops excluded), the business revenues of all the stores shall be accumulated into the cooperate account (that is, the capital accumulation account, account No. 1001266319890000068) opened by Party A or its related parties through Party Bs cash management platform. | |
14.6 | Each day Party B shall monitor Hanting systems capital in-flow of the above mentioned capital accumulation account in Party B, and make necessary calculations at the end of each month. If for two consecutive months, the collected capital per day is less than 50% of the average daily amount of the operation revenue of the opened stores in that month that have been brought into the cash management platform, Party B shall have the right to suspend or cancel the loans that Party A has not withdrawn or used and shall have the right to collect part or all of the loans in advance. For the loans that cannot be collected, the liquidated damages shall be collected on daily basis according to the interest rate of overdue loans. | |
14.7 | For the mortgage guarantee addressed in Articles 9.1 and 9.2 of the contract, the guaranteed principal creditor rights is the 27301575 Yuan in the loan contract. The loan contract system shall be respectively provided by Hanting Xingkong (Shanghai) Hotel Management Co., Ltd, Shanghai Yiju Hotel Management Co., Ltd or Hanting (Tianjin) Investment Consultancy Co., Ltd. The three parties jointly and severally provide the suretyship guarantee for the 172000000.00 Yuan in the loan contract. |
15.1 | The appendixes of the contract comprise an indispensable part of the contract and shall have equal legal effects along with the text of the contract. | |
15.2 | During the performance of the contract, if a certain withdrawal day or repayment day is not a working day of the bank, then it shall be prolonged accordingly to the next working day of the bank. | |
15.3 | The contract is made out in twenty-four copies of one format, with Party A holding one copy, Party B holding one copy, and with the mortgagor, surety party holding one copy. All copies shall have equal legal effects. |
Planned time of repayment
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Planned amount of repayment (ten thousand Yuan) | |||
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2011-1-3
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2600 | |||
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2012-1-3
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6000 | |||
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2013-1-3
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6400 |
1.1
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HanTing Technology (Suzhou) Co., Ltd. | |
1.2
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Shanghai HanTing Decoration and Engineering Co., Ltd. | |
1.3
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Shanghai Yiju Hotel Management Co., Ltd. | |
1.4
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Shanghai Aiting Hotel Management Co., Ltd. | |
1.5
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Shanghai Senting Hotel Management Co., Ltd. | |
1.6
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Shanghai Yuanting Hotel Management Co., Ltd. | |
1.7
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Shanghai Ningting Hotel Management Co., Ltd. | |
1.8
|
Shanghai Guiting Hotel Management Co., Ltd. | |
1.9
|
Shanghai Yiting Hotel Management Co., Ltd. | |
1.10
|
Shanghai Songting Hotel Management Co., Ltd. | |
1.11
|
Shanghai Xiting Hotel Management Co., Ltd. | |
1.12
|
Shanghai Jiating Hotel Management Co., Ltd. | |
1.13
|
Shanghai Hanhao Hotel Management Co., Ltd. | |
1.14
|
Shanghai Yuanting Hotel Management Co., Ltd. | |
1.15
|
Shanghai Yangting Hotel Management Co., Ltd. | |
1.16
|
Shanghai Baoting Hotel Management Co., Ltd. | |
1.17
|
Shanghai Yaogu Shangwu Hotel Management Co., Ltd. |
1.18
|
Shanghai Yanting Hotel Management Co., Ltd. | |
1.19
|
Shanghai Changting Hotel Management Co., Ltd. | |
1.20
|
Shanghai Changting Hotel Management Co., Ltd. | |
1.21
|
Shanghai Qinting Hotel Management Co., Ltd. | |
1.22
|
Suzhou Lishan Senbao Hotel Management Co., Ltd. | |
1.23
|
Suzhou HanTing Hotel Management Co., Ltd. | |
1.24
|
Suzhou Lishan Yatai Hotel Management Co., Ltd. | |
1.25
|
Suzhou Yiting Hotel Management Co., Ltd. | |
1.26
|
Beijing Beixie Hongyun Hotel Management Co., Ltd. | |
1.27
|
Beijing Jiating Hotel Management Co., Ltd. | |
1.28
|
Beijing Dongting Hotel Management Co., Ltd. | |
1.29
|
Beijing Anting Hotel Management Co., Ltd. | |
1.30
|
Beijing Yueting Hotel Management Co., Ltd. | |
1.31
|
Hangzhou Senting Hotel Management Co., Ltd. | |
1.32
|
Hangzhou Yishitan Investment and Management Co., Ltd. | |
1.33
|
Hangzhou Qiuting Hotel Management Co., Ltd. | |
1.34
|
Guangzhou Mengting Hotel Management Co., Ltd. | |
1.35
|
Guangzhou Meiting Hotel Management Co., Ltd. | |
1.36
|
Guangzhou Huiting Hotel Management Co., Ltd. | |
1.37
|
Tianjin Chengting Hotel Management Co., Ltd. | |
1.38
|
Tianjin Xingting Hotel Management Co., Ltd. | |
1.39
|
Tianjin HanTing Xingkong Hotel Management Co., Ltd. | |
1.40
|
Tianjin Yiting Hotel Management Co., Ltd. | |
1.41
|
Wuhu Yinting Hotel Management Co., Ltd. | |
1.42
|
Wuhu HanTing Hotel Management Co., Ltd. | |
1.43
|
Shenyang Maruika Hotel Management Co., Ltd. | |
1.44
|
Shenyang Futing Hotel Management Co., Ltd. | |
1.45
|
Wuhan HanTing Hotel Management Co., Ltd. | |
1.46
|
Wuhan Changting Hotel Management Co., Ltd. | |
1.47
|
Shenzhen HanTing Hotel Management Co., Ltd. | |
1.48
|
Shenzhen Shenting Hotel Management Co., Ltd. | |
1.49
|
Kunshan Lishan Hotel Management Co., Ltd. | |
1.50
|
Ningbo Jiangdong Meijia City Hotel Co., Ltd. | |
1.51
|
Yiwu HanTing Hotel Management Co., Ltd. |
2
1.52
|
Nanning HanTing Hotel Management Co., Ltd. | |
1.53
|
Nanjing Kexiang Hotel Co., Ltd. | |
1.54
|
Nanjing Leting Hotel Management Co., Ltd. | |
1.55
|
Xiamen Xiating Hotel Management Co., Ltd. | |
1.56
|
Zibo HanTing Hotel Management Co., Ltd. | |
1.57
|
Nanjing Ningru Hotel Management Co., Ltd. | |
1.58
|
Beijing HanTing Jiamei Hotel Management Co., Ltd. | |
1.59
|
Xian HanTing Fukai Hotel Management Co., Ltd. | |
1.60
|
Qingdao HanTing Hotel Management Co., Ltd. | |
1.61
|
Shanghai Lanting Hotel Management Co., Ltd. | |
1.62
|
Shanghai baiting Hotel Management Co., Ltd. | |
1.63
|
Shanghai Jiangting Hotel Management Co., Ltd. | |
1.64
|
Shanghai Zhenting Hotel Management Co., Ltd. | |
1.65
|
Shanghai HanTing Guancheng Hotel Management Co., Ltd. | |
1.66
|
Chengdu HanTing Hotel Management Co., Ltd. | |
1.67
|
Shanghai Yiju Hotel Management Co., Ltd. | |
1.68
|
Wuxi Yiju Hotel Management Co., Ltd. | |
1.69
|
Hangzhou HanTing Kuaijie Hotel Management Co., Ltd. | |
1.70
|
Beijing Yaoting Hotel Management Co., Ltd. | |
1.71
|
Beijing Xiting Hotel Management Co., Ltd. | |
1.72
|
Shanghai HanTing Service Apartment Hotel Management Co., Ltd. | |
1.73
|
Shanghai Meiting Hotel Management Co., Ltd. | |
1.74
|
Beijing HanTing Hotel Management Co., Ltd. |
2.1
|
Beijing HanTing Ruijing Hotel Management Co., Ltd. | |
|
- 51% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.2
|
Beijing HanTing Shengshi Hotel Management Co., Ltd. | |
|
- 80% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.3
|
Beijing HanTing Dongfang Hotel Management Co., Ltd. | |
|
- 99% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.4
|
Hangzhou Hemei HanTing Hotel Management Co., Ltd. | |
|
- 65% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. |
3
2.5
|
Hangzhou Heju HanTing Hotel Management Co., Ltd. | |
|
- 65% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.6
|
Hangzhou Heting Hotel Management Co., Ltd. | |
|
- 65% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.7
|
Shanghai Kailin Hotel Management Co., Ltd. | |
|
- 65% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.8
|
Nantong HanTing Zhongcheng Hotel Co., Ltd. | |
|
- 95% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.9
|
Chengdu HanTing Yangchen Hotel Management Co., Ltd. | |
|
- 51% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.10
|
Shenyang HanTing Yonglun Hotel Management Co., Ltd. | |
|
- 60% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.11
|
Suzhou Kangjia Shangwu Hotel Management Co., Ltd. | |
|
- 51% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.12
|
Wuxi HanTing Hotel Management Co., Ltd. | |
|
- 55% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.13
|
Taiyuan HanTing Jiangnan Hotel Management Co., Ltd. | |
|
- 55% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.14
|
Shenzhen HanTing Shiji Hotel Management Co., Ltd. | |
|
- 90% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.15
|
Changsha Changting Hotel Management Co., Ltd. | |
|
- 51% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.16
|
Guilin Lishan Huiming Hotel Management Co., Ltd. | |
|
- 60% equity interests owned by Shanghai HanTing Hotel Management Group, Ltd. | |
2.17
|
Shanghai HuiGu GangWan Hotel Management Co., Ltd. | |
|
- 65% equity interests owned by HanTing Xingkong (Shanghai) Hotel Management Co., Ltd. |
4
Shanghai Inntie Hotel Management
Consultant Co., Ltd. |
||||
/s/ Hu Shengyang | ||||
Name: | Hu Shengyang | |||
Title: | Chief Executive Officer | |||
Smith Travel Research
|
||||
/s/ Brad Garner | ||||
Name: | Brad Garner | |||
Title: | Vice President | |||
1. | Introduction |
2. | Reporting Violations of the Code |
1
3. | Conflicts of Interest |
| Working, in any capacity, for a competitor, customer or supplier while employed by the Company. | ||
| Accepting gifts of more than modest value or receiving personal discounts (if such discounts are not generally offered to the public) or other benefits as a result of your position in the Company from a competitor, customer or supplier. | ||
| Competing with the Company for the purchase or sale of property, products, services or other interests. |
2
| Having an interest in a transaction involving the Company, a competitor, customer or supplier (other than as an employee, officer or director of the Company and not including routine investments in publicly traded companies). | ||
| Receiving a loan or guarantee of an obligation as a result of your position with the Company. | ||
| Directing business to a supplier owned or managed by, or which employs, a relative or friend. |
4. | Quality of Public Disclosures |
3
5. | Compliance with Laws, Rules and Regulations |
6. | Compliance with This Code and Reporting of Any Illegal or Unethical Behavior |
4
7. | Waivers and Amendments |
8. | Accuracy of Company Financial Records |
9. | Retention of Records |
10. | Trading on Inside Information |
5
11. | Protection of Confidential Proprietary Information |
12. | Protection and Proper Use of Company Assets |
13. | Corporate Opportunities |
6
14. | Fair Dealing |
7