SECURITIES AND EXCHANGE COMMISSION
Form F-1
51job, Inc.
Not Applicable
Cayman Islands | 7361 | Not Applicable | ||
(State or Other Jurisdiction of
Incorporation or Organization) |
(Primary Standard Industrial
Classification Code Number) |
(IRS Employer
Identification No.) |
21st Floor, Wen Xin Plaza
National Registered Agents, Inc.
Copies to:
Leiming Chen
Shearman & Sterling LLP 12th Floor, Gloucester Tower, The Landmark 11 Pedder Street Central, Hong Kong +(852) 2978-8000 |
William Barron
Davis Polk & Wardwell 18th Floor, The Hong Kong Club Building 3A Chater Road Central, Hong Kong +(852) 2533-3300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
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Title of Each Class of | Proposed Maximum | Amount of | ||
Securities to Be Registered | Aggregate Offering Price(1) | Registration Fee | ||
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Common shares, par value $0.0001 per share(2)(3)
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US$90,000,000 | US$11,403 | ||
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(1) | Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
(2) | Includes common shares that may be purchased by the underwriters pursuant to over-allotment options. Also includes common 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 the distribution or within 40 days after the later of the effective date of this registration statement and the date the securities are first bona fide offered to the public. These common shares are not being registered for the purpose of sales outside the United States. |
(3) | American depositary shares issuable upon deposit of the common shares registered hereby will be registered under a separate registration statement on Form F-6 to be filed with the Commission. Each American depositary share represents two common shares. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. Neither we nor
the selling shareholders may 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 we are not soliciting offers to buy these
securities in any state where the offer or sale is not
permitted.
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PROSPECTUS (Subject To
Completion)
Issued ,
2004
American Depositary Shares
REPRESENTING COMMON
SHARES
51job, Inc. is offering American depositary shares, or ADSs, and the selling shareholders are offering ADSs. Each ADS represents two common shares. This is our initial public offering and no public market exists for our ADSs or our common shares. We anticipate that the initial public offering price will be between US$ and US$ per ADS.
We have applied to have the ADSs listed on the Nasdaq National Market under the symbol JOBS.
Investing in the ADSs involves risks. See Risk Factors beginning on page 11.
PRICE US $ AN ADS
Underwriting | Proceeds to | |||||||||||||||
Price to | Discounts and | Proceeds to | the Selling | |||||||||||||
Public | Commissions | 51job, Inc. | Shareholders | |||||||||||||
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Per ADS
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US$ | US$ | US$ | US$ | ||||||||||||
Total
|
US$ | US$ | US$ | US$ |
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
51job, Inc. has granted the underwriters the right to purchase an additional ADSs to cover over-allotments.
The underwriters expect to deliver the ADSs to purchasers on , 2004.
MORGAN STANLEY
UBS INVESTMENT BANK
PIPER JAFFRAY |
CLSA ASIA-PACIFIC MARKETS |
TABLE OF CONTENTS
You should rely only on the information contained
in this prospectus. We have not authorized anyone to provide you
with information different from that contained in this
prospectus. We are offering to sell ADSs and seeking offers to
buy ADSs, only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of the
ADSs.
We have not taken any action to permit a
public offering of the ADSs outside the United States or to
permit the possession or distribution of this prospectus outside
the United States. Persons outside the United States who come
into possession of this prospectus must inform themselves about
and observe any restrictions relating to the offering of the
ADSs and the distribution of the prospectus outside of the
United States.
Until ,
2004 (25 days after the date of this prospectus), all
dealers that buy, sell, or trade ADSs, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
ii
Conventions That Apply to This
Prospectus
Unless otherwise indicated, references in this
prospectus to:
Unless the context indicates otherwise,
we, us, our company,
our and 51job refer to 51job, Inc.,
its predecessor entities and subsidiaries, and, in the context
of describing our operations, also include our affiliated
entities.
In addition, unless otherwise indicated,
references in this prospectus to:
Unless otherwise indicated, our financial
information presented in this prospectus has been prepared in
accordance with U.S. GAAP.
Solely for your convenience, this prospectus
contains translations of certain Renminbi amounts into
U.S. dollar amounts at specified rates. All translations
from Renminbi to U.S. dollars were made at the noon buying
rate in The City of New York for cable transfers of Renminbi as
certified for customs purposes by the Federal Reserve Bank of
New York. Unless otherwise stated, the translations of Renminbi
amounts into U.S. dollar amounts have been made at the noon
buying rate in effect on March 31, 2004, which was
RMB8.2771 to US$1.00. We make no representation that the
Renminbi or U.S. dollar amounts referred to in this
prospectus could have been or could be converted into
U.S. dollars or Renminbi, as the case may be, at any
particular rate or at all. See Risk Factors
Risks Related to the Peoples Republic of China
Governmental control of currency conversion may affect the value
of your investment and The fluctuation
of the Renminbi may materially and adversely affect your
investment for discussions of the effects of currency
control and fluctuating exchange rates on the value of our ADSs.
On July 6, 2004, the noon buying rate was RMB8.2768 to
US$1.00.
We calculate the number of our print advertising
pages by physically counting the number of paid advertising
pages in each of our editions of
Career Post Weekly
. In
calculating the number of paid advertising
iii
We define a unique employer in our online
recruitment business as a customer that purchases our online
recruitment services during a specified period. We make
adjustments for multiple purchases by the same customer within a
city to avoid double counting. Each employer is assigned a
unique identification number in our management information
system. Affiliates and branches of a given employer may, under
certain circumstances, be counted as separate unique employers.
Our calculation of the number of unique employers is subject to
misidentification and other forms of error, including errors in
judgment as to appropriate adjustments to be made to the data.
We cannot assure you that our methodology, page
counting, employer identification, calculations and analyses are
accurate, or that they yield results that are comparable between
periods or give a correct approximation of the actual revenues
we generate per page or actual numbers of customers, as the case
may be.
iv
Table of Contents
ADRs are to the American depositary
receipts that evidence our ADSs;
ADSs are to our American depositary
shares, each of which represents two common shares;
China or the PRC are to
the Peoples Republic of China, excluding for the purpose
of this prospectus Hong Kong, Macau and Taiwan;
Nasdaq are to the Nasdaq National
Market;
RMB are to Renminbi, the legal
currency of the PRC;
shares or common shares
are to our common shares, with par value US$0.0001 per share;
U.S. GAAP are to the generally
accepted accounting principles in the United States of America;
and
US$ are to U.S. dollars, the
legal currency of the United States of America.
51net are to 51net.com Inc.;
AdCo are to Shanghai Qianjin Culture
Communication Co., Ltd.;
AdCo Subsidiaries are to the
subsidiaries of AdCo that conduct advertising businesses;
Qian Cheng are to Beijing Qian Cheng
Si Jin Advertising Co., Ltd.;
RAL are to Shanghai Run An Lian
Information Consultancy Co., Ltd.;
Run An are to Beijing Run An
Information Consultancy Co., Ltd.;
Tech JV are to Qianjin Network
Information Technology (Shanghai) Co., Ltd.;
WFOE are to Qian Cheng Wu You Network
Information Technology (Beijing) Co., Ltd.; and
Wuhan AdCo are to Wuhan Mei Hao Qian
Cheng Advertising Co., Ltd.
Table of Contents
Table of Contents
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed information regarding our company, the common shares and ADSs being sold in this offering, and our consolidated financial statements and notes to these consolidated financial statements appearing elsewhere in this prospectus.
51job, Inc.
Our Business
We are a leading provider of integrated human resource services in China, with a strong focus on recruitment related services. Our recruitment related services are delivered in both print and online formats, and these two services are closely integrated to allow us to reach a wide and diverse audience. The Internet, web-based applications and human resource software are critical aspects of our services.
We believe that we are the only significant nationwide provider of integrated print and online recruitment advertising services in China. We believe that our integrated advertising services allow us to attract a broad base of advertisers and provide us with a platform from which we can market our other human resource related services. In addition to recruitment advertising services, we also provide executive search and other complementary human resource related services for large and small employers.
Our goal is to be a one-stop solution to human resource departments by providing recruitment and other human resource related services to employers.
Recruitment related services |
Our recruitment related services consist of our integrated print advertising and online recruitment services, as well as our executive search services. These services accounted for 93.9% of our revenues in 2003.
Print advertising. Our customers advertise job positions in Career Post Weekly , a city-specific recruitment publication published once a week and distributed as an insert in major local newspapers and/or on a stand-alone basis. Career Post Weekly was produced in 19 cities in China as of June 30, 2004. We closely coordinate Career Post Weekly with our www.51job.com online recruitment website, and we post all recruitment advertisements appearing in Career Post Weekly on www.51job.com as well. Our print advertising business accounted for 62.3% of our revenues in 2003.
Online recruitment services. www.51job.com is our online recruitment website which we promote as a destination site for employers and job seekers in China. www.51job.com contains all of the recruitment advertisements appearing in Career Post Weekly as well as additional advertisements that only appear online. We update our recruitment advertisements on an hourly basis. Job seekers post resumés on our website, and employers manage and organize their online review of resumés and candidates through the eHire web-based software tools on our website. We believe that we are the largest dedicated national recruitment website in China in terms of registered job user accounts and posted resumés, with approximately 6.9 million user accounts established since the launch of our website in 1999 and approximately 4.6 million resumés posted online as of June 30, 2004. Online recruitment services accounted for 26.2% of our revenues in 2003.
Executive search. eSearch is our executive search service. Our search assignments are generally targeted at mid-level professional, managerial and junior executive positions. We believe that eSearch is a valuable complement to our Career Post Weekly and www.51job.com recruitment services. eSearch increases our visibility with employers, attracts more experienced candidates to submit their resumés to us and positions us as a full service provider of recruitment solutions. Executive search services accounted for 5.4% of our revenues in 2003.
1
Other human resource related services |
We offer a number of other value-added human resource services in areas such as training, software applications, business process outsourcing and surveys. These services accounted for 6.1% of our revenues in 2003.
We launched our training services in 2001. We offer public and in-house courses and seminars in business management, marketing, human resource, sales, manufacturing, secretarial and other skills. We have also developed a proprietary personnel assessment system used for employee evaluation, training, development and recruitment. In addition, we organize large human resource conferences and networking events.
In mid-2003, we launched a human resource management software package that allows employers to track attendance, payroll, vacation and other employee related information. In mid-2003, we also launched our business process outsourcing service through which we perform human resource administrative functions, such as payroll and benefits processing and tracking of compliance with local and national employment laws, on an outsourced basis. Employers and employees can access information through a web-based platform for communication and decision-making purposes, although the processing of these functions is outsourced to us. We also provide salary survey studies with analysis on compensation levels across various cities, industries and positions. We have introduced these services on a limited basis only, and they do not currently contribute meaningfully to our revenues.
We face significant competition from various entities in our different businesses in each of the cities in which we operate. However, we believe that we are the only significant provider of integrated print and online recruitment advertising nationwide.
We are not aware of any publicly available third party market share analysis of the print or online recruitment advertising industries, the executive search industry or the other human resource related industries in which we operate in China. Accordingly, our statements in this prospectus with regard to what we believe to be our market position are based on our own analysis and review of our business and operations, the businesses and operations of entities that we view as our main competitors and data that we compile and analyze internally. These statements are solely the opinion of our management and have not been reviewed by third parties.
Our Revenue Model
Although we provide services to both employers and job seekers, we derive substantially all of our revenues from employers. We receive a majority of our revenues in the form of fees from employers for placing job advertisements in Career Post Weekly and on www.51job.com . We also receive fees from employers for access to our www.51job.com resumé databases, for use of our eHire web-based software applications, for use of our eSearch executive search services and in connection with our other human resource related services.
We have been profitable since 2002 on a full-year basis. In 2003, we recorded net income of RMB37.2 million (US$4.5 million), compared to net income of RMB12.8 million in 2002 and a net loss of RMB14.1 million in 2001.
Our Market Opportunity
We believe that the human resource services industry has significant growth potential in China. As conditions in Chinas growing economy become more liberalized and competitive, the role of human resource management within Chinese companies is growing in importance. As employers increasingly realize how critical identifying, attracting, developing and retaining qualified employees is to a firms success, we expect employers will seek professional services across all segments of the human resource services industry value chain.
Moreover, we believe that employers will increasingly seek services that are national as well as local in scope and will look to access these services through multiple channels. As human resource operations become more complex, we also believe there is potential for employers to outsource a significant portion of human
2
We believe that the following broad macroeconomic factors in China drive the growth of our industry:
| rapid economic growth and liberalization; | |
| growing number of business entities and, in particular, companies in the private sector; and | |
| substantial growth in job openings. |
In addition to the above macroeconomic factors, we believe that the following changes in the composition of Chinas labor market as well as changes in recruitment trends in China create significant opportunities for further growth and development in our industry:
| urbanization of the work force; | |
| large and growing skilled and white collar labor force; | |
| increasing acceptance of new channels of recruitment; and | |
| the growth of the Internet as an important distribution channel for the human resource services industry, especially for recruitment advertising. |
We believe there is significant opportunity for market expansion due to these factors. However, given its early development stage, the Chinese market for human resource services may ultimately develop in a manner and at a rate different from what we anticipate due to changes in Chinas economic condition, changes in regulation relating to our industry, changes in the way companies use third party human resource services, increasing competition in our markets and other factors.
Our Strengths and Strategy
Through our nationwide network of offices, we provide our clients with a variety of human resource services through multiple distribution channels. In addition to our focus on both print and online recruitment advertising, we have developed additional products and services to address many human resource management needs. We believe that we are a leader in many of our markets as a result of the following competitive strengths:
| our strong brand names help us enter new geographic markets and lines of business; | |
| with our large sales force, we can directly market our services to existing and potential clients in key geographic markets and industries; | |
| the integration of our print and online recruitment advertising businesses allows us to extend the reach of our advertisements to a broad audience of job seekers, while providing a cost-effective solution for employers; | |
| our range of human resource services and wide geographic footprint make us attractive to employers that require a broad range of human resource services in multiple markets; | |
| we have a strong technology platform, and we are developing a number of additional software and web-based human resource services; and | |
| our highly experienced senior management team has a proven track record. |
Our objective is to become the market leader in each of our recruitment and other human resource businesses. Our strategy is to continue investing in our brands, aggressively expand our sales force in existing markets, target new markets in China and continue developing innovative software and web-based applications to meet the human resource and job search needs of employers and job seekers.
3
Notwithstanding these strengths, our ability to realize our objective and execute our strategy is subject to certain risks and uncertainties, including:
| significant competition in our businesses, including intense competition in many of our markets, and relatively low barriers to entry to all of our markets; | |
| our ability to achieve or maintain necessary economies of scale; | |
| potential slowdowns or other adverse developments in the PRC economy; | |
| our dependence on local newspapers to publish and distribute Career Post Weekly ; and | |
| general regulatory uncertainty, including with respect to our historical compliance with PRC restrictions on foreign ownership. |
Our Corporate Structure
The PRC government regulates foreign ownership in entities providing advertising, Internet content and human resource related services. In May 2004, we restructured our operations to comply with current PRC foreign ownership limitations. Historically, certain of our operations were conducted by two affiliated entities, Run An and Qian Cheng, which are wholly owned, directly and indirectly, by Michael Lei Feng and Tao Wang, two of our executive officers. We entered into contractual arrangements with these two entities pursuant to which we bore all of their economic risks and received all of their economic rewards. In our consolidated financial statements, we have consolidated all of the interests of Run An and Qian Cheng under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46.
In connection with our restructuring in May 2004, we terminated or modified the agreements referred to above and entered into new agreements with these affiliated entities and with RAL, a new affiliated entity formed and wholly owned by two of our executive officers. Under these agreements, we continue to bear all of the economic risks and receive all of the economic rewards of these affiliated entities. Consequently, we expect to consolidate the interests of RAL, and to continue to consolidate the interests of Run An and Qian Cheng, under FIN 46.
4
The chart below sets forth our current group structure. (1)
(1) | Does not include 51net HR, a dormant entity incorporated in the Cayman Islands and wholly owned by 51job, Inc., or Wang Jin Information Technology (Shanghai) Co., Ltd., a wholly owned subsidiary of 51net.com Inc. established in the PRC in June 2004 with no current operations. |
(2) | Includes the subsidiaries of AdCo that conduct advertising businesses and Shanghai Cheng An Human Resources Co. Ltd., which provides outsourcing services, and Shanghai Wang Cai Trading Co., Ltd., which provides stationery and office supplies to our larger business customers. |
(3) | Excludes Wuhan AdCo, which is set out separately in the chart. |
Tech JV, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues and receive substantially all of the cash payments from our clients. Under the terms of our contractual arrangements with Qian Cheng, the minority shareholder of Tech JV, AdCo and the AdCo Subsidiaries, WFOE receives all of the economic rewards and bears all of the economic risks of all of Qian Chengs minority interests in Tech JV, AdCo and the AdCo Subsidiaries.
5
Corporate Information
We are a limited liability company that was incorporated in the Cayman Islands on March 24, 2000. Our principal executive offices are located at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai 200041, Peoples Republic of China. Our telephone number at this address is +(86-21) 3201-4888. Our registered office in the Cayman Islands is located at the offices of M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. Our telephone number at this address is +(1-345) 949-8066.
Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.51job.com . The information contained on our website is not incorporated by reference into this prospectus. Our agent for service of process is National Registered Agents, Inc., located at 875 Avenue of the Americas, Suite 501, New York, New York 10001.
6
The Offering
7
8
American Depositary Shares offered
An aggregate
of ADSs,
representing common
shares
By us
ADSs
By the selling
shareholders
ADSs
Price per ADS
We currently estimate that the initial public
offering price will be between
US$ and
US$ per
ADS.
The ADSs
Each ADS represents two common shares, par value
US$0.0001 per share. The ADSs will be evidenced by American
Depositary Receipts, or ADRs. A nominee of the depositary will
be the registered holder of the common shares underlying your
ADSs.
You will have the rights of an ADR holder as
provided in a deposit agreement among us, the depositary and
holders and beneficial owners of ADSs from time to time,
dated ,
2004. You will be required to pay US$0.05 per ADSs for each
issuance or cancellation of an ADS, a fee for each distribution
of securities by the depositary based on the number of common
shares deposited for issuance of ADSs, US$0.02 per ADS per year
for depositary services, fees for transfer and registration of
your common shares, and certain expenses incurred by the
depositary.
To better understand the terms of the ADSs, you
should carefully read the section in this prospectus entitled
Description of American Depositary Shares. We also
encourage you to read the deposit agreement, which is an exhibit
to the registration statement that includes this prospectus. We
may amend or terminate the deposit agreement for any reason
without your consent. If an amendment becomes effective, you
will be considered, by continuing to hold your ADSs, to have
agreed to be bound by the deposit agreement as amended.
Over-allotment option
We have granted a 30-day option to the
underwriters to purchase an
additional ADSs
to cover over-allotments of ADSs.
Common shares outstanding after this offering
common
shares
(or common
shares if the underwriters exercise the over-allotment option in
full)
Dividend policy
We do not anticipate paying any cash dividends in
the near future.
Use of proceeds
We estimate that we will receive net proceeds
from this offering of approximately
US$ million,
assuming an initial public offering price of
US$ per
ADS, the midpoint of the estimated range of the initial public
offering price. If the underwriters exercise their
over-allotment option in full, we estimate that our net proceeds
will be approximately
US$ million.
We intend to use the proceeds we receive from
this offering primarily to:
provide working capital for the growth of
our businesses;
purchase software and equipment to
enhance and upgrade our technology infrastructure and platforms;
fund marketing efforts to build and
maintain our brand name and image; and
Table of Contents
fund potential acquisitions of
complementary businesses as such opportunities may arise from
time to time.
We will not receive any of the proceeds from the
sale of the ADSs by the selling shareholders.
Risk factors
See Risk Factors and other
information included in this prospectus for a discussion of
factors you should carefully consider before deciding to invest
in our ADSs.
Listing
We have applied for approval to have our ADSs
listed on the Nasdaq National Market. Our common shares will not
be listed on any other exchange or quoted for trading on any
over the counter trading system.
Proposed Nasdaq National
Market symbol
JOBS
Depositary
JPMorgan Chase Bank
Lock-up
We have agreed with the underwriters to a lock-up
of shares for a period of 180 days after the date of this
prospectus. In addition, our executive officers, directors and
certain of our existing shareholders have also agreed with the
underwriters to a lock-up of shares for a period of
180 days after the date of this prospectus. See
Underwriters.
Expected timing of this offering
Pricing
,
2004
Trading of ADSs on
the Nasdaq National Market
,
2004
Table of Contents
Summary Consolidated Financial and Operating
Data
The financial data set forth below should be read
in conjunction with, and are qualified by reference to,
Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes included elsewhere in
this prospectus. The summary consolidated statement of
operations data for the year ended December 31, 2001 and
for the three months ended March 31, 2003 and 2004 and the
summary consolidated balance sheet data as of December 31,
2001 and March 31, 2004 are derived from our unaudited
financials statements prepared in accordance with U.S. GAAP
and included elsewhere in this prospectus. The unaudited interim
financial statements reflect all adjustments which are, in the
opinion of our management, necessary to a fair statement of the
results for the interim periods presented. The summary
consolidated statement of operations data for the years ended
December 31, 2002 and 2003, and the summary consolidated
balance sheet data as of December 31, 2002 and 2003 are
derived from our consolidated financial statements for the years
ended December 31, 2002 and 2003, which have been audited
by PricewaterhouseCoopers Zhong Tian CPAs Limited Company and
prepared in accordance with U.S. GAAP. Our historical
results do not necessarily indicate results expected for any
future period.
9
10
For the year ended December 31,
For the three months ended March 31,
2001
2002
2003
2003
2003
2004
2004
RMB
RMB
RMB
US$
(1)
RMB
RMB
US$
(1)
90,940,220
116,989,356
182,606,297
22,061,628
38,236,552
75,342,560
9,102,531
22,586,591
28,938,327
76,960,121
9,297,957
15,767,046
24,060,419
2,906,866
9,126,842
9,726,300
15,748,331
1,902,639
2,018,280
3,519,745
425,239
5,305,068
9,895,734
18,019,611
2,177,044
2,961,538
7,024,741
848,696
127,958,721
165,549,717
293,334,360
35,439,268
58,983,416
109,947,465
13,283,332
121,970,723
158,039,700
280,118,941
33,842,644
56,397,193
104,855,738
12,668,174
(84,208,642
)
(92,220,940
)
(151,477,142
)
(18,300,751
)
(32,235,133
)
(53,611,580
)
(6,477,097
)
37,762,081
65,818,760
128,641,799
15,541,893
24,162,060
51,244,158
6,191,077
(52,235,986
)
(54,739,007
)
(90,237,681
)
(10,902,089
)
(27,097,660
)
(35,279,937
)
(4,262,355
)
(14,473,905
)
11,079,753
38,404,118
4,639,804
(2,935,600
)
15,964,221
1,928,722
(14,148,719
)
12,754,733
37,222,729
4,497,074
(2,814,055
)
8,720,059
1,053,516
(0.50
)
0.27
0.89
0.11
(0.10
)
0.20
0.02
(0.50
)
0.27
0.88
0.11
(0.10
)
0.19
0.02
(0.99
)
0.55
1.77
0.21
(0.20
)
0.41
0.05
(0.99
)
0.55
1.76
0.21
(0.20
)
0.38
0.05
As of December 31,
As of March 31,
2001
2002
2003
2003
2004
2004
RMB
RMB
RMB
US$
(1)
RMB
US$
(1)
30,339,579
68,637,760
115,084,572
13,903,973
136,170,612
16,451,488
60,170,618
103,661,564
185,404,279
22,399,666
226,413,390
27,354,193
20,656,416
26,057,516
56,119,724
6,780,119
75,755,172
9,152,381
39,514,202
77,604,048
129,284,555
15,619,547
150,658,218
18,201,812
Table of Contents
For the three
For the year ended
months ended
December 31,
March 31,
2001
2002
2003
2003
2004
31.0%
41.6%
45.9%
42.8%
48.9%
(11.9%
)
7.0%
13.7%
(5.2%
)
15.2%
As of and for the year
As of and for
ended December 31,
the three
months ended
2001
2002
2003
March 31, 2004
2,469
3,176
4,635
2,022
7,584
16,497
25,880
18,018
8
13
16
18
(1)
Translations from Renminbi to U.S. dollars
were made at the noon buying rate in The City of New York for
cable transfers of Renminbi as certified for customs purposes by
the Federal Reserve Bank of New York. The translations of
Renminbi amounts into U.S. dollar amounts have been made at
the noon buying rate in effect on March 31, 2004, which was
RMB8.2771 to US$1.00.
(2)
Diluted earnings (loss) per share is calculated
by dividing net income (loss) attributable to holders of common
shares as adjusted for the effect of dilutive common shares, if
any, by the sum of (1) the weighted average number of
common shares outstanding and (2) the weighted average
number of common equivalent shares, which consist of common
shares issuable upon the conversion of outstanding Series A
preference shares and common shares issuable upon the exercise
of outstanding share options as calculated under the treasury
stock method. In the case of diluted earnings (loss) per ADS,
the data are adjusted to reflect the ratio of two common shares
to one ADS.
(3)
Each ADS represents two common shares.
(4)
For the years ended December 31, 2001, 2002
and 2003, and for the three months ended March 31, 2004.
(5)
As of December 31, 2001, 2002 and 2003 and
March 31, 2004.
Table of Contents
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the risks described below, in conjunction with other information and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. You should pay particular attention to the fact that we conduct our operations in China and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in other countries that you may be familiar with. Our business, financial condition or results of operations could be affected materially and adversely by any or all of these risks. The trading price of our ADSs could decline due to any or all of these risks, and you may lose all or part of your investment.
Risks Related to Our Business
Because we face significant competition, including intense competition in several of our markets, we may lose market share and our results of operations may be materially and adversely affected. |
We face significant competition in our Career Post Weekly and www.51job.com businesses as well as in our executive search and other human resource businesses. Career Post Weekly currently faces intense competition in many of our largest markets. Competitors of Career Post Weekly primarily consist of local newspaper publishers and specialized recruitment advertising publications. In addition, Career Post Weekly faces competition from online job-search websites and other online businesses seeking to expand into print recruitment advertising.
Our online recruitment services face competition from other dedicated job search websites such as ChinaHR.com , Cjol.com and Zhaopin.com , as well as increasing levels of competition from national Internet portals in China such as NetEase.com , sina.com , sohu.com and tom.com which provide online recruitment services. In addition, many executive search firms and other competitors currently engaged in print advertising have started to internally develop or acquire online capabilities.
Our executive search and other human resource related businesses face significant competition from a variety of Chinese and foreign firms in all of our markets, including certain firms that compete with us in the market for online recruitment advertising.
Many of our competitors or potential competitors have long operating histories, may have greater financial, management, technological development, sales, marketing and other resources than we do, and may be able to adopt our business model. As a result of competition, we may experience reduced margins, loss of market share or less use of our services by job seekers and businesses. We cannot assure you that existing or future competitors will not develop or offer services and products which provide significant performance, price, creative or other advantages over our services. If we are unable to compete effectively with current or future competitors as a result of these or other factors, our market share and our results of operations may be materially and adversely affected.
New competitors face low entry barriers to our industries, and successful entry by new competitors may cause us to lose market share and materially and adversely affect our results of operations. |
In the future, we may face competition from new entrants in the recruitment advertising industry and other human resource industries in which we operate. We may face greater competition from Internet portals, newspapers, dedicated recruitment advertising websites and publications, and other human resource service providers who may enter the market for any or all of our services. Our businesses are characterized by relatively low start-up and fixed costs, modest capital requirements, short start-up lead times and an absence of significant proprietary technology that would prevent or significantly inhibit the entry of competitors. As a result, potential market entrants, both in China and from abroad, face relatively low barriers to entry to all of our businesses and in all of our markets. In addition, we believe that there are relatively low existing penetration rates in our markets, and that competitors could acquire significant numbers of clients and establish significant market share within a relatively short period. Furthermore, the newspaper and print media industry in China is highly regulated at present which may have the effect of limiting competition and keeping
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If we are unable to achieve or maintain economies of scale with respect to our recruitment advertising businesses, our results of operations from these businesses may be materially and adversely affected. |
We incur fixed costs such as printing, distribution, direct marketing, advertising, management, staff, office, infrastructure and utilities in each of our geographic markets in connection with operating our print advertising business. In addition, we incur fixed costs relating to website maintenance, design and operation in our online businesses. Our ability to realize our desired margins in our recruitment advertising businesses depends largely on our success in posting a high volume of print and online recruitment advertisements to generate sufficient revenues to offset associated fixed costs. Further, we need to reach and maintain a critical mass of recruitment advertisements in order for Career Post Weekly and www.51job.com to build and maintain acceptance among employers and job seekers as attractive vehicles for posting and seeking jobs.
In some of our largest markets, Career Post Weekly has not achieved the necessary economies of scale and these operations have not achieved profitability despite our having operated in these markets for a significant period of time. We believe that this is due primarily to significant competition from rival print advertising publications. We may be unable to achieve and maintain sufficient economies of scale in any or all of our geographic markets in connection with our recruitment advertising businesses. Any failure to do so could materially and adversely affect our results of operations from these businesses.
A slowdown or other adverse developments in the PRC economy may materially and adversely affect our customers, demand for our services and our business. |
Substantially all of our operations are conducted in China and substantially all of our revenues are generated from providing recruitment advertising and search services for PRC businesses or divisions of firms operating in China. Although the PRC economy has grown significantly in recent years, we cannot assure you that such growth will continue. Print advertising, online recruitment services, executive search and our other human resource related businesses are all relatively new industries in China, and we do not know how sensitive we are to a slowdown in economic growth or other adverse changes in the PRC economy. In response to adverse economic developments, employers might hire fewer permanent employees, engage in hiring freezes, lay off employees, or reduce spending on print advertising, online recruitment services and executive search services. Employers may decide to rely more heavily on traditional recruitment methods such as referrals and job fairs, and utilize more in-house resources to conduct training and perform other human resource functions, or otherwise modify their behavior in ways that may have a significant negative impact on our business. As a result, a slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our services and materially and adversely affect our business.
If the use of advertising to conduct recruitment does not achieve broader acceptance in China, we may be unable to expand our recruitment advertising businesses. |
The use of advertising services to recruit employees is relatively new in China. Due to significant control and regulation by the national and local governments, the private sector recruiting process in China continues to be largely characterized by the use of personal referrals and large job fairs. We believe that the use of advertising by employers and job seekers remains relatively low. As a result, we face considerable challenges in promoting greater use of advertising, which involves, among other things, significant changes in the way that employers disseminate information about jobs, the way that prospective employees search and apply for jobs, and the way in which hiring decisions are made. We cannot assure you that recruitment advertising will achieve broader acceptance in China. Any significant failure of advertising to gain acceptance among employers and job seekers may substantially limit our ability to expand our recruitment advertising businesses.
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If the Internet does not achieve broad acceptance in China as a medium for recruitment, we may be unable to expand our online recruitment advertising business. |
Our online recruitment services are targeted toward employers and job seekers who use the Internet. China has only recently begun to develop the Internet as a commercial medium and has a relatively low Internet penetration rate compared to most developed countries. Our future results of operations from online recruitment services will depend substantially upon an increase in Internet penetration and an increase in acceptance and use of the Internet for the distribution of services and for the facilitation of commerce in China. In addition, unless they are resolved, telecommunication capacity constraints may impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. Any significant failure of the Internet to gain acceptance as a medium for recruitment may substantially limit our ability to expand our online recruitment advertising business and to further integrate our online and print advertising businesses.
The markets for executive search services and business process outsourcing are still in the development stage in China and we may be unable to expand these businesses. |
Many employers in China are not familiar with the executive search model or may not accept the value of a targeted, professional search. Many employers may be unwilling to pay a commission of up to 35% of a candidates annual compensation. Similarly, the market for the third party outsourcing of business processes is also still developing in China. Companies may not be willing to use third parties for significant administrative functions and may instead choose to continue to perform such operations in-house. If these services do not gain wider acceptance in China, we may be unable to expand these businesses.
We are dependent on local newspaper contractors in each of our geographic markets to publish and distribute Career Post Weekly. |
In the PRC, entities engaged in publishing activities are required by the government to have a publishing license. We do not have any publishing licenses and we are, and will continue to be, dependent on contractual arrangements with local newspapers in each of our geographic markets in order to publish and distribute Career Post Weekly . Our arrangements with our local newspaper contractors require them to print, publish and distribute Career Post Weekly as an insert in their newspaper, and in some cases to contribute marketing support. The successful execution of our business plan is highly dependent on establishing and maintaining relationships with newspapers in all of the new markets in which we intend to offer recruitment advertising services.
The term of our agreements with local newspaper contractors is generally two years, and five of these agreements will expire in the next six months. In addition, certain of these agreements are subject to early termination by either party on various grounds. We cannot assure you that our local newspaper contractors will conduct their activities in full compliance with applicable laws and regulations governing the publishing, distribution and sale of newspapers. In addition, we cannot assure you that:
| our local newspaper contractors will fulfill their obligations under our agreements; | |
| the agreements will be renewed; | |
| our current contractors will not, upon termination of our agreements, seek to compete directly against us or establish relationships with one or more of our competitors; or | |
| in the event that we wish to do so or it is necessary to do so, we will be able to locate and enter into an agreement with a suitable alternative local newspaper on a timely basis or at all. |
In addition, we may experience lower levels of readership and circulation if we lose the marketing support of a local newspaper contractor. Any adverse developments involving our local newspaper contractors could significantly disrupt or impair the publication, promotion and distribution of Career Post Weekly , which in turn could damage our Career Post Weekly brand name and materially and adversely affect our recruitment advertising business and our results of operations.
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We are dependent on our Internet service provider, and we are vulnerable to failures of the Internet, fixed line telecommunications networks in China and our technology platform. |
Our online businesses are heavily dependent on the performance and reliability of Chinas Internet infrastructure, the continual accessibility of bandwidth and servers to our service providers networks, and the continuing performance, reliability and availability of our technology platform.
We rely on affiliates of China Telecommunications Corporation, or China Telecom, to provide us with bandwidth and server custody service for our services. We are unlikely to have any access to alternative networks or services in the event of disruptions, failures or other problems with Chinas Internet infrastructure or China Telecoms fixed telecommunications networks, or if China Telecom or its affiliates otherwise fail to provide such services. In addition, we have no control over the costs of the services provided by China Telecom or its affiliates. If China Telecom or its affiliates fail to provide these services, we would be required to seek other providers, and there is no assurance that we will be able to find alternative providers willing or able to provide high quality services and there is no assurance that such providers will not charge us higher prices for their services. If the prices that we are required to pay for Internet services rise significantly, our results of operations could be adversely affected.
If we are unable to protect or promote our brand names and reputation, our business may be materially and adversely affected. |
If we fail to generate a high volume of recruitment advertisements, maintain our relationships with local newspaper contractors, successfully promote and develop the perception of www.51job.com as a destination site, undertake effective marketing and promotional activities, and generally provide high quality services, we may not be successful in protecting or promoting our brand names and reputation in a cost-effective manner or at all. We may dedicate significantly greater resources in the future to advertising, marketing and other promotional efforts aimed at building awareness of our brands. Any significant damage to our reputation, the perceived quality or awareness of our brand names or services, or any significant failure on our part to promote and protect our brand names and reputation could make it more difficult for us to successfully attract job seekers, compete for customers or retain qualified personnel, which may have a material adverse effect on our business.
If we are unable to prevent others from using our intellectual property, our business may be materially and adversely affected. |
Our intellectual property has been, and will continue to be, subject to various forms of theft and misappropriation. Competitors copy and distribute content from our www.51job.com website, from Career Post Weekly and from the training materials that we use, and utilize misleadingly similar Internet domain names and URLs in an effort to divert Internet traffic away from our website. We are also susceptible to others copying our business model and methods. The legal protection of trademarks, trade names, copyrighted material, domain names, trade secrets, know-how and other forms of intellectual property in the PRC is significantly more limited than in the United States and many other countries and may afford us little or no effective protection. Preventing unauthorized use of our intellectual property is difficult, time consuming and expensive, and may divert significant management and staff resources from our business operations, and yield limited and uncertain results. Misappropriation of our content, trademarks and other intellectual property could divert significant business to our competitors, damage our brand name and reputation, and require us to initiate litigation that could be expensive and require us to divert management resources from the operation of our businesses.
We rely heavily on our senior management team and key personnel, and the loss of any of their services could severely disrupt our business. |
Our future success is highly dependent on the ongoing efforts of the members of our senior management and key personnel, in particular on Rick Yan, our chief executive officer. We rely heavily on his management skills, his expertise in consumer products, marketing and technology, and his relationships with many of our
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In addition, if Mr. Yan, any other members of our senior management or any of our other key personnel joins a competitor or forms a competing company, we may not be able to replace them easily and we may lose customers, business partners, key professionals and staff members. Each of our senior executives and key personnel has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. In the event of a dispute between any of our senior executives or key personnel and us, we cannot assure you as to the extent, if any, that these provisions may be enforceable in the PRC due to uncertainties involving the PRC legal system.
Our business may suffer if we do not successfully manage our current and potential future growth. |
We have experienced rapid expansion since we commenced operations in 1998 and we intend to continue to expand in size and increase the number of services we provide. We have established 12 new offices from the beginning of 2002 to June 30, 2004. Our anticipated future growth will place significant demands on our management and operations. Our success in managing this growth will depend to a significant degree on the ability of our executive officers and other members of senior management to operate effectively both independently and as a group, and on our ability to improve and develop our financial and management information systems, controls and procedures. In addition, we will have to successfully adapt our existing systems and introduce new systems, expand, train and manage our workforce, and improve and expand our sales and marketing capabilities. Mismanagement of any of our services in our new or existing markets or the deterioration of the quality of our services could significantly damage our brand name and reputation, adversely affecting our ability to expand our client base.
As a one-stop human resource provider, we will be required to provide high quality executive search and other human resource related services. As we are currently in the process of developing many of these businesses, we may encounter initial difficulties in ensuring the high quality of our services. In particular, we may be unable to provide our eSearch clients with acceptable candidates, we may provide clients with candidates whom they subsequently perceive as poor performers, and/or we may provide clients with candidates whom they subsequently fail to retain. With respect to our business process outsourcing service, we may be unable to establish a substantial nationwide capability, accurately monitor ongoing changes in PRC laws and regulations, acquire, develop and use up-to-date business and management technology and software, including sophisticated computer and technology systems that could require significant capital expenditures, and maintain the integrity and security of our systems. If we are unable to provide high quality services, if material mistakes occur, or if we are unable to price these services properly, our brand name and reputation could be damaged and we could incur legal liability to our clients and their employees.
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations. |
We began operations in 1998. Our limited operating history may not provide a meaningful basis on which to evaluate our business. Although our revenues have grown rapidly since inception, we incurred net losses prior to 2002. We cannot assure you that we will maintain our profitability or that we will not incur net losses in the future. We expect that our operating expenses will increase as we expand. Any significant failure to realize anticipated revenue growth could result in significant operating losses. We will continue to encounter
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| implement our business model and strategy and adapt and modify them as needed; | |
| increase awareness of our brands, protect our reputation and develop customer loyalty; | |
| manage our expanding operations and service offerings, including the integration of any future acquisitions; | |
| maintain adequate control of our expenses; | |
| adequately and efficiently operate, maintain, upgrade and develop our website and the other systems and equipment we utilize in providing our services; | |
| attract, retain and motivate qualified personnel; | |
| maintain our current, and develop new, partnerships with local newspapers and other important operational relationships; and | |
| anticipate and adapt to changing conditions in the print, online and other markets in which we operate as well as the impact of any changes in government regulation, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics. |
If we are not successful in addressing any or all of these risks, our business may be materially and adversely affected.
We rely on our print advertising business to provide a significant majority of our revenues and any adverse development in this business could materially and adversely affect our overall results of operations. |
We generate a significant majority of our revenues from Career Post Weekly , which generated approximately 70.7% of our revenues in 2002 and 62.3% of our revenues in 2003. While we have experienced significant growth in our Career Post Weekly business in recent years, online advertisement may cause print media such as Career Post Weekly to become less desirable as a form of advertising. To the extent this occurs and if we are not able to generate sufficient revenues from our online recruitment services to offset any loss of revenues from our print advertisement business, our overall results of operations could be materially and adversely affected.
We may not be able to successfully execute future acquisitions or efficiently manage any acquired business. |
We may decide to expand, in part, by acquiring certain complementary businesses. The success of any material acquisition will depend upon several factors, including:
| our ability to identify and acquire businesses on a cost-effective basis; | |
| our ability to integrate acquired personnel, operations, products and technologies into our organization effectively; and | |
| our ability to retain and motivate key personnel and to retain the clients of acquired firms. |
Any such acquisition may require a significant commitment of management time, capital investment and other management resources. There is a possibility that we will not be successful in identifying and negotiating acquisitions on terms favorable to us. In addition, we cannot be certain that any acquisition, if completed, will be successfully integrated into our existing operations. If we are unable to effectively integrate an acquired business, our business, financial condition and results of operations may be materially and adversely affected. In addition, if we use our equity securities as consideration for acquisitions, we may dilute the value of your common shares or ADSs. We have not engaged in any material acquisitions. In addition, we presently have no
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If we are unable to attract and retain qualified personnel, our executive search, training and business process outsourcing businesses may be materially and adversely affected. |
The success of our executive search, training and business process outsourcing services depends heavily on our ability to attract and retain skilled personnel. Successful expansion of our executive search business depends on a dedicated team of consultants with expertise and relationships in the geographic markets and industries in which our clients seek candidates. Likewise, the success of our training business depends on personnel with the necessary skills to conduct and support our training seminars and our other activities and services in this business. Our business of outsourcing traditional human resource department functions such as payroll, benefits and compliance management and related services depends on personnel with expertise in local and national PRC government employment regulations, payroll management and other human resource department functions. If we are unable to attract and retain critical skilled personnel, our executive search, training and business process outsourcing businesses may be materially and adversely affected.
We may be subject to liability for placing advertisements with content that is deemed inappropriate. |
PRC laws and regulations prohibit advertising companies from producing, distributing or publishing any advertisement that contains any content that violates laws and regulations, impairs the national dignity of the PRC, involves designs of the national flag, national emblem or national anthem or the music of the national anthem of the PRC, is reactionary, obscene, superstitious or absurd, is fraudulent, or disparages similar products. If we are deemed to be in violation of such regulations, we may be subject to penalties including confiscation of the illegal revenues, levying of fines and suspension or revocation of our business license or advertising license, any of which may materially and adversely affect our business.
We are subject to potential legal liability from both employers and job seekers with respect to our executive search businesses and other human resource related services. |
We are exposed to potential claims associated with the recruitment process, including claims by clients seeking to hold us liable for recommending a candidate who subsequently proves to be unsuitable for the position filled, claims by current or previous employers of our candidates alleging interference with employment contracts, claims by candidates against us alleging our failure to maintain the confidentiality of their employment search or alleging discrimination or other violations of employment law or other laws or regulations by our clients, and claims by either employers or candidates alleging the failure of our business process outsourcing services to comply with laws or regulations relating to employment, employees insurance or benefits, individual income taxes or other matters. Any such claims, regardless of merit, may force us to participate in time-consuming, costly litigation or investigation, divert significant management and staff attention, and damage our reputation and brand names. We do not maintain insurance coverage for liabilities arising from claims by employers, candidates or third parties.
We may be exposed to infringement or misappropriation claims by third parties, which, if successful, could cause us to pay significant damage awards. |
Third parties may bring claims against us alleging infringement of patents, trademarks or copyrights, or misappropriation of their creative ideas or formats, or other infringement of their proprietary intellectual property rights. Any such claims, regardless of merit, may involve us in time-consuming, costly litigation or investigation, divert significant management and staff resources, require us to enter into expensive royalty or licensing arrangements, prevent us from using important technologies, business methods, content or other intellectual property, result in monetary liability, or otherwise disrupt our operations. We expect that the likelihood of such claims may increase, particularly in our online businesses, as the number of competitors in our markets grows and as related patents and trademarks are registered or copyrights are obtained by such competitors.
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We rely heavily on our information systems, and if our access to technology supporting our information systems is impaired or interrupted, or if we fail to further develop our technology, our operations may be seriously disrupted. |
Our success depends in large part upon our ability to store, retrieve, process and manage substantial amounts of information, including our client and candidate databases. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development, either internally or through independent consultants, of new proprietary software. Our inability to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or any interruption or loss of our information processing capabilities, for any reason, could materially disrupt our operations.
If we are not able to respond successfully to technological or industry developments, our business may be materially and adversely affected. |
The market for online products and services is characterized by rapid technological developments, frequent launches of new product and services, the introduction of new business models, changes in customer needs and behavior, and evolving industry standards. These developments may make our existing online recruitment services obsolete or less competitive. In order to respond to such developments, we may be required to undertake substantial efforts and incur significant costs. In the event that we do not successfully respond to such developments in a timely and cost-effective manner, our business may be materially and adversely affected.
Computer viruses and hacking may cause delays or interruptions on our systems and may reduce use of our services and damage our reputation and brand names. |
Computer viruses and hacking may cause delays or other service interruptions on our systems. Hacking involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, software, hardware or other computer equipment. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Hacking and computer viruses could result in significant damage to our hardware and software systems and databases, disruptions to our business activities, including to our e-mail and other communications systems, breaches of security and the inadvertent disclosure of confidential or sensitive information, interruptions in access to our website through the use of denial of service or similar attacks, and other material adverse effects on our operations. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation and brand names could be materially damaged and usage of our services may decrease.
Our business could be adversely affected if our software contains bugs. |
Our online systems, including the www.51job.com website, and our other software applications, products and systems could contain undetected errors or bugs that could adversely affect their performance. Additionally, we regularly update and enhance our website and our other online systems and introduce new versions of our software products and applications. The occurrence of errors in any of these may cause us to lose market share, injure our reputation and brand names, and materially and adversely affect our business.
We are controlled by a small number of our existing shareholders and our board of directors has the power to discourage a change of control. |
Immediately following this offering, our five largest shareholders will beneficially own approximately % of our outstanding common shares on a fully diluted basis, or % if the underwriters exercise their over-allotment option in full.
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These shareholders are:
| Rick Yan, our chief executive officer and a director, who will beneficially own approximately % of our outstanding common shares on a fully diluted basis immediately following the offering; | |
| entities affiliated with Doll Capital Management, or DCM, which will own approximately %, and which is affiliated with David K. Chao, one of our directors; | |
| Michael Lei Feng, one of our executive officers, who will own approximately %; | |
| Norman Lui, one of our executive officers, who will own approximately %; and | |
| Kathleen Chien, one of our executive officers, who will own approximately %. |
While these shareholders have advised us that they do not consider themselves to be a group as defined under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, individually these shareholders could have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. In cases where their interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these shareholders, we may be prevented from entering into transactions that could be beneficial to us. In addition, these persons could violate their non-competition or employment agreements with us or otherwise violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders.
In addition, our board of directors will have the authority, without further action by our shareholders, to issue common and preferred shares of up to 20% by par value of all issued shares and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares. These provisions could have the effect of depriving you of an opportunity to sell your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction. See Description of Share Capital Directors Power to Issue Shares.
The preferential tax treatment of a number of the AdCo Subsidiaries will expire from 2004 to 2006, which will result in higher tax rates for these entities and could adversely affect our overall results of operations. |
Newly organized PRC entities conducting advertising businesses are entitled to elect to receive a tax exemption for their first two years of operation in lieu of carrying forward tax losses accumulated in those years. Entities making such an election may carry forward tax losses incurred after the expiration of this two-year period. A number of our AdCo Subsidiaries have elected to receive these two-year tax exemptions. These exemptions will expire from 2004 to 2006. Upon the expiration of these tax exemptions, these AdCo Subsidiaries will be taxed at the full statutory tax rate, currently 33%. We expect that, as these tax exemptions expire, the effective tax rate of our PRC subsidiaries and our consolidated effective tax rate will increase significantly, which could adversely affect our net income.
We have no business insurance coverage. |
Other than insurance for some of our properties, we do not maintain any insurance. Insurance companies in China offer limited business insurance products and do not, to our knowledge, offer business liability insurance. We do not have any business liability insurance coverage for our operations. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.
We are vulnerable to natural disasters and other calamities. |
All of our servers are currently hosted in Shanghai. We have backup systems, but we cannot assure you that such backup systems will be adequate if there are problems, or that they will adequately protect us from
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We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors. |
We may be a passive foreign investment company for U.S. federal income tax purposes for any year. Such classification could result in adverse U.S. tax consequences to U.S. investors. For example, if we are a passive foreign investment company for any year, our U.S. investors may be subject to increased tax liabilities under U.S. tax laws and regulations and may be subject to additional reporting requirements. The determination of whether we are a passive foreign investment company will be made on an annual basis and will depend on the composition of our income and assets, including goodwill. The calculation of goodwill will be based, in part, on the market value of our ADSs from time to time, which may be volatile. In addition, the composition of our income and assets will be affected by how we spend the cash we raise in this offering. In general, we will be classified as a passive foreign investment company for any taxable year in which either (1) at least 75% of our gross income is passive income or (2) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For purposes of these tests, cash, including working capital, and investments are considered assets that produce or are held for the production of passive income. If we were to retain or to invest the cash that we raise in this offering, and the retained cash or investments and any other passive assets comprised at least 50% of the value of our assets, we could be a passive foreign investment company. Our determination of whether we are a passive foreign investment company is not binding on the Internal Revenue Service. We cannot assure you that we will not be a passive foreign investment company for the current or any future taxable year. If we are a passive foreign investment company in any year that a U.S. investor holds shares or ADSs, we generally will continue to be treated as a passive foreign investment company for that investor in all succeeding years. We urge U.S. investors to consult their own tax advisors concerning the availability and making of a mark-to-market election. See Taxation United States Federal Income Taxation Passive foreign investment company rules.
Our subsidiaries face limitations on paying dividends or making other distributions to us. |
We are a holding company and do not have any assets or conduct any business operations other than our holding of the equity interests in, directly and indirectly:
| Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd., or WFOE, a wholly foreign owned enterprise in China; | |
| Qianjin Network Information Technology (Shanghai) Co., Ltd., or Tech JV; and | |
| Shanghai Qianjin Culture Communication Co., Ltd., or AdCo, and its subsidiaries. |
As a result of our holding company structure, we rely entirely on dividends, royalty payments and other fees paid to us by our subsidiaries and affiliated entities in the PRC to finance our operations and to pay dividends to our shareholders. The payment of dividends in China is subject to limitations. PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in the PRC are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserve funds that are not distributable as cash dividends. The PRC government also imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We may also experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. See Regulation Regulation of Foreign Currency Exchange and Dividend Distribution. If we or any of our subsidiaries are unable to receive all of the revenues from our
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Risks Related to Our Corporate Structure
If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions. |
The PRC government regulates foreign ownership in entities providing advertising and human resource related services. Prior to March 2004, PRC laws and regulations prohibited foreign persons from owning a controlling interest in advertising entities. This foreign ownership restriction has subsequently been relaxed to 70%. In addition, until November 2003, there were no PRC laws or regulations explicitly prohibiting or limiting foreign ownership in entities providing human resource related services. Since November 2003, foreign ownership in entities providing human resource related services has been limited to 49%.
Prior to our restructuring, 51net, our BVI subsidiary and a foreign entity, owned 99% of Tech JV, which in turn owned, and continues to own, 80% of AdCo. AdCo owned, and continues to own, 90% of the principal AdCo Subsidiaries. During this period, Tech JV, AdCo and the AdCo Subsidiaries conducted a portion of our advertising and human resource services businesses. We have been advised by Jun He Law Offices, our PRC counsel, that the foreign ownership percentage of Tech JV, AdCo and the AdCo Subsidiaries prior to our restructuring was above the maximum foreign ownership permitted for an entity conducting advertising operations. In addition, we have been advised by our PRC counsel that, prior to our restructuring, the foreign ownership percentage of Tech JV was above the maximum foreign ownership permitted for an entity conducting human resource operations. In May 2004, we restructured our operations to comply with the foregoing PRC laws and regulations governing foreign ownership in entities conducting advertising and human resource related services. However, we have not received any waiver from the PRC government with respect to our past non-compliance with foreign ownership laws limitations.
However, there remains uncertainty regarding whether foreign owned PRC entities, such as AdCo, are required to obtain special governmental approval in order to establish subsidiaries in the PRC or otherwise invest in PRC entities. As a result, it is uncertain whether special governmental approval, which we did not obtain, was necessary for the establishment by AdCo of the AdCo Subsidiaries.
The PRC government may determine that our ownership structure is or was inconsistent with or insufficient for the proper operation of our businesses, or that our business licenses or other approvals are or were not properly issued or not sufficient. For a discussion of the limitations on foreign ownership governing our businesses, see Regulation Limitations on Foreign Ownership of Our Businesses.
If we or any of our subsidiaries or affiliated entities were found to be or to have been in violation of PRC laws or regulations governing foreign ownership of advertising or human resource services businesses, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:
| levying fines; | |
| revoking business licenses; | |
| restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; | |
| requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or | |
| requiring us to discontinue all or a portion of our business. |
Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.
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We rely on our agreements with an affiliated entity to provide human resource related services and to act as an Internet content provider, and we rely on agreements with an affiliated entity and its shareholders to receive all of the beneficial interest of this entity. |
Current PRC laws and regulations limit foreign investment in entities providing human resource related services and in entities operating as Internet content providers. We currently provide technical, consulting and human resource related services in conjunction with our affiliated entity, RAL, which is wholly owned by Michael Lei Feng and Tao Wang, two of our executive officers. RAL holds a license to provide human resource related services and we rely on RAL to provide human resource related services to our clients under a contractual arrangement between RAL and our majority owned subsidiary Tech JV. Similarly, RAL holds a license to operate as an Internet content provider. While we provide all of our online recruitment services through Tech JV, we rely on RAL to provide certain Internet content provider services to support Tech JVs online recruitment services through a contractual arrangement with RAL. We have entered into agreements with RALs shareholders which enable us to effectively control RAL.
Tech JV, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues. The minority interests in Tech JV, AdCo and the AdCo Subsidiaries, which are direct or indirect subsidiaries of Tech JV, are held by Qian Cheng, which is wholly owned by Michael Lei Feng and Tao Wang. Through agreements with Qian Cheng and its shareholders, we have the substantial ability to control, bear all the economic risks of, and receive all the economic rewards from, Qian Cheng. As a result, we consolidate all of its interests for U.S. GAAP reporting purposes.
As we rely on these agreements with RAL and Qian Cheng to enable us to provide certain critical services to our clients as well as to receive all the economic benefits of Qian Cheng, a significant disruption in these contractual relationships as a result of governmental sanction or otherwise could result in our being required to restructure our operations which could result in a significant expenditure of resources. If we are unable to restructure our operations to provide those services through a different entity, we may experience significant disruptions in our ability to provide online recruitment services or human resource related services to our customers. In addition, if we are unable to consolidate the minority interests in Tech JV, AdCo and the AdCo Subsidiaries, our results of operations would reflect Qian Chengs minority interest in these entities which, if not otherwise consolidated, would result in a significant reduction in our reported net income. For a description of our contractual arrangements with these entities, see Corporate Structure.
If our affiliated entity RAL is found to be operating in jurisdictions outside of Shanghai without a business license, we could be subject to sanctions and our revenues could be adversely affected. |
RALs existing human resource services license is limited to Shanghai. In 2003, revenues from human resource related services provided to customers outside Shanghai accounted for approximately 5% of our total revenues. It is possible that government authorities in jurisdictions outside Shanghai where certain of RALs customers are located may assert that RAL is providing human resource related services in such jurisdictions without a necessary license and is required to obtain a human resource services license in such jurisdictions. As a result, RAL could be required to cease providing human resource services to customers in such locations which could result in a reduction in human resource related revenues. In addition, RAL may be subject to sanctions in the form of forfeiture of profits, fines, or both.
Our contractual arrangements with RAL and Qian Cheng may not be as effective in providing operational control as direct ownership of these businesses. |
Because the percentage of foreign ownership in human resource and Internet content businesses in China is limited under PRC laws and regulations, we depend substantially on RAL, in which we have no direct ownership interest, and its contractual arrangements with us to provide those services. Similarly, we rely on our contractual arrangements with Qian Cheng, in which we have no direct ownership interest, to realize all of the economic rewards from Qian Chengs minority interests in Tech JV, AdCo and the AdCo Subsidiaries. Our contractual arrangements with RAL, Qian Cheng and their respective shareholders may not be as effective as direct ownership in providing control over their operations. RAL may fail to perform its
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If we or any of our subsidiaries or affiliated entities were found to be in violation of PRC laws or regulations, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:
| levying fines; | |
| revoking business licenses; | |
| restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; | |
| requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or | |
| requiring us to discontinue all or a portion of our business. |
Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.
The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions. In addition, any changes in such PRC laws and regulations may have a material and adverse effect on our business. |
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. We and our subsidiaries are considered foreign persons or foreign funded enterprises under PRC laws, and, as a result, we are required to comply with PRC laws and regulations, including those governing foreign ownership in the advertising, human resource services and Internet content industries. These laws and regulations are relatively new and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, the PRC authorities retain broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business licenses and requiring actions necessary for compliance. In particular, licenses, permits and beneficial treatments issued or granted to us by relevant governmental bodies may be revoked at a later time under contrary findings of higher regulatory bodies. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. We cannot assure you that any such restructuring would be effective or would not result in similar or other difficulties. We may be subject to sanctions, including fines, and could be required to restructure our
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If we or any of our subsidiaries or affiliated entities or any of our contractual arrangements are found to be or to have been in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:
| levying fines; | |
| revoking business licenses; | |
| restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; | |
| requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or | |
| requiring us to discontinue all or a portion our business. |
Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.
We are unable to quantify the likelihood that any sanctions would be imposed or the magnitude of the effect of any such sanctions on our business, financial condition or results of operations.
Risks Related to the Peoples Republic of China
Our business could be affected by changes in Chinas economic, political or social conditions or government policies. |
The PRC economy differs from the economies of most developed countries in many respects, including with respect to the:
| amount of government involvement; | |
| level of development; | |
| growth rate; | |
| control of foreign exchange; and | |
| allocation of resources. |
While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business. For example, the PRC government could determine to limit the extent to which government controlled entities may use private sector businesses such as ours to service their human resource requirements. The PRC government could also determine to develop and support government owned or controlled human resource enterprises in direct competition with us. In addition, the PRC government continues to play a significant role in regulating
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PRC laws and regulations governing operators of Internet websites are unclear and the regulation of the telecommunications and Internet industries may become more burdensome, and if we are found to be in violation of PRC laws and regulations, we could be subject to sanctions. |
The interpretation and application of existing PRC laws and regulations, the stated positions of the main governing authority, the PRC Ministry of Information Industry, and the possibility of new laws or regulations being adopted, have created significant uncertainty regarding the legality of existing and future foreign investments in, and the businesses and activities of, companies with Internet operations, including those of our company. In particular, the PRC Ministry of Information Industry has stated that the activities of Internet content providers, or entities providing delivery of Internet content, are subject to regulation by various PRC government authorities, depending on the specific activities conducted by the Internet content provider. We cannot be certain that the commercial Internet content provider license issued by the local Shanghai Municipal Telecommunications Bureau and held by RAL will satisfy these requirements. For example, we may be required to obtain an inter-provincial Internet content provider license in order to operate online businesses in multiple provinces, autonomous regions and centrally administered municipalities. In addition, PRC government regulation of the telecommunications and Internet industries is burdensome and may become even more so. New regulations could increase our costs of doing business and prevent us from efficiently delivering our services. We have been informed that the PRC Ministry of Information Industry is in the process of preparing a draft of a national telecommunications law to provide a uniform regulatory framework for the telecommunications industry. We do not know the nature or scope of these new laws and regulations and we cannot predict whether they will have a positive or negative effect on any or all aspects of our business. Our failure to comply with applicable PRC Internet regulations could subject us to severe sanctions.
The continued growth of the Chinese Internet market depends on the establishment of an adequate telecommunications infrastructure. |
Although private sector Internet service providers currently exist in China, almost all access to the Internet is maintained through ChinaNet, which is owned by China Telecom under the administrative control and regulatory supervision of the PRC Ministry of Information Industry. In addition, the national networks in China connect to the Internet through a government-controlled international gateway. This international gateway is the only channel through which a domestic user can connect to the international Internet network. We rely on this infrastructure and China Telecom to provide data communications capacity, primarily through local telecommunications lines. We cannot assure you that this infrastructure will be developed. We have no access to alternative networks or services, on a timely basis if at all, in the event of disruptions, failures or other problems with Chinas Internet infrastructure or telecommunications networks. The Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.
The PRC legal system has inherent uncertainties that could materially and adversely affect us. |
The PRC legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the PRC legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, the PRC has not developed a fully integrated legal system and the array of new laws and regulations may not be sufficient to cover all aspects of economic activities in the PRC. In particular, because these laws and regulations are relatively new,
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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us, our management or the experts named in the prospectus. |
We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, the majority of our directors and executive officers and some of the experts named in the prospectus reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon these directors or executive officers or some of the experts named in the prospectus, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our PRC counsel has advised us that the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.
Governmental control of currency conversion may affect the value of your investment. |
The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi, which is currently not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend payments from our PRC subsidiaries and other payments such as royalty and licensing fees. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends, royalty payments or other fees to us, or otherwise satisfy their foreign currency dominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
The fluctuation of the Renminbi may materially and adversely affect your investment. |
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRCs political and economic conditions. As we rely entirely on dividends, royalty payments and other fees paid to us by our subsidiaries and affiliated entities in the PRC, any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition, and the value of, and any dividends payable on, our ADSs in foreign currency terms. For example, to the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we
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We face risks related to health epidemics and other outbreaks. |
Our business could be adversely affected by the effects of Severe Acute Respiratory Syndrome, or SARS, or another epidemic or outbreak on the economic and business climate. China reported a number of cases of SARS in April 2004. Restrictions on travel resulting from a reoccurrence of SARS or another epidemic or outbreak could adversely affect our ability to market and service new and existing customers throughout China. Our business operations could be disrupted if one of our employees is suspected of having SARS, which would require that a certain number of our employees be quarantined and/or our offices be disinfected. In addition, our results of operations could be adversely affected to the extent that SARS or another outbreak harms the Chinese economy in general.
Risks Related to Our ADSs and This Offering
There has been no public market for our shares or ADSs prior to this offering. |
Prior to this initial public offering, there has been no public market for our common shares or ADSs. We cannot predict the extent to which a trading market for our ADSs will develop or how liquid that market may become. The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. We cannot be certain that an active trading market will develop.
The market price for our ADSs may be volatile. |
The market prices of the securities of companies with Internet related and online businesses have been extremely volatile and may be subject to wide fluctuations in response to factors including the following:
| actual or anticipated fluctuations in our quarterly operating results; | |
| announcements of new services by us or our competitors; | |
| changes in financial estimates by securities analysts; | |
| conditions in our industry, which is the market for recruitment advertising services and other human resource related services in China; | |
| announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| additions or departures of key personnel; | |
| release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional common shares or ADSs; and | |
| potential litigation or regulatory investigations. |
In addition, recently a number of PRC companies and companies with substantial operations in the PRC that offered and sold securities in the United States have experienced significant volatility in their share prices after their initial public offerings due to market fluctuations and other issues. Furthermore, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs. We cannot assure you that the market price of our ADSs will not decline below the initial public offering price. As a result, you may not be able to resell your shares above the initial public offering price and you may suffer a loss on your investment.
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The future sales, or perceived future sales, by our existing shareholders of a substantial number of our ADSs in the public market could adversely affect the price of our ADSs. |
If our shareholders sell, or are perceived as intending to sell, substantial amounts of our common shares or ADSs, including those issued upon the exercise of outstanding options, in the public market following this offering, the market price of our ADSs could fall. Such sales, or perceived potential sales, also might make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate. The common shares represented by ADSs offered in this offering (other than those held by our affiliates) will be eligible for immediate resale in the public market without restrictions. Common shares held by our existing shareholders and any ADSs held by our affiliates may also be sold in the public market in the future under, and subject to the restrictions contained in, Rule 144 under the U.S. Securities Act of 1933, as amended, or the Securities Act, and applicable lock-up agreements. In addition, see Management Stock-Based Compensation Plans for a description of outstanding options to purchase our common shares. All of our common shares outstanding immediately after this offering, except common shares represented by ADSs sold in this offering, will be subject to a lock-up agreement. See Shares Eligible for Future Sale and Underwriters for additional information regarding resale restrictions. In addition, after this offering, the holders of common shares will be entitled to certain registration rights. For a description of the registration rights that we have granted, see Description of Share Capital Registration Rights.
Your right to participate in any future rights offerings may be limited, which may cause dilution of your holdings. |
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary bank will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities is either registered under the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
You will experience immediate and substantial dilution in the book value of ADSs purchased. |
The public offering price per ADS will be substantially higher than the net tangible book value per ADS prior to this offering. Therefore, when you purchase ADSs in the offering at the initial public offering price, you will incur an immediate dilution of US$ per ADS. See Dilution. If we issue additional ADSs, you may experience further dilution. In addition, you may experience further dilution to the extent that common shares are issued upon the exercise of stock options. Substantially all of the common shares issuable upon the exercise of currently outstanding stock options will be issued at a purchase price on a per ADS basis that is less than the initial public offering price per ADS in this offering.
You may not be able to exercise your right to vote. |
As a holder of ADSs, you may only exercise the voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying common shares in accordance with these instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares. Under our fifth amended and restated memorandum and articles of association, the minimum notice period required for convening either an annual meeting or a general meeting called to vote on matters requiring the approval of two thirds of the voting shares is 20 days. The minimum notice period for other general meetings is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the
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You may not receive distributions on common shares or any value for them if it is illegal or impractical to make them available to you. |
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary is not responsible if it decides that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, common shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, common shares, rights or anything else to holders of ADSs. This means that you may not receive the distribution we make on our common shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.
You may be subject to limitations on transfer of your ADSs. |
Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law. |
We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. In addition, a majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or executive officers.
Our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law (2003 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
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The Cayman Islands courts are also unlikely:
| to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and | |
| to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature. |
There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see Description of Share Capital Differences in Corporate Law.
We will have broad discretion over the use of the proceeds to us from this offering. |
We will have broad discretion to use the net proceeds to us from this offering. See Use of Proceeds. You will be relying on the judgment of our board of directors and management regarding the application of these proceeds. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or that lose value.
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FORWARD-LOOKING STATEMENTS
This prospectus, including in particular the sections entitled Prospectus Summary, Risk Factors, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations and Our Business contains forward-looking statements. These statements relate to future events or our future financial performance, our ability to continue to control costs and maintain quality, the expected growth of and change in the print recruitment advertising, online recruitment services and human resource industries in China, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under Risk Factors and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expect, intend, plan, anticipate, believe, estimate, predict, potential, continue or the negative of these terms or other comparable terminology. A variety of factors, some of which are outside of our control, may cause our operating results to fluctuate significantly. They include:
| market acceptance of our services; | |
| our ability to expand into other recruitment and human resource services such as business process outsourcing; | |
| our ability to control our operating costs and expenses; | |
| our potential need for additional capital and the availability of such capital; | |
| changes in our management team and other key personnel; | |
| introduction by our competitors of new or enhanced products or services; | |
| price competition in the market for the various human resource services that we provide in China; and | |
| fluctuations in general economic conditions. |
One or more of these factors could materially and adversely affect our business, financial condition and results of operations in future periods.
This prospectus also contains data related to the labor market and recruitment trends in China and broad macroeconomic factors that we believe drive the growth of our industry. These data include projections that are based on a number of assumptions. The labor market in China may not expand at the rates projected by the market data, or at all. The failure of the market to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. In addition, the complex and changing nature of the broad macroeconomic factors discussed in this prospectus subjects any projections or estimates relating to the growth prospects or future conditions of our market to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the labor market data and recruitment trends turns out to be incorrect, actual results may differ from the projections based on these assumptions.
The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. All forward-looking statements contained in this prospectus are qualified by reference to this cautionary statement.
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USE OF PROCEEDS
We estimate that the net proceeds from the offering will be approximately US$ million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming an initial public offering price of US$ per ADS, the midpoint of the estimated range of the initial public offering price. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately US$ million.
We intend to use the proceeds we receive from this offering primarily to:
| provide working capital for the growth of our businesses; | |
| purchase software and equipment to enhance and upgrade our technology infrastructure and platforms; | |
| fund marketing efforts to build and maintain our brand name and image; and | |
| fund potential acquisitions of complementary businesses as such opportunities arise from time to time, although we do not presently have specific plans and are not currently engaged in any discussions or negotiations with respect to any such transactions. |
We may also use net proceeds we receive from the offering for general corporate purposes, which may include expanding our recruiting efforts, opening new offices and developing new products and services. Management has not determined the specific allocation of the net proceeds we receive from this offering and will have broad discretion in the allocation of the net proceeds.
Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes. Pending their use, the proceeds of the offering will be invested in short-term investment grade, interest bearing, debt instruments or bank deposits. These investments may have a material adverse effect on the U.S. federal income tax consequences of your investment in our ADSs. It is possible that we may become a passive foreign investment company for U.S. federal tax purposes, which could result in negative tax consequences for you. For a more detailed discussion of these consequences, see Taxation United States Federal Income Taxation Passive foreign investment company rules. Also see Risk Factors Risks Related to Our Business We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.
We will not receive any proceeds from the ADSs to be sold by the selling shareholders.
DIVIDEND POLICY
Since the incorporation of our company in 2000, we have not declared or paid any dividends on our common shares. We do not anticipate paying any cash dividends in the near future. The timing, amount and form of future dividends, if any, will depend, among other things, on our future results of operations and cash flow, our future prospects, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries and our affiliated entities, and other factors deemed relevant by our board of directors. Any future dividends on our common shares would be declared by and subject to the discretion of our board of directors.
Holders of ADSs will be entitled to receive dividends, if any, subject to the terms of the deposit agreement, to the same extent as holders of common shares, less the fees and expenses payable under the deposit agreement, and after deduction of any applicable taxes.
32
EXCHANGE RATE INFORMATION
The following table sets forth information
regarding the noon buying rates in Renminbi and
U.S. dollars for the periods indicated.
Renminbi per U.S. dollar noon buying rate
Average
High
Low
Period-end
8.2783
8.2800
8.2770
8.2795
8.2784
8.2799
8.2768
8.2774
8.2770
8.2786
8.2676
8.2766
8.2770
8.2800
8.2669
8.2800
8.2772
8.2800
8.2765
8.2767
8.2770
8.2774
8.2766
8.2768
8.2770
8.2772
8.2767
8.2768
8.2771
8.2773
8.2769
8.2769
8.2771
8.2774
8.2767
8.2770
8.2769
8.2772
8.2768
8.2771
8.2771
8.2773
8.2768
8.2769
8.2767
8.2768
8.2766
8.2766
8.2767
8.2768
8.2766
8.2768
Source: Federal Reserve Bank of New York
On July 6, 2004, the noon buying rate was RMB8.2768 to US$1.00.
We publish our financial statements in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, as of March 31, 2004, which was RMB8.2771 to US$1.00. No representation is made that the Renminbi amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all.
33
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2004 presented on:
| an actual basis; | |
| a pro forma basis to give effect to the conversion of all of our Series A preference shares into our common shares, which will occur upon the closing of this offering; and | |
| a pro forma, as adjusted basis, to give effect to (1) the conversion of all of our outstanding Series A preference shares, and (2) the issuance and sale of ADSs in this offering, assuming an initial public offering price of US$ per ADS, the midpoint of the estimated range of the initial public offering price, and assuming the underwriters do not exercise their over-allotment option, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
You should read this table together with our
consolidated financial statements and related notes included
elsewhere in this prospectus and other information under
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
As of March 31, 2004
Pro forma, as
Actual
Pro forma
adjusted
RMB
US$
(1)
RMB
US$
(1)
RMB
US$
(1)
(in thousands, except for share numbers)
23,998
2,899
35,644
4,306
11,646
1,407
(1,144,425
)
(138,264
)
(1,144,425
)
(138,264
)
78,917,947
9,534,492
198,558,605
23,988,910
119,640,658
14,454,418
(52,493,414
)
(6,342,006
)
(52,493,414
)
(6,342,006
)
12,722,827
1,537,112
12,722,827
1,537,112
(413,100
)
(49,909
)
(413,100
)
(49,909
)
(6,607,919
)
(798,337
)
(6,607,919
)
(798,337
)
150,658,218
18,201,812
150,658,218
18,201,812
150,658,218
18,201,812
150,658,218
18,201,812
(1) | Translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. The translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on March 31, 2004, which was RMB8.2771 to US$1.00. |
(2) | Does not include 3,060,933 common shares issuable upon the exercise of options outstanding as of March 31, 2004 and the common shares issuable upon the exercise of options to be granted in the future under our 2000 stock option plan. Upon the closing of this offering, our fifth amended and restated memorandum and articles of association will become effective and we will have 500,000,000 authorized common shares. |
34
DILUTION
If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the pro forma net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per common share of our ADSs is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares. Our net tangible book value as of March 31, 2004 was US$ , or US$ per common share and US$ per ADS. Our pro forma net tangible book value as of March 31, 2004 was US$ , or US$ per common share and US$ per ADS. Pro forma net tangible book value per common share represents the amount of total tangible assets less total liabilities, divided by the number of common shares outstanding after giving effect to the automatic conversion of all of our outstanding Series A preference shares into our common shares.
After giving effect to our sale of ADSs in this offering at the initial public offering price of US$ per ADS (the midpoint of the estimated range of the initial public offering price) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2004 would have been US$ , or US$ per common share and US$ per ADS. This represents an immediate increase in pro forma net tangible book value of US$ per common share, or US$ per ADS, to existing shareholders and an immediate dilution in pro forma net tangible book value of US$ per common share, or US$ per ADS, to investors purchasing ADSs in this offering.
The following table illustrates this dilution on
a per common share and per ADS basis:
US$
US$
US$
US$
US$
US$
US$
35
The following table summarizes, on a pro forma
basis as of March 31, 2004, the differences between
existing shareholders and the new investors with respect to the
number of common shares purchased from us, the total
consideration paid and the average price per share paid.
Common
Total
shares purchased
consideration
Average
Average
price per
price per
Number
Percent
Amount
Percent
share
ADS
US$
US$
US$
%
%
%
%
The discussion and tables above do not include common shares issuable upon the exercise of options outstanding as of March 31, 2004. As of March 31, 2004, we had options outstanding to purchase a total of 3,060,933 common shares at a weighted average exercise price of US$0.36 per common share. If all these options had been exercised on March 31, 2004, after giving effect to this offering, our pro forma net tangible book value would have been approximately US$ million, or US$ per common share and US$ per ADS and the dilution in net tangible book value to new investors would have been US$ per common share, or US$ per ADS. In addition, the dilution will be US$ per common share, or US$ per ADS, if the underwriters exercise their option to purchase additional ADSs in full.
36
CORPORATE STRUCTURE
Corporate History
Prior to the formation of our company, due to PRC restrictions on the foreign ownership of advertising businesses, our businesses were principally operated by two PRC entities, Beijing Run An Information Consultancy Co., Ltd., or Run An, and Beijing Qian Cheng Si Jin Advertising Co., Ltd., or Qian Cheng. Since their formation in 1997 and 1999, respectively, both Run An and Qian Cheng have been controlled and owned by Michael Lei Feng and Tao Wang, two PRC citizens who serve as our executive officers. Run Ans original market research and insurance agency businesses, unrelated to our current operations, were discontinued in 1999. Run An began providing executive search services in 2000. Qian Cheng was established by Michael Lei Feng and Run An to provide advertising services.
In January 2000, Qianjin Network Information Technology (Shanghai) Co., Ltd., or Tech JV, was formed as a joint venture between Qian Cheng and 51net.com Inc., or 51net, a British Virgin Islands company established by Rick Yan and Norman Lui. Subsequently, Tech JV established a majority owned subsidiary, Shanghai Qianjin Culture Communication Co., Ltd., or AdCo, with Qian Cheng as the sole minority shareholder. AdCo in turn established several majority owned subsidiaries, with Qian Cheng as the sole minority shareholder, which we refer to as the AdCo Subsidiaries. Prior to our May 2004 restructuring discussed below, 51net owned 99% of the equity interest in Tech JV. After Tech JV, its branches, and AdCo and the AdCo Subsidiaries obtained the necessary business licenses, the business and operations of Run An and Qian Cheng were transferred to Tech JV, its branches, AdCo and the AdCo Subsidiaries over a period of time. This transfer was effected through the transfer of customers, employees and operations to these entities and did not involve a formal sale of assets or equity. Since 2002, substantially all of our business and operations have been conducted through Tech JV and its branches and subsidiaries.
On March 24, 2000, our company was incorporated as an exempted limited liability company in the Cayman Islands by our founders, Rick Yan, Michael Lei Feng, Norman Lui and Kathleen Chien. An exempted company under Cayman Islands law is a company that carries on its business mainly outside the Cayman Islands and is exempt from certain requirements of the Companies Law of the Cayman Islands. See Description of Share Capital. Subsequently, we acquired 51net and became the holding company of our corporate group. We also formed a wholly owned subsidiary in the Cayman Islands, 51net Beijing, and a wholly owned subsidiary in the PRC, Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd., or WFOE, to hold some of our intellectual property rights and generally facilitate our operations through network and software related technical support services. 51net Beijing holds all of the equity interest in WFOE.
Our relationships with Run An and Qian Cheng, our affiliated entities, have been governed by a series of agreements. As a result of these agreements, under which we have borne all of the economic risks and received all of the economic rewards in these affiliated entities, the historical financial results of these entities have been consolidated in our financial statements as variable interest entities under FIN 46.
Each of the material entities in our group, including our material affiliated entities that we use to operate our businesses and in which we hold no equity interest, is described below under Description of the Material Group Entities.
Our May 2004 Restructuring and Arrangements with Affiliated Entities
The PRC government regulates foreign ownership in entities that provide advertising and human resource related services. Prior to March 2004, PRC laws and regulations prohibited foreign persons from owning a controlling interest in advertising entities. This foreign ownership limitation has subsequently been relaxed to permit foreign ownership of up to 70% of a PRC advertising entity. In addition, until November 2003, there were no PRC laws or regulations explicitly prohibiting or limiting foreign ownership in entities providing human resource related services. Since November 2003, foreign ownership in entities providing human resource related services has been limited to 49%. Tech JV obtained an online advertising license in May 2000 and a license to conduct human resource related services in September 2002. In addition, AdCo, an 80%
37
In May 2004, we engaged in a restructuring which, among other things, reduced our effective interest in Tech JV to 69.7%. In addition, Michael Lei Feng and Tao Wang formed Shanghai Run An Lian Information Consultancy Co., Ltd., or RAL, an affiliated entity in which we hold no equity interest. As part of our restructuring, RAL entered into a series of agreements with us that permit us to consolidate all of its financial results under FIN 46. As a result, we consolidate RAL and continue to consolidate Qian Cheng and Run An under our new structure.
Our services are currently provided through the following group entities:
| online recruitment services are provided by Tech JV, which does not act as an Internet content provider; | |
| print advertising services are provided by AdCo and the AdCo Subsidiaries, which are all direct and indirect majority owned PRC subsidiaries of Tech JV; | |
| human resource related services are provided by RAL, which holds a license to provide human resource related services; and | |
| Internet content provider services are provided by RAL through a contractual arrangement with Tech JV; RAL holds a license to act as an Internet content provider and operates our www.51job.com website. |
For a description of the distinction between an entity that provides online services and an Internet content provider, see Regulation Limitations on Foreign Ownership of Our Business Internet content providers.
We no longer provide services together with Run An or Qian Cheng.
Tech JV, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues and receive substantially all of the cash payments from our clients. Under the terms of our contractual arrangements with Qian Cheng, WFOE receives all of the economic rewards and bears all of the economic risks of Qian Chengs minority interest in Tech JV, AdCo and the AdCo Subsidiaries.
We have been advised by Jun He Law Offices, our PRC counsel, that the foreign ownership percentage of Tech JV, AdCo and the AdCo Subsidiaries prior to our restructuring was above the maximum foreign ownership permitted for entities conducting advertising and human resource operations. For a description of the risks associated with our past ownership structure, please see Risk Factors Risks Related to Our Corporate Structure If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions.
In addition, there remains uncertainty regarding whether foreign owned PRC entities, such as AdCo, are required to obtain special governmental approval in order to establish subsidiaries in the PRC or otherwise invest in PRC entities. As a result, it is uncertain whether special governmental approval, which we did not obtain, was necessary for the establishment by AdCo of the AdCo Subsidiaries.
38
Group Ownership Structure
The chart below sets forth our current ownership structure. (1)
(1) | Does not include 51net HR, a dormant entity incorporated in the Cayman Islands and wholly owned by 51job, Inc., or Wang Jin Information Technology (Shanghai) Co., Ltd., a wholly owned subsidiary of 51net.com Inc. established in the PRC with no current operations. |
(2) | Includes the subsidiaries of AdCo that conduct advertising businesses and Shanghai Cheng An Human Resources Co., Ltd., which provides outsourcing services, and Shanghai Wang Cai Trading Co., Ltd., which provides stationery and office supplies to our larger business customers. |
(3) | Excludes Wuhan AdCo, which is set out separately in the chart. |
Our subsidiary, 51net, directly holds 51% of the outstanding shares of Tech JV, Qian Cheng directly holds 1% of the outstanding shares of Tech JV, and our AdCo Subsidiary located in the city of Wuhan, Wuhan Mei Hao Qian Cheng Advertising Co., Ltd., or Wuhan AdCo, directly holds the remaining 48% of the outstanding shares of Tech JV. As a result of 51nets indirect majority ownership of Wuhan AdCo and Qian Chengs direct minority ownership of Wuhan AdCo, 51net is deemed to effectively hold 69.7% of the equity interest in Tech JV and Qian Cheng is deemed to effectively hold 30.3% of the equity interest in Tech JV.
39
Qian Cheng, Run An and RAL were each established by Michael Lei Feng and Tao Wang, each an executive officer of our company and a PRC citizen. Qian Cheng is 80% owned by Michael Lei Feng and 20% owned by Run An. Run An and RAL are each 80% owned by Michael Lei Feng and 20% owned by Tao Wang. As a result of their ownership interest in Run An, Michael Lei Feng and Tao Wang effectively hold 96% and 4%, respectively, of the equity interest in Qian Cheng.
Description of the Material Group Entities
51net |
51net is an intermediate-level holding company that is the registered owner of some of our trademarks and our domain name and holds direct and indirect equity interests in several of our PRC subsidiaries. Our wholly owned subsidiary 51net is an international business company incorporated in the British Virgin Islands. Specifically, 51net owns the trademarks , , 51job.com and under certain categories specified by relevant PRC trademark regulations, and the domain name www.51job.com . All of these trademarks have been registered with the Trademark Office of the PRC State Administration for Industry and Commerce and are protected under the PRC Trademark Law adopted in 1982 and revised in 2001. For a description of PRC regulations relating to intellectual property rights, see Regulation Regulations Relating to Our Intellectual Property Rights.
Tech JV |
We provide online recruitment services through Tech JV. Tech JV was initially established as an equity joint venture between 51net and Qian Cheng. Immediately before our May 2004 restructuring, 51net held 99% of the equity interest in Tech JV and Qian Cheng held the remaining 1%. As part of our restructuring, 51net transferred 48% of its equity interest in Tech JV to Wuhan AdCo. Since 51net indirectly holds a majority equity interest in Wuhan AdCo, and Qian Cheng directly and indirectly holds a minority interest in Wuhan AdCo, 51net holds 69.7% of the effective equity interest and Qian Cheng holds 30.3% of the effective equity interest in Tech JV. Because 51net is a British Virgin Islands company, Tech JV is deemed a foreign invested enterprise and its business activities are subject to the PRC regulatory limitations on foreign ownership as discussed in Regulation Limitations on Foreign Ownership of Our Businesses. Tech JV has obtained a permit to conduct online advertising from the PRC State Administration for Industry and Commerce. The scope of its business license also includes software development, multimedia and network system design and information technology.
Qian Cheng |
Qian Cheng is our joint venture partner in Tech JV and holds a 30.3% effective equity interest in Tech JV. Qian Cheng is an affiliated entity in which we hold no equity interest. Qian Cheng was established by, and is wholly owned directly and indirectly by, two of our executive officers, Michael Lei Feng and Tao Wang, both of whom are PRC citizens. Qian Cheng holds a license issued by the Beijing Municipal Administration for Industry and Commerce to provide advertising services, including designing, producing and publishing advertisements for Chinese and multinational companies in China and contracting for advertising projects. Qian Cheng has not been actively engaged in material business activities since 2002.
RAL |
We provide human resource related and Internet content provider services through RAL. RAL operates our www.51job.com website. RAL is a PRC limited liability company and is an affiliated entity in which we hold no equity interest. RAL was established by, and since its inception has been wholly owned by, Michael Lei Feng and Tao Wang. RAL holds a permit issued by the Shanghai Bureau of Personnel, which allows it to provide certain human resource related services. RAL has also obtained a permit from the Shanghai Municipal Telecommunications Bureau, which allows it to provide Internet content provider services applicable to our businesses.
40
AdCo and the AdCo Subsidiaries |
We provide print advertising services through Shanghai Qianjin Culture Communication Co., Ltd., or AdCo, and AdCos eleven branch offices and seven majority owned subsidiaries, or the AdCo Subsidiaries, located in different cities and provinces in China. AdCo is a PRC equity joint venture company. Tech JV and Qian Cheng own 80% and 20%, respectively, of the equity interest in AdCo. AdCo and the AdCo Subsidiaries have obtained permits from the local Administrations for Industry and Commerce in the cities where they operate, which allow them to conduct advertising business, including the designing and production of advertisements and the contracting of domestic advertising projects.
WFOE |
We provide advertising related technical and consulting services to Qian Cheng and software and web related technical and consulting services to RAL through WFOE, our wholly owned PRC subsidiary. WFOE is registered in the PRC with the relevant regulatory authorities as a wholly foreign owned enterprise. WFOE owns certain of our trademarks and registered copyrights and its principal business is network and software related technical support services.
Contractual Arrangements Among Our Group Entities
The relationships and economic arrangements among our group entities have been governed by a series of agreements. As part of our May 2004 restructuring, we amended or terminated certain existing agreements and entered into certain additional agreements. The material agreements which currently govern the relationship and economic arrangements among our group entities are illustrated in the following chart and described in greater detail below.
Contractual arrangements with RAL |
RAL technical and consulting service agreement. The technical and consulting service agreement between RAL and WFOE provides that WFOE has the exclusive right to provide software and web related technical and consulting services to RAL. RAL will pay service fees to WFOE based on the extent and nature of the services provided by WFOE, as set forth in invoices issued by WFOE to RAL from time to time. The agreement has a term of ten years and may be extended with the consent of the parties. This agreement is not subject to early termination, other than by WFOE solely upon a default by RAL. RAL has no early termination rights with respect to this agreement.
41
RAL equity pledge agreement. As security for RALs obligations under the technical and consulting service agreement, the shareholders of RAL have pledged all of their equity interest in RAL to WFOE under an equity pledge agreement. Upon the occurrence of certain defaults by RAL as defined in the RAL equity pledge agreement, including any default by RAL in respect of any provisions of the RAL technical and consulting service agreement, WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interest. The shareholders of RAL have agreed that they will not dispose of the pledged equity interest or take any actions that will prejudice WFOEs interest under the RAL equity pledge agreement. The pledge cannot be released until the discharge of all of RALs obligations under the RAL technical and consulting service agreement. The parties have further agreed that WFOE has the right to approve the appointment of directors and to recommend candidates to the board for positions of the general manager and senior executives of RAL. The board may only choose from the candidates so recommended by WFOE. In addition, during the ten-year term of the agreement, WFOE has the option to purchase the equity interest in RAL to the maximum extent permitted under PRC laws. Upon the expiration of the term, if and to the extent the option has not been exercised, WFOE is obligated to purchase the equity interest in RAL to the extent permitted under PRC laws. In the case of an option held by a foreign entity, PRC law requires that the exercise price of the option be determined at the time of exercise by reference to the appraised value of the underlying equity interest. The exercise price determined by the parties may not be significantly lower than this appraised value and must also be approved by relevant PRC regulatory authorities. To comply with these regulations, the parties to the RAL equity pledge agreement have agreed that the exercise price of the equity interest in RAL shall be the lowest price permitted by PRC law.
Tech JV and RAL cooperation agreement. Tech JV and RAL have entered into a cooperation agreement under which RAL agrees to provide human resource related services to Tech JVs customers and post human resource related information on its website www.51job.com , and Tech JV agrees to pay RAL an amount equal to the direct operating costs incurred by RAL, plus a 5% margin, subject to a total payment cap of RMB300,000 per quarter. In addition, Tech JV agrees to provide technical support to RAL in connection with its provision of human resource related services and the development, construction and maintenance of RALs website. The cooperation agreement has a term of ten years and may be extended with the consent of the parties.
Domain name license agreement. 51net has entered into a domain name license agreement with RAL under which 51net has granted to RAL the right to use the www.51job.com domain name in the PRC in connection with RALs operation of its website. RAL is not permitted to assign its right under this agreement to any third party. The license fee to be paid under the domain name license agreement will be agreed to by both parties. The domain name license agreement has a term of two years and is renewable upon the written consent of 51net.
Contractual arrangements with Qian Cheng |
Qian Cheng technical and consulting service agreement. WFOE and Qian Cheng have entered into a technical and consulting services agreement under which WFOE has the exclusive right to provide advertising related technical and consulting services to Qian Cheng. Qian Cheng will pay service fees to WFOE based on the extent and nature of the services provided by WFOE, as set forth in invoices issued by WFOE to Qian Cheng from time to time. The Qian Cheng technical and consulting service agreement has a term of ten years and may be extended with the consent of the parties. This agreement is not subject to early termination, other than by WFOE solely upon a default by Qian Cheng. Qian Cheng has no early termination rights with respect to this agreement.
Qian Cheng equity pledge agreement. As security for Qian Chengs obligations under the technical and consulting service agreement, the shareholders of Qian Cheng have pledged all of their equity interest in Qian Cheng to WFOE under an equity pledge agreement. Upon the occurrence of certain defaults by Qian Cheng as defined in the Qian Cheng equity pledge agreement, including any default by Qian Cheng in respect of any provisions of the Qian Cheng technical and consulting service agreement, WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interest. The shareholders of Qian Cheng have agreed that they will not dispose of the pledged equity interest or take any actions that will prejudice WFOEs
42
Call option agreement. 51net has entered into a call option agreement with Qian Cheng dated as of August 1, 2002, and supplemented and amended as of May 3, 2004, under which 51net or its designee is granted an irrevocable option to purchase all of Qian Chengs equity interest in Tech JV and AdCo for RMB1.2 million or, if such purchase price is not permissible under the applicable PRC laws, the lowest price permitted under then applicable PRC laws. In addition, Qian Cheng granted 51net an irrevocable option to purchase any and all of its equity interests in the AdCo Subsidiaries, including, without limitation, Wuhan AdCo, at the lowest price permitted under PRC laws. The call option agreement has a term of ten years, which may be extended upon written consent of the parties.
Each of the above agreements, except the call option agreement, is dated as of May 3, 2004.
In the opinion of Jun He Law Offices, our PRC legal counsel:
| our current ownership structure is and, after giving effect to this offering, will be in compliance with existing PRC laws and regulations; | |
| the agreements among our subsidiaries, affiliated entities and their respective shareholders are valid and binding, and are enforceable under, and will not result in any violation of, existing PRC laws or regulations; and | |
| our current business operations as described in this prospectus are not in violation of existing PRC laws, rules and regulations. |
There are, however, substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that PRC regulatory authorities will not take a view contrary to the opinion of our PRC legal counsel. See Risk Factors Risks Related to Our Corporate Structure If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions and Risks Related to the Peoples Republic of China The PRC legal system has inherent uncertainties that could adversely affect us.
43
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following information with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2002 and 2003, and the selected consolidated balance sheet data as of December 31, 2002 and 2003, are derived from our audited consolidated financial statements included elsewhere in this prospectus, and are qualified by reference to these consolidated financial statements and related notes. The selected consolidated statement of operations data for the year ended December 31, 2001 and for the three months ended March 31, 2003 and 2004 and the selected consolidated balance sheet data as of December 31, 2001 and as of March 31, 2004 are derived from our unaudited financial statements prepared in accordance with U.S. GAAP and included elsewhere in this prospectus. The unaudited interim financial statements reflect all adjustments which are, in the opinion of our management, necessary for a fair statement of the results for the interim periods presented. The consolidated financial statements for the years ended December 31, 2002 and 2003 have been audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company and are prepared in accordance with U.S. GAAP. The historical results presented below do not necessarily indicate results expected for any future period.
We consolidate 100% of the interests of all of our subsidiaries and affiliated entities. In our consolidated financial statements, we have consolidated all of the interests of Run An and Qian Cheng under FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46. In connection with our restructuring in May 2004, we expect to consolidate the interests of a newly formed affiliated entity, RAL, and to continue to consolidate the interests of Run An and Qian Cheng under FIN 46. For a discussion of the basis for our consolidation of our subsidiaries and affiliated entities, see Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Basis for consolidation and our relationships with our affiliated variable interest entities.
We have omitted the selected consolidated financial data as of and for the years ended December 31, 1999 and 2000. Our company was incorporated in March 2000. In 1999 and 2000, the businesses currently conducted by us were operated principally by our affiliated entities. Each of these affiliated entities employed its own financial staff and accounted for its day-to-day operations independently. Financial information and records of these entities were not maintained on a consistent basis and depended largely on the understanding and management of the local financial and accounting staff. None of our current senior financial managers and accountants was a member of our financial staff in 1999 and 2000, and as a result, our current senior financial management members are unfamiliar with the records and record keeping practices of the affiliated entities in these periods. In addition, we introduced and implemented a new system of internal control, financial management and accounting record keeping in March 2001. However, due to constraints on resources, our financial information and records for 1999 and 2000 have not been added to the system. Therefore, we are unable to prepare selected consolidated financial data as of and for the years ended December 31, 1999 and 2000 without significant additional effort and expense.
44
For the year ended December 31,
For the three months ended March 31,
2001
2002
2003
2003
2003
2004
2004
RMB
RMB
RMB
US$
(1)
RMB
RMB
US$
(1)
90,940,220
116,989,356
182,606,297
22,061,628
38,236,552
75,342,560
9,102,531
22,586,591
28,938,327
76,960,121
9,297,957
15,767,046
24,060,419
2,906,866
9,126,842
9,726,300
15,748,331
1,902,639
2,018,280
3,519,745
425,239
5,305,068
9,895,734
18,019,611
2,177,044
2,961,538
7,024,741
848,696
127,958,721
165,549,717
293,334,360
35,439,268
58,983,416
109,947,465
13,283,332
121,970,723
158,039,700
280,118,941
33,842,644
56,397,193
104,855,738
12,668,174
(84,208,642
)
(92,220,940
)
(151,477,142
)
(18,300,751
)
(32,235,133
)
(53,611,580
)
(6,477,097
)
37,762,081
65,818,760
128,641,799
15,541,893
24,162,060
51,244,158
6,191,077
(18,503,675
)
(24,356,157
)
(38,619,523
)
(4,665,828
)
(8,266,901
)
(13,603,702
)
(1,643,535
)
(33,732,311
)
(30,382,850
)
(38,135,612
)
(4,607,364
)
(9,220,988
)
(12,920,760
)
(1,561,025
)
(13,482,546
)
(1,628,897
)
(9,609,771
)
(8,755,475
)
(1,057,795
)
(52,235,986
)
(54,739,007
)
(90,237,681
)
(10,902,089
)
(27,097,660
)
(35,279,937
)
(4,262,355
)
(14,473,905
)
11,079,753
38,404,118
4,639,804
(2,935,600
)
15,964,221
1,928,722
(14,148,719
)
11,495,539
40,414,740
4,882,718
(2,548,237
)
16,279,561
1,966,819
1,259,194
(3,192,011
)
(385,644
)
(265,818
)
(7,559,502
)
(913,303
)
(14,148,719
)
12,754,733
37,222,729
4,497,074
(2,814,055
)
8,720,059
1,053,516
(0.50
)
0.27
0.89
0.11
(0.10
)
0.20
0.02
(0.50
)
0.27
0.88
0.11
(0.10
)
0.19
0.02
(0.99
)
0.55
1.77
0.21
(0.20
)
0.41
0.05
(0.99
)
0.55
1.76
0.21
(0.20
)
0.38
0.05
(11,210,349
)
15,610,795
60,391,338
7,296,196
8,360,152
28,442,051
3,436,234
As of December 31,
As of March 31,
2001
2002
2003
2003
2004
2004
RMB
RMB
RMB
US$
(1)
RMB
US$
(1)
30,339,579
68,637,760
115,084,572
13,903,973
136,170,612
16,451,488
39,661,081
79,635,683
145,573,376
17,587,486
184,342,673
22,271,408
20,509,537
24,025,881
39,830,903
4,812,180
42,070,717
5,082,785
60,170,618
103,661,564
185,404,279
22,399,666
226,413,390
27,354,193
19,806,795
26,025,436
56,096,191
6,777,276
75,755,172
9,152,381
849,621
32,080
23,533
2,843
20,656,416
26,057,516
56,119,724
6,780,119
75,755,172
9,152,381
39,514,202
77,604,048
129,284,555
15,619,547
150,658,218
18,201,812
60,170,618
103,661,564
185,404,279
22,399,666
226,413,390
27,354,193
(1) | Translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. The translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on March 31, 2004, which was RMB8.2771 to US$1.00. |
(2) | In 2003, RMB0.4 million (US$0.05 million) of our share-based compensation was attributable to sales and marketing expenses and RMB13.1 million (US$1.6 million) was attributable to our general and administrative expenses. For the three months ended March 31, 2003, all of our share-based compensation was attributable to general and administrative expenses. For the three months ended March 31, 2004, RMB0.5 million (US$0.06 million) of our share-based compensation was attributable to sales and marketing expenses and RMB8.2 million (US$1.0 million) was attributable to general and administrative expenses. |
(3) | Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to holders of common shares as adjusted for the effect of dilutive common shares, if any, by the sum of (1) the weighted average number of common shares outstanding and |
45
(2) the weighted average number of common equivalent shares, which consist of common shares issuable upon the conversion of outstanding Series A preference shares and common shares issuable upon the exercise of outstanding share options as calculated under the treasury stock method. In the case of diluted earnings (loss) per ADS, the data are adjusted to reflect the ratio of two common shares to one ADS. | |
(4) | Each ADS represents two common shares. |
(5) | Adjusted EBITDA is defined as net income before interest expense, income tax expense or benefit, depreciation and amortization, share- based compensation expense, interest income, investment income and income from other sources. Accordingly, Adjusted EBITDA presents our results of operations separate from the effect of non-recurring and other deferred non-cash expenses that do not affect our ability to generate income from our ongoing operations, and non-operating income. In the accompanying tables, Adjusted EBITDA is reconciled to net income/(loss) to account for its use as a performance measurement, and to cash flow (used)/provided by operating activities to account for its use in assessing liquidity. Net income (loss) and cash flow (used)/provided by operating activities are the most directly comparable U.S. GAAP performance and cash flow measures, respectively. We have no material historical interest expense. |
Our Adjusted EBITDA includes share-based compensation expense that we recognized in connection with our historical grant of stock options. We believe that these charges are non-recurring in nature as we do not intend to grant stock options after this offering with exercise prices that are below the estimated fair market value of our common shares at the time of grant. Accordingly, we currently do not expect to recognize additional share-based compensation expense other than through the amortization of the deferred share-based compensation that we recognized in 2003 and in the three months ended March 31, 2004, and an aggregate of RMB2.9 million (US$0.3 million) in deferred share-based compensation that we expect to recognize in connection with the grant of options to a director in May 2004 which will be amortized from 2004 to 2007. Aggregate deferred share-based compensation of RMB75.8 million (US$9.2 million) was recognized in 2003 and in the three months ended March 31, 2004 and will be amortized from 2003 to 2008. We estimate that approximately 30.9% of this deferred share-based compensation had been amortized as of March 31, 2004. | |
We believe that investors will find Adjusted EBITDA to be a useful analytical tool because it illustrates how we view our operating performance and provides an analysis of our ability to generate cash. We evaluate our businesses, make determinations regarding the expansion of our operations, measure the relative performance of our businesses from market to market and from period to period, allocate resources among our operations, and determine the compensation of employees and management, based on our financial results viewed separately from the effect of these non-cash items. We believe that Adjusted EBITDA illustrates our effectiveness in expanding our operations both in existing markets and in new markets, and provides a measure of our ability to generate cash internally, which will be critical to our ability to finance the future expansion of our operations. In addition, Adjusted EBITDA serves as a useful approximation of our taxable income for purposes of PRC enterprise income tax, or EIT, since taxable income subject to EIT excludes any deduction for share-based compensation expense. | |
Adjusted EBITDA is a non-U.S. GAAP measure and should not be considered in isolation from, and is not intended to represent an alternative measure of, net income, cash flow or any other measure of performance determined in accordance with generally accepted accounting principles. Other companies may calculate Adjusted EBITDA differently, and our Adjusted EBITDA calculations are not necessarily comparable with similarly titled figures for other companies. | |
The following table sets forth the reconciliation of Adjusted EBITDA to cash flows (used)/provided by operating activities and to net income (loss): |
For the three months ended | ||||||||||||||||||||||||||||
For the year ended December 31, | March 31, | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2003 | 2003 | 2004 | 2004 | ||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
RMB | RMB | RMB | US$* | RMB | RMB | US$* | ||||||||||||||||||||||
Reconciliation to cash flows (used)/provided
by operating activities:
|
||||||||||||||||||||||||||||
Net cash (used) provided by operating
activities
|
(7,137,961 | ) | 22,254,219 | 65,966,668 | 7,969,780 | 11,898,447 | 20,908,898 | 2,526,114 | ||||||||||||||||||||
Changes in current assets and liabilities
|
(3,747,202 | ) | (4,968,444 | ) | (6,756,719 | ) | (816,314 | ) | (3,416,750 | ) | 288,991 | 34,914 | ||||||||||||||||
Income tax expense (benefit)
|
| (1,259,194 | ) | 3,192,011 | 385,644 | 265,818 | 7,559,502 | 913,303 | ||||||||||||||||||||
Interest, investment and other (income)
|
(325,186 | ) | (415,786 | ) | (2,010,622 | ) | (242,914 | ) | (387,363 | ) | (315,340 | ) | (38,097 | ) | ||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
Adjusted EBITDA
|
(11,210,349 | ) | 15,610,795 | 60,391,338 | 7,296,196 | 8,360,152 | 28,442,051 | 3,436,234 | ||||||||||||||||||||
|
|
|
|
|
|
|
46
For the three months ended
For the year ended December 31,
March 31,
2001
2002
2003
2003
2003
2004
2004
RMB
RMB
RMB
US$*
RMB
RMB
US$*
(14,148,719
)
12,754,733
37,222,729
4,497,074
(2,814,055
)
8,720,059
1,053,516
(1,259,194
)
3,192,011
385,644
265,818
7,559,502
913,303
3,263,556
4,531,042
7,908,123
955,422
1,685,981
3,219,132
388,920
14,079,097
1,700,970
9,609,771
9,258,698
1,118,592
(325,186
)
(415,786
)
(2,010,622
)
(242,914
)
(387,363
)
(315,340
)
(38,097
)
(11,210,349
)
15,610,795
60,391,338
7,296,196
8,360,152
28,442,051
3,436,234
* | Translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. The translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on March 31, 2004, which was RMB8.2771 to US$1.00. |
47
MANAGEMENTS DISCUSSION AND ANALYSIS OF
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. We caution you that our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. We consolidate 100% of the interests of all of our subsidiaries and affiliated entities. In our consolidated financial statements, we have consolidated all of the interests of Run An and Qian Cheng under FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46. In connection with our restructuring in May 2004, we expect to consolidate the interests of a newly formed affiliated entity, RAL, and to continue to consolidate the interests of Run An and Qian Cheng under FIN 46. For a discussion of the basis for our consolidation of our subsidiaries and affiliated entities, see Critical Accounting Policies Basis for consolidation and our relationships with our affiliated variable interest entities. In evaluating our business, you should carefully consider the information provided under the caption Risk Factors beginning on page 11 of this prospectus.
Overview
We are a leading provider of integrated human resource services in China, with a strong focus on print and online recruitment services. We also provide executive search services and a number of other human resource related services. We have been profitable since 2002 on a full-year basis. Our results have been primarily affected by a substantial increase in revenues from our recruitment related businesses. This increase in revenues reflects greater penetration in our existing markets as well as expansion into new markets across China. In addition, we have experienced a significant increase in net income. This increase reflects both our revenue growth as well as the reduction of our cost of services and operating expenses as a percentage of net revenues resulting from improved economies of scale and operational efficiencies.
In 2003, our net income increased 192% to RMB37.2 million (US$4.5 million) from RMB12.8 million in 2002. For the three months ended March 31, 2004, our net income was RMB8.7 million (US$1.1 million) compared to a net loss of RMB2.8 million for the three months ended March 31, 2003.
Revenues
In 2003, our total revenues were RMB293.3 million (US$35.4 million), a 77.2% increase from RMB165.5 million in 2002. For the three months ended March 31, 2004, our total revenues were RMB109.9 million (US$13.3 million), a 86.4% increase from RMB59.0 million for the three months ended March 31, 2003. We generate a substantial majority of our revenues from our Career Post Weekly and www.51job.com recruitment services. We derive substantially all of our revenues from employers. Our revenues from our recruitment advertising services have been characterized by substantial growth in 2002 and 2003 and principally reflected the expansion of these businesses in existing cities as well as our entry into new cities. We believe that our revenue growth will continue to be driven by broad macroeconomic factors, such as economic growth and market liberalization, the growing number of companies and significant growth in job openings, which we believe should lead to increased use of recruitment advertising and other human resource services by employers in China. In addition, we believe that an increasingly skilled, educated and urbanized workforce drives the demand for and usage of our services.
48
The following table sets forth the revenues from
our principal lines of business as a percentage of our total
revenues for the periods indicated.
For the three
For the year ended
months ended
December 31,
March 31,
2001
2002
2003
2003
2004
71.1
%
70.7
%
62.3
%
64.8
%
68.5
%
17.7
17.5
26.2
26.7
21.9
7.1
5.9
5.4
3.4
3.2
4.1
5.9
6.1
5.1
6.4
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
The following table sets forth our revenue growth
rates by business line for the periods indicated.
Percentage
increase for
the three
months ended
Percentage increase for
March 31, 2004
compared to
2002
2003
the three
compared to
compared to
months ended
2001
2002
March 31, 2003
28.6
%
56.1
%
97.0
%
28.1
165.9
52.6
6.6
61.9
74.4
86.5
82.1
137.2
29.4
77.2
86.4
Recruitment related revenues
We receive recruitment related revenues from our Career Post Weekly print advertising business, our www.51job.com online recruitment services and our eSearch executive search services. We believe that our recruitment related services are characterized by significant potential economies of scale and therefore provide the greatest opportunity for us to increase our revenues and profit margins. As a result, we expect that we will continue to focus the substantial majority of our resources on developing and expanding these businesses, and we expect that we will continue to earn the substantial majority of our revenues and profits from our recruitment services for the foreseeable future.
Print advertising revenues. We generate our print advertising revenues in the form of fees that we charge employers for placing recruitment and related advertisements in editions of Career Post Weekly across our markets in China. We do not receive revenues from the sale of Career Post Weekly . Our print advertising contracts with employers are for single or multiple advertisements in one or more markets and are generally short-term in nature. The advertising fees that we charge depend on a variety of factors including the size, placement, format and use of color and graphics in the advertisement, the length of time the advertisement is to appear and the market in which the advertisement is placed. As we grow in our existing markets and expand into new cities, we increase our client base and the number of print advertising pages. Our print advertising revenues are primarily affected by the number of print advertising pages and the fees that we charge.
We expect that future expansion of this business will be largely driven by increases in the overall number of our print advertising pages rather than increases in average revenue per page. The prices we charge for our print advertising vary considerably between individual markets due to local competitive and other conditions.
49
We calculate the number of our print advertising pages by physically counting the number of paid advertising pages in each of our editions of Career Post Weekly . In calculating the number of paid advertising pages, we make adjustments to take into account differing page sizes and pages with mixed advertising and non-advertising content. This is a manual process that is subject to error, including errors in judgment as to the appropriate adjustments to be made. We cannot assure you that our methodology, page counting, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of the actual revenues we generate per page.
We generally require that all advertising fees be paid in advance of posting an advertisement, although we may offer credit terms to select clients on a case by case basis.
Online recruitment services revenues. Our online recruitment services consist of our www.51job.com website and our eHire web-based online resumé and recruitment management platform. We generate online recruitment services revenues in the form of fees that we charge employers for placing recruitment and related advertisements on www.51job.com as well as fees from employers for access to eHire . We do not charge job seekers for using www.51job.com . We also generate online revenues for website design and hosting services that we provide to businesses that wish to create their own dedicated recruitment website. We generate our online revenues in the form of recruitment advertising fees and fees from our other online recruitment services.
We believe the increase in the use of our online recruitment services reflects increased acceptance of online advertising as a recruitment medium in China, and is also affected by the extent to which the recruitment advertising market in China develops and our effectiveness in penetrating this market. In addition, we believe that, by offering online advertising in connection with our print advertising service, we are able to attract print advertising customers to our online recruitment services, as well as new customers seeking the broader coverage offered by our integration of these two channels.
The principal factors affecting our online recruitment services revenues are the number of unique employers and average revenue per unique employer. We seek to increase our online recruitment services revenues principally through growth in the number of unique employers using our online services. Because new customers tend to use basic, lower priced online recruitment services, significant increases in customers result in higher aggregate online recruitment services revenues but tend to reduce average revenue per unique employer. Our ability to offset reductions in average revenue per unique employer resulting from customer growth depends on the extent to which we can retain customers and migrate them over time to higher-priced products. Our ability to retain customers and migrate them to higher priced products may be adversely affected by, among other things, difficulties we may encounter in developing or launching higher priced services as well as offerings of similar services by competitors.
We define a unique employer as a customer that purchases our online recruitment services during a specified period. We make adjustments for multiple purchases by the same customer within a city to avoid double counting. Each employer is assigned a unique identification number in our management information system. Affiliates and branches of a given employer may, under certain circumstances, be counted as separate unique employers. Our calculation of the number of unique employers is subject to misidentification and other forms of error, including errors in judgment as to appropriate adjustments to be made to the data. We cannot assure you that our methodology, employer identification, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of actual numbers of customers.
As with Career Post Weekly , we generally require that all advertising fees be paid in advance of posting an advertisement on our website, although we may offer credit terms to select clients on a case-by-case basis.
Executive search revenues. We generate our eSearch executive search revenues in the form of search fees and commissions paid by employers. We generally charge a total assignment fee of between 30% and 35%
50
Other human resource related revenues
We generate revenues from our other human resource related services in the form of attendance fees from our training services, and revenues from providing our salary survey studies, our eHR software product, our business processing outsourcing services and our personnel assessment services. We have developed, and will continue to develop, additional human resource related services and products. While these businesses currently represent a relatively small component of our total revenues, we believe that, by providing these products and services, we can provide a one-stop human resource package to our clients. We believe that this should contribute to the growth of our higher revenue recruitment products as well as allow us to successfully develop additional human resource related products and services.
Our ability to generate revenues from other human resource related services depends on our ability to successfully develop and introduce new types of products and services for Chinas developing human resource services market. As this industry is still emerging and as many of our services are currently under development, we are unable to determine the extent to which these businesses will contribute to our revenues in the future.
Net revenues and business tax
Our net revenues reflect business taxes and related surcharges which are levied on our total revenues. We are subject to a PRC business tax at a rate of 5% on our revenues, after certain deductible expenses, generated from services provided in China. We deduct these amounts from our revenues to arrive at our net revenues. A portion of the business taxes that we had previously paid was refunded in 2002 and 2003 as a result of local government financial incentives. These refunds are not material and are recognized as other income in our statement of operations.
Costs
We operate and manage our various businesses as a single segment. We do not account for our results of operations on a geographical or other basis, and we are unable to allocate costs among our various businesses.
The following table sets forth our cost of
services and total operating expenses as a percentage of our net
revenues for the periods indicated.
For the three
For the year ended
months ended
December 31,
March 31,
2001
2002
2003
2003
2004
(69.0%
)
(58.4%
)
(54.1%
)
(57.2%
)
(51.1%
)
(42.8%
)
(34.6%
)
(32.2%
)
(48.0%
)
(33.6%
)
We believe that our cost of services and operating expenses have declined as a percentage of our net revenues from 2001 to 2003 as a result of our ability to achieve significant economies of scale and operating efficiencies with respect to our recruitment related services. We believe that the expansion of our operations and infrastructure has enabled us to attract repeat business and has created opportunities to cross-sell services to customers across various markets. As a result, we have been able to achieve economies of scale as we have realized a higher level of revenues relative to our sales and marketing and other customer acquisition costs. In
51
Cost of services
Our cost of services primarily consists of printing related expenses, employee compensation and depreciation. Printing related costs, which primarily consist of printing, publishing and distribution expenses that we pay to our newspaper contractors, constitute the majority of our cost of services. Our printing related costs have tended not to increase or decrease to the same extent as the increases or decreases in our print advertising revenues. As a result, we have been able to expand our print advertising businesses while incurring lower printing related costs relative to our print advertising revenues. We continuously seek to lower our total printing related costs. In addition, to a significant extent, we have been able to use our existing infrastructure to expand our online recruitment services, which has allowed us to lower our cost of providing these services relative to the corresponding revenues that we receive. As a result, we have been able to realize increased economies of scale and operating efficiencies in both of these businesses. The majority of our employee, depreciation and other costs of services are largely shared across our various business lines.
Operating expenses
Our operating expenses consist of sales and marketing expenses, general and administrative expenses, and share-based compensation.
The following table sets forth our operating
expenses as a percentage of our net revenues for the periods
indicated.
For the three
For the year ended
months ended
December 31,
March 31,
2001
2002
2003
2003
2004
(15.2%
)
(15.4%
)
(13.8%
)
(14.7%
)
(13.0%
)
(27.6)
(19.2)
(13.6)
(16.3)
(12.2)
(4.8)
(17.0)
(8.4)
(42.8%
)
(34.6%
)
(32.2%
)
(48.0%
)
(33.6%
)
Our sales and marketing expenses consist primarily of employee compensation for our sales and marketing personnel, advertising and promotion expenses, and expenses for our management and staff related to our expansion into new markets as well as our general operation. We use various sales and marketing strategies across the cities in which we operate based on our determination of the most effective means to promote our brands. We receive marketing support for Career Post Weekly from many of our newspaper contractors. However, since we record all costs associated with our relationships with our newspaper contractors under cost of services, our sales and marketing expenses do not reflect costs incurred in connection with this marketing support.
Our general and administrative expenses consist primarily of rent and property management fees, employee compensation, administrative office expenses and depreciation. General and administrative expenses
52
Income Taxation
Because we and our affiliated entities are incorporated in different jurisdictions, we file separate income tax returns.
Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gain. In addition, upon payments of dividends by us to our shareholders, no Cayman Islands withholding tax will be imposed.
Under the current laws of the British Virgin Islands, we are exempt from income tax on foreign derived income. In addition, there are no withholding taxes in the British Virgin Islands.
In accordance with Income Tax Law of China for Enterprises with Foreign Investment and Foreign Enterprises, foreign-invested enterprises that are incorporated in China are generally subject to enterprise income tax, or EIT, at a rate of 33%. As opposed to our 5% business tax which is based on our total revenues and which is discussed above in Revenues Net revenues and business tax, EIT is a separate tax based on our taxable income. Newly organized PRC entities conducting advertising businesses are entitled to elect a tax exemption for their first two years of operation in lieu of carrying forward tax losses accumulated in those years. Entities making such an election may carry forward tax losses incurred after the expiration of this two-year period. A number of our AdCo Subsidiaries have elected to receive the two-year tax exemption treatment. These exemptions will expire from 2004 to 2006. Upon the expiration of the tax exemption, these AdCo Subsidiaries will be taxed at a statutory tax rate of 33%. The amount of income tax payable by our PRC subsidiaries in the future will depend on various factors, including, among other things, the results of operations and taxable income of, and the tax rate applicable to, each of the subsidiaries. We expect that as these tax exemptions expire, the effective tax rate of our PRC subsidiaries and our effective tax rate will increase significantly.
Our foreign-invested Chinese subsidiary, Tech JV, has been granted a preferential 30% EIT rate with no expiration date.
We do not expect our May 2004 restructuring to affect our future effective tax rates.
Critical Accounting Policies
We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application assists management in making their business decisions.
We operate and manage our various businesses as a single segment. Since we primarily generate our revenues from customers in the PRC, we do not account for our results of operations on a geographical basis. Since many of our management and staff provide services with respect to many or all of our businesses, and
53
Income taxes
We account for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, or SFAS No. 109. Under SFAS No. 109, income taxes are accounted for under the asset and liability method. Deferred taxes are determined based upon differences between the financial reporting and tax bases of assets and liabilities at currently enacted statutory tax rates for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change.
We provide a valuation allowance on our deferred tax assets to the extent we consider it to be more likely than not that we will be unable to realize all or part of such assets. Our future realization of our deferred tax assets is dependent on many factors, including our ability to generate taxable income within the period during which temporary differences reverse or before our tax loss carryforwards expire, the outlook for the Chinese economy and overall outlook for our industry. We consider these factors at each balance sheet date and determine whether valuation allowances are necessary.
We had no deferred tax assets as of December 31, 2001. We had deferred tax assets of RMB2.2 million as of December 31, 2002, RMB4.6 million (US$0.6 million) as of December 31, 2003 and RMB8.1 million (US$1.0 million) as of March 31, 2004.
As of December 31, 2001, 2002 and 2003 and March 31, 2004, we recognized aggregate valuation allowances of RMB8.4 million, RMB6.0 million, RMB7.8 million (US$0.9 million) and RMB7.7 million (US$0.9 million), respectively. As a result of our current expectations as to our ability to generate taxable income, we currently do not expect to provide significant further valuation allowances with respect to our net deferred tax assets. In the event that unexpected developments prevent us from realizing some or all of our deferred tax assets, we will be required to take a charge against our net income for the period in which such events occur.
Share-based compensation
We account for share-based compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and comply with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. In general, compensation cost under APB No. 25 is recognized based on the difference, if any, between the estimated fair value of our common shares and the amount an employee is required to pay to acquire the shares, as determined on the date the option is granted. Compensation cost, if any, is recorded in shareholders equity as additional paid-in capital with an offsetting entry recorded to deferred share-based compensation. Deferred share-based compensation is amortized and charged to expense based on the vesting terms of the underlying options.
When estimating the fair value of our common shares on the grant date, we review both internal and external sources of information. As we have historically been a private company, the sources we use to determine the fair value of the underlying shares at the date of measurement are subjective in nature and are based on, among other factors:
| our financial condition as of the date of grant; | |
| our financial and operating prospects at that time; | |
| comparable market indicators; and | |
| an independent third party analysis of the historical value of our underlying common shares. |
In 2003, we recognized deferred share-based compensation of RMB60.4 million (US$7.3 million) and additional deferred share-based compensation of RMB15.4 million (US$1.9 million) for the three months
54
Basis for consolidation and our relationships with our affiliated variable interest entities
We consolidate 100% of the interests of all of our subsidiaries and affiliated entities.
Historically, certain of our operations were conducted by two affiliated entities, Run An and Qian Cheng, in which we have not held any equity interest. These entities were, and continue to be, wholly owned, directly and indirectly, by two of our executive officers. We entered into contractual arrangements with these two entities pursuant to which we bore all of their economic risk and received all of their economic rewards. In our consolidated financial statements, we have consolidated all of the interests of Run An and Qian Cheng under FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46.
FIN 46 requires a variable interest entity to be consolidated by the primary beneficiary of such entity. An entity is considered to be a variable interest entity if certain conditions are present, including where the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Under various agreements with Run An and Qian Cheng, we were considered the primary beneficiary of Run An and Qian Cheng, and all of their interests have been consolidated in our financial statements. In addition, as a result of our consolidation of Qian Cheng, its minority interests in Tech JV and its subsidiaries have been consolidated in our financial statements. All significant transactions and balances between us, our subsidiaries, Run An and Qian Cheng have been eliminated upon consolidation.
In connection with our restructuring in May 2004, we terminated or modified the agreements referred to above and entered into new agreements with these entities and RAL, a new entity formed by two of our executive officers. We bear all of the economic risks and receive all of the economic rewards of these entities under these agreements. Consequently, we expect to consolidate the interests of RAL and continue to consolidate the interests of Run An and Qian Cheng under FIN 46. In the opinion of Jun He Law Offices, our PRC legal counsel, these contractual arrangements and our current business operations are not in violation of existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that PRC regulatory authorities will not take a view contrary to the opinion of our PRC legal counsel. See Risk Factors Risks Related to Our Corporate Structure If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions and Risks Related to the Peoples Republic of China The PRC legal system has inherent uncertainties that could adversely affect us.
55
We do not believe that our restructuring will have an impact on our financial statements or how our results are reported in the future. For additional information with respect to our relationships with RAL, Run An and Qian Cheng, see Corporate Structure.
Allowances for doubtful accounts
We provide general and specific provisions for bad debts when facts and circumstances indicate that the receivable is unlikely to be collected. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Long-lived assets
Our accounting for long-lived assets, including
property and equipment, is described in note 2(g) to our
consolidated financial statements included elsewhere in this
prospectus. The recorded value of long-lived assets is affected
by a number of management estimates, including estimated useful
lives, residual values and impairment charges. We assess
impairment for long-lived assets whenever the net book value for
these assets is more than the estimated future cash flows
attributable to them. During each of the years ended
December 31, 2001, 2002 and 2003, and for the three months
ended March 31, 2004, we did not record any impairment
charges. If different judgments or estimates had been utilized,
material differences could have resulted in the amount and
timing of the impairment charge and the related depreciation and
amortization charges.
Results of Operations
The following table sets forth selected data from
our consolidated statements of operations as a percentage of our
net revenues for the periods indicated.
For the three
For the year ended
months ended
December 31,
March 31,
2001
2002
2003
2003
2004
104.9%
104.8%
104.7%
104.6%
104.9%
(4.9)
(4.8)
(4.7)
(4.6)
(4.9)
100.0
100.0
100.0
100.0
100.0
(69.0)
(58.4)
(54.1)
(57.2)
(51.1)
31.0
41.6
45.9
42.8
48.9
(42.8)
(34.6)
(32.2)
(48.0)
(33.6)
(11.9)
7.0
13.7
(5.2)
15.2
0.0
0.3
0.3
0.5
0.2
0.2
(0.0)
0.4
0.2
0.1
(11.6)
7.3
14.4
(4.5)
15.5
0.8
(1.1)
(0.5)
(7.2)
(11.6%
)
8.1%
13.3%
(5.0%
)
8.3%
Unaudited Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations for the five fiscal quarters for the period beginning January 1, 2003 and ending March 31, 2004. You should read the following table in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. This information reflects all adjustments, consisting only of normal recurring adjustments, which are in the opinion of our management necessary for fair presentation of our results of operations for the quarters presented. Because the recruitment advertising and human resource industries in China are
56
For the three months ended | |||||||||||||||||||||
|
|||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | |||||||||||||||||
2003 | 2003 | 2003 | 2003 | 2004 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||
RMB | RMB | RMB | RMB | RMB | |||||||||||||||||
Revenues:
|
|||||||||||||||||||||
Print advertising
|
38,236,552 | 38,984,319 | 48,613,392 | 56,772,034 | 75,342,560 | ||||||||||||||||
Online recruitment services
|
15,767,046 | 17,623,868 | 20,179,328 | 23,389,879 | 24,060,419 | ||||||||||||||||
Executive search
|
2,018,280 | 4,043,389 | 4,864,655 | 4,822,007 | 3,519,745 | ||||||||||||||||
Other human resource related services
|
2,961,538 | 3,567,297 | 5,129,168 | 6,361,608 | 7,024,741 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
Total revenues
|
58,983,416 | 64,218,873 | 78,786,543 | 91,345,528 | 109,947,465 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
Net revenues
|
56,397,193 | 61,398,628 | 75,392,331 | 86,930,789 | 104,855,738 | ||||||||||||||||
Cost of services
|
(32,235,133 | ) | (34,087,683 | ) | (41,789,398 | ) | (43,364,928 | ) | (53,611,580 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||||
Gross profit
|
24,162,060 | 27,310,945 | 33,602,933 | 43,565,861 | 51,244,158 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
Operating expenses:
|
|||||||||||||||||||||
Sales and marketing
|
(8,266,901 | ) | (9,331,700 | ) | (9,186,956 | ) | (11,833,966 | ) | (13,603,702 | ) | |||||||||||
General and administrative
|
(9,220,988 | ) | (8,854,220 | ) | (9,354,693 | ) | (10,705,711 | ) | (12,920,760 | ) | |||||||||||
Share-based compensation
|
(9,609,771 | ) | (1,572,762 | ) | (1,159,758 | ) | (1,140,255 | ) | (8,755,475 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||||
Total operating expenses
|
(27,097,660 | ) | (19,758,682 | ) | (19,701,407 | ) | (23,679,932 | ) | (35,279,937 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||||
Income (loss) from operations
|
(2,935,600 | ) | 7,552,263 | 13,901,526 | 19,885,929 | 15,964,221 | |||||||||||||||
Income (loss) before income tax provision
|
(2,548,237 | ) | 7,754,748 | 14,162,571 | 21,045,658 | 16,279,561 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||
Income tax benefit (expense)
|
(265,818 | ) | (422,007 | ) | (1,035,982 | ) | (1,468,204 | ) | (7,559,502 | ) | |||||||||||
|
|
|
|
|
|||||||||||||||||
Net income (loss)
|
(2,814,055 | ) | 7,332,741 | 13,126,589 | 19,577,454 | 8,720,059 | |||||||||||||||
|
|
|
|
|
|||||||||||||||||
Other Financial Information:
|
|||||||||||||||||||||
Adjusted EBITDA
(1)
|
8,360,152 | 11,303,081 | 17,158,289 | 23,569,816 | 28,442,051 |
(1) | As we do not prepare consolidated cash flow data on a quarterly basis, we have only reconciled our quarterly Adjusted EBITDA data to net income (loss). We believe that investors will find Adjusted EBITDA to be a useful analytical tool because it illustrates how we view our operating performance and provides an analysis of our ability to generate cash. We evaluate our businesses, make determinations regarding the expansion of our operations, measure the relative performance of our businesses from market to market and from period to period, allocate resources among our operations, and determine the compensation of employees and management, based on our financial results viewed separately from the effect of these non-cash items. We believe that Adjusted EBITDA illustrates our effectiveness in expanding our operations both in existing markets and in new markets, and provides a measure of our ability to generate cash internally, which will be critical to our ability to finance the future expansion of our operations. In addition, Adjusted EBITDA serves as a useful approximation of our taxable income for purposes of PRC enterprise income tax, or EIT, since taxable income subject to EIT excludes any deduction for share-based compensation expense. For a further discussion of Adjusted EBITDA, see Selected Consolidated Financial Data. |
Quarterly Adjusted EBITDA includes share-based compensation that we recognized in connection with our historical grant of stock options. We believe that these charges are non-recurring in nature as we do not intend to grant stock options after this offering with exercise prices that are below the estimated fair market value of our common shares at the time of grant. Accordingly, we currently do not expect to recognize additional share-based compensation expense other than through the amortization of the deferred share-based compensation that we recognized in 2003 and in the three months ended March 31, 2004, and an aggregate of RMB2.9 million (US$0.3 million) in deferred share-based compensation that we expect to recognize in connection with the grant of options to a
57
director in May 2004 which will be amortized from 2004 to 2007. As a result of this grant, we expect to recognize a non-material amount of share-based compensation expense for the three months ended June 30, 2004. A substantial majority of our share-based compensation expense in 2003 was recognized in the three months ended March 31, 2003, and we expect that a substantial amount of our total share-based compensation expense in 2004 will have been recognized in the three months ended March 31, 2004. The share-based compensation expense in the three months ended March 31, 2003 was principally the result of the extension of the exercise period of options held by certain terminated employees. The share-based compensation expense in the three months ended March 31, 2004 was principally the result of the issuance of immediately exercisable options to a director, and the immediate purchase by this director of the underlying common shares. While these events resulted in a significant effect on our financial results in each of these quarters, we do not expect to recognize similar levels of share-based compensation on a quarterly basis after this offering. Accordingly, we believe that Adjusted EBITDA will provide investors with useful information regarding the basis on which we evaluate our performance by presenting quarterly EBITDA information separate from the short-term effect of this non-recurring, deferred, non-cash expense. In addition, Adjusted EBITDA serves as a useful approximation of our taxable income for purposes of PRC enterprise income tax, or EIT, since taxable income subject to EIT excludes any deduction for share-based compensation expense. |
The following table sets forth the reconciliation
of quarterly Adjusted EBITDA to net income (loss):
For the three months ended
March 31,
June 30,
September 30,
December 31,
March 31,
2003
2003
2003
2003
2004
RMB
RMB
RMB
RMB
RMB
(2,814,055
)
7,332,741
13,126,589
19,577,454
8,720,059
265,818
422,007
1,035,982
1,468,204
7,559,502
1,685,981
1,877,170
1,969,483
2,375,489
3,219,132
9,609,771
1,873,648
1,287,280
1,308,398
9,258,698
(387,363
)
(202,485
)
(261,045
)
(1,159,729
)
(315,340
)
8,360,152
11,303,081
17,158,289
23,569,816
28,442,051
Three months ended March 31, 2004 compared to three months ended March 31, 2003 |
Total revenues. Our total revenues increased 86.4% to RMB109.9 million (US$13.3 million) for the three months ended March 31, 2004 from RMB59.0 million for the three months ended March 31, 2003. This increase was primarily due to the growth in our print advertising revenues and our online recruitment services revenues. We derived our total revenues from:
| Print advertising. Our print advertising revenues increased 97.0% to RMB75.3 million (US$9.1 million) for the three months ended March 31, 2004 from RMB38.2 million for the three months ended March 31, 2003. This increase was primarily due to significant growth in recruitment advertisements placed in our editions of Career Post Weekly , which reflected the revenue contribution in the three months ended March 31, 2004 of the five new markets we entered since March 31, 2003, and our increased penetration of our existing markets through greater direct sales and marketing efforts. As a result, our estimated number of print advertising pages increased to 2,022 for the three months ended March 31, 2004 from 934 for the three months ended March 31, 2003. The increase in revenues was largely driven by the increase in the number of print advertising pages, which was partially offset by a decline in our overall average revenue per page. Our overall average revenue per page declined primarily due to additional revenue contribution from these five new, lower priced markets, which generally have lower local prices for recruitment advertisement compared to those which we realize on average in our other markets. | |
| Online recruitment services. Our online recruitment services revenues increased 52.6% to RMB24.1 million (US$2.9 million) for the three months ended March 31, 2004 from RMB15.8 million for the three months ended March 31, 2003. This increase was primarily attributable to significant growth in the number of unique employers using our online recruitment services, offset by a decrease in our average revenue per unique employer. We estimate that the number of unique employers using our online recruitment services increased 64.6% to 18,018 for the three months ended March 31, 2004 from 10,949 for the three months ended March 31, 2003. This |
58
growth primarily consisted of an increase in the number of unique employers placing recruitment advertisements on www.51job.com . We estimate that our average revenue per unique employer decreased 7.3% to RMB1,335 for the three months ended March 31, 2004 from RMB1,440 for the three months ended March 31, 2003. This was primarily the result of significant price reductions for the three months ended March 31, 2004 for certain online products, generally in the form of discounted introductory and promotional online recruitment services packages, as well as a significant increase in the number of new online customers, who generally purchase basic, lower priced recruitment advertisements. | ||
| Executive search. Our executive search revenues increased 74.4% to RMB3.5 million (US$0.4 million) for the three months ended March 31, 2004 from RMB2.0 million for the three months ended March 31, 2003, primarily as a result of greater sales and marketing efforts. | |
| Other human resource related services. Our revenues from other human resource related services increased 137% to RMB7.0 million (US$0.8 million) for the three months ended March 31, 2004 from RMB3.0 million for the three months ended March 31, 2003. This increase was primarily driven by growth in training revenues due to an increase in the number of seminars and human resource conferences we conducted. In addition, revenues for the three months ended March 31, 2004 reflected the contribution of new services we introduced in mid-2003, including our eHR human resource management software and business process outsourcing services. |
Net revenues and business tax. Our net revenues increased 85.9% to RMB104.9 million (US$12.7 million) for the three months ended March 31, 2004 from RMB56.4 million for the three months ended March 31, 2003. Our net revenues reflected our total revenues less the amounts paid as business taxes of RMB5.1 million (US$0.6 million) for the three months ended March 31, 2004 and RMB2.6 million for the three months ended March 31, 2003.
Cost of services. Our cost of services increased 66.3% to RMB53.6 million (US$6.4 million) for the three months ended March 31, 2004 from RMB32.2 million for the three months ended March 31, 2003. The majority of this increase was represented by printing related expenses associated with the expansion of Career Post Weekly . In addition, our employee compensation expense increased primarily due to expansion of our staff to support our growing operations. Our cost of services for the three months ended March 31, 2004 also included share-based compensation in the amount of approximately RMB0.5 million (US$0.1 million). Our cost of services declined as a percentage of revenues as we benefited from increasing economies of scale and operating efficiencies in our businesses.
Gross profit. As a result of the above factors, our gross profit increased 112% to RMB51.2 million (US$6.2 million) for the three months ended March 31, 2004 from RMB24.2 million for the three months ended March 31, 2003. Our gross profit margin, which is equal to our gross profit divided by our net revenues, was 48.9% for the three months ended March 31, 2004 compared to 42.8% for the three months ended March 31, 2003.
Operating expenses. Our operating expenses increased to RMB35.3 million (US$4.3 million) for the three months ended March 31, 2004 from RMB27.1 million for the three months ended March 31, 2003. The increase in our operating expenses was primarily due to an increase in sales and marketing expenses as well as general and administrative expenses. Our operating expenses consisted of:
| Sales and marketing expenses. Our sales and marketing expenses increased 64.6% to RMB13.6 million (US$1.6 million) for the three months ended March 31, 2004 from RMB8.3 million for the three months ended March 31, 2003. This increase was due to the hiring of additional sales and marketing personnel, annual bonuses paid to sales personnel, increased spending on advertising and promotional campaigns, and the addition of five new offices since the end of the three months ended March 31, 2003. For the three months ended March 31, 2004, our advertising and promotion expenses increased 72.1% to RMB1.8 million (US$0.2 million) from RMB1.1 million for the three months ended March 31, 2003 as we increased our use of direct marketing, event marketing and other forms of promotion principally in connection with our expansion into new |
59
markets. We expect that sales and marketing expenses will continue to increase as we expand our businesses. | ||
| General and administrative expenses. Our general and administrative expenses increased 40.1% to RMB12.9 million (US$1.6 million) for the three months ended March 31, 2004 from RMB9.2 million for the three months ended March 31, 2003. This increase was primarily due to costs incurred in connection with the operation of the five new offices opened since the end of the three months ended March 31, 2003, including rent, additional payroll and office equipment. In addition, the increase reflected the payment of annual bonuses to office staff, professional services expenses, and depreciation and amortization. | |
| Share-based compensation. Our share-based compensation expense included as operating expenses was RMB8.8 million (US$1.1 million) for the three months ended March 31, 2004 compared to RMB9.6 million for the three months ended March 31, 2003. Our share-based compensation expense is based on our determination of the fair value of our common shares at the time we granted employee share options in each year. For further discussion with respect to our share-based compensation, see Critical Accounting Policies Share-based compensation. |
Interest and investment income. Our interest and investment income decreased 17.7% to RMB0.2 million (US$0.03 million) for the three months ended March 31, 2004 from RMB0.3 million for the three months ended March 31, 2003 due to lower interest rates on our bank deposits.
Income tax expense. We recorded an income tax expense of RMB7.6 million (US$0.9 million) for the three months ended March 31, 2004 compared to RMB0.3 million for the three months ended March 31, 2003. Both our income tax expense and effective tax rate increased significantly for the three months ended March 31, 2004. These increases were primarily the result of an overall increase in taxable income we recognized in the period and the expiration of tax exemptions with respect to certain subsidiaries of AdCo. In addition, share-based compensation expense is not deductible for purposes of calculating PRC enterprise income tax, causing our effective income tax rate for the three months ended March 31, 2004 to exceed our statutory enterprise income tax rate of 33%.
Net income (loss). As a result of the above factors, our net income was RMB8.7 million (US$1.1 million) for the three months ended March 31, 2004 compared to a net loss of RMB2.8 million for the three months ended March 31, 2003.
2003 compared to 2002
Total revenues. Our total revenues increased 77.2% to RMB293.3 million (US$35.4 million) in 2003 from RMB165.5 million in 2002. This increase was primarily due to the growth in our print advertising revenues and our online recruitment services revenues. We derived our total revenues from:
| Print advertising. Our print advertising revenues increased 56.1% to RMB182.6 million (US$22.1 million) in 2003 from RMB117.0 million in 2002. This increase was primarily due to a significant increase in recruitment advertisements placed in our editions of Career Post Weekly as we entered into three new markets and increased our penetration of our existing markets. We estimate that the number of print advertising pages increased 45.9% to 4,635 in 2003 from 3,176 in 2002. The prices that we charged for our print advertising in each city remained generally stable. However, price levels vary from city to city. We estimate that our overall average revenue per page increased in 2003 as we generated higher volumes in certain cities in which prices were higher than our average. | |
| Online recruitment services. Our online recruitment services revenues increased 166% to RMB77.0 million (US$9.3 million) in 2003 from RMB28.9 million in 2002. This increase was attributable to both growth in the number of unique employers using our online recruitment services as well as an increase in our average revenue per unique employer. We estimate that our number of unique employers increased 56.9% to 25,880 in 2003 from 16,497 in 2002. This growth primarily consisted of an increase in employers placing recruitment advertisements on www.51job.com and, to a lesser extent, reflected an increase in the use of our eHire web-based online resumé and recruitment |
60
management platform. We estimate that our average revenue per unique employer increased to RMB2,974 in 2003 from RMB1,754 in 2002. Our average revenue per unique employer increased as a result of purchases of higher priced online advertising and other online recruitment services that we added to our product line in 2003, as well as a migration of customers to higher priced products, partially offset by an increase in new online customers, who generally purchase basic, lower priced recruitment advertisements. | ||
| Executive search. Our executive search revenues increased 61.9% to RMB15.7 million (US$1.9 million) in 2003 from RMB9.7 million in 2002, primarily as a result of greater sales and marketing efforts and also, we believe an increased acceptance by employers of executive search as a recruitment tool. | |
| Other human resource related services. Our revenues from other human resource related services increased 82.1% to RMB18.0 million (US$2.2 million) in 2003 from RMB9.9 million in 2002. This increase was primarily driven by growth in training revenues due to an increase in the number of seminars and human resource conferences we conducted. In addition, the increase reflected the introduction in 2003 of our eHR human resource management software and our business process outsourcing services. |
Net revenues and business tax. Our net revenues increased 77.2% to RMB280.1 million (US$33.8 million) in 2003 from RMB158.0 million in 2002. Our net revenues reflected our total revenues less the amounts paid as business taxes of RMB13.2 million (US$1.6 million) in 2003 and RMB7.5 million in 2002.
Cost of services. Our cost of services increased 64.3% to RMB151.5 million (US$18.3 million) in 2003 from RMB92.2 million in 2002. The majority of this increase was represented by printing related expenses associated with the expansion of Career Post Weekly . In addition, our employee compensation expense increased primarily due to expansion of our staff to support our growing operations. Our cost of services in 2003 also included share-based compensation in the amount of approximately RMB0.6 million (US$0.1 million). Our cost of services declined as a percentage of revenues as we benefited from increasing economies of scale and operating efficiencies in our businesses.
Gross profit. As a result of the above factors, our gross profit increased 95.4% to RMB128.6 million (US$15.5 million) in 2003 from RMB65.8 million in 2002. Our gross profit margin was 45.9% in 2003 compared to 41.6% in 2002.
Operating expenses. Our operating expenses increased to RMB90.2 million (US$10.9 million) in 2003 from RMB54.7 million in 2002. The increase in our operating expenses was primarily due to an increase in sales and marketing expenses as well as our share-based compensation expense in 2003. Our operating expenses consisted of:
| Sales and marketing expenses. Our sales and marketing expenses increased 58.6% to RMB38.6 million (US$4.7 million) in 2003 from RMB24.4 million in 2002. This increase was due to the hiring of additional sales and marketing personnel, increases in commissions paid to sales personnel, increases in expenses incurred for direct marketing and promotional campaigns, the opening of three new offices in Qingdao, Chongqing and Harbin, and the introduction of new human resource services in 2003. We calculate the commissions paid to sales personnel based on a percentage of total revenues generated by the employee. This percentage varies depending on the service that is sold. In addition, we pay bonuses to account executives for achieving certain sales targets. In 2003, our advertising and promotion expenses increased 75.0% to RMB7.1 million (US$0.9 million) from RMB4.0 million in 2002 as we increased our use of direct marketing, event marketing and other forms of promotion principally in connection with our expansion into new markets. We expect that sales and marketing expenses will continue to increase as we grow our businesses. | |
| General and administrative expenses. Our general and administrative expenses increased 25.5% to RMB38.1 million (US$4.6 million) in 2003 from RMB30.4 million in 2002. This increase was |
61
primarily due to depreciation and to costs incurred in connection with the opening of three new offices, including rent, the hiring of new personnel and the purchase of office supplies. | ||
| Share-based compensation. Our share-based compensation expense included as operating expenses was RMB13.5 million (US$1.6 million) in 2003 and we had no share-based compensation expense in 2002. Our share-based compensation expense is based on our determination of the fair value of our common shares at the time we granted employee share options in each year. |
Interest and investment income. Our interest and investment income increased 101% to RMB0.9 million (US$0.1 million) in 2003 from RMB0.5 million in 2002, as we invested a portion of our excess cash in an interest bearing bank deposit.
Income tax benefit (expense). We recorded an income tax expense of RMB3.2 million (US$0.4 million) in 2003 compared to an income tax benefit of RMB1.3 million in 2002. In 2002, we reversed certain valuation allowances provided on deferred tax assets, following our determination that sufficient taxable income existed to utilize deferred tax assets that we had previously considered unusable.
Net income. As a result of the above factors, our net income increased 192% to RMB37.2 million (US$4.5 million) in 2003 from RMB12.8 million in 2002.
2002 compared to 2001
Total revenues. Our total revenues increased 29.4% to RMB165.5 million in 2002 from RMB127.9 million in 2001. This increase was primarily due to increases in our print advertising revenues and our online recruitment services revenues. We derived our total revenues from:
| Print advertising. Our print advertising revenues increased 28.6% to RMB117.0 million in 2002 from RMB90.9 million in 2001. This increase was primarily due to the growth in the number of recruitment advertisements placed in our editions of Career Post Weekly as we entered into five new markets and increased our penetration of our existing markets. We estimate that the number of print advertising pages increased 28.6% to 3,176 in 2002 from 2,469 in 2001. Our average revenue per page remained stable in 2002. | |
| Online recruitment services. Our online recruitment services revenues increased 28.1% to RMB28.9 million in 2002 from RMB22.6 million in 2001. This increase was attributable to the growth in the number of unique employers using our online recruitment services, partially offset by a decline in average revenue per unique employer. We estimate that our number of unique employers increased 118% to 16,497 in 2002 from 7,584 in 2001. This increase primarily reflected a higher number of customers placing recruitment advertisements on www.51job.com. We believe that this growth was driven by the our increased sales and marketing efforts in both our existing and new markets. Our average revenue per unique employer decreased to RMB1,754 in 2002 from RMB2,978 in 2001. This reflected a significant increase in new online customers, who generally purchased basic, lower priced recruitment advertisements. | |
| Executive search. Our executive search revenues increased 6.6% to RMB9.7 million in 2002 from RMB9.1 million in 2001, as we continued to develop and promote customer acceptance of these services in our markets. | |
| Other human resource related services. Our revenues from our other human resource related services increased 86.5% to RMB9.9 million in 2002 from RMB5.3 million in 2001. This increase was primarily driven by growth in training revenues due to an increase in the number of seminars and human resource conferences we conducted. |
Net revenues and business tax. Our net revenues increased 29.6% to RMB158.0 million in 2002 from RMB122.0 million in 2001. Our net revenues reflected our total revenues less the amounts paid as business taxes of RMB7.5 million in 2002 and RMB6.0 million in 2001.
62
Cost of services. Our cost of services increased 9.5% to RMB92.2 million in 2002 from RMB84.2 million in 2001. This increase was primarily due to printing related expenses relating to the expansion of Career Post Weekly into five new markets, partially offset by a reduction in 2002 in the number of copies printed for use in our direct marketing campaigns. In addition, direct costs associated with our training services increased as a result of the larger number of seminars and conferences we conducted in 2002.
Gross profit. As a result of the above factors, our gross profit increased 74.3% to RMB65.8 million in 2002 from RMB37.8 million in 2001. Our gross profit margin was 41.6% in 2002 compared to 31.0% in 2001.
Operating expenses. Our operating expenses increased to RMB54.7 million in 2002 from RMB52.2 million in 2001. Our operating expenses consisted of:
| Sales and marketing expenses. Our sales and marketing expenses increased 31.6% to RMB24.4 million in 2002 from RMB18.5 million in 2001. This increase was due to the hiring of additional sales and marketing personnel in connection with opening offices in six new cities and increases in commissions paid to sales personnel, largely offset by a 42.1% decrease in advertising and promotion expenses to RMB4.0 million in 2002 from RMB7.0 million in 2001 as we reduced advertising activities in 2002. | |
| General and administrative expenses. Our general and administrative expenses decreased 9.9% to RMB30.4 million in 2002 from RMB33.7 million in 2001. This decline primarily reflected a non-recurring expense relating to office relocation in 2001 and a reduction in bad debt provision in 2002. |
Interest and investment income. Our interest and investment income increased 546% to RMB0.5 million in 2002 from RMB0.07 million in 2001, primarily reflecting an increase in cash generated from operations which we deposited in interest bearing accounts at banks in China and Hong Kong.
Income tax benefit. We recorded an income tax benefit of RMB1.3 million in 2002. We did not record income tax benefit or expense in 2001.
Net income (loss).
As a result of the above factors, our net income was
RMB12.8 million in 2002 compared to our net loss of
RMB14.1 million in 2001.
Liquidity and Capital Resources
We believe that our current cash and cash
equivalents, cash flow from operations and the proceeds from
this offering will be sufficient to meet our anticipated cash
needs, including our cash needs for working capital and capital
expenditures, for the foreseeable future. We may, however,
require additional cash resources due to changing business
conditions or other future developments, including any
investments or acquisitions we may decide to pursue.
Liquidity
Our liquidity has been principally affected by
our significant increases in net cash from operating activities,
our net cash inflow from the sale of Series A preference
shares in 2001 and 2002 and our purchases of property, equipment
and software. The following table sets forth a summary of our
cash flows for the periods indicated.
63
Cash flows from operating
activities.
Our increase in net cash
provided by operating activities from 2001 to 2003 was primarily
the result of a significant increase in net income. The
substantial majority of this increase was due to growth in our
print advertising revenues and our online recruitment services
revenues. Our increase in net cash provided by operating
activities in 2003 also reflected an adjustment of
RMB14.1 million (US$1.7 million) for share-based
compensation and RMB10.7 million (US$1.3 million) in
advances from customers in the form of prepayments for
advertisements and other services. We do not carry a backlog of
customer orders, but we receive prepayments in the form of
advance subscriptions for online recruitment services and, to a
lesser extent, retainers for executive search services. The
increase in 2003 was partially offset by a RMB12.4 million
(US$1.5 million) increase in accounts receivable.
Our net cash provided by operating activities for
the three months ended March 31, 2004 was
RMB20.9 million (US$2.5 million), as compared to
RMB11.9 million for the three months ended March 31,
2003. This difference is primarily attributable to significantly
higher net income for the three months ended March 31,
2004, partially offset by an increase in prepayments and other
current assets, and a reduction in advances from customers, as a
substantial portion of advances from customers outstanding as of
March 31, 2003 was recognized as revenue during the
remainder of 2003. In addition, our net cash provided by
operating activities for the three months ended March 31,
2003 and for the three months ended March 31, 2004
also reflected adjustments of RMB9.6 million and
RMB9.3 million (US$1.1 million), respectively, for
share-based compensation expense.
Cash flows from investing
activities.
Our net cash used in
investing activities from 2001 to 2003 reflected purchases of
property, equipment, software and other intellectual property
rights in these years in connection with the general growth of
our businesses and the opening of offices in new cities. In
addition, our net cash used in investing activities in 2003
reflected our investment of RMB10.7 million
(US$1.3 million) of our excess cash in an interest bearing
bank deposit.
Our net cash used in investing activities for the
three months ended March 31, 2004 was RMB3.0 million
(US$0.4 million), as compared to RMB1.7 million for
the three months ended March 31, 2003. This difference
primarily reflected the establishment of operations in two new
cities, Changsha and Hefei, during the three months ended
March 31, 2004, as well as continued upgrades of our
technology and systems.
Cash flows from financing
activities.
Our net cash provided by
financing activities has been primarily affected by the sale of
Series A preference shares in 2001 and 2002. In each of
2001 and 2002, we received net proceeds of RMB25.8 million
from the sale of 2,999,904 Series A preference shares, for
aggregate net proceeds of RMB51.6 million. Our net cash
provided by financing activities in 2003 consisted of proceeds
from the exercise of stock options by certain directors and
executive officers.
Our net cash provided by financing activities for
the three months ended March 31, 2004 of
RMB3.3 million (US$0.4 million) consisted of proceeds
from the exercise of warrants to purchase Series A
preference shares by one of our principal shareholders.
Contractual cash
obligations.
Our contractual cash
obligations consist largely of obligations under property lease
agreements for office premises. Our other contractual cash
obligations consist primarily of operating leases for computers.
Payments made under operating leases, net of any incentive
discounts that we receive from the leasing company, are charged
to our income statement on a straight-line basis over the lease
periods.
64
We have entered into non-cancelable agreements
with initial or remaining terms in excess of one year for the
publication of
Career Post Weekly
, the lease of office
premises, and the lease of computers and other equipment. The
following table sets forth our future minimum payments with
respect to such agreements through the years indicated, as of
December 31, 2003:
Future minimum payments with respect to these
agreements as of March 31, 2004 are as follows:
Our publication fees and office lease agreements
are generally for a term of two years and we have no
obligations beyond five years. We expect to renew substantially
all of these agreements as they expire, although we cannot
predict the terms and conditions of such renewals.
Rental expenses incurred under operating leases
were RMB9.9 million in 2001, RMB9.7 million in 2002,
RMB10.5 million (US$1.3 million) in 2003,
RMB2.7 million for the three months ended March 31,
2003 and RMB3.3 million (US$0.4 million) for the three
months ended March 31, 2004.
WFOE, our wholly owned PRC subsidiary, entered
into equity pledge agreements with the shareholders of Qian
Cheng and RAL, respectively. Under each of these equity pledge
agreements, WFOE has an option, exercisable during a term of ten
years, to purchase the equity interests in each of Qian Cheng
and RAL, respectively, when and if, and at the lowest price,
permitted by PRC law. At the end of the term, if and to the
extent these options have not been exercised, WFOE is obligated
to purchase the maximum amount of the equity interest in Qian
Cheng and RAL, respectively, as permitted by applicable PRC law.
For a detailed description of these equity pledge agreements,
see Corporate Structure Contractual
Arrangements Among Our Group Entities Contractual
arrangements with Qian Cheng and Corporate
Structure Contractual Arrangements Among Our Group
Entities Contractual arrangements with RAL.
We do not have material contractual obligations
in currencies other than Renminbi.
Capital
resources
We have financed our operations primarily through
cash flows from operations as well as equity investments by
certain of our founders and current shareholders. To date, we
have not financed our operations through significant borrowings,
and as of March 31, 2004, we had no material debt
obligations outstanding to unrelated parties.
65
Our external financing has consisted primarily of
the proceeds from the sale of our Series A preference
shares and warrants to purchase Series A preference shares.
From June 2000 to January 2002, we sold an aggregate of
13,678,466 Series A preference shares for aggregate net
proceeds of approximately US$14.0 million
(RMB116.4 million), including a warrant to purchase 10,000
Series A preference shares which was exercised in May 2001.
We also issued warrants to purchase 380,000 Series A
preference shares which were exercised in March 2004. All of the
warrants have been exercised and, upon the closing of this
offering, all Series A preference shares will be
automatically converted into an aggregate of 14,058,466 of our
common shares. Our operations from inception through 2000 were
financed primarily by equity and debt financing from our chief
executive officer and director, Rick Yan, as well as equity
financing by our other three founders.
As of March 31, 2004, we owed an aggregate
of RMB6.3 million (US$0.8 million) to two of our
founders in the form of unsecured, non-interest bearing loans.
These loans did not have a maturity date and these individuals
had no rights under law to accelerate these loans. We repaid
substantially all of these loans in the second quarter of 2004.
The ability of our subsidiaries to convert
Renminbi into U.S. dollars and transfer them to us is
subject to PRC foreign exchange regulations. Under these
regulations, payments of current account items, including profit
distributions, interest payments and expenditures from the
transaction, can be made in foreign currencies without prior
approval from the PRC State Administration of Foreign Exchange
by complying with certain procedural requirements. However,
approval from appropriate governmental authorities is required
where Renminbi is to be converted into foreign currency and
remitted out of China to pay capital expenses such as the
repayment of bank loans denominated in foreign currencies.
Our operations are conducted primarily through
Tech JV and its subsidiaries. As a result, our ability to
finance our operations and any debt that we, or our
subsidiaries, may incur is dependent, in part, upon the flow of
dividends from, and the payment of royalties and other fees by,
our subsidiaries. The payment of dividends in China is subject
to restrictions. PRC regulations currently permit payment of
dividends only out of accumulated profits as determined in
accordance with PRC accounting standards and regulations. Our
subsidiaries and affiliated entities in the PRC are also
required to set aside a portion of their after-tax profits
according to PRC accounting standards and regulations to fund
certain reserve funds that are not distributable as cash
dividends. Through certain contractual arrangements, we are able
to require Qian Cheng to pay us any cash it receives as
dividends or other distributions with respect to its minority
shareholding in Tech JV and its subsidiaries. Our ability to
obtain cash or other assets under these contracts depends on
their effectiveness and enforceability. For a description of
these agreements and our PRC counsels opinion as to their
enforceability, see Corporate Structure. If we or
any of our subsidiaries are unable to receive all of the
revenues from our operations through these contractual
arrangements or dividends, we may be unable to effectively
finance our operations.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative
financial instruments, off-balance sheet guarantees, interest
rate swap transactions or foreign currency forward contracts. We
do not engage in trading activities involving non-exchange
traded contracts.
Quantitative and Qualitative Disclosures About
Market Risk
Interest
rate risk
Our exposure to interest rate risk for changes in
interest rates relates primarily to the interest income
generated by excess cash deposited in banks. As of
March 31, 2004, we had cash and cash equivalents of
RMB136.2 million (US$16.5 million). Cash and cash
equivalents consist of cash on hand and in banks.
The carrying amounts of cash and cash
equivalents, accounts receivable and other receivables represent
our principal exposure to credit risk in relation to our
financial assets. As of March 31, 2004, substantially all
of our cash and cash equivalents were held in uninsured accounts
at major financial institutions located in
66
Foreign
exchange risk
Substantially all of our revenue generating
operations are transacted in RMB, which is not fully convertible
into foreign currencies and substantially all of our assets and
liabilities are denominated in RMB. As a result, the conversion
of our revenues is subject to PRC regulatory restrictions on
currency conversion and we are exposed to risks posed by
fluctuations in the foreign exchange market. The value of the
Renminbi against the U.S. dollar and other currencies may
fluctuate and is affected by, among other things, changes in the
PRCs political and economic conditions. Any revaluation of
the Renminbi may materially and adversely affect our cash flows,
revenues and financial condition, and the value of, and any
dividends payable on, our ADSs in foreign currency terms. To the
extent we hold assets denominated in U.S. dollars,
including proceeds from this offering, any appreciation of the
Renminbi against the U.S. dollar could result in a charge
to our income statement and a reduction in the value of our
U.S. dollar denominated assets.
We have not used any forward contracts or
currency borrowings to hedge our exposure to foreign currency
risk. See Risk Factors Risks Related to the
Peoples Republic of China The fluctuation of
the Renminbi may materially and adversely affect your
investment.
Inflation
and monetary risk
Inflation in China has not had a material impact
on our results of operations in recent years. According to the
National Bureau of Statistics of China, the change in Consumer
Price Index in China was 0.7%, (0.8%) and 1.2% in 2001, 2002 and
2003, respectively.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51,
or FIN 46. In December 2003, the FASB issued a revised
version of FIN 46, or FIN 46-R, in an effort to
clarify the application of FIN 46. The interpretations define
variable interests and specify the circumstances under which
consolidation of entities will be dependent of such interests.
We have adopted FIN 46 for all periods presented. For
public entities, FIN 46-R is effective for all interests in
VIEs as of the end of the first reporting period ending after
March 15, 2004. However, early adoption is permitted. The
adoption of FIN 46-R will not have a material effect on our
consolidated financial statements.
In June 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, or SFAS
No. 150. SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within
its scope as a liability (or as an asset in some circumstances).
It is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at
the beginning of the first interim period beginning after
June 15, 2003. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS
No. 150 and still in existence at the beginning of the
interim period of adoption. Restatement is not permitted. The
adoption of SFAS No. 150 did not have a material effect on
our financial position or results of operations.
In November 2002, the Emerging Issue Task Force,
or EITF, reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables, or
EITF No. 00-21. This issue addresses how revenue
arrangements with multiple deliverables should be divided into
separate units of accounting and how the arrangement
consideration should be allocated to the identified separate
accounting units. EITF No. 00-21 is
67
In March 2004, the EITF reached a consensus on
Issue 03-06, Participating Securities and the
Two-Class Method under FASB Statement No. 128, or
EITF No. 03-06. EITF No. 03-06 provides guidance
regarding the computation of earnings per share by companies
that have issued securities other than common shares that
entitle the holder to participate in dividends and earnings of
the company. EITF No. 03-06 provides further guidance on
what constitutes a participating security and requires the
application of the two-class method in determining earnings per
share. EITF No. 03-06 is effective for the quarter ending
June 30, 2004. We have applied the guidance in this EITF
for the calculation of earnings per share in our financial
statements.
68
OUR BUSINESS
Overview
We are a leading provider of integrated human
resource services in China, with a strong focus on recruitment
related services. Our recruitment related services are delivered
in both print and online formats, and these two services are
closely integrated to allow us to reach a wide and diverse
audience. The Internet, web-based applications and human
resource software are critical aspects of our services.
We believe that we are the only significant
nationwide provider of integrated print and online recruitment
advertising services in China. We believe that our integrated
advertising services allow us to attract a broad base of
advertisers and provide us with a platform from which we can
market our other human resource related services. In addition to
recruitment advertising services, we also provide executive
search and other complementary human resource related services
for large and small employers.
Our goal is to be a one-stop solution
to human resource departments by providing recruitment and other
human resource related services to employers.
Our business was initially conducted by our
affiliated PRC companies, Run An and Qian Cheng. Run An was
incorporated by Michael Lei Feng in January 1997. Run Ans
original market research and insurance agency businesses,
unrelated to our current operations, were discontinued in 1999.
Run An first produced
Career Post Weekly
in Beijing in
October 1998 and launched
www.51job.com
in September
1999. Run An began providing executive search services in 2000.
Qian Cheng was established by Michael Lei Feng and Run An in
February 1999 to provide advertising services.
Recruitment
related services
Our recruitment related services consist of our
integrated print advertising and online recruitment services as
well as our executive search services. We generate the
substantial majority of our revenues from these businesses. In
2003, we generated 62.3% of our revenues from our print
advertising business, 26.2% of our revenues from our online
recruitment services business and 5.4% of our revenues from our
executive search business. For the three months ended
March 31, 2004, we generated 68.5% of our revenues from our
print advertising business, 21.9% of our revenues from our
online recruitment services business and 3.2% of our revenues
from our executive search business.
Our three core recruitment services consist of:
Print advertising.
Our customers advertise job positions in
Career Post
Weekly
, a city-specific recruitment publication which is
published once a week and is distributed as an insert in major
local newspapers and/or on a stand-alone basis.
Career Post
Weekly
was produced in 19 cities in China as of
June 30, 2004. We closely coordinate
Career Post Weekly
with our
www.51job.com
online recruitment website and
all of the recruitment advertisements appearing in
Career
Post Weekly
are also posted on
www.51job.com
. We
generated RMB182.6 million (US$22.1 million) in
revenues from
Career Post Weekly
in 2003, a 56.1%
increase from 2002 revenues of RMB117.0 million. We
generated RMB75.3 million (US$9.1 million) in revenues
from our print advertising business for the three months ended
March 31, 2004, a 97.0% increase from
RMB38.2 million for the three months ended March 31,
2003. We estimate that we generated an aggregate of
4,635 print advertising pages in 2003, a 45.9% increase
from an estimated 3,176 advertising pages in 2002. We
estimate that we generated an aggregate of 2,022 print
advertising pages in the three months ended March 31, 2004,
a 116% increase from an estimated 934 advertising pages in the
three months ended March 31, 2003.
Online recruitment
services.
www.51job.com
is our
online recruitment website which we promote as a
destination site for employers and job seekers in
China.
www.51job.com
contains all of the recruitment
advertisements appearing in
Career Post Weekly
as well as
additional advertisements that appear online only. We update our
recruitment advertisements on an hourly basis. Job seekers can
also post resumés on our website. Employers can manage and
organize their online review of resumés and candidates
through our
eHire
web-based platform that we operate
through our website. We believe that we are the largest
dedicated national
69
Executive search.
eSearch
is our executive search service. Our searches are
generally for mid-level professional, managerial and junior
executive positions. We believe that
eSearch
is a
valuable complement to our
Career Post Weekly
and
www.51job.com
recruitment services.
eSearch
increases our visibility with employers, attracts more
experienced candidates to submit their resumés to us and
positions us as a full service provider of recruitment
solutions. We generated RMB15.7 million
(US$1.9 million) in revenues from this service in 2003, a
61.9% increase from 2002 revenues of RMB9.7 million. For
the three months ended March 31, 2004, we generated
executive search revenues of RMB3.5 million
(US$0.4 million), a 74.4% increase from revenues of
RMB2.0 million for the three months ended March 31,
2003.
We offer a number of other value-added human
resource services in areas such as training, software
applications, business process outsourcing and surveys.
We offer public and in-house courses and seminars
in business management, marketing, human resource, sales,
manufacturing, secretarial and other skills. We have also
developed a proprietary personnel assessment system used for
employee evaluation, training, development and recruitment. In
addition, we organize large human resource conferences and
networking events. We launched these training services in 2001.
In mid-2003, we launched a human resource
management software package that allows employers to track
attendance, payroll, vacation, and other employee related
information. In mid-2003, we also launched our business process
outsourcing service through which we perform human resource
administrative functions such as payroll and benefits processing
and tracking of compliance with local and national employment
laws for businesses on an outsourced basis. Employers and
employees can access information through a web-based platform
for communication and decision-making purposes, although the
processing of these functions is outsourced to us. We also
provide salary survey studies with analysis on compensation
levels across various cities, industries and positions. We have
introduced these services on a limited basis only, and they do
not currently contribute meaningfully to our revenues.
We generated RMB18.0 million
(US$2.2 million) in revenues from these other human
resource related services in 2003, an 82.1% increase from
revenues of RMB9.9 million in 2002. For the three months
ended March 31, 2004, we generated RMB7.0 million
(US$0.8 million) in revenues from other human resource
related services, a 137% increase from revenues of
RMB3.0 million for the three months ended March 31,
2003.
Our Revenue Model
Although we provide services to both employers
and job seekers, we derive substantially all of our revenues
from employers. We receive a majority of our revenues in the
form of fees from employers for placing job advertisements on
Career Post Weekly
and
www.51job.com
. We also
receive fees from employers for access to our
www.51job.com
resumé databases, use of
eHire
and in connection
with
eSearch
and other human resource related services.
70
We have been profitable since 2002 on a full-year
basis. In 2003, we generated total revenues of
RMB293.3 million (US$35.4 million), a 77.2% increase
from RMB165.5 million in 2002. In 2003, we recorded net
income of RMB37.2 million (US$4.5 million), an
increase of 192% from RMB12.8 million in 2002. For the
three months ended March 31, 2004, we generated total
revenues of RMB109.9 million (US$13.3 million), an
86.4% increase from RMB59.0 million for the three
months ended March 31, 2003. For the three months ended
March 31, 2004, we recorded net income of
RMB8.7 million (US$1.1 million) compared to a net loss
of RMB2.8 million for the three months ended March 31,
2003.
Our Market Opportunity
We believe that the human resource services
industry has significant growth potential in China. As
conditions in Chinas growing economy become more
liberalized and competitive, the role of human resource
management within Chinese companies is growing in importance. As
employers increasingly realize how critical identifying,
attracting, developing and retaining qualified employees is to a
firms success, we expect employers will seek professional
services across all segments of the human resource services
industry value chain.
Moreover, we believe that employers will
increasingly seek services that are national as well as local in
scope and will look to access these services through multiple
channels. As human resource operations become more complex, we
also believe there is potential for employers to outsource a
significant portion of human resource administration and
management and will seek the service of third party providers,
such as ourselves, to address these growing challenges.
We believe that the following broad macroeconomic
factors in China drive the growth of our industry:
71
In addition to the above macroeconomic factors,
we believe that changes in the composition of Chinas labor
market as well as changes in recruitment trends in China afford
providers of human resource services such as ourselves with
significant opportunities for further growth and development.
Our Competitive Strengths
Through our nationwide network of offices, we
provide our clients with a variety of human resource services
through multiple distribution channels. In addition to our focus
on both print and online recruitment advertising, we have
developed additional products and services to address many human
resource management needs. We believe that we are a market
leader in many of our markets as a result of the following
competitive strengths:
72
Our Strategy
Our objective is to become the market leader in
each of our recruitment and other human resource businesses. We
seek to integrate our service offerings to provide comprehensive
nationwide human resource
73
74
Our Business
We provide a range of human resource services in
the following categories:
Recruitment
related services
Print advertising Career Post
Weekly. Career Post Weekly
is a
city-specific recruitment advertising publication which is
published once a week and is distributed as an insert in local
newspapers and/or on a stand-alone basis.
Career Post Weekly
was published in 19 major cities in China as of
June 30, 2004. We established operations in the cities of
Changsha in January 2004, Hefei in March 2004 and Ningbo in May
2004. The 19 cities where
Career Post Weekly
is
published and our newspaper contractor in each city are as
follows:
Career Post Weekly
is not published in Hong Kong.
A different version of
Career Post Weekly
is published in each of our markets, with each version
containing city-specific recruitment advertisements. We closely
coordinate
Career Post Weekly
with our
www.51job.com
online recruitment website and post all of the recruitment
advertisements appearing in
Career Post Weekly
on
www.51job.com
as well.
Career Post Weekly
contains
recruitment advertisements for the full range of job categories
that are available on our website, including sections for
professional, middle management and technical personnel.
Career Post Weekly
is a Chinese language publication.
Employers use
Career Post Weekly
both as a
recruitment tool and as an advertising and publicity medium to
promote their brand name and corporate awareness among job
seekers.
Career Post Weekly
recruitment advertisements
come in a variety of formats, from large, multi-color
advertisements using graphics and corporate trademarks, often
placed by international and large domestic companies, to simple
text job announcements, typically posted by smaller, local
businesses.
Career Post Weekly
is divided into a number
of separate sections, with certain sections targeted at higher
income and more educated job seekers containing large, colorful
advertisements on glossy, high quality paper. Other sections
contain simpler text-only advertisements targeted at middle and
lower income job seekers.
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In China, entities engaged in publishing
activities are required by the government to have a publishing
license. Since we do not have any publishing licenses, we have
established a relationship with a local newspaper in each market
where
Career Post Weekly
is produced. These newspapers
provide us with printing and publishing services on a
contractual basis, generally for a term of two years. These
newspapers also generally provide us with distribution and
marketing support in our local markets, although we sometimes
undertake marketing independently.
Career Post Weekly
is
distributed as an insert in our contractors newspaper in
an effort to increase our circulation and help us establish our
brand name. As an insert in these newspapers,
Career Post
Weekly
is sold at newsstands, kiosks, convenience stores,
supermarkets and other venues. We provide vendors with marketing
materials such as posters, display racks and other promotional
items. We also circulate
Career Post Weekly
independently
through our direct marketing campaigns. Our direct marketing
includes offering free copies of
Career Post Weekly
at
self-help kiosks at job fairs, in the lobbies of major office
buildings, at post offices, on university campuses and in other
public areas where the public circulation of newspapers is
permitted. We have entered into exclusive marketing arrangements
to offer free copies of
Career Post Weekly
in subway
stations in certain cities.
We change our newspaper contractor in a city when
we are able to obtain more favorable terms or higher quality
service from a different newspaper contractor. Since inception,
we have changed our newspaper contractor in five of the
19 cities in which we currently have a contract with local
newspapers. See Risk Factors Risk Related to
Our Business We are dependent on local newspaper
contractors in each of our geographic markets to publish and
distribute
Career Post Weekly
.
The advertising fees that we charge depend on a
variety of factors, including the size, placement, format, and
use of color and graphics in the advertisement, the length of
time the advertisement is to appear, and the market in which the
advertisement is placed. As we grow in our existing markets and
expand into new cities, we increase our client base and the
number of advertising pages that we produce. Our print
advertising revenues are primarily affected by the number of
print advertising pages and the fees that we charge. Pricing for
specific products can vary significantly from city to city.
The following table sets forth the estimated
number of print advertising pages we generated and the cities
where
Career Post Weekly
was published for the periods
and as of the dates indicated.
Increases in our estimated number of print
advertising pages generally reflect our geographic expansion as
well as further penetration of existing markets. However, there
is no direct correlation between the growth in the number of
cities in which we operate and in the overall number of our
print advertising pages.
Online recruitment services
www.51job.com.
We established our
online recruitment website
, www.51job.com
, in 1999.
www.51job.com
provides online recruitment advertisements
in both Chinese and English on a city-by-city basis and covers
many different job categories ranging from professional and
middle management positions to clerical, industrial and hourly
jobs. We regularly maintain and update our
www.51job.com
with job search, training and general career management
content.
We believe that
www.51job.com
is one of
the largest dedicated national recruitment websites in China in
terms of the number of recruitment advertisements. We also
believe that
www.51job.com
is among the largest
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We believe that
www.51job.com
provides
employers with a cost-effective means of reaching their target
audience. As our website contains nationwide recruitment
advertisements, employers can access a large pool of potential
candidates from a wide geographic area. Certain employers post
advertisements solely online when they consider the demographics
of their target audience to favor the use of the Internet for
recruitment advertising. As a result,
www.51job.com
includes a higher number of technology related positions
than
Career Post Weekly
as well as recruitment
advertisements targeted at younger job seekers that are more
likely to use the Internet. We generally update the
advertisements on our website hourly, which allows employers to
receive responses more rapidly than is generally possible using
print advertisements. Employers also use our website as a
marketing tool, placing advertising banners, trademarks, logos,
website hyperlinks and other devices to promote their image for
a fee that varies depending on the size and graphics in their
presentation.
Employers can use our
eHire
web-based
platform to search our job candidate database and download
resumés for a fee. In addition,
eHire
contains other
tools that enable employers to manage, organize and streamline
the recruitment and hiring process. We also offer website design
as an additional value-added service and marketing tool for
corporate customers. We can build customized private
label recruitment websites with the look and
feel of a dedicated website. We design these sites
in-house to client specifications and operate and maintain these
sites for our clients. These client sites, together with our
www.51job.com
website, are hosted by China Telecom,
Chinas principal telecommunications and Internet service
provider.
The following table sets forth the estimated
number of unique employers who used our online recruitment
services for the periods indicated.
www.51job.com
provides job seekers with online tools
to search for job opportunities and allows them to:
We provide job seekers access to
www.51job.com
free of charge.
We closely coordinate
Career Post Weekly
with our
www.51job.com
online recruitment website,
and we post all of the recruitment advertisements appearing in
Career Post Weekly
on
www.51job.com
as well. We
place a basic description of each
Career Post Weekly
recruitment advertisement on our website free of charge.
Executive search
eSearch.
To meet employers
recruitment needs, we supplement our recruitment advertising
service with our
eSearch
executive search services. We
conduct searches principally for employers seeking to fill
mid-level professional, managerial and junior executive
positions. We conduct executive
77
We believe that there is a growing market for
this service as companies expand and need to hire qualified
professional and managerial personnel, including those who are
not active job seekers. We believe that we are well positioned
to expand into this market as we currently provide premium
recruitment advertising services in many cities across China. We
believe that our position provides us with a competitive
advantage as we can attract employers that use our
www.51job.com
website or
Career Post Weekly
but
are first-time executive search users. In addition, our search
consultants can access our extensive online candidate
resumé database which other search firms are restricted
from using. We are also able to cross-market our executive
search services to clients seeking a range of high quality
recruitment services.
Other
human resource related services
We conduct training seminars in business
management, leadership, sales and marketing, human resource,
negotiation skills, financial planning and analysis, public
administration, manufacturing, secretarial and other skills. We
provide approximately 60% of our seminars to the general public
and 40% of our seminars on a customized, in-house basis for
corporate clients. We also organize and host annual human
resource conferences in many of our cities. These conferences
include lectures, seminars, workshops and networking events for
human resource professionals. Although we do not generate
significant revenues from hosting these conferences, this
service provides us with exposure to, and interaction with,
existing and prospective clients. We believe that our training
services build our brand awareness as a leading provider of
integrated human resource services.
We have also developed a proprietary personnel
assessment system to assist human resource departments in
evaluating job candidates and existing employees. We offer this
system to help human resource departments evaluate an
employees capabilities and disposition, in aiding employee
placement, in allocating employee resources and in recruitment.
We offer our monthly human resource trade
magazine called
Human Capital
to selected clients on a
complimentary basis. This magazine, which has been produced
since August 2002, is targeted principally at corporate human
resource personnel and contains articles, commentary,
interviews, and reports on human capital management topics.
We launched our
eHR
human resource
management software in mid-2003 that allows employers to track
attendance, payroll, vacation and other employee related
information. This proprietary software has been developed by our
own team of engineers and is focused on addressing specific
needs of human resource departments. This product has been
rolled out on a limited basis to a small number of customers. We
will continue to deploy resources to enhance and refine features
in our software and web-based applications in response to
customer feedback.
In mid-2003, we launched our business process
outsourcing service through which we perform human resource
administrative functions for employers on an outsourced basis.
Currently, we provide business process outsourcing services with
respect to social insurance and welfare payment processing,
tracking compliance with local governmental employment
regulations, and payroll processing.
We currently provide these services on a limited
basis to a small number of customers as we build our outsourcing
capability and expertise. We seek to develop these services so
that we can offer a one-stop solution to our
clients. While the market for these services in China is still
limited compared to developed economies like the United States,
we expect to further expand and develop these services as the
market in China for these services grows. We believe that there
is significant future potential for these services as more
companies in China become accustomed to using third parties to
perform human resource administrative functions.
78
We also provide salary survey studies with
analysis on compensation and benefits packages across various
cities, industries and positions. Human resource departments
utilize our information to understand the market for
compensation levels and to determine compensation and benefits
packages for employees and candidates. Employers value this
information because competitive compensation packages are often
a critical part of an employers employee retention
strategy. We can provide general surveys or tailor our research
to a clients specifications. We also provide stationery
and office supplies to our larger business customers.
Technology
We design and update our website and develop our
proprietary software entirely in-house. Our website is hosted by
China Telecom, Chinas principal telecommunications and
Internet service provider. We own the copyrights, software,
trademarks and other intellectual property with respect to the
design and content of our website, other than the advertisements
and trademarks provided by our advertisers.
We employ a large staff of website designers and
technicians to update and enhance our website as well as to
design, build and provide assistance to customers that are
creating their own recruitment website. We update the
advertisements on our website from our central offices in
Shanghai. We also have technicians in Beijing, Guangzhou and
Shenzhen to service key accounts and to supplement our central
operations in the event of an emergency. New recruitment
advertisements provided to us by employers who have purchased
and registered online accounts generally appear on our website
within several hours. Complimentary online postings for
advertisements in
Career Post Weekly
generally appear on
www.51job.com
within one to two days.
From time to time we experience slower Internet
service from our Internet service provider, China Telecom, as a
result of technical difficulties associated with high traffic
volumes, computer viruses, the proliferation of spam
e-mail traffic and other difficulties that generally affect
Internet traffic. To date, we have not been subject to
significant targeted disruptions or hacking and we
believe that difficulties we have experienced relating to the
speed of the Internet service and web-hosting provided by China
Telecom are consistent with the difficulties that affect
Internet service in China generally. To date, our website has
not gone off-line or been shut down for any significant period
of time. We do not believe that our business has been materially
disrupted or negatively affected by technical difficulties with
respect to our website. However, we cannot assure you that our
business will not face material disruptions or damage from spam,
viruses, hacking or other technical difficulties. See Risk
Factors Risks Related to Our Business
Computer viruses and hacking may cause delays or
interruptions on our systems and may reduce use of our services
and damage our reputation and brand names,
We are vulnerable to natural disasters and
other calamities, and We are dependent
on our Internet service provider, and we are vulnerable to
failures of the Internet, fixed line telecommunications networks
in China and our technology platform.
We did not incur material expenditures with
respect to our research and development activities in any of the
three years ended December 31, 2001, 2002 or 2003 or in the
three months ended March 31, 2004.
Competition
We face significant competition in each of our
markets with respect to each of our lines of business. See
Risk Factors Risks Related to Our
Business Because we face significant competition,
including intense competition in several of our markets, we may
lose market share and our results of operations may be
materially and adversely affected.
Print
advertising
Career Post Weekly
is published in 19 cities across China
and our core markets include Beijing, Guangzhou, Shanghai and
Shenzhen. We face intense competition within all of our markets.
Our competitors typically consist of one or more large local
newspapers that include a help-wanted circular as a section. Our
competitors in our core markets include
Beijing Youth Daily,
Guangzhou Daily, Shanghai Talent Market
and
Shenzhen
Special Zone Daily.
79
Online
recruitment services
We experience intense competition in our online
recruitment services businesses from dedicated online
recruitment websites and, to some extent, from national Internet
portals in China. We are not aware of any online competitor that
also operates a significant print advertising business. We view
our principal existing online competitors to be
ChinaHR.com
,
Cjol.com
and
Zhaopin.com
, all
of which are dedicated online recruitment websites.
In addition to these dedicated online recruitment
websites, a number of well established nationwide Internet
portals, including
NetEase.com
,
sina.com
,
sohu.com
and
tom.com
, have entered the online
recruitment advertising market and are offering job listing
services. None of the Internet portals are dedicated providers
of recruitment advertising or other human resource products, and
each offers a wide variety of other online services. However,
any or all of our online or print competitors may decide to
allocate significant additional resources to providing
recruitment advertising or other human resource services. In
such an event, we could encounter significantly increased
competition in some or all of our markets.
Other
services
We believe that the competition for our other
human resource related services, especially for executive search
and training services, is largely fragmented and localized. The
main competitors in our market for executive search services in
China include entities such as Bó-Lè Associates, Ltd.,
Hudson Highland Group, which is a spin-off from TMP Worldwide,
Standard, and Sterling, each of which provides executive search
services on a nationwide basis.
Customers
Our customers consist of large multinational
corporations, large national PRC corporations and local PRC
enterprises of all sizes.
Sales and Marketing
Our sales and marketing strategy is focused on
promoting our brand names and further establishing our
reputation as an integrated provider of high quality human
resource services. Through direct marketing, event marketing,
mass media advertising, online marketing, cross-marketing and
media promotions, we target three key groups:
Direct marketing.
We
target employers principally through direct marketing. As of
March 31, 2004, we employed over 600 sales and account
management representatives across our 20 cities that identify
and contact potential customers directly via telephone, personal
sales visits, the Internet and the mail. We train our sales
staff to cross-sell all of our services and to design
comprehensive packages of human resource services for potential
clients to meet their specific requirements. We believe that
direct marketing has been highly effective in attracting new
customers. In addition, we believe that, by providing
significant contact with potential clients, direct marketing
enables us to understand the current and evolving needs of our
existing and prospective customers and helps us develop new
services and products.
Event marketing.
We
organize customer events such as recruiting workshops and
product information seminars as well as networking social events
to provide our sales team an opportunity to interact with
employers and better understand their needs. To attract
potential job seekers, we provide complimentary copies of
Career Post Weekly
at job fairs, at office buildings, in
subway stations in select cities and in other public and
commercial areas. We believe that offering complimentary copies
of
Career Post Weekly
to job seekers is also a highly
effective means to cross-promote our
www.51job.com
website.
80
Mass media
advertising.
We use traditional mass
media advertising on a selective basis to increase our
visibility and profile. We advertise using various media,
including television, radio, and outdoor advertising on
billboards, bus stops and buses. In addition, we advertise on
print media such as newspapers, magazines and industry
publications and telephone directories.
Online marketing.
We
use Internet advertising, including banners, keyword and
hyperlink purchases and paid listings, to promote our brand
names. We also conduct online promotion campaigns such as prize
drawings and giveaways with the goal of attracting traffic to
our website and enhancing the loyalty of job seekers.
Cross-marketing.
We
cross-market our brand names, services and products in
Career
Post Weekly
, on
www.51job.com
and in
Human
Capital
. We also establish cross-marketing relationships
with a variety of partners. We believe that we also benefit from
recommendations and referrals by our large existing base of
Career Post Weekly
and
www.51job.com
job seekers
and employers.
Media promotions.
We
produce studies on job market trends that are regularly featured
and published in magazines, in newspapers and online. We believe
this exposure heightens our profile among both employers and job
seekers, and attracts interest and generates sales inquiries for
our services.
Employees
We had 706 employees, 893 employees, 1,481
employees and 1,761 employees as of December 31, 2001, 2002
and 2003 and March 31, 2004, respectively. The following
table sets forth the number of our employees categorized by
function as of the dates indicated.
We believe that we maintain a good working
relationship with our employees and we have not experienced any
significant labor disputes or any difficulty in recruiting staff
for our operations. Our employees are not represented by any
collective bargaining agreements or labor unions.
We are required by PRC law to participate in
various government sponsored benefit and pension programs for
our employees. We are required to accrue a certain portion of
the salaries, bonuses and certain other payments to our
employees for these benefits. The total amount we have accrued
under our employee benefits plans was approximately
RMB11.7 million (US$1.4 million) for 2003.
Under our 2000 stock option plan, we granted
certain employees options to acquire our common shares. For a
description of our share option plan, see
Management Stock-Based Compensation
Plans.
Intellectual Property and Proprietary
Rights
We regard our copyrights, trademarks, trade
secrets and other intellectual property rights as critical to
our business. We rely on trademark and copyright law, trade
secret protection, non-competition and confidentiality and/or
licensing agreements with our executive officers, clients,
contractors and others to protect our intellectual property
rights. We have registered our
www.51job.com
Internet
domain name as well as a number of similar domain names in an
effort to prevent entities from diverting online traffic away
from our website.
81
We have registered ten trademarks with the
Trademark Office of the PRC State Administration
for Industry and Commerce, including
, 51job.com,
, eHire,
, eSearch,
and
. We are applying
for three additional trademarks in the PRC relating to our
company, products and services. In addition, our wholly owned
British Virgin Islands subsidiary 51net has registered our
trademarks
, 51job.com
and
with the Patents
Registry, Intellectual Property Department of the Hong Kong
Special Administrative Region. 51net is also the registered
owner of our trademarks
and
51job.com
with the Intellectual Property Bureau of the
Taiwan Ministry of Economy.
All of our trademarks and the
www.51job.com
domain name are owned or registered in the PRC by 51net and
WFOE. Under a trademark license agreement between 51net, as
licensor, and RAL, as licensee, RAL has the right to use certain
trademarks in the PRC, with no right of assignment or
sublicense. Under a domain name license agreement between 51net,
as licensor, and RAL, as licensee, RAL has the right to use the
www.51job.com
domain name in connection with the
operation of our website. See Corporate
Structure Contractual Arrangements Among Our Group
Entities.
Our intellectual property is subject to theft and
other unauthorized use, and our ability to protect our
intellectual property from unauthorized use is limited. In
addition, we may in the future be subject to claims that we have
infringed the intellectual property rights of others. See
Risk Factors Risks Related to Our
Business If we are unable to prevent others from
using our intellectual property, our business may be materially
and adversely affected and We may be exposed
to infringement or misappropriation claims by third parties,
which, if successful, could cause us to pay significant damage
awards.
Properties
Our principal executive office is located at 21st
Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai 200041,
Peoples Republic of China, under a lease that expires in
December 2006. We also lease operating office space in Beijing,
Changsha, Chengdu, Chongqing, Dalian, Guangzhou, Hangzhou,
Harbin, Hefei, Jinan, Kunming, Nanjing, Ningbo, Qingdao,
Shanghai, Shenyang, Shenzhen, Wuhan, Xian and Hong Kong.
Legal Proceedings
There are no material legal proceedings,
regulatory inquiries or investigations pending or, to our
knowledge, threatened against us. From time to time, we
undertake legal action against entities that misappropriate the
content of our
www.51job.com
website, including
recruitment advertisements and the design of our website, our
brands and trademarks, materials from our training courses and
other proprietary intellectual property. Our intellectual
property is subject to theft and other unauthorized use, and our
ability to protect our intellectual property is limited. In
addition, we may in the future be subject to claims that we have
infringed the intellectual property rights of others. See
Risk Factors Risks Related to Our
Business We may be exposed to infringement or
misappropriation claims by third parties, which, if successful,
could cause us to pay significant damage awards.
82
REGULATION
Advertising agencies, human resource service
firms and Internet content providers are subject to substantial
regulation by the PRC government. An Internet content
provider is a commercial operator providing the delivery
of Internet content. This section sets forth a summary of the
most significant PRC regulations that affect the business and
the industries in which we operate.
Scope of Regulation
In addition to laws and regulations that apply
generally to advertising agencies, human resource firms and
Internet content providers, special limitations apply to foreign
ownership of businesses engaged in advertising, human resource
and Internet content providing services in China.
Limitations on Foreign Ownership of Our
Businesses
The principal regulations governing foreign
ownership of advertising companies in China include:
Under these regulations, foreign investors,
individually or in the aggregate, are currently permitted to own
up to 70% of the equity interest in an advertising company in
the PRC and, starting December 10, 2005, will be permitted
to own 100% of the equity interest in an advertising company in
the PRC. The schedule for relaxation of limitations on foreign
ownership contained in current regulation reflects the PRC
governments commitments made in connection with the
countrys entry into the World Trade Organization, or the
WTO.
The principal regulation governing ownership in
human resource services companies in China is the Interim
Regulations on the Administration of Sino-foreign Equity Joint
Venture as Human Resource Agencies (2003), jointly promulgated
by the PRC Ministry of Personnel, the PRC Ministry of Commerce
and the PRC State Administration for Industry and Commerce.
Under this regulation, the percentage of foreign ownership in
the equity interest of a foreign invested human resource
services company cannot be less than 25% or more than 49%.
In the PRC, entities that coordinate with
Internet service providers (such as telecommunications
companies) to effect the online placement of content provided by
either themselves or third parties are defined as Internet
content providers and require a special license. An entity
may provide online services to customers, including selling
recruitment advertising and other online services, without being
required to have an Internet content provider
license. However, the act of coordinating with the Internet
service provider to effect the placement of such content
requires an Internet content provider license.
The principal regulations governing foreign
ownership in Internet content providers in China include:
Under these regulations, foreign investors,
individually or in the aggregate, are prohibited from owning
more than 50% of a PRC entity that provides value-added
telecommunications services, which include the service of
providing Internet content.
83
In accordance with its commitments made in
connection with the PRCs entry into the WTO, the PRC
government has reduced the limitations on foreign investment in
advertising businesses in China. On March 2, 2004, the PRC
government eliminated the requirement that advertising agencies
be controlled by PRC shareholders and increased the maximum
foreign ownership percentage to 70%. Beginning in December 2005,
advertising agencies may be wholly owned by foreign entities. In
addition, foreign persons are not allowed to own more than 49%
of the equity interest in an enterprise conducting human
resource services under a regulation enacted in November 2003,
or more than 50% of the equity interest in an Internet content
provider under a regulation enacted in 2001.
There are no laws or regulations setting forth
any schedule for future relaxation of limitations in the human
resource and Internet content businesses. Jun He Law Offices,
our PRC counsel, has been informed by the WTO office of the PRC
Ministry of Commerce in a consultation that the limitations on
foreign investment in these industries are expected to be
reduced, but the WTO office could not predict the pace and
implementation schedule of these long-term policies, and we
cannot assure you when or if such changes may occur.
General Regulation of Our Businesses
The PRC State Administration for Industry and
Commerce is responsible for regulating advertising activities in
the PRC. The principal regulations governing advertising
(including online advertising) in China include:
Under these regulations, any entity providing
advertising services must obtain an advertising license from the
PRC State Administration for Industry and Commerce or one of its
local offices.
Human resource services firms in China are mainly
regulated by the PRC Ministry of Personnel. The principal
regulation applicable to human resource services firms is the
Regulations on Administration of Human Resource Markets (2001),
jointly promulgated by the PRC Ministry of Personnel and the PRC
State Administration for Industry and Commerce. Under this
regulation, any entity providing human resource services in
China must obtain a human resource services license from the
local Administration of Personnel. Each of these Administrations
may adopt rules, with some degrees of variation among provinces,
to regulate human resource services operations conducted within
the province.
The delivery of content on our website is subject
to PRC laws and regulations applicable to telecommunications and
Internet service providers. We are also within the regulatory
jurisdiction of various governmental bodies, including the PRC
Ministry of Information Industry and the PRC State
Administration for Industry and Commerce. The principal
regulations applicable to telecommunications and Internet
service providers include:
84
Under these regulations, delivery of Internet
content is classified as a value-added telecommunications
service, and a commercial operator of such services must obtain
an Internet content provider license from the appropriate
telecommunications authorities.
There are no PRC laws that have national
applicability to online commerce relating to advertising and
human resource services. However, local authorities may impose
requirements on online business activities conducted within its
jurisdiction, such as registration or filing requirements.
Regulations Relating to Our Intellectual
Property Rights
China has adopted comprehensive legislation
governing intellectual property rights, including trademarks,
patents and copyrights. China has adhered to the main
international conventions on intellectual property rights and
has become a member of the Agreement on Trade Related Aspects of
Intellectual Property Rights upon its accession to the WTO in
December 2001.
The PRC amended its Copyright Law in 2001 to
widen the scope of works that are eligible for copyright
protection. The amended Copyright Law extends copyright
protection to cover Internet activities and products
disseminated over the Internet. Copyrighted software is
protected under the Copyright Law and other regulations. In
addition, there is a voluntary registration system administered
by the China Copyright Protection Center.
Registered trademarks are protected under the
Trademark Law adopted in 1982 and revised in 2001. Trademarks
can be registered with the Trademark Office of the PRC State
Administration for Industry and Commerce for renewable ten year
periods. Trademark license agreements are required to be filed
with the Trademark Office of the PRC State Administration for
Industry and Commerce for the record.
Domain name disputes are governed by the Measures
on Domain Name Dispute Resolution promulgated by the Chinese
Internet Network Infrastructure Center, or CNNIC, on
September 25, 2002, under which CNNIC can authorize domain
name dispute resolution institutions to decide disputes.
Regulations Relating to Internet
Privacy
The Constitution of the PRC provides that PRC law
protects the freedom and privacy of communications of citizens
and that infringement of such rights is not permitted. While PRC
laws do not prohibit Internet content providers from collecting
personal information of their users, in recent years, the
relevant government authorities have enacted legislation on the
use of the Internet that recognizes the protection of personal
information from unauthorized disclosure. Under the Regulation
on Internet Information Service, Internet information service
providers are prohibited from producing, copying, publishing or
distributing information that is humiliating or slanderous to
others or that trespasses the lawful rights and interests of
others. Depending on the nature of their violation, Internet
content providers that violate this provision may face criminal
charges or be sanctioned by security authorities. In addition,
they may be ordered to temporarily suspend their service, or
their licenses may be revoked. While PRC laws do not prohibit
Internet content providers from collecting personal information
of their users, under the Administration Regulation on the
Internet BBS Service, Internet content providers that provide
electronic messaging services must keep users personal
information confidential and must not disclose such personal
information to any third party without the consent of the users,
unless the law requires such disclosure. The regulations further
authorize the relevant telecommunications authorities to order
Internet content providers to rectify an unauthorized
disclosure. Internet content providers could be subject to legal
liability if the unauthorized disclosure causes damages or
losses to the users. To comply with these regulations, we
provide subscribers to our website with a range of
confidentiality options. They may choose to authorize us to
disclose their personal information to third parties, or to
instruct us to keep this information strictly confidential. Our
systems are designed to maintain information received from these
subscribers in accordance with their instructions.
However, the PRC government retains the power and
authority to order Internet content providers to turn over
personal information of Internet users if the users post any
prohibited content or engage in illegal activities on the
Internet.
85
Regulation of Foreign Currency Exchange and
Dividend Distribution
The principal regulation governing foreign
currency exchange in the PRC is the Foreign Currency
Administration Rules (1996), as amended. Under these rules,
Renminbi is freely convertible for payments of current account
items, such as trade and service related foreign exchange
transactions and dividend payments, but not for expenses of
capital, such as direct investment, loan or investment in
securities outside the PRC unless the prior approval of the
State Administration for Foreign Exchange of the PRC is obtained.
Under the Foreign Currency Administration Rules,
foreign-invested enterprises in the PRC may purchase foreign
exchange without the approval of the State Administration for
Foreign Exchange of the PRC for trade and service related
foreign exchange transactions by providing commercial documents
evidencing these transactions. They may also retain foreign
exchange (subject to a cap approved by the State Administration
for Foreign Exchange of the PRC) to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant PRC
government authorities, which have significant administrative
discretion in implementing the laws, may restrict or eliminate
the ability of foreign-invested enterprises to purchase and
retain foreign currencies in the future. In addition, foreign
exchange transactions involving direct investment, loan and
investment in securities outside the PRC are subject to
limitations and require approvals from the State Administration
for Foreign Exchange of the PRC.
The principal regulations governing distribution
of dividends paid by wholly foreign owned enterprises and
Sino-foreign equity joint ventures include:
Under these regulations, foreign-invested
enterprises in the PRC may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition,
foreign-invested enterprises in the PRC are required to set
aside certain amounts out of their accumulated profits each
year, if any, to fund certain reserve funds. These reserves are
not distributable as cash dividends.
86
For the year ended December 31,
For the three months ended March 31,
2001
2002
2003
2003
2003
2004
2004
RMB
RMB
RMB
US$
RMB
RMB
US$
(7,137,961
)
22,254,219
65,966,668
7,969,780
11,898,447
20,908,898
2,526,114
(9,057,644
)
(9,651,858
)
(20,343,047
)
(2,457,751
)
1,730,998
(2,980,387
)
(360,076
)
25,788,659
25,819,211
746,227
90,156
3,276,456
395,846
9,570,758
38,298,181
46,446,812
5,611,483
10,168,749
21,086,040
2,547,515
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Publication
Office
fees
premises
Others
Total
RMB
RMB
RMB
RMB
46,750,183
11,873,512
648,522
59,272,217
15,278,333
9,470,002
24,748,335
3,560,833
6,332,600
9,893,433
833,333
833,333
600,000
600,000
67,022,682
27,676,114
648,522
95,347,318
Publication
Office
fees
premises
Others
Total
RMB
RMB
RMB
RMB
38,626,425
10,350,276
431,828
49,408,529
17,122,708
11,265,179
28,387,887
4,210,833
6,997,835
11,208,668
995,833
125,279
1,121,112
600,000
600,000
61,555,799
28,738,569
431,828
90,726,196
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Other human resource related
services
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Rapid economic growth and liberalization.
Chinas rapid economic growth
over the past decade has served as an important catalyst for the
development of the human resource services industry.
Chinas gross domestic product, or GDP, increased at a
compound annual rate of approximately 10.2% from 1990 to 2002.
According to Chinas tenth five-year plan, GDP is expected
to achieve approximately 7% compound annual growth rate from
2000 to 2005. Further, Chinas recent entry into the WTO,
accompanied by a proliferation of private businesses and an
increase in the number of foreign multinational companies in
China, has led to increased market liberalization and
competition. In this competitive environment, companies in China
are increasingly recognizing the need for improved human
resource recruitment processes and management.
Growing number of business entities.
As a result of economic growth and
liberalization, the number of business entities operating in
China has increased significantly. According to the National
Bureau of Statistics of China, the total number of business
entities registered in the PRC as enterprise legal
persons increased 15% over a five-year period, from
approximately 2.6 million in 1996 to approximately
3.0 million in 2001. The number of private sector business
entities increased over 195% during this period to reach
approximately 1.3 million business entities in 2001. We
believe the private business entities most likely to seek human
resource management and recruitment services are those that, due
to competitive pressure, need to better manage their human
resources and to quickly recruit employees with specialized
skills or education. We believe that the growth in number of
business entities, particularly in the private sector as a
result of the continuing deregulation and liberalization of
Chinas economy, is driving the growth in job opportunities
and an increase in demand for human resource management and
recruitment services.
Substantial growth in job openings.
The combination of heightened
business activity and an increasing number of business entities
has resulted in the significant growth in the number of job
opportunities in China. Based on the latest available data from
the PRC Ministry of Personnel, there were approximately
2.4 million job openings in China in the fourth quarter of
2003, a 60% increase over the approximately 1.5 million job
openings in the fourth quarter of 2001. As the number of job
opportunities continues to increase, we believe that there will
be a growing need for effective channels to connect job seekers
with potential employers as well as enabling employers to more
efficiently identify and assess potential candidates.
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Urbanization of the work force.
Chinas large labor force is
increasingly migrating toward urban areas due to employer
demand. According to the 2003 China Labor Statistical Yearbook,
urban employment represented approximately 248 million, or
34% of total employment, in 2002, up from approximately 26% in
1990. As a result of this increased urban concentration, major
metropolitan areas have become the foundation for the growing
human resource services industry in China. We believe that we
are well positioned to take advantage of this demand for urban
workers through our presence in 19 major cities in China.
Large and growing skilled labor force.
As the Chinese economy grows and
transitions toward more service based industries, we believe
that China is developing a large skilled and educated labor
force, a primary target segment for employers and, therefore,
for providers of human resource services like us. According to
the National Bureau of Statistics for China, from 1990 to 2002,
workers employed in the tertiary, or white collar,
service sector, increased approximately 76% from
120 million to 211 million. The educated work force
has also grown significantly in recent years. Workers with at
least a college level of education increased by 82% from 1997 to
2002, increasing from 25.8 million to 47.0 million
workers. We believe that this large skilled and educated labor
pool is becoming increasingly important to companies in China
seeking to attract and retain these workers to build a
competitive advantage. Our focus on helping companies recruit
employees primarily for white collar jobs allows us to take
advantage of this trend.
Increasing acceptance of new channels of
recruitment.
Most employers in
China have traditionally relied on job fairs and/or referrals to
recruit employees. In response to the foregoing macroeconomic
factors, they are increasingly using new channels such as print
advertisements and online job sites to recruit employees. Our
ability to offer multiple channels of recruitment to employers
enables us to take advantage of this trend.
The growth of the Internet as an important
distribution channel for the human resource services industry,
especially for recruitment
advertising.
According to the
China Internet Network Information Center, the number of
Internet users in China has increased from approximately
9 million in 1999 to approximately 80 million in 2003,
ranking China the second largest market of Internet users in the
world. We expect that further development of Chinas
technology infrastructure, more affordable and diversified means
of Internet access, and expanding computer ownership will
connect an increasingly larger group of job seekers and
employers across a wider geographical area as well as facilitate
the use of a web-based platform for the delivery of human
resource services.
Our strong brand names help us enter new
geographic markets and lines of
business.
We believe that our
Career Post Weekly
and
www.51job.com
are widely
recognized as premier brand names in the recruitment advertising
industry in major markets throughout China. We believe that
these brands represent leading destination sites for
job seekers due to their significant volume of recruitment
advertisements. We believe that this brand awareness
distinguishes us from our competition and is a valuable asset as
we expand our core recruitment advertising businesses into new
geographic markets and promote our other, complementary human
resource services.
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With our large sales force, we can directly
market our services to existing and potential clients in key
geographic markets and industries.
We use our large sales force to directly market to employers,
build and maintain client relationships and obtain critical
market information and feedback on a local and nationwide basis.
We train our sales teams to develop these relationships and
extend our reach by coordinating strategies with our sales
personnel in other markets, developing multiple points of
contact and promoting the full range of our human resource
products. We employed over 600 sales and account management
representatives across 20 cities as of March 31, 2004.
The integration of our print and online
recruitment advertising businesses allows us to extend the reach
of our advertisements to a broad audience of job seekers while
providing a cost-effective solution for
employers.
We believe that our
integrated recruitment advertising model allows us to reach both
job seekers who seek information online as well as those who use
traditional print media in gathering recruitment information. In
addition,
Career Post Weekly
allows us to attract
recruiters targeting job seekers in the lower and middle income
sectors of the job market who do not have easy access to the
Internet. We believe that the integration of our recruitment
advertising services provides a more comprehensive solution than
either distribution channel would on a stand-alone basis, and
enables us to reach a much broader and more diverse user base,
making us more attractive to employers.
Our range of human resource services and
wide geographic footprint make us attractive to businesses that
require a broad range of human resource services in multiple
markets.
Many of our competitors
in the print advertising business typically focus on a single
city or regional market. Similarly, we believe that our online
recruitment competitors generally lack a significant nationwide
sales and marketing presence. Currently, we have offices in 20
cities across China and Hong Kong. We believe that our broad
footprint allows us to offer cost-effective recruitment
advertising services to employers conducting nationwide searches
or seeking to fill positions in multiple markets. In addition,
by providing a range of services, we position ourselves as a
one-stop human resource provider which we believe
provides us with important marketing and brand building
advantages over competitors with more limited service offerings.
Further, we believe that we are able to effectively and
efficiently cross-sell our service to our clients, providing an
array of human resource solutions.
We have a strong technology platform, and
we are developing a number of additional software- and web-based
human resource services.
We
believe that the technology available through both our website
and our web-based applications provides significant added value
to both employers and job seekers. In addition, we believe that
we have developed innovative software applications that address
a number of human resource problems. We have an in-house team of
experienced engineers that develops software and services for
human resource departments. We believe that our focus on
developing technology to specifically address human resource
issues distinguishes us from our competitors, and enables us to
offer high quality services to customers.
Our highly experienced senior management
team has a proven track record.
We
have an experienced senior management team that has successfully
expanded our business and increased our revenues entirely
through internal growth. Our senior management team successfully
guided us through periods of significant uncertainty, such as
during the SARS epidemic and the aftermath of the September 11
terrorist attacks. We believe that our management has positioned
us as a market leader in many of the largest and most visible
markets in China. We believe that the skill, industry knowledge
and operating experience of our senior executives provide us
with a significant competitive advantage as we seek to expand in
our existing markets and successfully enter new geographic
markets and lines of business.
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Continue to invest in promoting our brands
to enhance our image as a premier nationwide integrated provider
of recruitment advertising and other human resource
solutions.
We intend to increase
market awareness of our brand names among businesses and job
seekers by:
using advertising and organizing events, product
seminars and other activities to promote the benefits of our
integrated, nationwide, print advertising, online recruitment
services and our other human resource related services;
using targeted marketing to attract employers and
access job seekers at job fairs, office buildings, universities
and other public areas; and
conducting other innovative and cost-efficient
promotional, direct and mass media marketing campaigns designed
to increase our visibility and profile among job seekers and
employers.
Increase our share in existing markets by
continuing to aggressively build our sales force and develop
relationships with human resource
departments.
We seek to increase
our share in existing markets by:
expanding our sales force to enable us to
directly market our service offerings to a larger pool of
employers; and
dedicating our sales force to developing
relationships with human resource departments at key large and
medium sized businesses in targeted geographic markets and
industries.
Capture a greater percentage of our
customers human resource
budgets.
We intend to increase our
share of our customers budgets by:
continuing to develop and introduce innovative
human resource services to our customers that address their
evolving needs;
offering employers the convenience and efficiency
of a single source for a diverse range of human resource related
services; and
increasing our geographical reach to enable us to
offer services to businesses with operations across China.
Identify and target markets with
significant potential demand for our
services.
We seek to expand into
new markets by:
identifying cities with significant potential
demand for print advertising, online recruitment services and
other human resource related services;
selectively forming alliances with local
newspapers to provide printing and distribution services as well
as marketing support; and
developing our existing relationships with major
employers to identify and address their recruitment advertising
and other human resource related needs in markets where they
have existing or planned operations.
Attract employers and job seekers by
continuing to develop innovative software and web-based
applications to meet their human resource and job search
needs.
We intend to attract
employers and job seekers by:
continuing to develop our web-based services
platform to meet the evolving needs of employers and job seekers;
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continuing to improve our proprietary software
and develop new software to take advantage of new technologies
and new business opportunities; and
launching and expanding alternative distribution
channels and methods of accessing our services.
recruitment related services, including print
advertising, online recruitment and executive search services;
and
other human resource related services, such as
training, software, web-based applications and business process
outsourcing.
City
Newspaper contractor
(1)
China Trade News
Sanxiang Metropolitan News
Hua Xi Metropolitan News
Chongqing Business Daily
Guangzhou Youth Daily
Dalian Evening News
Daily Business News
Harbin Lifestyle Daily
Hefei Evening News
Jinan Times
Chuncheng Evening News
Modern Express
Modern Golden News
Qingdao Financial Times
China Trade News
Liaoshen Evening News
Nan Fang Metropolitan News
News Information Daily
China Merchant News
(1)
English translations of the Chinese names.
Table of Contents
As of and for
As of and for the year
the three
ended December 31,
months ended
March 31,
2001
2002
2003
2004
2,469
3,176
4,635
2,022
8
13
16
18
(1)
For the years ended December 31, 2001, 2002
and 2003, and for the three months ended March 31, 2004.
(2)
As of December 31, 2001, 2002 and 2003 and
March 31, 2004.
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For the year ended
For the three
December 31,
months ended
March 31,
2001
2002
2003
2004
7,584
16,497
25,880
18,018
search and review all current recruitment
advertisements;
receive e-mails of advertisements matching the
job seekers profile and preferences;
submit resumés directly to prospective
employers to apply for a desired position;
organize and track job related information and
applications; and
obtain information about upcoming job fairs and
career development and other job related information.
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employers with hiring needs;
job seekers; and
human resource departments with actual or
potential outsourcing needs.
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As of
As of
December 31, 2003
March 31, 2004
534
637
396
452
145
212
166
199
106
111
134
150
1,481
1,761
(1)
Includes 410 and 543 temporary, part-time and
contract employees as of December 31, 2003 and
March 31, 2004, respectively.
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Advertising companies
Foreign Investment Industry Guide Catalogue
(2002); and
Regulations on Administration of Foreign
Investment in Advertising Enterprises (2004).
Human resource services
companies
Internet content providers
Administrative Rules for Foreign Investments in
Telecommunications Enterprises (2001); and
Foreign Investment Industry Guidance Catalogue
(2002).
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Recent changes in regulation
Advertising
Advertising Law (1994); and
Administration of Advertising Regulations (1987).
Human resource
Internet content services and online
commerce
Telecommunications Regulations (2000);
The Administrative Measures for
Telecommunications Business Operating Licenses (2001); and
The Internet Information Services Administrative
Measures (2000).
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Table of Contents
Foreign currency exchange
Dividend distribution
Wholly Foreign Owned Enterprise Law (1986), as
amended;
Wholly Foreign Owned Enterprise Law Implementing
Rules (1990), as amended;
Sino-foreign Equity Joint Venture Enterprise Law
(1979), as amended; and
Sino-foreign Equity Joint Venture Enterprise Law
Implementing Rules (1983), as amended.
Table of Contents
MANAGEMENT
Directors and Executive Officers
Members of our board of directors are elected by our shareholders. Effective upon the closing of this offering, our board of directors will consist of five directors. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
The following table sets forth information
concerning our directors and executive officers. The business
address of each of our directors and executive officers listed
below is 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai
200041, Peoples Republic of China.
Name
Age
Positions
74
Chairman of the board (independent director)
41
Director, chief executive officer, president and
secretary
37
Director
40
Independent director
45
Independent director
34
Chief financial officer and senior vice president
35
Senior vice president
33
Vice president
41
Vice president
34
Vice president
Directors
Donald L. Lucas is the chairman of the board of directors of our company. Mr. Lucas became an independent director of our company in February 2004. Mr. Lucas received his Bachelor of Arts degree from Stanford University and his Master of Business Administration degree from the Stanford Graduate School of Business. In 1960, Mr. Lucas began a seven-year participation, including acting as both a general partner and a limited partner with Draper, Gaither & Anderson, the first venture capital firm organized on the West Coast in the United States. Since 1967, Mr. Lucas has been actively engaged in venture capital activities as a private individual. Mr. Lucas currently serves as a board member of Cadence Design Systems, Inc., Macromedia, Inc., Oracle Corporation and PDF Solutions, Inc. He also serves as a director for several privately held companies. Mr. Lucas is the chairman of the board of the Stanford Institute for Economic Policy and Research and a Trustee of the University of Santa Clara.
Rick Yan is a director, chief executive officer and president of our company. Mr. Yan has been a director and chief executive officer of our company since 2000. Mr. Yan is responsible for our overall strategy and management. Mr. Yan received his Bachelor of Engineering degree and Master of Philosophy degree from the University of Hong Kong and his Master of Business Administration degree with distinction from INSEAD in France. Mr. Yan was an investor and advisor of our company from its inception and prior to his appointment as chief executive officer. Prior to joining our company, Mr. Yan was a Director and the Head of China Practice at Bain & Company, an international strategy consulting company. Mr. Yan joined the firm in London in 1989, returned to Asia and set up Bain & Companys Hong Kong and Beijing offices in 1991 and 1993, respectively. In his 11-year tenure with Bain & Company, Mr. Yan was widely acknowledged as an expert in the consumer products and technology sectors. Prior to his affiliation with Bain & Company, Mr. Yan worked at Hewlett-Packard in Hong Kong for four years and was awarded Marketing Executive of the Year.
David K. Chao is a director of our company. Mr. Chao has been a director of our company since 2000. Mr. Chao received his Bachelor of Arts degree in Economics and East Asian Studies (Anthropology) with high honors from Brown University and his Master of Business Administration degree from Stanford University. Mr. Chao is a Co-founder and Managing General Partner of Doll Capital Management, or DCM, a venture capital firm based in the Silicon Valley. Prior to joining DCM, Mr. Chao was a founding executive
87
Shan Li is a director of our company. Mr. Li became an independent director of our company in February 2004. Mr. Li holds a Bachelor of Science degree in Management Information Systems from Qinghua University, a Masters degree in Economics from the University of California at Davis and a Ph.D. in Economics from the Massachusetts Institute of Technology. Mr. Li is a veteran of the banking industry, having held various executive positions with Goldman Sachs, Lehman Brothers, Credit Suisse First Boston and China Development Bank. Mr. Li is currently the chief executive officer of Bank of China International Holdings.
Charles E. Phillips, Jr. is a director of our company. Mr. Phillips became an independent director of our company in May 2004. Mr. Phillips holds a Bachelor of Science degree in Computer Science from the United States Air Force Academy, a Master of Business Administration degree in Finance from Hampton University in Virginia and a J.D. from New York Law School. Mr. Phillips is President and a director of Oracle Corporation with responsibilities for field operations and customer-facing activities, including consulting, marketing, partners and sales as well as corporate strategy and business development. Prior to joining Oracle in 2003, Mr. Phillips worked in the Institutional Securities Division of Morgan Stanley for nine years and at various other investment banks for eight years. He was ranked the number one enterprise software industry analyst by Institutional Investor magazine each year from 1994 to 2002.
Other executive officers
Kathleen Chien is chief financial officer and a senior vice president of our company. Ms. Chien joined our company in 1999. Ms. Chien received her Bachelor of Science degree in Economics from the Massachusetts Institute of Technology and her Master of Business Administration degree from the Haas School of Business at the University of California, Berkeley. Prior to joining our company, Ms. Chien worked in the financial services and management consulting industries, including three years with Bain & Company in Hong Kong and two years with Capital Securities Corp., a leading investment bank in Taiwan. During her tenure at Bain & Company, Ms. Chien consulted a number of companies on strategic and marketing issues, including entry into the Chinese market and achieving cost and operational efficiencies. While at Capital Securities Corp., Ms. Chien completed a number of equity and equity-linked transactions, including the first ever Swiss-franc convertible bond issuance out of Taiwan, enabling client companies to raise significant capital from the European and U.S. investment community.
Michael Lei Feng is a senior vice president of our company. Mr. Feng has been with our company since its inception. Mr. Feng received his Bachelor of Arts and Bachelor of Science degrees in Law from China Foreign Affairs College. Prior to joining our company, Mr. Feng worked at Bain & Company in Beijing for three years and at the Ministry of Foreign Affairs in China for one year. During his tenure at Bain & Company, Mr. Feng consulted companies in a number of industries and advised them on their China strategies.
Norman Lui is a vice president of our company. Mr. Lui has been with our company since its inception. Mr. Lui received his Bachelor of Science degree in Electrical Engineering with distinction from Cornell University. Prior to joining our company, Mr. Lui was with Bain & Company for five years, working in the Hong Kong, Beijing and San Francisco offices. During his five-year tenure at Bain & Company, Mr. Lui consulted companies in the consumer products and telecommunications industries with respect to their sales, marketing and operating strategies.
Tao Wang is a vice president of our company. Mr. Wang joined our company in 2000. Mr. Wang received a Bachelor of Science degree in Math from Shandong University and a Master of Engineering degree from the
88
David Weimin Jin is a vice president of our company. Mr. Jin joined our company in 2000. He received a Bachelor of Science degree in Engineering from Xidian University. Prior to joining our company, Mr. Jin held sales management positions in large multinational companies, including three years at Shell and one year with Colgate Palmolive.
Employment Agreements
We have entered into employment agreements with each of our executive officers. The terms of these agreements are substantially similar to each other. Under these agreements, each of our executive officers is employed at will, and their employment may be terminated, with or without cause, by either party. These agreements do not provide for any special termination benefits, nor do we have other arrangements with these executive officers for special termination benefits. Each executive officer has agreed to hold in strict confidence and not to use, except for the benefit of our company, any proprietary information, technical data, trade secrets and know-how of our company or the confidential or proprietary information of any third party, including our affiliated entities and our subsidiaries, received by our company. Each of these executive officers has also agreed not to engage in any other employment, occupation, consulting or other business activity directly related to the business in which we are involved, or engage in any other activities that conflict with his or her obligations to us during the term of his or her employment. For the 12-month period after any of these executive officers termination of employment with us for any reason, such officer is prohibited from recruiting any of our employees or soliciting or inducing our employees to leave their employment with us.
Board Composition
Effective upon the closing of this offering, our board of directors will consist of five members, three of whom will be independent directors within the meaning of Rule 4200(a)(15) of the NASD Rules, as amended from time to time. Currently, we have five directors, three of whom are independent directors. We expect that all current directors will continue to serve after this offering. There are no family relationships between any of our directors and executive officers.
Board Committees
To enhance our corporate governance, we have established three committees under the board of directors: the audit committee, the nominating and corporate governance committee and the compensation committee. We have adopted a charter for each of these committees. The committees have the following functions and members.
Audit committee
Our audit committee reports to the board of directors regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and managements procedures and policies relating to the adequacy of our internal accounting controls. Our audit committee charter requires its members to satisfy applicable Nasdaq corporate governance rules on independence. The current members of our audit committee are Donald L. Lucas, who acts as the chairman of our audit committee, David K. Chao and Shan Li. Donald L. Lucas and Shan Li are independent directors. Accordingly, the composition of our audit committee complies with Nasdaq Marketplace Rule 4350(a)(5), which requires that issuers listing in conjunction with their initial public offering establish an audit committee consisting of a majority of independent members within 90 days of listing. In accordance
89
Our audit committee will be responsible for, among other things:
| the appointment, evaluation, compensation, oversight and termination of the work of our independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting); | |
| ensuring that it receives from our independent auditor a formal written statement attesting to the auditors independence and describing all relationships between the auditor and us; | |
| pre-approving any audit and non-audit services, including tax services, to be provided by our independent auditor in accordance with Nasdaq rules; | |
| reviewing our annual audited financial statements and quarterly financial statements with management and our independent auditor; | |
| reviewing with our independent auditor all critical accounting policies and practices to be used by us in preparing our financial statements, all alternative treatments of financial information within U.S. GAAP, and other material communications between our independent auditor and management; | |
| reviewing our policies with respect to risk assessment and risk management; | |
| reviewing, with management and counsel, any legal matters that may have a material impact on us and any material reports or inquiries from regulatory or governmental agencies; and | |
| establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing matters or potential violations of law, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters or potential violations of law. |
Nominating and corporate governance committee
Our nominating and corporate governance committee assists the board of directors in identifying individuals qualified to become members of our board of directors and in determining the composition of the board and its committees. Our board of directors has determined that all members of our nominating and corporate governance committee are independent directors within the meaning of Nasdaq Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth in Section 10A(m)(3)(B)(i) of the Exchange Act. The current members of our nominating and corporate governance committee are Shan Li, who acts as the chairman of our nominating and corporate governance committee, and Charles E. Phillips, Jr.
Our nominating and corporate governance committee will be responsible for, among other things:
| identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy; | |
| reviewing annually with the board the current composition of the board in light of the characteristics of independence, age, skills, experience and availability of service to us; | |
| reviewing the continued board membership of a director upon a significant change in such directors principal occupation; | |
| identifying and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as the nominating and corporate governance committee itself; | |
| advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; |
90
| establishing criteria and processes for, and leading the board and each committee of the board in, its annual performance self-evaluation; | |
| reviewing and approving policies and procedures with respect to proposed transactions between us and our related parties, and approving in advance all such related-party transactions; and | |
| monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation committee
Our compensation committee assists the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. In addition, the compensation committee reviews stock compensation arrangements for all of our other employees. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his or her compensation is deliberated. The current members of our compensation committee are David K. Chao, who acts as the chairman of our compensation committee, Donald L. Lucas and Charles E. Phillips, Jr., both of whom are independent directors. Under Nasdaq Marketplace Rule 4350(c)(3)(C), our board of directors has appointed David K. Chao, who is not a current officer, employee, or family member of an officer or employee, to our compensation committee, after determining, based on Mr. Chaos exceptional qualifications and experience in serving this position and the limited number of our independent directors, that his membership on the committee is required by the best interest of our company and our shareholders.
Our compensation committee will be responsible for, among other things:
| approving and overseeing the total compensation package for our executives; | |
| reviewing and making recommendations to the board with respect to the compensation of our directors; | |
| reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; | |
| reviewing the results of, and procedures for, the evaluation of the performance of other executive officers; | |
| reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, and administering these plans; | |
| reviewing and making recommendations to the board regarding all new employment, consulting, retirement and severance agreements and arrangements proposed for our executives; and | |
| selecting peer groups of companies to be used for purposes of determining competitive compensation packages. |
Duties of Directors
Under Cayman Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
| convening shareholders annual general meetings and reporting its work to shareholders at such meetings; |
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| declaring dividends and distributions; | |
| appointing officers and determining the term of office of the officers; | |
| exercising the borrowing powers of our company and mortgaging the property of our company; and | |
| approving the transfer of shares in our company, including the registering of such shares in our share register. |
Interested Transactions
A director may vote in respect of any contract or transaction in which he is interested, provided that the nature of the interest of any director in such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee of directors that a director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may determine remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of our company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of our company or of any third party.
Qualification
There is no shareholding qualification for directors. Further, shareholding qualification for directors may not be fixed by our company in a general meeting.
Terms of Directors and Executive Officers
At each general meeting of the shareholders of our company, all of our directors at such time are required to retire from office and are eligible for re-election. All of these directors will retain office until the close of such general meeting.
Limitation on Liability and Other Indemnification Matters
Cayman Islands law allows us to indemnify our directors, officers, auditors and trustee acting in relation to any of our affairs against actions, costs, charges, losses, damages and expenses incurred by reason of any act done or omitted in the execution of their duties as our directors, officers, auditors and trustee.
Under our fifth amended and restated memorandum and articles of association to be adopted upon the closing of this offering, we may indemnify our directors, officers, employees and agents against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such persons in connection with actions, suits or proceedings to which they are party or are threatened to be made a party by reason of their acting as our directors, officers, employees or agents. To be entitled to indemnification, these persons must have acted in good faith and in the best interest or not opposed to the interest of our company and must not have acted in a manner willfully or grossly negligent, and, with respect to any criminal action, they must have had no reasonable cause to believe their conduct was unlawful. Our fifth amended and restated memorandum and articles of association also provides for indemnification of such person in the case of a suit initiated by our company or in the right of our company. Such indemnification covers expenses (including attorneys fees) actually and reasonably incurred in connection with the defense or settlement of such suit. There are good faith and other similar conduct requirements for such indemnification rights as those imposed on other types of suits described above. However, if such persons are successful in the
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We have entered into indemnification agreements with each of our directors under which we agree to indemnify each of them to the fullest extent permitted by applicable law and our articles of association, from and against all costs, charges, expenses, liabilities and losses (including attorneys fees) incurred in connection with any litigation, suit or proceeding to which such director is or is threatened to be made a party, witness or other participant. Within 20 days after our receipt of a written demand of such director, we will advance funds for the payment of indemnification of these expenses.
Compensation of Directors and Executive Officers
For the year ended December 31, 2003, the aggregate cash compensation to our executive officers as a group was approximately RMB3.1 million (US$0.4 million), and we did not pay any director cash compensation. In April 2004, we approved an annual directors fee of US$15,000 for each director. In addition, our directors will receive a fee of US$2,000 for each board meeting attended in person and US$1,000 for each committee meeting attended in person, or US$1,000 for each board meeting attended by conference call and US$500 for each committee meeting attended by conference call. Our directors will also be reimbursed for reasonable travel expenses incurred in attending board meetings in person. There are no arrangements between us and our directors providing for special benefits upon our directors termination of service. We granted options to acquire an aggregate of 725,882 common shares to our executive officers in 2003, and we did not grant any options to our directors in 2003. In the first five months of 2004, we granted options to acquire an aggregate of 414,792 common shares to our independent directors, 138,264 of which common shares were purchased immediately upon granting.
In August 2002, we agreed to pay to Michael Lei
Feng certain compensation of approximately US$338,000, payable
over ten years. We paid the entire amount of this compensation
in March 2004. As a result, we recognized compensation expense
of approximately RMB90,000 in 2002 and approximately
RMB0.3 million in 2003, and we have recorded compensation
expense of approximately RMB2.4 million for the three
months ended March 31, 2004 in connection with this payment.
Stock-Based Compensation Plans
In 2000, our board of directors and shareholders
adopted our 2000 stock option plan. Under this plan, our
directors, officers and other employees and consultants are
eligible to acquire common shares under options. At the time of
adoption, 4,010,666 common shares were reserved for
issuance under the plan. In February 2004, our board of
directors and shareholders approved an increase in the number of
authorized shares reserved under the plan of
1,519,912 common shares, increasing the total number of
authorized shares reserved under the plan to
5,530,578 common shares. In February 2004, options
exercisable for 376,016 common shares were granted under the
2000 stock option plan. As of March 31, 2004, there were
3,060,933 common shares subject to outstanding options under the
plan and 966,424 common shares outstanding from the exercise of
options granted under the plan. The plan has a term of ten years
but may be terminated earlier by our board of directors.
Stock options granted under the 2000 stock option
plan may be incentive stock options, or ISOs, which are intended
to qualify for favorable U.S. federal income tax treatment
under the provisions of Section 422 of the
U.S. Internal Revenue Code of 1986, as amended, or
non-qualified stock options, or NSOs, which do not so qualify.
The compensation committee of our board of
directors administers the plan. Subject to the provisions of the
plan and, in the case of a committee, the specific duties
delegated by the board of directors to such committee, and
subject to the approval of any relevant authorities, the board
of directors or the committee so appointed has the authority in
its discretion to determine, among other things, the fair market
value of the common shares, select optionees, determine the
number of common shares to be covered by each award
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Stock options granted under the plan become
exercisable at a rate of no less than 20% per year over five
years from the date of the option grant. In the event of the
termination of service of an optionee, the unvested portion of a
stock option is forfeited and the vested portion terminates
within the period of time as specified in the option agreement
and, in the absence of a specified time in the option agreement,
within twelve months following the optionees termination
in the case of the optionees disability or death, and
three months following the optionees termination in all
other cases.
In the event of a merger of our company, each
outstanding stock option may be assumed or an equivalent option
or right may be substituted by the successor corporation. In the
event the successor corporation refuses to assume or substitute
for the stock option, the outstanding stock options will
automatically vest and become exercisable for a period of
15 days, after which the stock options will terminate.
The following table summarizes the options
granted to our directors, executive officers and other employees
under our 2000 stock option plan during the periods indicated.
Table of Contents
Common shares
underlying options
Exercise
granted
price
Date of grant
Date of expiration
US$
100,267
0.15
March 1, 2001
February 28, 2007
10,000
0.15
September 1, 2001
May 31, 2007
227,430
0.15
March 1, 2001
February 28, 2007 to
March 28, 2007
190,650
0.15
September 1, 2001
May 31, 2007 to
August 31, 2007
528,347
Common shares
underlying options
Exercise
granted
price
Date of grant
Date of expiration
US$
75,800
0.15
March 1, 2002
November 30, 2007 to
February 29, 2008
18,100
0.15
March 15, 2002
November 30, 2007 to
February 28, 2008
93,900
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Common shares
underlying options
Exercise
granted
price
Date of grant
Date of expiration
US$
200,000
0.15
April 1, 2003
March 31, 2009
460,882
0.50
December 15, 2003
December 14, 2009
65,000
0.15
April 1, 2003
March 31, 2009
250,900
0.15
April 1, 2003
March 31, 2009
5,000
0.15
September 1, 2003
August 31, 2009
364,450
0.50
December 15, 2003
December 14, 2009
1,346,232
Common shares
underlying options
Exercise
granted
price
Date of grant
Date of expiration
US$
92,176
1.00
February 17, 2004
February 16, 2010
138,264
1.00
February 28, 2004
Not applicable*
92,176
1.00
February 28, 2004
February 27, 2010
53,400
1.00
February 28, 2004
February 27, 2010
376,016
* The options with respect to these common shares were immediately vested and exercised upon granting. |
On May 20, 2004, we granted an option to Charles E. Phillips, Jr., one of our directors, to acquire 92,176 common shares at an exercise price of US$3.25 per share. This option will expire on May 19, 2010.
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Stock option activity during the periods
indicated is as follows:
Number
Weighted average
of shares
exercise price
US$
2,485,754
0.15
528,347
0.15
90,240
0.15
119,700
0.15
2,317,102
0.15
93,900
0.15
90,240
0.15
172,312
0.15
2,919,728
0.25
1,346,232
0.36
467,334
0.15
276,272
0.15
3,060,933
0.36
376,016
1.00
213,331
0.70
21,480
0.15
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial ownership, within the meaning of Section 13(d)(3) of the Exchange Act, of our common shares, on a fully diluted basis assuming conversion of all of our Series A preference shares as of March 31, 2004, and as adjusted to reflect the sale of our ADSs in this offering by:
| each of our directors and executive officers; | |
| each person known to us to own beneficially more than 5% of our common shares; and | |
| other selling shareholders. |
Common shares | ||||||||||||||||||||||||
beneficially owned | Shares to be sold | Shares beneficially | ||||||||||||||||||||||
prior to this | by selling | owned after this | ||||||||||||||||||||||
offering | shareholders | offering (1) | ||||||||||||||||||||||
|
|
|
||||||||||||||||||||||
Number (2) | % (3) | Number | % | Number (2) | % | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Directors and executive officers
|
||||||||||||||||||||||||
Rick Yan
|
17,316,000 | 37.6 | ||||||||||||||||||||||
Michael Lei Feng
|
5,927,021 | 12.9 | ||||||||||||||||||||||
Norman Lui
|
3,696,000 | 8.0 | ||||||||||||||||||||||
Kathleen Chien
(4)
|
2,101,842 | 4.6 | ||||||||||||||||||||||
Tao Wang
|
601,660 | 1.3 | ||||||||||||||||||||||
David K. Chao
(5)
|
14,381,854 | 31.2 | ||||||||||||||||||||||
Donald L. Lucas
|
230,440 | * | ||||||||||||||||||||||
Shan Li
|
92,176 | * | ||||||||||||||||||||||
David Weimin Jin
|
80,000 | * | ||||||||||||||||||||||
All directors and executive officers as a group
|
44,426,993 | 96.5 | ||||||||||||||||||||||
Principal shareholders
|
||||||||||||||||||||||||
Rick Yan
|
17,316,000 | 37.6 | ||||||||||||||||||||||
Entities affiliated with Doll Capital
Management
(6)
|
13,980,787 | 30.4 | ||||||||||||||||||||||
Michael Lei Feng
|
5,927,021 | 12.9 | ||||||||||||||||||||||
Norman Lui
|
3,696,000 | 8.0 | ||||||||||||||||||||||
Other selling
shareholders
(7)
|
||||||||||||||||||||||||
* | ||||||||||||||||||||||||
* | ||||||||||||||||||||||||
All other selling shareholders as a group
|
77,679 | * |
(1) | Assumes that the underwriters do not exercise the over-allotment option. |
(2) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the common shares. |
(3) | The number of our common shares outstanding used in calculating the percentage for each listed person includes the common shares underlying options held by such person. The calculation of this number also assumes the conversion of all of our Series A preference shares into common shares on a one to one basis upon the closing of this offering. Percentage of beneficial ownership is based on 46,050,845 shares outstanding as of March 31, 2004, including our Series A preference shares and common shares underlying options outstanding as of this date. |
(4) | Includes 660,882 common shares acquired through early exercise of options. The exercise price paid by Ms. Chien to us was recognized as a liability and the shares acquired upon exercise were not considered issued for accounting purposes until vested. |
(5) | Includes 401,067 common shares acquired through early exercise of options. The exercise price paid by Mr. Chao to us was recognized as a liability and the shares acquired upon exercise were not considered issued for accounting purposes until vested. Also includes 4,588,208 Series A preference shares owned by DCM III, L.P., 121,568 Series A preference shares owned by DCM III-A, L.P., 224,175 Series A preference shares owned by DCM Affiliates Fund III, L.P., 7,409,098 Series A preference shares owned by Doll Technology Investment Fund II, L.P., 411,383 Series A preference shares owned by DCM Network Fund, L.P., 760,923 Series A preference shares owned by DCM Internet Fund, L.P., and 465,432 Series A preference shares owned by Doll Technology Affiliates Fund II, L.P. The respective general partners of these entities are DCM Investment Management III, L.L.C. and Doll Technology Investment Management II, L.L.C. and share voting and investment power with respect to shares held by each of the limited partnerships. The managing members of DCM Investment Management III, L.L.C. are David K. Chao, Dixon R. Doll, Peter Moran and Robert Theis; the managing members of Doll Technology Investment Management II, L.L.C. are David K. Chao and Dixon R. Doll. Each managing member disclaims beneficial ownership of shares held by the limited partnerships, except to the extent of their respective pecuniary interests therein. Also includes 401,067 common shares owned by David K. Chao. |
(6) | Name and number of shares owned by each entity affiliated with Doll Capital Management are described in Note (5). |
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(7) | The address of each selling shareholder who is an individual is: c/o 51 job, Inc., 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai 200041, Peoples Republic of China. |
* | Less than 1%. |
On May 20, 2004, we granted an option to Charles E. Phillips, Jr., one of our directors, to acquire 92,176 common shares.
As of March 31, 2004, our existing shareholders held a total of 14,058,466 Series A preference shares. Upon the closing of this offering, each outstanding Series A preference share will be converted into one common share. After giving effect to the conversion of all our Series A preference shares, as of March 31, 2004, all of our shareholders in the United States would have held common shares constituting 36.4% of our outstanding common shares.
None of our existing shareholders has voting rights that will differ from the voting rights of other shareholders after the closing of this offering.
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RELATED PARTY TRANSACTIONS
Stock Option Grants
We have granted options to purchase common shares in our company to certain of our employees, directors and officers under our 2000 stock option plan. At March 31, 2004, there were outstanding options to purchase an aggregate of 3,060,933 common shares in our company. For a description of our 2000 stock option plan and these option grants, see Management Stock-Based Compensation Plans.
Access License Agreement with and Warrant Issued to Recruit Company Limited
On January 1, 2001, 51net entered into an access license agreement with Recruit Company Limited, or Recruit, a Japanese corporation located in Tokyo, Japan. Under this agreement, Recruit agreed to give 51net access to an online recruiting application system developed by Recruit, provide 51net with related technical support and permit 51net to use all the information learned from the access to this system in the designing of a Chinese language online recruiting software application. The agreement has a term of 12 months. As consideration for the access and services received from Recruit, we made a US$60,000 cash payment and issued to Recruit a warrant to purchase 10,000 Series A preference shares at an exercise price of US$1.0417 per share. This is an arms-length transaction, and we believe the access fee we paid to Recruit represented the fair value of the 12-month right of access and the technical services that we received from Recruit. Recruit exercised the warrant and became a holder of 10,000 Series A preference shares in May 2001. Recruit is a limited partner of DCM Internet Fund, L.P. which is managed by the same entity which manages DCM Network Fund, L.P., Doll Technology Affiliates Fund II, L.P. and Doll Technology Investment Fund II, L.P., who will collectively own an aggregate of 9,046,836 common shares of our company immediately after the effectiveness of this offering, or 21.0% of our total issued and outstanding share capital as of March 31, 2004. David K. Chao, one of our directors, served as an account executive of Recruit, and his employment with Recruit terminated 15 years before the execution of this access license agreement.
Michael Lei Feng Share Repurchase and Certain Compensation
In August 2002, we agreed to repurchase 380,000 common shares from Michael Lei Feng, an executive officer of our company, for aggregate consideration of US$57,000. As a result, in 2002 and 2003, we recorded the amount due with respect to this repurchase as a liability on our balance sheet. This amount was paid in March 2004. In addition, in August 2002, we agreed to pay to Michael Lei Feng certain compensation of approximately US$338,000, payable over ten years. The amount of this compensation was determined in part on the basis of our evaluation of Michael Lei Fengs service and contribution as a key officer responsible for our operations and his assumption of the responsibilities and obligations associated with being a majority equity holder of our affiliated entities, Run An and Qian Cheng. We paid the entire amount of this compensation in March 2004 with the proceeds we received from the exercise of warrants that we issued to seven entities affiliated with DCM. See Warrants Issued to Entities Affiliated with DCM. As a result, we recognized compensation expense of approximately RMB89,000 in 2002 and approximately RMB267,000 in 2003, and we have recorded compensation expense of approximately RMB2.4 million in the first quarter of 2004 in connection with this payment.
Warrants Issued to Entities Affiliated with DCM
In connection with the 2002 common share repurchase from Michael Lei Feng, in August 2002, we issued warrants to seven entities affiliated with DCM for the purchase of 380,000 Series A preference shares. These warrants were issued for no consideration, and, as a result, in 2002, we recorded this issuance as a deemed dividend distribution to these entities of RMB1.3 million. To induce the entities affiliated with DCM to accept these warrants, we issued these warrants for no consideration. These warrants were exercisable at US$1.0417 per Series A preference share. In March 2004, all seven of these entities exercised their warrants and became registered holders of an aggregate of 380,000 Series A preference shares, and we used the proceeds from the exercise of these warrants to make the cash payments to Michael Lei Feng described in the previous paragraph. The seven entities and the number of Series A preference shares that they acquired in this
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Loans and Advances
In 2000, Rick Yan, a director and chief executive officer of our company, made a loan to us in the principal amount of RMB3,476,214 for working capital purposes. In 2003, we recorded an additional loan from Mr. Yan in the principal amount of RMB887,550 for working capital purposes. These loans were unsecured, non-interest bearing and had no definite maturity.
In 2003, we recorded RMB333,882 as loans made to us to account for the exercise price of certain options exercised by Kathleen Chien, our chief financial officer, and David K. Chao, one of our directors. Because the shares underlying the exercised options were not vested at the time of the exercise, the exercise price paid by Ms. Chien and Mr. Chao to us was recognized as a liability, and the exercised shares were not considered issued for accounting purposes. This liability item will be re-characterized as share capital upon vesting of the shares. The amount attributable to Ms. Chien in connection with this item was RMB248,301. The amount attributable to Mr. Chao in connection with this item was RMB85,582.
Transactions Among Our Subsidiaries and Affiliated Entities
For a description of transactions among our subsidiaries and affiliated entities, see Corporate Structure Contractual Arrangements Among Our Group Entities.
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DESCRIPTION OF SHARE CAPITAL
We were incorporated in the Cayman Islands in March 2000 under the name of 51net.com Cayman Islands Inc. as an exempted limited liability company. We changed our corporate name to 51job, Inc. in April 2004. We are governed by the Companies Law (2003 Revision) of the Cayman Islands, which is referred to as the Companies Law below. An exempted company under Cayman Islands law is a company that carries on its business mainly outside the Cayman Islands, is exempt from certain requirements of the Companies Law, including a 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 certain future taxes. Upon the closing of this offering, we will adopt our fifth amended and restated memorandum and articles of association. The following are summaries of (1) material provisions of our fifth amended and restated memorandum and articles of association and (2) the Companies Law, insofar as they relate to the material terms of our common shares.
This offering consists solely of an offering of ADSs representing common shares. Consequently, the following discussion primarily concerns common shares and the rights of holders of common shares. The holders of ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depository facility in which the common shares are held in order to exercise shareholders rights in respect of common shares. The depositary will agree, so far as it is practical, to vote or cause to be voted the amount of common shares represented by ADSs in accordance with the nondiscretionary written instructions of the holders of such ADSs. See Description of American Depositary Shares Voting Rights.
Objects of Our Company
Under our fifth amended and restated memorandum and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman Islands.
Common Shares
Upon the closing of this offering, our fifth amended and restated memorandum and articles of association will become effective and our authorized share capital will consist of 500,000,000 common shares, par value US$0.0001 per share. Certificates representing the common shares are issued in registered form. Our shareholders may freely hold and vote their shares.
Series A Preference Shares
Between June 2000 and August 2002, we issued and sold Series A preference shares in reliance upon Section 4(2) of the Securities Act. Upon closing of this offering, all of our outstanding Series A preference shares will convert into common shares. Consequently, no preferred shares will be outstanding immediately after the closing of this offering. Our fifth amended and restated memorandum and articles of association provide for the issuance of preferred shares. See Directors Power to Issue Shares.
As of March 31, 2004, there were 29,647,694 common shares and 14,058,466 Series A preference shares issued and outstanding. All of our outstanding common shares are fully paid and non-assessable.
The following tables set forth a reconciliation
of the numbers of our common shares and Series A preference
shares outstanding as of the dates indicated:
Common shares
(1)
28,382,481
666,067
29,048,548
599,146
29,647,694
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(1) | Includes early exercise of options. Prior to vesting, the common shares so acquired are subject to our repurchase right in the event that any holder of these common shares ceases to be an officer, director or employee of our company. Holders of these shares are eligible for dividends and their voting rights are not affected. |
Series A | |||||
preference shares | |||||
|
|||||
January 1, 2003
|
13,678,466 | ||||
December 31, 2003
|
13,678,466 | ||||
Series A preference shares issued under warrant
exercise
|
380,000 | ||||
March 31, 2004
|
14,058,466 |
Dividends
The holders of our shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law. Under our fifth amended and restated memorandum and articles of association, all dividends unclaimed for one year after having been declared may be invested or otherwise made use of by our board of directors for our exclusive benefit until claimed, and we will not be deemed a trustee in respect of such dividend or be required to account for any money earned. All dividends unclaimed for six years after having been declared may be forfeited by our board of directors and will revert to us.
Voting Rights
Each share is entitled to one vote on all matters upon which our shares are entitled to vote, voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any other shareholder or shareholders present in person or by proxy and holding at least 10% in par value of the shares giving a right to attend and vote at the meeting.
A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy or, if a corporation or other non-natural person, by its duly authorized representative holding not less than one-third of the outstanding voting shares in our company. Shareholders meetings may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding in the aggregate 10 per cent or more of our voting share capital. Advance notice of at least 20 (but not more than 60) days is required for the convening of our annual general shareholders meeting and any other general shareholders meeting calling for the passing of a resolution requiring two-thirds of shareholder votes, and advance notice of at least 14 (but not more than 60) days is required for the convening of other general shareholder meetings.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the common shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the common shares. A special resolution is required for matters such as a change of name or amending the memorandum and articles of association. Holders of the common shares may, among other things, by ordinary resolution make changes in the amount of our authorized share capital and consolidate and divide all or any of our share capital into shares of larger amount than our existing share capital and cancel any shares.
Liquidation
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of common shares shall be distributed among the holders of our common shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.
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Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Shares
Subject to the provisions of the Companies Law and other applicable law, we may issue shares on the terms that they are, or at our option or at the option of the holders are, subject to redemption on such terms and in such manner as may be determined by special resolution.
Variations of Rights of Shares
If at any time, our share capital is divided into different classes of shares, all or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied either with the consent in writing of the holders of three-fourths of the issued shares of that class or by a special resolution passed at a general meeting of the holders of the shares of that class. Consequently, the rights of any class of shares cannot be detrimentally altered without a majority vote of all of the shares in that class. 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 with such existing class of shares. The rights of holders of common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights which may be effected by the directors as provided in the articles without any vote or consent of the holders of common shares.
General Meetings of Shareholders
The directors may, and shall on the requisition of shareholders holding at least 10% in par value of the capital of our company carrying voting rights at general meetings, proceed to convene a general meeting of such shareholders. If the directors do not within 21 days from the deposit of the requisition duly proceed to convene a general meeting, which will be held within a further period of 21 days, the requisitioning shareholders, or any of them holding more than 50% of the total voting rights of all of the requisitioning shareholders, may themselves convene a general meeting. Any such general meeting must be convened within three months after the expiration of such 21 days.
Limitations on the Right to Own Shares
There are no limitations on the right to own our shares.
Disclosure of Shareholder Ownership
There are no provisions in our fifth amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Transfer of Shares
Any transfer of the shares in our company shall be evidenced by a written instrument of transfer executed by or on behalf of the transferor. The transferor will be deemed to remain the shareholder of the shares so transferred until the name of the transferee is entered in our share register in respect of such shares. Our board may refuse to register any transfer of shares unless:
| the instrument of transfer has been submitted to us, accompanied by the relevant share certificate and any other evidence our board may reasonably require; | |
| the instrument of transfer is in respect of only one class of shares; | |
| the instrument of transfer is properly stamped (in circumstances where stamping is required); |
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| in the case of a transfer to joint holders, the number of joint holders does not exceed four; | |
| the shares concerned are free of any lien in favor of us; | |
| any fee related to the transfer has been paid to us; and | |
| the transfer to be registered is not to an infant or a person suffering from mental disorder. |
As of March 31, 2004, there were 3,060,933 common shares underlying options outstanding at such time. These options were granted under our 2000 stock option plan to certain of our directors, executive officers and employees. For a more detailed description of our 2000 stock option plan and these options, see Management Stock-Based Compensation Plans.
Directors Power to Issue Shares
Subject to applicable law, our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred, deferred, qualified or other special rights or restrictions. However, if any issue of shares (including any issue of common shares or any shares with preferred, deferred, qualified or other special rights or restrictions) is proposed and such shares proposed to be issued are at least 20% by par value of the par value of all then issued shares, then the prior approval by ordinary resolution of the holders of the common shares, voting together as one class, will be required. These provisions could have the effect of discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.
History of Share Issuances
The following is a summary of the issuances of common shares, Series A preference shares, warrants and options during the three years ended December 31, 2003 and the three months ended March 31, 2004:
In 2001, we granted to certain of our directors, officers and other employees options to purchase an aggregate of 528,347 common shares of our company under the 2000 stock option plan.
In 2002, we granted to certain of our employees options to purchase an aggregate of 93,900 common shares of our company under the 2000 stock option plan.
In 2003, we granted to certain of our officers and other employees options to purchase an aggregate of 1,346,232 common shares of our company under the 2000 stock option plan.
For the three months ended March 31, 2004, we granted to certain of our directors and employees options to purchase an aggregate of 376,016 common shares of our company under the 2000 stock option plan.
In March 2001, our company issued in a private placement a warrant to Recruit Company Limited, or Recruit, exercisable for the purchase of a total of 10,000 shares of Series A preference shares of our company at US$1.0417 per share. The warrant was part of our payment under an access license agreement dated January 1, 2001 with Recruit, under which Recruit granted us the right to access an online recruiting application system developed by Recruit, provided us with related technical support and permitted us to use all the information learned from the access to this system in the designing of a Chinese language online recruiting software application. We made a US$60,000 cash payment to Recruit and issued to Recruit this warrant as the balance of our payment under the access license agreement. Recruit has exercised the warrant in accordance with its terms and is currently a holder of 10,000 Series A preference shares as of May 2001. For a detailed description of the access license agreement, see Related Party Transactions Access License Agreement with and Warrant Issued to Recruit Company Limited.
In October 2001, we issued in a private placement to three entities affiliated with DCM an aggregate of 2,999,904 Series A preference shares at US$1.0417 per share. The three entities affiliated with DCM and their respective purchases are as follows: DCM III, L.P. paid US$2,906,018 for 2,789,688 Series A preference shares, DCM III-A, L.P. paid US$76,997 for 73,915 Series A preference shares, and DCM Affiliates Fund III, L.P. paid US$141,985 for 136,301 Series A preference shares. Upon the closing of this offering, each Series A preference share will be converted into one common share.
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In January 2002, we issued in a private placement to seven entities affiliated with DCM an aggregate of 2,999,904 Series A preference shares at US$1.0417 per share. The seven entities affiliated with DCM and their respective purchases are as follows: DCM III, L.P. paid US$1,743,611 for 1,673,812 Series A preference shares, DCM III-A, L.P. paid US$46,198 for 44,349 Series A preference shares, DCM Affiliates Fund III, L.P. paid US$85,191 for 81,781 Series A preference shares, Doll Technology Investment Fund II, L.P. paid US$1,023,715 for 982,735 Series A preference shares, DCM Network Fund, L.P. paid US$56,840 for 54,565 Series A preference shares, DCM Internet Fund, L.P. paid US$105,137 for 100,928 Series A preference shares, and Doll Technology Affiliates Fund II, L.P. paid US$64,308 for 61,734 Series A preference shares. Upon the closing of this offering, each Series A preference share will be converted into one common share.
On August 31, 2002, we issued to seven entities affiliated with DCM warrants to purchase an aggregate of 380,000 Series A preference shares at an exercise price of US$1.0417 per share. These entities did not pay a purchase price for such warrants. In March 2004, all seven of these entities exercised their warrants and became registered holders of an aggregate of 380,000 Series A preference shares. The seven entities and the number of Series A preference shares that they acquired in this warrant exercise are as follows: DCM III, L.P., 124,708 Series A preference shares, DCM III-A, L.P., 3,304 Series A preference shares, DCM Affiliates Fund III, L.P., 6,093 Series A preference shares, Doll Technology Investment Fund II, L.P., 201,381 Series A preference shares, DCM Network Fund, L.P., 11,181 Series A preference shares, DCM Internet Fund, L.P., 20,682 Series A preference shares, and Doll Technology Affiliates Fund II, L.P., 12,651 Series A preference shares.
Duties of Directors
Under Cayman Islands laws, our directors have a duty of loyalty and must act honestly and in good faith and in our best interests. Our directors also have a duty to exercise the care, diligence, and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties to us, our directors must ensure compliance with the memorandum and articles of association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain circumstances have rights to damages if a duty owed by the directors is breached.
Differences in Corporate Law
The Companies Law is modeled after that of England but does not follow recent English statutory enactments and differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and similar arrangements
Cayman Islands law does not provide for mergers as that expression is understood under United States corporate law. However, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
| the statutory provisions as to majority vote have been complied with; | |
| the shareholders have been fairly represented at the meeting in question; | |
| the arrangement is such as a businessman would reasonably approve; and | |
| the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law. |
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If a third party purchases at least 90% of our outstanding shares under an offer within a four-month period of making such offer, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms on which the offeror acquired the first 90% of our outstanding shares.
If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders suits
We are not aware of any reported class action having been brought in a Cayman Islands court. Reported derivative actions have been brought but unsuccessfully for technical reasons. In principle, a derivative action may not be brought by a minority shareholder. Instead, we will be the proper plaintiff. However, based on English authorities, which are of persuasive authority in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
| a company is acting or proposing to act illegally or ultra vires; | |
| the act complained of, although not ultra vires, could be effected only 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. |
Indemnification
Cayman Islands law does not limit the extent to which a companys articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences or committing a crime.
Under our fifth amended and restated memorandum and articles of association to be adopted upon the closing of this offering, we may indemnify our directors, officers, employees and agents against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such persons in connection with actions, suits or proceedings to which they are party or are threatened to be made a party by reason of their acting as our directors, officers, employees or agents. To be entitled to indemnification, these persons must have acted in good faith and in the best interest or not opposed to the interest of our company, and must not have acted in a manner willfully or grossly negligent and, with respect to any criminal action, they must have had no reasonable cause to believe their conduct was unlawful. Our amended and restated memorandum and articles of association also provides for indemnification of such person in the case of a suit initiated by our company or in the right of our company. Such indemnification covers expenses (including attorneys fees) actually and reasonably incurred in connection with the defense or settlement of such suit. There are good faith and other similar conduct requirements for such indemnification rights as those imposed on other types of suits described above. However, if such persons are successful in the merits of the actions, suits or proceedings described above, including suits initiated by or in the right of our company, then they may be indemnified for actual and reasonable expenses without having to meet the conduct requirements.
We have entered into indemnification agreements with each of our directors under which we agree to indemnify each of them to the fullest extent permitted by applicable law and our articles of association, from and against all costs, charges, expenses, liabilities and losses (including attorneys fees) incurred in connection with any litigation, suit or proceeding to which such director is or is threatened to be made a party, witness or other participant. Within 20 days after our receipt of a written demand of such director, we will advance funds for the payment of indemnification of these expenses.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, or the SEC, such indemnification is against public policy as expressed in the Securities Act and therefore is unenforceable.
Registration Rights
Under the terms of agreements that we have with our founders and the holders of our Series A preference shares, we are required to effect various types of registrations under the Securities Act with respect to an aggregate of 43,099,329 common shares held by them or their assignees. The shares subject to these registration rights, or the registrable securities, consist of:
| the 14,058,466 common shares issuable upon the conversion of our Series A preference shares; | |
| 29,040,863 common shares currently held by our four founders; and | |
| any common shares which may in the future be held by any of our four founders, including, but not limited to, shares underlying stock options that have been issued or may be issued in the future; |
each subject to any stock split, recapitalization, or similar event. The 29,040,843 common shares currently held by our four founders include an aggregate of 660,882 common shares acquired by Kathleen Chien, one of our executive officers, through early exercise of options. Prior to vesting, the common shares acquired upon exercise by Kathleen Chien are subject to our repurchase right in the event that she ceases to be an officer, director or employee of our company. Kathleen Chien is eligible for dividends and voting rights with respect to these shares.
In order to require us to effect registrations, we must receive the request of the holders of certain percentages of the registrable securities, and the anticipated net offering price per share and aggregate proceeds must exceed certain levels. The holders of registrable securities also have the right to participate in registrations that we effect on our own behalf.
We are generally required to bear the expenses of all registrations, except underwriting discounts and commissions. We have agreed to indemnify the holders of registration rights in connection with the inclusion of their common shares in any registration. Our obligations to effect such registrations are subject to certain exceptions and limitations, including if the registrable securities may otherwise be freely sold without registration.
Inspection of Books and Records
Holders of our common shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See Where You Can Find More Information.
Listing
We have applied to have the ADSs quoted on the Nasdaq National Market under the symbol JOBS.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Receipts
JPMorgan Chase Bank as depositary will issue the ADSs which you will be entitled to receive in this offering. Each ADS will represent an ownership interest in two common shares which we will deposit with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary and yourself as an ADR holder. In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which they have not distributed directly to you. Unless specifically requested by you, all ADSs will be issued on the books of our depositary in book-entry form and a statement will be mailed to you which reflects your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflects your ownership of ADSs.
The depositarys office is located at 4 New York Plaza, New York, NY 10004.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.
Because the depositarys nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf. The obligations of the depositary and its agents are set out in the deposit agreement. The deposit agreement and the ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to the registration statement of which this prospectus forms a part. You may also obtain a copy of the deposit agreement at the SECs Public Reference Room which is located at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330.
Share Dividends and Other Distributions
How will I receive dividends and other distributions on the shares underlying my ADSs?
We may make various types of distributions with respect to our securities. The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its expenses. You will receive these distributions in proportion to the number of underlying shares that your ADSs represent.
Except as stated below, to the extent the depositary is legally permitted it will deliver such distributions to ADR holders in proportion to their interests in the following manner:
Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to:
| appropriate adjustments for taxes withheld; | |
| such distribution being impermissible or impracticable with respect to certain registered holders; and | |
| deduction of the depositarys expenses in: |
| converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis; |
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| transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis; | |
| obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time; and | |
| making any sale by public or private means in any commercially reasonable manner. |
If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution.
Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed to the ADR holders entitled thereto.
Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we provide satisfactory evidence that the depositary may lawfully distribute such rights, the depositary may arrange for ADR holders to instruct the depositary as to the exercise of such rights. However, if we do not furnish such evidence or if the depositary determines it is not practical to distribute such rights, the depositary may:
| sell such rights if practicable and distribute the net proceeds as cash; or | |
| allow such rights to lapse, in which case ADR holders will receive nothing. |
We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADR holders.
Other distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (1) distribute such securities or property in any manner it deems equitable and practicable, (2) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash, or (3) hold the distributed property in which case the ADSs will also represent the distributed property.
Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.
The depositary may choose any practical method of distribution for any specific ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders.
There can be no assurances that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period.
Deposit, Withdrawal and Cancellation
How does the depositary issue ADSs?
The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian. In the case of the ADSs to be issued under this prospectus, we will arrange with the underwriters named herein to deposit such shares.
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Shares deposited in the future with the custodian must be accompanied by certain documents, including instruments showing that such shares have been properly transferred or endorsed to the person on whose behalf the deposit is being made.
The custodian will hold all deposited shares (including those being deposited by or on our behalf in connection with the offering to which this prospectus relates) for the account of the depositary. ADR holders thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as deposited securities.
Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositarys direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holders name. An ADR holder can request that the ADSs not be held through the depositarys direct registration system and that a certificated ADRs be issued.
How do ADR holders cancel an ADS and obtain deposited securities?
When you turn in your ADS at the depositarys office, the depositary will, upon payment of certain applicable fees, charges and taxes, and upon receipt of proper instructions, deliver the underlying shares to an account designated by you maintained by us, in the case of shares in registered form, or transfer to an account of an accredited financial institution on your behalf in the case of shares in bearer form. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
| temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders meeting, or the payment of dividends; | |
| the payment of fees, taxes and similar charges; or | |
| compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Voting Rights
How do I vote?
If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. After receiving voting materials from us, the depositary will notify the ADR holders of any shareholder meeting or solicitation of consents or proxies. This notice will describe how you may instruct the depositary to exercise the voting rights for the shares which underlie your ADSs. For instructions to be valid, the depositary must receive them on or before the date specified. The depositary will try, as far as is practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited securities as you instruct. The depositary will only vote or attempt to vote as you instruct. The depositary will not itself exercise any voting discretion. Furthermore, neither the depositary nor its agents are responsible for any failure to carry out any voting instructions, for the manner in which any vote is cast or for the effect of any vote.
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There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Record Dates
The depositary may fix record dates for the determination of the ADR holders who will be entitled:
| to receive a dividend or distribution; | |
| to give instructions for the exercise of voting rights at a meeting of holders of common shares or other deposited securities; or | |
| for the determination of the registered holders who shall be responsible for the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR, |
all subject to the provisions of the deposit agreement.
Reports and Other Communications
Will I be able to view our reports? |
The depositary will make available for inspection by ADR holders any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities. We will furnish these communications in English when so required by any rules or regulations of the SEC.
Additionally, if we make any written communications generally available to holders of our shares, including the depositary or the custodian, and we request the depositary to provide them to ADR holders, the depositary will mail copies of them, or, at its option, summaries of them to ADR holders.
Fees and Expenses
What fees and expenses will I be responsible for paying? |
ADR holders will be charged a fee for each issuance of ADSs, including issuances resulting from distributions of shares, rights and other property, and for each surrender of ADSs in exchange for deposited securities. The fee in each case is US$5.00 for each 100 ADSs (or any portion thereof) issued or surrendered.
The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by our company or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADRs), whichever is applicable:
| to the extent not prohibited by the rules of any stock exchange or interdealer quotation system upon which the ADSs are traded, a fee of US$1.50 per ADR or ADRs for transfers of certificated ADRs made; | |
| to the extent not prohibited by the rules of any stock exchange or interdealer quotation system upon which the ADSs are traded, a fee of US$0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the deposit agreement; | |
| a fee of US$0.02 per ADS (or portion thereof) per year to cover such expenses as are incurred by the depositary in administering our ADR program (which fee shall be assessed against registered holders of ADRs as of the record date set by the depositary not more often than once each calendar year and shall be payable in the manner described in the next succeeding provision); | |
| any other charge payable by any of the depositary, any of the depositarys agents, including, without limitation, the custodian, or the agents of the depositarys agents in connection with the servicing our shares or other deposited securities (which charge shall be assessed against registered holders of our |
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ADRs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions); | ||
| a fee for the distribution of securities, such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those entitled thereto; | |
| stock transfer or other taxes and other governmental charges; | |
| cable, telex and facsimile transmission and delivery charges incurred at your request; | |
| transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; | |
| expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and | |
| such fees and expenses as are incurred by the depositary (including without limitation expenses incurred in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositarys or its custodians compliance with applicable law, rule or regulation. |
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The fees described above may be amended from time to time.
Payment of Taxes
ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADR holder owes any tax or other governmental charge, the depositary may (1) deduct the amount thereof from any cash distributions, or (2) sell deposited securities and deduct the amount owing from the net proceeds of such sale. In either case the ADR holder remains liable for any shortfall. Additionally, if any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities (except under limited circumstances mandated by securities regulations). If any tax or governmental charge is required to be withheld on any non-cash distribution, the depositary may sell the distributed property or securities to pay such taxes and distribute any remaining net proceeds to the ADR holders entitled thereto.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (1) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (2) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to:
| amend the form of ADR; | |
| distribute additional or amended ADRs; | |
| distribute cash, securities or other property it has received in connection with such actions; | |
| sell any securities or property received and distribute the proceeds as cash; or | |
| none of the above. |
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.
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Amendment and Termination
How may the deposit agreement be amended? |
We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or affects any substantial existing right of ADR holders. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder is deemed to agree to such amendment. Notwithstanding the foregoing, an amendment can become effective before notice is given if this is necessary to ensure compliance with a new law, rule or regulation.
No amendment will impair your right to surrender your ADSs and receive the underlying securities. If a governmental body adopts new laws or rules which require the deposit agreement or the ADS to be amended, we and the depositary may make the necessary amendments, which could take effect before you receive notice thereof.
How may the deposit agreement be terminated? |
The depositary may terminate the deposit agreement by giving the ADR holders at least 30 days prior notice, and it must do so at our request. The deposit agreement will be terminated on the removal of the depositary for any reason. After termination, the depositarys only responsibility will be (1) to deliver deposited securities to ADR holders who surrender their ADRs, and (2) to hold or sell distributions received on deposited securities. As soon as practicable after the expiration of six months from the termination date, the depositary will sell the deposited securities which remain and hold the net proceeds of such sales, without liability for interest, in trust for the ADR holders who have not yet surrendered their ADRs. After making such sale, the depositary shall have no obligations except to account for such proceeds and other cash. The depositary will not be required to invest such proceeds or pay interest on them.
Limitations on Obligations and Liability to ADR Holders
Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs |
Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, the depositary and its custodian may require you to pay, provide or deliver:
| payment with respect thereto of (1) any stock transfer or other tax or other governmental charge, (2) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (3) any applicable fees and expenses described in the ADR; | |
| the production of proof satisfactory to it of (1) the identity and genuineness of any signature and (2) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, payment of applicable taxes or governmental charges, or legal or beneficial ownership and the nature of such interest, information relating to the registration of the shares on the books maintained by or on our behalf for the transfer and registration of shares, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADR, as it may deem necessary or proper; and | |
| compliance with such regulations as the depositary may establish consistent with the deposit agreement. |
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The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents. Neither we nor the depositary nor any such agent will be liable if:
| any present or future law, regulation of the United States, the Peoples Republic of China, the Cayman Islands or any other country, or of any governmental or regulatory authority or stock exchange, the provisions of or governing any deposited securities, act of God, war or other circumstance beyond its control shall prevent, delay any act which the deposit agreement or the ADR provides shall be done or performed by it; | |
| it exercises or fails to exercise any discretion given it in the deposit agreement or the ADRs; | |
| it performs its obligations without gross negligence or bad faith; | |
| it takes any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information; or | |
| it relies upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. |
Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as we require. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADSs or otherwise to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators.
The depositary will not be responsible for failing to carry out instructions to vote the deposited securities or for the manner in which the deposited securities are voted or the effect of the vote. In no event shall the depositary or any of its agents be liable for any indirect, special, punitive or consequential damages.
The depositary may own and deal in deposited securities and in ADSs.
Disclosure of Interest in ADSs
From time to time we may request you and other holders and beneficial owners of ADSs to provide information as to:
| the capacity in which you and other holders and beneficial owners own or owned ADSs; | |
| the identity of any other persons then or previously interested in such ADSs; and | |
| the nature of such interest and various other matters. |
You agree to provide any information requested by us or the depositary pursuant to the deposit agreement. The depositary has agreed to use reasonable efforts to comply with written instructions received from us requesting that it forward any such requests to you and other holders and beneficial owners and to forward to us any responses to such requests to the extent permitted by applicable law.
Requirements for Depositary Actions
We, the depositary or the custodian may refuse to:
| issue, register or transfer any ADRs; | |
| effect a split-up or combination of any ADRs; |
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| deliver distributions on any ADRs; or | |
| permit the withdrawal of deposited securities (unless the deposit agreement provides otherwise), until the following conditions have been met: |
| the holder has paid all taxes, governmental charges, and fees and expenses as required in the deposit agreement; | |
| the holder has provided the depositary with any information it may deem necessary or proper, including, without limitation, proof of identity and the genuineness of any signature; and | |
| the holder has complied with such regulations as the depositary may establish under the deposit agreement. |
The depositary may also suspend the issuance of ADSs, the deposit of shares, the registration, transfer, split-up or combination of ADRs, or the withdrawal of deposited securities (unless the deposit agreement provides otherwise), if the register for ADRs or any deposited securities is closed or if we or the depositary decide it is advisable to do so.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs. You may inspect such records at such office during regular business hours, but solely for the purpose of communicating with other holders in the interest of business matters relating to the deposit agreement.
The depositary will maintain facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time, to the extent not prohibited by law.
Pre-release of ADSs
The depositary may issue ADSs prior to the deposit with the custodian of shares (or rights to receive shares). This is called a pre-release of the ADS. A pre-release is closed out as soon as the underlying shares (or other ADSs) are delivered to the depositary. The depositary may pre-release ADSs only if:
| the depositary has received collateral for the full market value of the pre-released ADSs; and | |
| each recipient of pre-released ADSs agrees in writing that he or she owns the underlying shares, assigns all rights in such shares to the depositary, holds such shares for the account of the depositary and will deliver such shares to the custodian as soon as practicable, and promptly if the depositary so demands. |
In general, the number of pre-released ADSs will not evidence more than 30% of all ADSs outstanding at any given time (excluding those evidenced by pre-released ADSs). However, the depositary may change or disregard such limit from time to time as it deems appropriate. The depositary may retain for its own account any earnings on collateral for pre-released ADSs and its charges for issuance thereof.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has not been a public market for our common shares or our ADSs, and while we will apply for our ADSs to be quoted on the Nasdaq National Market, we cannot assure you that a significant public market for the ADSs will develop or be sustained after this offering. We do not expect that an active trading market will develop for our common shares not represented by the ADSs. Future sales of substantial amounts of our ADSs in the public markets after this offering, or the perception that such sales may occur, could adversely affect market prices prevailing from time to time. As described below, only a limited number of our common shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, after these restrictions lapse, future sales of substantial amounts of our ADSs, including ADSs representing common shares issued upon exercise of outstanding options, in the public market in the United States, or the possibility of such sales, could negatively affect the market price in the United States of our ADSs and our ability to raise equity capital in the future.
Upon the closing of the offering, we will have outstanding common shares, including common shares represented by ADSs, assuming no exercise of the underwriters over-allotment option. Of that amount, common shares, including common shares represented by ADSs, will be publicly held by investors participating in this offering, and common shares will be held by our existing shareholders, who may be our affiliates as that term is defined in Rule 144 under the Securities Act. As defined in Rule 144, an affiliate of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the issuer. In addition, based on options outstanding as of March 31, 2004 3,060,933 common shares will be subject to outstanding options after this offering, of which approximately common shares will be vested and exercisable 180 days after this offering.
All of the ADSs sold in the offering and the common shares they represent will be freely transferable by persons other than our affiliates in the United States without restriction or further registration under the Securities Act. Common shares or ADSs purchased by one of our affiliates may not be resold, except pursuant to an effective registration statement or an exemption from registration, including an exemption under Rule 144 of the Securities Act described below.
The 29,647,694 common shares and the 14,058,466 Series A preference shares held by existing shareholders are, and those common shares to be issued upon conversion of the series A preference shares upon completion of this offering and those common shares issuable upon exercise of options outstanding following the completion of this offering will be, restricted securities, as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the United States only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. These rules are described below.
Lock-up Agreements
51job, Inc. has agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; | |
| file any registration statement with the Securities and Exchange Commission relating to the offering of any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; or | |
| enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares or ADSs; |
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whether any such transaction described above is to be settled by delivery of common shares or ADSs or such other securities, in cash or otherwise.
These restrictions do not apply to:
| the sale of common shares in the form of ADSs to the underwriters; | |
| the issuance by us of common shares issuable upon the exercise of options pursuant to our 2000 stock option plan; | |
| transactions relating to common shares, ADSs or other securities acquired in open market transactions after the closing of the offering of the ADSs; and | |
| the issuance by us of common shares issuable upon the conversion of our Series A preference shares. |
Each of the selling shareholders, our directors, executive officers and certain other shareholders of 51job, Inc. have agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, they will not, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; or | |
| enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares or ADSs; |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
These restrictions do not apply to:
| the sale of common shares in the form of ADSs to the underwriters; | |
| the issuance by us of common shares issuable upon the exercise of options pursuant to our 2000 stock option plan; | |
| transactions relating to common shares, ADSs or other securities acquired in open market transactions after the closing of the offering of the ADSs; | |
| the issuance by us of common shares issuable upon the conversion of our Series A preference shares; and | |
| certain other transfers of common shares, including to immediate family members, trusts, partners, members or controlled affiliates. |
In addition, each of our directors and executive officers and certain other shareholders have agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, they will not, during the period ending days after the date of this prospectus, make any demand for or exercise any right with respect to, the registration of any shares of common shares or ADSs or any security convertible into or exercisable or exchangeable for common shares or ADSs.
The 180-day lock-up period is subject to adjustment under certain circumstances. If (1) during the last 17 days of the 180-day lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or (2) prior to the expiration of the 180-day lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day lock-up, the lock-up will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; provided that in the case of clause (2) above, if no earnings release is released during the 16-day period, the lock-up will terminate on the last day of the 16-day period.
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After the expiration of the lock-up agreements, the common shares subject to the lock-up agreements, and ADSs representing such shares, will be freely eligible for sale in the public market as described below.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted securities for at least one year would be entitled to sell in the United States, within any three-month period, a number of shares that is not more than the greater of:
| 1% of the number of our common shares then outstanding which will equal appropriately common shares immediately after offering; or | |
| the average weekly reported trading volume of our common shares on the Nasdaq National Market during the four calendar weeks before a notice of the sale on Form 144 is filed with the SEC by such person. |
Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us. However, these shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the common shares proposed to be sold for at least two years from the later of the date these shares were acquired from us or from our affiliate, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares in the United States immediately following the offering without complying with the manner-of-sale, public information, volume limitation or notice provisions of Rule 144. However, these shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Rule 701
Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased common shares under a written compensatory plan or contract may be entitled to sell such shares in the United States in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 subject only to its manner-of-sale requirements. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
Stock Options
As of March 31, 2004, options to purchase an aggregate of 3,060,933 common shares were outstanding under our 2000 stock option plan.
Registration Rights
After this offering, the holders of an aggregate of 43,099,329 common shares will be entitled to registration rights under a written agreement between us and such holders. In addition, our founders are entitled to registration rights with respect to common shares that may be issued to them in the future. Such agreement requires us, upon request of the holders, from time to time to file registration statements to facilitate registered sales by such holders of common shares in the United States. In addition, such agreement provides that these holders may require us to include their common shares in registration statements filed by us relating to securities offerings of common shares in the United States. Such agreement also permits the holders to request us to file shelf registration statements in order to facilitate resales of common shares in the United States. We are required to indemnify the holders and any underwriters in connection with sales of common shares pursuant to any of these registration statements and we are required to bear all expenses in connection therewith. See Description of Share Capital Registration Rights for a more detailed description of these registration rights. Each of these holders has agreed that, without the prior written consent
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Common Shares Held in Escrow for the Founders
In April 2000, our company issued a total of 28,399,021 common shares to our four founders, Rick Yan, Michael Lei Feng, Norman Lui and Kathleen Chien, at the price of US$0.0001 per share. At the time of the issuance, these common shares were placed into escrow with the chief executive officer and president of our company, Rick Yan, as escrow agent, and were subject to repurchase by us, at our discretion, upon the termination of employment of the applicable founder. During each of the subsequent years, 25% of the total number of common shares so purchased by each founder were released from our repurchase option and the escrow. At the date of this document, all common shares so purchased by the founders have been released from the repurchase option and the escrow. However, until the effective date of this offering, we are entitled to a right of first refusal in the event that any of the founders or their transferees wishes to transfer any of these shares. The founders have also agreed, at the option of our underwriters, to a lock-up period of up to 180 days specified by us in connection with an initial public offering of any of our securities, including our common shares and the ADSs. See Lock-up Agreements.
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TAXATION
Cayman Islands Taxation
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands except for stamp duties that may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. The Cayman Islands are not party to any double taxation treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
United States Federal Income Taxation
The following summary constitutes the opinion of Shearman & Sterling LLP as to the material U.S. federal income tax consequences to a U.S. Holder, as defined below, of the acquisition, ownership and disposition of our ADSs or common shares.
Except where noted, this summary deals only with ADSs and common shares that are held as capital assets by U.S. Holders and are acquired in this offering. This summary does not describe all of the U.S. federal income tax consequences applicable to U.S. Holders that are subject to special treatment under the U.S. federal income tax laws, including:
| dealers in securities or currencies; | |
| financial institutions; | |
| real estate investment trusts; | |
| insurance companies; | |
| tax-exempt organizations; | |
| persons holding ADSs or common shares as part of a hedging, integrated or conversion transaction, constructive sale or straddle; | |
| traders in securities that have elected the mark to market method of accounting; | |
| persons liable for the alternative minimum tax; | |
| persons who own more than 10% of our voting shares; or | |
| persons whose functional currency is not the U.S. dollar. |
This summary is based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and U.S. Treasury regulations, rulings and judicial decisions thereunder at the date hereof, and such authorities may be replaced, revoked or modified, possibly on a retroactive basis, so as to result in U.S. federal income tax consequences different from those discussed below.
A U.S. Holder considering the purchase, ownership or disposition of ADSs or common shares should consult its own tax advisor concerning the U.S. federal income tax consequences as well as any consequences arising under the laws of any other taxing jurisdiction in light of the particular circumstances of the U.S. Holder.
A U.S. Holder is a beneficial owner of ADSs or common shares that is a U.S. person. A U.S. person is a person who is, for U.S. federal income tax purposes:
| 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 thereof, or the District of Columbia; |
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| an estate the income of which is subject to U.S. federal income taxation, regardless of its source; or | |
| a trust if it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership holds ADSs or common shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership holding ADSs or common shares should consult its own tax advisors.
ADSs
In general, for U.S. federal income tax purposes, a U.S. Holder of ADSs will be treated as the owner of the underlying common shares that are represented by such ADSs. Deposits and withdrawals of common shares in exchange for ADSs will not be subject to U.S. federal income taxation.
Distributions on ADSs or common shares
Subject to the discussion under Passive Foreign Investment Company Rules below, the gross amount of the distributions on the ADSs or common shares will be taxable to a U.S. Holder as dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Subject to certain limitations, dividends paid to non-corporate U.S. Holders, including individuals, will be eligible for a reduced rate of taxation if we are deemed to be a qualified foreign corporation for U.S. federal income tax purposes. A qualified foreign corporation includes:
| a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; and | |
| a foreign corporation if its stock with respect to which a dividend is paid or its ADSs backed by such stock are readily tradable on an established securities market within the United States, |
but does not include an otherwise qualified corporation that is a passive foreign investment company. We believe that we will be a qualified foreign corporation for so long as (1) we are not a passive foreign investment company and (2) the ADSs are listed on the Nasdaq National Market or a national securities exchange in the United States, and thus are considered to be readily tradable on an established securities market. However, our status as a qualified foreign corporation may change.
Dividends will be includable in a U.S. Holders gross income on the date actually or constructively received by such U.S. Holder, in the case of common shares, or by the depositary, in the case of ADSs. These dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
To the extent that the amount of any distribution exceeds our current or accumulated earnings and profits, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or common shares (thereby increasing the amount of gain, or decreasing the amount of loss, a U.S. Holder would recognize on a subsequent disposition of the ADSs or common shares), and the balance in excess of adjusted basis will be taxed as capital gain. We do not expect to provide U.S. Holders of common shares or ADSs with information regarding the amount of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Distributions of ADSs or common shares that are received as part of a pro rata distribution to all of our common shareholders (including ADS holders) will not be subject to U.S. federal income tax. The basis of the new ADSs or common shares so received will be determined by allocating a U.S. Holders basis in the old ADSs or common shares between the old ADSs or common shares and the new ADSs or common shares received, based on their relative fair market values on the date of distribution.
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Dividends paid on the ADSs or common shares will generally constitute passive income or, in the case of certain U.S. Holders, financial services income and will be treated as income from sources without the United States for U.S. foreign tax credit limitation purposes, which may be relevant for certain holders.
Sale, exchange or other disposition of ADSs or common shares
Subject to the discussion under Passive foreign investment company rules below, upon the sale, exchange or other disposition of ADSs or common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition and the adjusted tax basis of the U.S. Holder in the ADSs or common shares. A U.S. Holders tax basis in an ADS or a common share will be, in general, the price it paid for that ADS or common share. The capital gain or loss generally will be long-term capital gain or loss if, at the time of sale, exchange or other disposition, the U.S. Holder has held the ADS or common share for more than one year. Net long-term capital gains of non-corporate U.S. Holders, including individuals, are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss that a U.S. Holder recognizes generally will be treated as gain or loss from sources within the United States for U.S. foreign tax credit limitation purposes.
Passive foreign investment company rules
Based on the projected composition of our income and valuation of our assets, we do not expect to be a passive foreign investment company for 2004 and do not expect to become one in the future, although this may change. The determination of whether we are a passive foreign investment company will be made on an annual basis and will depend on the composition of our income and assets, including goodwill. The calculation of goodwill will be based, in part, on the market value of our ADSs from time to time, which may be volatile. In addition, the composition of our income and assets will be affected by how we spend the cash we raise in this offering. For a discussion of the risks related to the possible tax effects should we be considered a passive foreign investment company, see Risk Factors We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.
In general, we will be deemed to be a passive foreign investment company for any taxable year in which either (1) at least 75% of our gross income is passive income or (2) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived in the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income. If we own at least 25% by value of the equity shares of another corporation, we will be treated for purposes of the passive foreign investment company tests as owning a proportionate share of the assets of the other corporation, and as receiving directly a proportionate share of the other corporations income.
If we are a passive foreign investment company for any taxable year during which a U.S. Holder has an equity interest in our company, unless the U.S. Holder makes a mark-to-market election or a qualified electing fund election, as discussed below, such U.S. Holder will be subject to the following special tax rules.
Gain realized upon the sale or disposition of ADSs or common shares and distributions made to a U.S. Holder by us during a taxable year with respect to the ADSs or common shares that are excess distributions (defined generally as the excess of the amount received with respect to the ADSs or common shares in the taxable year over 125% of the average amount received in the shorter of either the three previous years or a U.S. Holders holding period before the taxable year) must be allocated ratably to each day of the U.S. Holders holding period. The amount allocated to the current taxable year or any year before we became a passive foreign investment company will be included as ordinary income in a U.S. Holders gross income for that year. The amount allocated to other prior taxable years will be taxed as ordinary income at the highest rate in effect for the class of U.S. Holder, corporate or non-corporate, in that prior year and the tax is subject to an interest charge at the rate applicable to deficiencies in income taxes.
In certain circumstances, instead of being subject to the excess distribution rules discussed above, a U.S. Holder may make an election to include gain on the ADSs or common shares of a passive foreign investment
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If a U.S. Holder makes an effective mark-to-market election, the U.S. Holder will include each year as ordinary income, rather than capital gain, the excess, if any, of the fair market value of the U.S. Holders ADSs or common shares at the end of the taxable year over such U.S. Holders adjusted basis in the ADSs or common shares, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of these ADSs or common shares over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holders basis in the ADSs or common shares will be adjusted to reflect any such income or loss amounts. Any gain or loss on the sale of the ADSs or common shares will be ordinary income or loss, except that this loss will be ordinary loss only to the extent of the previously included net mark-to-market gain.
Instead of being subject to the excess distribution rules discussed above, a U.S. holder of shares in a passive foreign investment company alternatively may elect to have the company treated as a qualified electing fund, provided that the company provides certain information to make such an election effective. This option will not be available to U.S. Holders because we do not intend to provide such information to U.S. Holders.
If a U.S. Holder owns ADSs or common shares during any year that we are a passive foreign investment company, the U.S. Holder must file Internal Revenue Service Form 8621.
A U.S. Holder should consult its own tax advisors concerning the availability and the making of a mark-to-market election and the U.S. federal income tax consequences of holding the ADSs or common shares if we are deemed to be a passive foreign investment company in any taxable year.
Foreign Personal Holding Company Rules. Based on the expected distribution of our ADSs and common shares and the composition of our gross income, we do not expect to be classified as a foreign personal holding company for 2004 and do not expect to become one in the future. In general, a foreign corporation is classified as a foreign personal holding company if (1) at any time during its taxable year, five or fewer individuals who are U.S. citizens or residents own, directly or indirectly, more than 50% of the corporations stock by voting power or value and (2) the corporation receives at least 60% of its gross income (reduced to 50% after the initial year of qualification), as adjusted, for the taxable year from certain passive sources. Although we expect that we will not be classified as a foreign personal holding company, future changes of ownership and in the composition of our income could cause us to become a foreign personal holding company. In general, if, contrary to our expectations, we were classified as a foreign personal holding company, some or all U.S. Holders would be subject to special rules under U.S. federal income tax law. A U.S. Holder should consult its own tax advisors with respect to how the foreign personal holding company rules could affect its tax situation.
Information reporting and backup withholding
In general, unless a U.S. Holder belongs to a category of certain exempt recipients (such as corporations), information reporting requirements will apply to distributions on ADSs or common shares made within the United States and to the proceeds of sales of ADSs or common shares that are effected through the U.S. office of a broker or the non-U.S. office of a broker that has certain connections with the United States. Backup withholding may apply to these payments if a U.S. Holder fails to provide a correct taxpayer identification number or certification of exempt status, fails to report in full dividend and interest income or, in certain circumstances, fails to comply with applicable certification requirements.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. Holders U.S. federal income tax, provided the U.S. Holder furnishes the required information to the Internal Revenue Service in a timely manner.
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ENFORCEABILITY OF CIVIL LIABILITIES
We are an exempted limited liability company incorporated under the laws of the Cayman Islands. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands corporation, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.
A substantial majority of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of our or such persons assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
We have appointed National Registered Agents, Inc. at 875 Avenue of the Americas, Suite 501, New York, New York 10001, as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
Maples and Calder Asia, our counsel as to Cayman Islands law and Jun He Law Offices, our counsel as to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands and the PRC, respectively, would (1) recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or (2) be competent to hear original actions brought in each respective jurisdiction, against us or such persons predicated upon the securities laws of the United States or any state thereof.
Maples and Calder Asia has further advised us that a final and conclusive judgment in federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the Courts of the Cayman Islands under the common law doctrine of obligation.
Jun He Law Offices has advised us further that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between the PRC and the country where the judgment is made or in reciprocity between jurisdictions.
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UNDERWRITERS
Under the terms and subject to the conditions
contained in an underwriting agreement dated the date of this
prospectus, the underwriters named below, for whom Morgan
Stanley Dean Witter (Asia) Limited, 27th Floor, Three
Exchange Square, Hong Kong,
and are
acting as representatives, have severally agreed to purchase,
and we and the selling shareholders have agreed to sell to them,
severally, the number of ADSs indicated below:
Number of
Name
ADSs
The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and the selling shareholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ADSs offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the ADSs offered by this prospectus if any such ADSs are taken. However, the underwriters are not required to take or pay for the ADSs covered by the underwriters over-allotment option described below. Morgan Stanley & Co. International Limited will offer ADSs in the United States through its registered broker dealers in the United States.
The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of US$ per ADS under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of US$ per ADS to other underwriters or to certain dealers. After the initial offering of the ADSs, the offering price and other selling terms may from time to time be varied by the representatives.
We and the selling shareholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional ADSs at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the ADSs offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional ADSs as the number listed next to the underwriters name in the preceding table bears to the total number of ADSs listed next to the names of all underwriters in the preceding table. If the underwriters option is exercised in full, the total price to the public would be US$ , the total underwriters discounts and commissions would be US$ , total proceeds to us would be US$ and total proceeds to the selling shareholders would be US$ .
The underwriting discounts and commissions will be determined by negotiations among us, the selling shareholders and the representatives and are a percentage of the offering price to the public. Among the factors to be considered in determining the discounts and commissions will be the size of the offering, the nature of the security to be offered and the discounts and commissions charged in comparable transactions. The estimated offering expenses payable by us, in addition to the underwriting discounts and commissions, are approximately US$ , which includes legal, accounting and printing costs and various other fees associated with registering and listing the ADSs.
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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of ADSs offered by them.
Application has been made to have the ADSs listed on the Nasdaq National Market under the symbol JOBS.
51job, Inc. has agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; | |
| file any registration statement with the Securities and Exchange Commission relating to the offering of any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; or | |
| enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares or ADSs; |
whether any such transaction described above is to be settled by delivery of common shares or ADSs or such other securities, in cash or otherwise.
These restrictions do not apply to:
| the sale of common shares in the form of ADSs to the underwriters; | |
| the issuance by us of common shares issuable upon the exercise of options pursuant to our 2000 stock option plan; | |
| transactions relating to common shares, ADSs or other securities acquired in open market transactions after the closing of the offering of the ADSs; and | |
| the issuance by us of common shares issuable upon the conversion of our Series A preference shares. |
Each of the selling shareholders, our directors, executive officers and certain other shareholders of 51job, Inc. have agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, they will not, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common shares, ADSs or any securities convertible into or exercisable or exchangeable for common shares or ADSs; or | |
| enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common shares or ADSs; |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
These restrictions do not apply to:
| the sale of common shares in the form of ADSs to the underwriters; | |
| the issuance by us of common shares issuable upon the exercise of options pursuant to our 2000 stock option plan; | |
| transactions relating to common shares, ADSs or other securities acquired in open market transactions after the closing of the offering of the ADSs; |
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| the issuance by us of common shares issuable upon the conversion of our Series A preference shares; and | |
| certain other transfers of common shares, including to immediate family members, trusts, partners, members or controlled affiliates. |
In addition, each of our directors and executive officers and certain other shareholders have agreed that, without the prior written consent of Morgan Stanley Dean Witter (Asia) Limited on behalf of the underwriters, they will not, during the period ending days after the date of this prospectus, make any demand for or exercise any right with respect to, the registration of any shares of common shares or ADSs or any security convertible into or exercisable or exchangeable for common shares or ADSs.
The 180-day lock-up period is subject to adjustment under certain circumstances. If (1) during the last 17 days of the 180-day lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or (2) prior to the expiration of the 180-day lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day lock-up, the lock-up will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; provided that in the case of clause (2) above, if no earnings release is released during the 16-day period, the lock-up will terminate on the last day of the 16-day period.
In order to facilitate the offering of the ADSs, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ADSs. Specifically, the underwriters may sell more ADSs than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of ADSs available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing ADSs in the open market. In determining the source of ADSs to close out a covered short sale, the underwriters will consider, among other things, the open market price of ADSs compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, ADSs in the open market to stabilize the price of the ADSs. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the ADSs in the offering, if the syndicate repurchases previously distributed ADSs to cover syndicate short positions or to stabilize the price of the ADSs. These activities may raise or maintain the market price of the ADSs above independent market levels or prevent or retard a decline in the market price of the ADSs. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
We, the selling shareholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
Pricing of the Offering
Prior to this offering, there has been no public market for the common shares or ADSs. The initial public offering price will be determined by negotiations among us, the selling shareholders and the representative of the underwriters. Among the factors to be considered in determining the initial public offering price will be the future prospects of our company and our industry in general, our sales, earnings and certain other financial operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of our company. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.
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Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the ADSs, or the possession, circulation or distribution of this prospectus or any other material relating to us, the selling shareholders or the ADSs in any jurisdiction where action for that purpose is required. Accordingly, the ADSs may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the ADSs may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
This prospectus is intended for use only in connection with offers and sales of the ADSs outside the United States and is not to be sent or given to any person within the United States. The ADSs offered pursuant to this prospectus are not being registered under the Securities Act for the purpose of sales outside the United States.
United States Person or Canadian Person means any national or resident of the United States or Canada (other than an individual resident in a Canadian province or territory where such individual is prohibited from purchasing securities under local provincial and territorial securities laws), or any corporation, person, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States Person or Canadian Person), and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person.
Canada. Each underwriter will be deemed to have represented and agreed that (1) it has not offered or sold, and will not offer or sell, any ADSs, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of ADSs in Canada will be made only (a) in accordance with an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and (b) by a dealer duly registered under the applicable securities laws of that province or territory or in circumstances where an exemption from the applicable registered dealer requirements is available; and (2) it will send to any dealer who purchases from it any of the ADSs a notice stating in substance that, by purchasing such ADSs, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such ADSs in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of ADSs in Canada will be made only (a) in accordance with an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and (b) by a dealer duly registered under the applicable securities laws of that province or territory or in circumstances where an exemption from the applicable registered dealer requirements is available, and that such dealer will deliver to any other dealer to whom it sells any of such ADSs a notice containing substantially the same statement as is contained in this sentence. Each underwriter has also agreed to comply with all applicable laws and regulations, and make or obtain all necessary filings, consents or approvals, in each Canadian jurisdiction in which it purchases, offers, sells or delivers ADSs (including, without limitation, any applicable requirements relating to the delivery of this prospectus), in each case, at its own expense. In connection with sales of and offers to sell ADSs made by it, each underwriter will either furnish to each Canadian Person to whom any such sale or offer is made a copy of the then current prospectus, or inform such person that such prospectus will be made available upon request, and will keep an accurate record of the names and addresses of all persons to whom it gives copies of this prospectus, or any amendment or supplement to this prospectus; and when furnished with any subsequent amendment to this prospectus, any subsequent prospectus or any medium outlining changes in this prospectus, such underwriter will upon request of the representatives, promptly forward copies thereof to such persons or inform such persons that such amendment, subsequent prospectus or other medium will be made available upon request.
United Kingdom. This prospectus has not been approved by an authorized person in the United Kingdom and has not been registered with the Registrar of Companies in the United Kingdom. Each underwriter will be deemed to have represented and agreed that (1) it has not offered or sold and, prior to the
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France. Each underwriter will be deemed to have represented and agreed that (1) neither this prospectus nor any offering material relating to ADSs has been or will be submitted to the Commission des Opérations de Bourse for approval ( Visa ) in France; and (2) it has not offered or sold and will not offer or sell any ADSs or distribute or cause to be distributed any copies of this prospectus or any offering material relating to the ADSs, directly or indirectly, in France, except (a) with the prior authorization of the French Ministry for Economy and Finance in accordance with Articles 9 and 10 of the Décret of December 29, 1989 regulating financial relations between France and foreign countries, or (b) to qualified investors ( investisseurs qualifiés ) and/or a restricted group of investors ( cercle restreint dinvestisseure ), in each case acting for their account, all as defined in, and in accordance with, Article L. 411-1 and L. 411-2 of the Monetary and Financial Code and Décret no. 98-880 dated October 1, 1998.
Germany. Each underwriter will be deemed to have represented and agreed that (1) this prospectus is not a Securities Selling Prospectus within the meaning of the German Securities Sales Prospectus Act of September 8, 1998 and has not been filed with and approved by the German Federal Supervisory Authority ( Bundesanstalt für Finanzdienstlienstleistungsaufsicht ) or any other competent German governmental authority under the relevant laws; and (2) it has not offered or sold and will not offer or sell any ADSs or distribute copies of this prospectus or any document relating to the ADSs, directly or indirectly, in Germany except to persons falling within the scope of section 2 numbers 1 (persons who as part of their profession, occupation or business, purchase or sell securities for their own account or for the account of third patties), 2 (a restricted circle of persons) and 3 (employees by their employer or related group companies) of the German Securities Sales Prospectus Act of September 8, 1998 and by doing so has not taken, and will not take, any steps which would constitute a public offering of the ADSs in Germany.
Italy. The offering of the ADSs has not been registered with the Commissione Nazionale per le Societa e la Borsa , or CONSOB, in accordance with Italian securities legislation. Accordingly, each underwriter will be deemed to have represented and agreed that (1) sales of the ADSs in the Republic of Italy shall be effected in accordance with all Italian securities, tax and other applicable laws and regulations; and (2) it has not offered, sold or delivered, and will not offer, sell or deliver, any ADSs or distribute copies of this prospectus or any other document relating to the ADSs in the Republic of Italy unless such offer, sale or delivery of ADSs or distribution of copies of this prospectus or other documents relating to the ADSs in the Republic of Italy is to qualified investors ( operatori qualificati ), as defined by Articles 25 and 31(2) of CONSOB Regulation no. 11522 of 1 July 1998 as subsequently modified ( Regulation 11522 ), except for individuals referred to in Article 31(2) of Regulation 11522 who exercise administrative, managerial or supervisory functions at a registered securities dealing firm (a Società di Intermediazione Mobiliare , or SIM ), management companies ( società di gestione del risparmio ) authorized to manage individual portfolios on behalf of third parties and fiduciary companies authorized to manage individual portfolios pursuant to Article 60(4) of Legislative Decree no. 415 of 23 July 1996 and may not be reproduced or redistributed or passed on, directly or indirectly, to any other person or published in whole or in part. Any offer, sale or delivery of the ADSs or distribution of copies of this prospectus in Italy must be made solely by entities which are duly authorized to conduct such activities in Italy and must be in full compliance with the provisions contained in Legislative Decree no. 58 of 24 February 1998, Legislative Decree no. 385 of 1 September 1993 and any other applicable laws and
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The Netherlands. Each underwriter will be deemed to have represented and agreed that it has not offered, distributed, sold, transferred or delivered, and will not offer, distribute, sell, transfer or deliver, any ADSs, directly or indirectly, in the Netherlands, as part of their initial distribution or at any time thereafter, to any person other than individuals who or legal entities which trade or invest in securities in the conduct of their profession or business within the meaning of article 2 of the Exemption Regulation issued under the Securities Transactions Supervision Act 1995 ( Vrijstellingsregeling Wet toezicht effectenverkeer 1995 ), which includes banks, brokers, pension funds, insurance companies, securities institutions, investment institutions and other institutional investors, including, among others, treasuries of large enterprises, who or which regularly trade or invest in securities in a professional capacity.
Denmark. This prospectus has not been filed with or approved by the Danish Securities Council or any other regulatory authority in the Kingdom of Denmark. Accordingly, each underwriter will be deemed to have represented and agreed that it has not offered or sold, and will not offer, sell or deliver, any ADSs, directly or indirectly, in Denmark, except in compliance with Chapter 12 of the Danish Act on Trading in Securities and the Danish Executive Order No. 166 of 13 March 2003 on the First Public Offer of Certain Securities issued under Chapter 12 of the Danish Act on Trading in Securities.
Norway. This prospectus has not been approved by or registered with the Oslo Stock Exchange under Chapter 5 of the Norwegian Securities Trading Act 1997. Accordingly, each underwriter will be deemed to have represented and agreed that it has not offered or sold, and will not offer or sell, any ADSs to any persons in Norway in any way that would constitute an offer to the public other than to persons who invest in securities as part of their professional activity and who are registered with the Oslo Stock Exchange in this capacity, or otherwise only in circumstances where an exemption from the duty to publish a prospectus under the Norwegian Securities Trading Act 1997 shall be applicable.
Sweden. This prospectus has not been approved by or registered with the Swedish Financial Supervisory Authority. Accordingly, each underwriter will be deemed to have represented and agreed that it has not offered or sold, and will not offer or sell, any ADSs to persons in Sweden except to a closed circle of not more than 200 pre-selected, non-substitutable investors, under the Swedish Financial Instruments Trading Act ( Lag (1991:980) om handel med finansiella instrument ).
Belgium. Neither this prospectus nor any offering material relating to the ADSs has been or will be submitted to the Belgian Banking, Finance and Insurance Commission (Commissie voor het Bank-, Financie- en Assurantiewezen/ Commission Bancaire Financière et des Assurances) for review or approval. Therefore, this prospectus will not constitute a prospectus under Belgium law. Accordingly, each underwriter will be deemed to have represented and agreed that neither this prospectus nor any offering material relating to the ADSs may be distributed or caused to be distributed, directly or indirectly, to the public in Belgium, no steps may be taken which would constitute or result in a public offering in Belgium as defined in the Royal Decree dated July 7, 1999 on the public character of financial transactions, and no securities may be sold or offered for sale to consumers as such term is defined in the Law dated July 14, 1991 on commercial practices and the information and protection of consumers. This prospectus is intended for the confidential use of the offeree it is intended for, and may not be reproduced or used for any other purpose. Any action contrary to these restrictions may cause such named offeree and the Issuer to be in violation of the Belgian securities laws.
Ireland. Each underwriter will be deemed to have represented and agreed that (1) otherwise than in circumstances which do not constitute an offer to the public within the meaning of the Irish Companies Acts 1963 to 2001, it has not offered or sold, and will not offer or sell, in Ireland, by means of any document, any ADSs, unless such offer or sale has been or is made to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent, and it has not issued, and will not issue, in Ireland any application form for ADSs; and (2) it has not made and will not make any offer of ADSs to the public in Ireland to which the European Communities (Transferable Securities and Stock Exchange) Regulations, 1992 of Ireland would apply, except in accordance with the provisions of those regulations.
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Spain. This prospectus has not been registered with the Comisión National del Mercado de Valores , and therefore a public offer for sale of the ADSs will not be promoted in the Kingdom of Spain. Accordingly, each underwriter will be deemed to have represented and agreed that the ADSs may not be offered or sold in the Kingdom of Spain, except in accordance with the requirements of the Spanish securities market law ( ley 24/1998, de 28 de julio, del Mercado de valores ), as amended, and Royal Decree 291/1992, on Issues and Public Offerings for the Sale of Securities ( Real Decreto 291/1992, de 27 de marzo, sobre Emisiones y Ofertas Públicas de Venta de Valores ), as amended, and the decrees and regulations issued thereunder.
Portugal. The offer of ADSs has not been registered with the Portuguese Securities Market Commission. No action has been or will be taken that would permit a public offering of any of the ADSs in Portugal. Accordingly, no ADSs may be offered, sold or delivered except in circumstances that will result in compliance with any applicable laws and regulations. In particular, (1) no offer has been addressed to more than 200 (non-institutional) Portuguese investors, and (2) no offer has been preceded or followed by prospecting or solicitation of investment intentions, by promotion or solicitation to unidentified investors or followed by publication of any promotional material.
Switzerland. Each underwriter will be deemed to have acknowledged that (1) this prospectus does not constitute a prospectus within the meaning of Article 652a and Article 1156 of the Swiss Code of Obligations ( Schweizerisches Obligationenrecht ); and (2) neither this offering nor the ADSs has been or will be approved by any Swiss regulatory authority.
Luxembourg. Each underwriter will be deemed to have represented and agreed that it may not offer the ADSs in the Grand Duchy of Luxembourg except in circumstances where the requirements of Luxembourg law concerning public offerings of securities have been met. In particular, this offer has not been and may not be announced to the public and offering material may not be made available to the public.
Australia. This prospectus is not a disclosure document under Chapter 6D of the Corporations Act, 2001 (Cth), or the Australian Corporation Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under the Australian Corporations Act. Accordingly, each underwriter will be deemed to have represented and agreed that (1) the offer of ADSs under this prospectus is only made to persons to whom it is lawful to offer ADSs without disclosure to investors under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in Section 708 of the Australian Corporations Act, (2) this prospectus is made available in Australia to persons as set forth in clause (1) above, and (3) such underwriter must send the offeree a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (2) above and agrees not to sell or offer for sale within Australia any ADS sold to the offeree within 12 months after their transfer to the offeree under this prospectus.
New Zealand. Each underwriter will be deemed to have represented and agreed that at the time any ADS is issued, it will not have offered for subscription any ADS or distributed any advertisement in relation to any ADS to the public in New Zealand and will not acquire any ADS with a view to selling it to the public in New Zealand, nor will it sell or offer for sale any ADS to the public in New Zealand within six months after the issue of such ADS (all such conduct to be interpreted in accordance with the Securities Act 1978), and may therefore enter into such conduct only with:
| persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money, and | |
| any other person who in all the circumstances can properly be regarded as having been selected otherwise than as a member of the public in New Zealand within the meaning of the Securities Act 1978. |
Hong Kong. Each underwriter will be deemed to have represented and agreed that (1) it has not offered or sold, and will not offer or sell, in Hong Kong, by means of any document, any ADSs other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong: and (2) except as permitted under the securities laws of Hong Kong, it has not
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Japan. The ADSs have not been registered under the Securities and Exchange Law of Japan (Law No. 25 of 1948 as amended), or the SEL, and disclosure under the SEL has not been and will not be made with respect to the ADSs. Accordingly, the underwriters will be deemed to have represented and agreed that they have not, directly or indirectly, offered of sold and will not, directly or indirectly, offer or sell any convertible notes in Japan or to, or for the benefit of, any resident of Japan (which term as used in this prospectus means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or resell any convertible notes, directly or indirectly in Japan or to, or for the benefit of, any resident of Japan except (1) under an exemption from the registration requirements of the Securities and Exchange Law of Japan and (2) in compliance with any other relevant laws and regulations of Japan.
Singapore. This prospectus has not been registered as a prospectus or information memorandum with the Monetary Authority of Singapore. Accordingly, each underwriter will be deemed to have represented and agreed that no advertisement may be made offering or calling attention to an offer or intended offer of the ADSs to the public in Singapore. It will not offer or sell ADSs, nor will it make ADSs the subject of an invitation for subscription or purchase, nor will it circulate or distribute this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of ADSs, whether directly or indirectly, to the public or any member of the public in Singapore other than:
| to an institutional investor or other person specified in Section 274 of the Securities and Futures Act 2001 of Singapore, or the Securities and Futures Act, | |
| to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act, or | |
| otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. |
Korea. Each underwriter will be deemed to have represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, in Korea or to or for the account of any resident of Korea, any of the ADSs acquired in connection with the distribution contemplated by the underwriting agreement except:
| in accordance with any exemption from the registration requirements of the Korean Securities and Exchange Law, and | |
| in compliance with applicable provisions of Korean law, including, without limitation, the Foreign Exchange Transaction Law and Regulations. |
United Arab Emirates. Each underwriter will be deemed to have represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any ADSs in the United Arab Emirates, except:
| in compliance with all applicable laws and regulations of the United Arab Emirates, and | |
| through persons or corporate entities authorized and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the United Arab Emirates. |
Peoples Republic of China. Each underwriter will be deemed to have represented and agreed that it has not and will not circulate or distribute this prospectus in the PRC and it has not offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly, any ADSs to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, PRC does not include Hong Kong, Macau and Taiwan.
132
LEGAL MATTERS
The validity of the ADSs and certain legal matters as to United States federal and New York law will be passed upon for us by Shearman & Sterling LLP. Certain legal matters as to United States federal and New York law will be passed upon for the underwriters by Davis Polk & Wardwell. The validity of the common shares represented by the ADSs offered in this offering and certain other legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder Asia. Certain legal matters as to PRC law will be passed upon for us by Jun He Law Offices and for the underwriters by Commerce & Finance Law Offices. Carmen Chang, a partner at Shearman & Sterling LLP, holds 4,800 of our Series A preference shares which will convert into 4,800 common shares of our company upon the closing of this offering.
EXPERTS
Our consolidated financial statements as of and for the years ended December 31, 2002 and 2003 included in this prospectus have been so included in reliance on the audit report of PricewaterhouseCoopers Zhong Tian CPAs Limited Company, independent accountants, given on the authority of said firm as experts in accounting and auditing. PricewaterhouseCoopers Zhong Tian CPAs Limited Company is a member of the Chinese Institute of Certified Public Accountants. The offices of PricewaterhouseCoopers Zhong Tian CPAs Limited Company are located at 11th Floor, PricewaterhouseCoopers Center, 202 Hu Bin Road, Shanghai 200021, the Peoples Republic of China.
The statements included in this prospectus under the captions Risk Factors Risks Related to Our Business, Risk Factors Risks Related to Our Corporate Structure, Risk Factors Risks Related to the Peoples Republic of China, Corporate Structure, Regulation, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Enforceability of Civil Liabilities, to the extent they constitute matters of PRC law, have been reviewed and confirmed by Jun He Law Offices, our PRC counsel, as experts in such matters, and are included in this prospectus in reliance upon such review and confirmation. The offices of Jun He Law Offices are located at 20th Floor, China Resources Building, No. 8 Jianguomenbei Avenue, Beijing, the Peoples Republic of China.
EXPENSES RELATED TO THIS OFFERING
The following table sets forth the main costs and expenses, other than the underwriting discounts and commissions, in connection with this offering, which we will be required to pay.
U.S. Securities and Exchange Commission
registration fee
|
US$ | 11,403 | |||
National Association of Securities Dealers, Inc.
filing fee
|
|||||
Nasdaq National Market listing fee
|
|||||
Legal fees and expenses
|
|||||
Accounting fees and expenses
|
|||||
Printing costs
|
|||||
Other fees and expenses
|
|||||
|
|||||
Total
|
US$ | ||||
|
All amounts are estimated except the U.S. Securities and Exchange Commission registration fee and National Association of Securities Dealers Inc. filing fee.
133
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act in connection with this offering of our shares and ADSs. A related registration statement on Form F-6 has also been filed with the SEC to register the ADSs as evidenced by the ADRs. This prospectus, which forms a part of the registration statement on Form F-1, does not contain all of the information set forth in these registration statements, and the exhibits and schedules thereto. We have omitted certain portions of these registration statements from the prospectus in accordance with the rules and regulations of the SEC. You should refer to these registration statements for further information. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the registration statements are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or document.
Upon declaration by the SEC of the effectiveness of the registration statements, we will become subject to the periodic reporting and other informational requirements of the Exchange Act applicable to a foreign private issuer. Under the Exchange Act, we will file annual reports on Form 20-F within six months of our fiscal year end, and we will submit other reports and information under cover of Form 6-K with the SEC. Copies of the registration statements, their accompanying exhibits, as well as such reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the SECs Public Reference Room located at 450 Fifth Street, N.W., Room 1200, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330 or by contacting the SEC at its website at www.sec.gov.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders meeting received by the depositary from us. We also intend to furnish to the SEC under Form 6-K semi-annual and quarterly reports containing certain unaudited financial information.
134
INDEX TO FINANCIAL STATEMENTS
Page | ||||
|
||||
Report of Independent Auditors
|
F-2 | |||
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the years ended
December 31, 2001, 2002, 2003 and for the three-month
periods ended March 31, 2003 and 2004 (unaudited)
|
F-3 | |||
Consolidated Balance Sheets as of
December 31, 2002, 2003 and March 31, 2004 (unaudited)
|
F-4 | |||
Consolidated Statements of Shareholders
Equity for the years ended December 31, 2001, 2002, 2003
and for the three-month period ended March 31, 2004
(unaudited)
|
F-6 | |||
Consolidated Statements of Cash Flows for the
years ended December 31, 2001, 2002, 2003 and for the
three-month periods ended March 31, 2003 and 2004
(unaudited)
|
F-7 | |||
Notes to the Financial Statements for the years
ended December 31, 2001 (unaudited), 2002, 2003 and for the
three-month periods ended March 31, 2003 and 2004
(unaudited)
|
F-8 |
F-1
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations and comprehensive income, of changes in
shareholders equity and of cash flows expressed in
Renminbi present fairly, in all material respects, the financial
position of 51job, Inc. (the Company) and its
subsidiaries as of December 31, 2002 and 2003, and the
results of their operations and their cash flows for each of the
years then ended, in conformity with generally accepted
accounting principles in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these
The accompanying consolidated balance sheets as
of March 31, 2004, statements of operations and
comprehensive income and statements of cash flows of
51job, Inc. for the year ended December 31, 2001 and
for the three-month period ended March 31, 2003 and 2004,
and statement of changes in shareholders equity for the
year ended December 31, 2001, and the three-month period
ended March 31, 2004 were not audited by us and,
accordingly, we do not express an opinion on them.
PricewaterhouseCoopers Zhong Tian CPAs Limited
Company
F-2
statements in accordance with the standards of Public Company
Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management and evaluating the overall financial statements
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Table of Contents
51JOB, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
[Additional columns below]
2001
Note
(unaudited)
2002
2003
2003
RMB
RMB
RMB
US$ (Note 2 (c))
90,940,220
116,989,356
182,606,297
22,061,628
22,586,591
28,938,327
76,960,121
9,297,957
9,126,842
9,726,300
15,748,331
1,902,639
5,305,068
9,895,734
18,019,611
2,177,044
127,958,721
165,549,717
293,334,360
35,439,268
(5,987,998
)
(7,510,017
)
(13,215,419
)
(1,596,624
)
121,970,723
158,039,700
280,118,941
33,842,644
(84,208,642
)
(92,220,940
)
(151,477,142
)
(18,300,751
)
37,762,081
65,818,760
128,641,799
15,541,893
(18,503,675
)
(24,356,157
)
(38,619,523
)
(4,665,828
)
(33,732,311
)
(30,382,850
)
(38,135,612
)
(4,607,364
)
(13,482,546
)
(1,628,897
)
(52,235,986
)
(54,739,007
)
(90,237,681
)
(10,902,089
)
(14,473,905
)
11,079,753
38,404,118
4,639,804
71,616
462,376
930,288
112,393
253,570
(46,590
)
1,080,334
130,521
(14,148,719
)
11,495,539
40,414,740
4,882,718
8
1,259,194
(3,192,011
)
(385,644
)
(14,148,719
)
12,754,733
37,222,729
4,497,074
13
(1,233,659
)
13
(3,727,244
)
(12,123,513
)
(1,464,705
)
(14,148,719
)
7,793,830
25,099,216
3,032,369
(22,296
)
(123,391
)
76,964
9,298
(279,532
)
(33,772
)
(14,171,015
)
12,631,342
37,020,161
4,472,600
13
(0.50
)
0.27
0.89
0.11
(0.50
)
0.27
0.88
0.11
28,504,540
28,464,783
28,318,423
28,318,423
28,504,540
28,464,783
28,599,328
28,599,328
N/A
N/A
0.89
0.11
N/A
N/A
0.88
0.11
N/A
N/A
41,996,889
41,996,889
N/A
N/A
42,277,794
42,277,794
596,551
72,072
423,221
51,132
13,059,325
1,577,766
[Continued from above table, first column(s) repeated]
For the three-month
For the three-month
For the three-month
period ended
period ended
period ended
March 31, 2003
March 31, 2004
March 31, 2004
(unaudited)
(unaudited)
(unaudited)
RMB
RMB
US$ (Note 2 (c))
38,236,552
75,342,560
9,102,531
15,767,046
24,060,419
2,906,866
2,018,280
3,519,745
425,239
2,961,538
7,024,741
848,696
58,983,416
109,947,465
13,283,332
(2,586,223
)
(5,091,727
)
(615,158
)
56,397,193
104,855,738
12,668,174
(32,235,133
)
(53,611,580
)
(6,477,097
)
24,162,060
51,244,158
6,191,077
(8,266,901
)
(13,603,702
)
(1,643,535
)
(9,220,988
)
(12,920,760
)
(1,561,025
)
(9,609,771
)
(8,755,475
)
(1,057,795
)
(27,097,660
)
(35,279,937
)
(4,262,355
)
(2,935,600
)
15,964,221
1,928,722
295,060
242,907
29,347
92,303
72,433
8,750
(2,548,237
)
16,279,561
1,966,819
(265,818
)
(7,559,502
)
(913,303
)
(2,814,055
)
8,720,059
1,053,516
(2,824,089
)
(341,193
)
(2,814,055
)
5,895,970
712,323
1,300
(118,927
)
(14,369
)
93,678
11,318
(2,812,755
)
8,694,810
1,050,465
(0.10
)
0.20
0.02
(0.10
)
0.19
0.02
28,304,781
28,821,560
28,821,560
28,304,781
30,637,527
30,637,527
(0.10
)
0.20
0.02
(0.10
)
0.20
0.02
N/A
42,626,693
42,626,693
N/A
44,442,660
44,442,660
503,223
60,797
527,660
63,749
9,609,771
8,227,815
994,046
F-3
51JOB, INC.
CONSOLIDATED BALANCE SHEETS
2003
2003
pro forma
pro forma
(Note 15)
(Note 15)
Note
2002
2003
2003
(unaudited)
(unaudited)
RMB
RMB
US$ (Note
RMB
US$
2(c))
68,637,760
115,084,572
13,903,973
115,084,572
13,903,973
4,977,860
17,419,248
2,104,511
17,419,248
2,104,511
4
3,800,363
8,657,133
1,045,914
8,657,133
1,045,914
8
2,219,700
4,412,423
533,088
4,412,423
533,088
79,635,683
145,573,376
17,587,486
145,573,376
17,587,486
10,479,008
1,266,024
10,479,008
1,266,024
5
13,687,521
17,849,517
2,156,494
17,849,517
2,156,494
6
7,423,038
7,712,595
931,799
7,712,595
931,799
2,915,322
3,638,418
439,576
3,638,418
439,576
8
151,365
18,287
151,365
18,287
24,025,881
39,830,903
4,812,180
39,830,903
4,812,180
103,661,564
185,404,279
22,399,666
185,404,279
22,399,666
4,792,012
11,140,037
1,345,886
11,140,037
1,345,886
12
4,229,587
6,504,773
785,876
6,504,773
785,876
6,189,124
9,148,551
1,105,285
9,148,551
1,105,285
2,310,711
6,036,064
729,249
6,036,064
729,249
6,794,962
17,447,831
2,107,964
17,447,831
2,107,964
7
1,709,040
3,504,953
423,452
3,504,953
423,452
8
2,313,982
279,564
2,313,982
279,564
26,025,436
56,096,191
6,777,276
56,096,191
6,777,276
8
32,080
23,533
2,843
23,533
2,843
26,057,516
56,119,724
6,780,119
56,119,724
6,780,119
14
[Additional columns below]
[Continued from above table, first column(s) repeated]
March 31,
March 31,
2004
2004
March 31,
March 31,
pro forma
pro forma
2004
2004
(Note 15)
(Note 15)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
RMB
US$ (Note
RMB
US$ (Note
2(c))
2(c))
136,170,612
16,451,488
136,170,612
16,451,488
24,032,773
2,903,526
24,032,773
2,903,526
16,519,185
1,995,769
16,519,185
1,995,769
7,620,103
920,625
7,620,103
920,625
184,342,673
22,271,408
184,342,673
22,271,408
10,614,362
1,282,377
10,614,362
1,282,377
19,163,896
2,315,291
19,163,896
2,315,291
7,611,763
919,617
7,611,763
919,617
4,203,192
507,810
4,203,192
507,810
477,504
57,690
477,504
57,690
42,070,717
5,082,785
42,070,717
5,082,785
226,413,390
27,354,193
226,413,390
27,354,193
18,352,020
2,217,204
18,352,020
2,217,204
6,525,210
788,345
6,525,210
788,345
7,348,337
887,791
7,348,337
887,791
13,589,834
1,641,859
13,589,834
1,641,859
17,561,376
2,121,682
17,561,376
2,121,682
8,248,736
996,574
8,248,736
996,574
4,129,659
498,926
4,129,659
498,926
75,755,172
9,152,381
75,755,172
9,152,381
75,755,172
9,152,381
75,755,172
9,152,381
F-4
51JOB, INC.
CONSOLIDATED BALANCE SHEETS
2003
2003
pro forma
pro forma
(Note 15)
(Note 15)
Note
2002
2003
2003
(unaudited)
(unaudited)
RMB
RMB
US$ (Note
RMB
US$
2(c))
23,427
23,816
2,877
35,148
4,246
9
11,332
11,332
1,369
1,268,436
62,266,673
7,522,764
178,631,189
21,581,373
116,364,516
116,364,516
14,058,609
10
(46,338,280
)
(5,598,371
)
(46,338,280
)
(5,598,371
)
871,270
9,470,398
1,144,169
9,470,398
1,144,169
(235,783
)
(438,351
)
(52,959
)
(438,351
)
(52,959
)
(40,699,150
)
(12,075,549
)
(1,458,911
)
(12,075,549
)
(1,458,911
)
77,604,048
129,284,555
15,619,547
129,284,555
15,619,547
equity
103,661,564
185,404,279
22,399,666
185,404,279
22,399,666
[Additional columns below]
[Continued from above table, first column(s) repeated]
March 31,
March 31,
2004
2004
pro forma
pro forma
March 31, 2004
March 31, 2004
(Note 15)
(Note 15)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
RMB
US$ (Note
RMB
US$ (Note
2(c))
2(c))
23,998
2,899
35,644
4,306
11,646
1,407
(1,144,425
)
(138,264
)
(1,144,425
)
(138,264
)
78,917,947
9,534,492
198,558,605
23,988,910
119,640,658
14,454,418
(52,493,414
)
(6,342,006
)
(52,493,414
)
(6,342,006
)
12,722,827
1,537,112
12,722,827
1,537,112
(413,100
)
(49,909
)
(413,100
)
(49,909
)
(6,607,919
)
(798,337
)
(6,607,919
)
(798,337
)
150,658,218
18,201,812
150,658,218
18,201,812
equity
226,413,390
27,354,193
226,413,390
27,354,193
The accompanying notes are an integral part of these financial statements.
F-5
51JOB, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY
Series A
Additional
Additional
Common shares
preference shares
paid-in
paid-in
capital
capital
Number
Number
Subscription
common
preference
of shares
Par value
of shares
Par value
receivables
shares
shares
RMB
RMB
RMB
RMB
RMB
28,504,301
23,594
7,668,658
6,358
1,430,644
64,761,612
2,999,904
2,482
25,786,177
90,240
73
112,015
10,000
8
86,244
28,594,541
23,667
10,678,562
8,848
1,628,903
90,547,789
2,999,904
2,484
25,816,727
(380,000
)
(313
)
(471,452
)
90,240
73
110,985
28,304,781
23,427
13,678,466
11,332
1,268,436
116,364,516
60,417,377
467,334
389
580,860
28,772,115
23,816
13,678,466
11,332
62,266,673
116,364,516
28,772,115
2,877
13,678,466
1,369
7,522,764
14,058,609
213,331
182
(1,144,425
)
1,237,443
380,000
314
3,276,142
15,413,831
28,985,446
23,998
14,058,466
11,646
(1,144,425
)
78,917,947
119,640,658
28,985,446
2,899
14,058,466
1,407
(138,264
)
9,534,492
14,454,418
[Additional columns below]
[Continued from above table, first column(s) repeated]
Retained
Deferred
Other
earnings/
Total
share-based
Statutory
comprehensive
(accumulated
shareholders
compensation
reserves
income
deficit)
equity
RMB
RMB
RMB
RMB
RMB
(90,096
)
(38,433,894
)
27,698,218
25,788,659
112,088
86,252
(22,296
)
(22,296
)
(14,148,719
)
(14,148,719
)
(112,392
)
(52,582,613
)
39,514,202
25,819,211
(471,765
)
111,058
871,270
(871,270
)
(123,391
)
(123,391
)
12,754,733
12,754,733
871,270
(235,783
)
(40,699,150
)
77,604,048
(46,338,280
)
14,079,097
581,249
8,599,128
(8,599,128
)
(202,568
)
(202,568
)
37,222,729
37,222,729
(46,338,280
)
9,470,398
(438,351
)
(12,075,549
)
129,284,555
(5,598,371
)
1,144,169
(52,959
)
(1,458,911
)
15,619,547
93,200
3,276,456
(6,155,134
)
9,258,697
3,252,429
(3,252,429
)
25,251
25,251
8,720,059
8,720,059
(52,493,414
)
12,722,827
(413,100
)
(6,607,919
)
150,658,218
(6,342,006
)
1,537,112
(49,909
)
(798,337
)
18,201,812
The accompanying notes are an integral part of these financial statements.
F-6
51JOB, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
2001
Note
(unaudited)
2002
2003
2003
RMB
RMB
RMB
US$ (Note 2 (c))
(14,148,719
)
12,754,733
37,222,729
4,497,074
14,079,097
1,700,970
2,780,833
3,494,998
4,677,763
565,145
482,723
1,036,044
3,230,360
390,277
(2,206,075
)
2,164,541
(12,441,388
)
(1,503,110
)
1,017,737
(1,621,262
)
(4,882,969
)
(589,937
)
(2,219,700
)
(2,344,088
)
(283,202
)
3,300,180
(1,317,774
)
3,599,055
434,821
1,804,868
(1,841,525
)
2,275,186
274,877
523,097
1,455,828
869,958
105,104
32,080
2,305,435
278,532
148,376
1,399,106
3,725,353
450,079
(246,885
)
5,894,438
10,652,869
1,287,029
577,660
1,047,868
3,720,404
449,482
(1,171,756
)
(25,156
)
(723,096
)
(87,361
)
(7,137,961
)
22,254,219
65,966,668
7,969,780
(6,500,492
)
(6,347,215
)
(8,839,759
)
(1,067,978
)
(2,557,152
)
(3,304,643
)
(770,947
)
(93,142
)
(10,732,341
)
(1,296,631
)
(9,057,644
)
(9,651,858
)
(20,343,047
)
(2,457,751
)
25,788,659
25,819,211
746,227
90,156
25,788,659
25,819,211
746,227
90,156
(22,296
)
(123,391
)
76,964
9,298
9,570,758
38,298,181
46,446,812
5,611,483
20,768,821
30,339,579
68,637,760
8,292,490
30,339,579
68,637,760
115,084,572
13,903,973
1,010,848
1,900,000
229,549
4,307,566
1,320,443
2,748,970
332,118
[Additional columns below]
[Continued from above table, first column(s) repeated]
For the three-
For the three-
For the three-
month period
month period
month period
ended March 31,
ended March 31,
ended March 31,
2003 (unaudited)
2004 (unaudited)
2004 (unaudited)
RMB
RMB
US$ (Note 2 (c))
(2,814,055
)
8,720,059
1,053,516
9,609,771
9,258,698
1,118,592
1,018,391
1,575,200
190,308
667,590
1,643,932
198,612
(4,866,397
)
(6,613,525
)
(799,015
)
(401,363
)
(7,862,052
)
(949,856
)
(1,102,465
)
(3,533,819
)
(426,939
)
2,527,939
7,211,983
871,318
27,969
20,437
2,469
(1,517,841
)
(1,250,423
)
(151,070
)
683,879
1,792,144
216,518
387,510
7,553,770
912,611
5,973,701
113,545
13,718
2,002,125
2,843,723
343,565
(298,307
)
(564,774
)
(68,233
)
11,898,447
20,908,898
2,526,114
(992,924
)
(2,937,286
)
(354,869
)
(738,074
)
(43,101
)
(5,207
)
(1,730,998
)
(2,980,387
)
(360,076
)
3,276,456
395,846
3,276,456
395,846
1,300
(118,927
)
(14,369
)
10,168,749
21,086,040
2,547,515
68,637,760
115,084,572
13,903,973
78,806,509
136,170,612
16,451,488
1,900,000
494,068
59,691
687,243
1,499,999
181,223
The accompanying notes are an integral part of these financial statements.
F-7
51JOB, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF
OPERATIONS
The accompanying consolidated financial
statements include the financial statements of 51job, Inc. (the
Company), its subsidiaries, which principally
consist of 51net Beijing, 51net.com Inc. (51net),
Qianjin Network Information Technology (Shanghai) Co., Ltd.
(Tech JV), Shanghai Qianjin Culture
Communication Co., Ltd. (AdCo), and Qian Cheng Wu
You Network Information Technology (Beijing) Co. Ltd.
(WFOE), and certain variable interest entity
subsidiaries (VIE subsidiaries), which consist of
Beijing Run An Information Consultancy Co., Ltd. (Run
An) and Beijing Qian Cheng Si Jin Advertising Co., Ltd.,
(Qian Cheng). The Company, its subsidiaries, and VIE
subsidiaries are hereinafter collectively referred to as the
Group.
The Company changed its name from 51net.com
Cayman Islands Inc. to 51job, Inc. effective from April 26,
2004.
The Group is an integrated human resource service
provider in the Peoples Republic of China (the
PRC) and is principally engaged in recruitment
related advertising services, including the production of a
city-specific publication of advertisement listings as newspaper
inserts and Internet recruitment services. The Group also
provides executive search service and other human resource
related services.
Pursuant to relevant PRC laws and regulations,
companies conducting businesses as stated in the preceding
paragraph have various licenses, including the advertisement
license, HR services license and the license for Internet
content provision (ICP) from relevant government
authorities.
The Company was incorporated in the Cayman
Islands on March 24, 2000 and accordingly is considered as
a foreign person under PRC law. As of December 31, 2003,
the Company owned a 99% and a 79.2% equity interest in
Tech JV and AdCo respectively. The remaining equity
interest in these entities was owned by Qian Cheng and Run An,
the Companys VIE subsidiaries. As PRC regulations limited
foreign ownership of companies that provide human resources
related services, Internet content provision and advertising
services, the Group was dependent on certain licenses held by
its VIE subsidiaries and conducted a small portion of its human
resource related operations through Run An and Qian Cheng. The
Company did not have any equity ownership interest in either of
these entities. After Tech JV obtained the necessary
business licenses, the business and operations of Run An
and Qian Cheng were transferred to Tech JV, AdCo and
AdCos subsidiaries over a period of time. Since 2002,
substantially all of the Companys operations have been
conducted through Tech JV, AdCo and AdCos
subsidiaries. Additionally, Run An and Qian Cheng held
certain equity interest in the Companys subsidiaries.
Pursuant to a series of technical and consulting services
agreements and undertaking by those equity owners, the Company
bore all of the risk and rewards of Run An and Qian Cheng
(Note 2(b)). Accordingly, as of December 31, 2003, the
Company, or its subsidiaries, as the case may be, was considered
the primary beneficiary of the VIE subsidiaries and their
results are consolidated in the Companys financial
statements. No other party shares in any of the economic risk or
rewards of the Companys subsidiaries and VIE subsidiaries;
therefore, no minority interest is reflected on the
Companys financial statements.
In March 2004, the PRC government amended its
limitation on foreign ownership of advertising companies and
currently permits foreign equity ownership up to 70% of a PRC
advertising entity. Accordingly, the Company undertook a
restructuring in May 2004 (the Restructuring) and
51net, a foreign entity, has transferred 48% of its equity
interest in Tech JV to a subsidiary of AdCo, which is also
an indirect subsidiary of 51net. As a result, 51net effectively
holds 69.7% of the equity interest in Tech JV and Qian
Cheng effectively holds the remaining 30.3% equity interest.
After the Restructuring, Tech JV can legally hold the
necessary licenses to provide advertising services in the PRC.
Additionally, as part of the Restructuring,
F-8
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
certain of the agreements with and undertakings
by the VIE subsidiaries were amended to enhance the
Companys ability to control the VIE subsidiaries
(Note 2(b)).
2. PRINCIPAL ACCOUNTING
POLICIES
(a) Basis
of presentation
The accompanying consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles in the United States of America
(U.S. GAAP).
The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the balance sheet dates and the reported amounts of revenues
and expenses during the reported periods. Actual results may
differ from those estimates.
(b) Basis
of consolidation
The consolidated financial statements include the
financial statements of the Company, its subsidiaries, and VIE
subsidiaries. All significant transactions and balances between
the Company, its subsidiaries, and VIE subsidiaries have been
eliminated upon consolidation.
A subsidiary is an entity in which the Company,
directly or indirectly, controls more than one half of the
voting power; has the power to appoint or remove the majority of
the members of the board of directors; to cast majority of votes
at the meeting of the board of directors or to govern the
financial and operating policies of the investee under a statute
or agreement among the shareholders or equity holders.
The Group has adopted Financial Accounting
Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51
(FIN 46) for all periods presented. FIN 46
requires VIEs to be consolidated by the primary beneficiary of
the entity. An entity is considered to be a VIE if certain
conditions are present, such as if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties.
As of December 31, 2003 and for all periods
presented, the Group is the primary beneficiary of two VIEs, Run
An and Qian Cheng, which were established in January 1997 and
February 1999, respectively. The VIEs were in existence prior to
the establishment of the Company and are considered predecessors
of the Group. The Group does not have any ownership interest in
these VIE subsidiaries but have control of such entities through
certain agreements and undertakings as described below. As a
result of the Groups consolidation of Run An and Qian
Cheng for all periods presented, 100% of the interest of Tech JV
and AdCo are consolidated in the consolidated financial
statements.
Run An holds ICP and HR service licenses and also
engages in provision of training services. Two senior executives
of the Company hold 80% and 20% of the equity interest in Run
An, respectively. As of December 31, 2003, the registered
capital of Run An was RMB300,000, which was fully paid by the
principal founder of the Company, and its accumulated loss was
RMB4,244,745.
Qian Cheng holds an advertisement license
necessary for recruitment advertising services. A senior
executive officer of the Company and Run An holds 80% and 20% of
the equity interest in Qian Cheng, respectively. As of
December 31, 2003, the registered capital of Qian Cheng was
RMB1,000,000, which was fully paid by the principal founder of
the Company, and its accumulated loss was RMB19,436,027.
F-9
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
As part of the Restructuring (Note 1), the Group
entered into and amended various agreements as related to its
VIE subsidiaries. While the substance of the previous agreements
with the VIE subsidiaries remain unchanged, the agreements and
arrangements were amended in connection with the Restructuring
to (i) enhance the Companys ability to control the
VIE subsidiaries and (ii) ensure the agreements are legally
enforceable in the PRC court of law. Accordingly, the
Restructuring did not change the Companys accounting of
its VIE subsidiaries. The key provisions of the agreements with
the Company or its subsidiaries and the VIE subsidiaries or its
shareholders are as follows:
Technical and Consulting Service Agreements.
WFOE has entered into technical and
consulting service agreements with Run An and Qian Cheng,
respectively, under which WFOE has the exclusive right, subject
to certain exceptions, to provide technical services to Run An
and Qian Cheng for service fees. The technical and consulting
service agreements have a term of ten years and can only be
terminated by WFOE during the term. Such term is renewable upon
the expiration of the agreement.
Pledge and Control Agreements.
As security for Run An and Qian
Chengs obligations under the technical and consulting
service agreements, the shareholders of Run An and Qian Cheng
have pledged all of their equity interest in Run An and Qian
Cheng to WFOE. According to the pledge agreement, WFOE has the
right to sell the pledged equity. Additionally, the shareholders
of Run An and Qian Cheng have agreed that they will not dispose
of the pledged equity or take any actions that will prejudice
WFOEs interest under the equity pledge agreements. They
have further agreed that they will obtain WFOEs consent
regarding material decisions concerning the operation of Run An
and Qian Cheng, including the distribution of profits, the
incurrence of debt and the appointment of directors.
Additionally, WFOE has the right to recommend candidates to the
board for the positions of general manager and senior executives
of Run An and Qian Cheng. Under such pledges, WFOE is obliged to
purchase any and all of the equity interest in Run An and Qian
Cheng from their shareholders, if permitted by the PRC laws. The
pledges cannot be released until the discharge of all of Run An
and Qian Chengs obligations under the respective technical
and consulting service agreement.
(c) Foreign
currencies
The Groups functional currency is the
Renminbi (RMB). Transactions denominated in
currencies other than RMB are translated into RMB at the
exchange rates quoted by the Peoples Bank of China
prevailing at the dates of the transactions. Gains and losses
resulting from foreign currency transactions are included in the
consolidated statements of operations and comprehensive income.
Monetary assets and liabilities denominated in foreign
currencies are translated into RMB using the applicable exchange
rates quoted by the Peoples Bank of China at the balance
sheet dates. All such exchange gains and losses are included in
the statements of operations and comprehensive income. The
exchange differences for translation of group companies
balances where RMB is not their functional currency are included
in cumulative translation adjustments, which is a separate
component of shareholders equity on the consolidated
financial statements.
The unaudited United States dollar
(US$) amounts disclosed in the accompanying
financial statement are presented solely for the convenience of
the readers. Translations of amounts from RMB into United States
dollars for the convenience of the reader were calculated at the
noon buying rate of US$1.00 = RMB8.2771 on March 31, 2004
in The City of New York for cable transfers of RMB as certified
for customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or
could be, converted into US$ at that rate on March 31,
2004, or at any other certain rate.
F-10
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
(d) Cash
Cash represents cash on hand and demand deposits
placed with banks or other financial institutions. Included in
the cash balance as of December 31, 2002, 2003 and
March 31, 2004 are amounts denominated in United States
dollars totalling US$4,723,257, US$3,082,282 and US$3,459,964,
respectively (equivalent to approximately RMB39,094,871,
RMB25,512,356, and RMB28,638,468, respectively). The Group
receives substantially all of its revenues in RMB, which
currently is neither a freely convertible currency nor can it be
freely remitted out of China. However, there are no restrictions
the in use of the cash and cash equivalents in the PRC as the
cash and cash equivalents are not restricted funds and are not
classified as restricted cash.
(e) Accounts
receivable
Accounts receivable is presented net of allowance
for doubtful accounts. The Company provides specific provisions
for bad debts when facts and circumstances indicate that the
receivable is unlikely to be collected. If the financial
condition of its customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
(f) Investments
As of December 31, 2003 and March 31,
2004, investments consist of a fixed-maturity instrument issued
by Hong Kong and Shanghai Banking Corporation Limited. The
fixed-maturity instrument is negotiable, bears interest at 1.35%
per annum and will mature on June 19, 2006. The financial
instrument is redeemable by the Group at its discretion.
Investments are recorded at fair value as available-for-sale
securities in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Investment
Securities.
(g) Property
and equipment
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is calculated on a
straight-line basis over the following estimated useful lives:
(h) Intangible
assets
Intangible assets include purchased computer
software, licenses and internally developed software and are
amortized on a straight-line basis over their estimated useful
lives, which range from two to five years.
The Group recognizes costs to develop software
products to be marketed or sold in accordance with SFAS
No. 86, Accounting for Costs of Computer Software to
be Sold, Leased or Otherwise Marketed (SFAS
No. 86). Costs incurred for the development of
software products prior to the establishment of technological
feasibility are expensed when incurred and are included in
product development expense. Once the software product has
reached technological feasibility, all subsequent product
development costs are capitalized until that product is
available for marketing. Technological feasibility is evaluated
on a product-by-product basis.
F-11
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
The Group recognizes website and internally used
software development costs in accordance with Statement of
Position (SOP) No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for
Internal Use and Emerging Issues Task Force
(EITF) No. 00-02, Accounting for Website
Development Cost, where applicable. As such, the Group
expenses all costs that are incurred in connection with the
planning and implementation phases of development and costs that
are associated with repair or maintenance of the existing
websites and software. Costs incurred in the development phase
are capitalized and amortized over the estimated product life.
Since the inception of the Group, the amount of costs qualifying
for capitalization has been immaterial and as a result all
website and internally used software development costs have been
expensed as incurred.
(i) Impairment
of long-lived assets
The Group has adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets which addresses the financial accounting and
reporting for the recognition and measurement of impairment
losses for long-lived assets. In accordance with SFAS
No. 144, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that
carrying amount of an asset may not be recoverable. The Group
recognizes impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. No impairment of long-lived
assets was recognized for all periods presented.
(j) Revenue
recognition
Print
advertising
The Group provides recruitment advertising
services on the weekly newspaper which is distributed in various
cities of the PRC. Arrangements for recruitment advertisement on
the weekly newspaper are generally short-term in nature. Fees
for these types of print recruitment advertising services are
recognized as revenue when collectibility is reasonably assured
and upon the publication of the advertisements. Cash received in
advance of services are recognized as advances from customers.
Online
recruitment services
The Group provides online recruitment advertising
and other technical services through its
www.51job.com
website. The average display period of online recruitment
services normally range from one month to one year. Fees for its
online recruitment advertisement and other technical services
are recognized as revenue ratably over the display period of the
contract or when services are provided and when collectibility
is reasonably assured in accordance with Staff Accounting
Bulletin (SAB) No. 101. Cash received in
advance of services are recognized as advances from customers.
Executive
search
The Group provides executive search services.
Revenue is recognized when recruitment services are
substantially rendered and collectibility is reasonably assured,
less an allowance for individuals placed but not expected to
meet the probation period. The allowance for search placement is
based on historical activities of search placement that do not
complete the contingency period. This contingency period varies
on a contract by contract basis but is typically 90 days.
The Group has not had significant search placements that do not
complete the contingency period. Cash received in advance of
services are recognized as advances from customers.
F-12
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Other
human resources related services
The Group also provides other value-added human
resource products. Revenue is recognized when services are
rendered or products are sold.
Business
and related tax
The Companys subsidiary and its VIE
subsidiaries are subject to business tax and related surcharges
on the revenues earned for services provided in the PRC. The
applicable rate of business tax is 5% after certain deductible
expenses. In the accompanying statements of operations and
comprehensive income, business tax and related surcharges for
revenues earned are deducted from gross revenues to arrive at
net revenues.
(k) Cost
of services
Cost of services consist primarily of printing
and publishing expenses, payroll compensation and related
employee costs, and other expenses incurred by the Group which
are directly attributable to the rendering of the Groups
recruitment advertising and other human resource services.
(l) Sales
and marketing
Sales and marketing costs comprised primarily of
the Groups sales and marketing personnel payroll
compensation and related employee costs and advertising and
promotion expenses. Advertising and promotion expenses that
generally represents the cost of promotions to create or
stimulate a positive image of the Group or a desire for the
Groups services. Advertising and promotion expenses
totalled approximately RMB6,968,479, RMB4,036,324, RMB7,062,232,
RMB1,052,080 and RMB1,810,422 during the years ended
December 31, 2001, 2002, 2003 and the three-month periods
ended March 31, 2003 and 2004, respectively, are charged to
the statements of operations when incurred.
(m) Share-based
compensation
The Group accounts for share-based compensation
arrangements with employees in accordance with Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25), and complies with the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) and SFAS
No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. In
general, compensation cost under APB No. 25 is recognized
based on the difference, if any, between the estimated fair
value of the Companys common shares and the amount an
employee is required to pay to acquire the common shares, as
determined on the date the option is granted. Compensation cost,
if any, is recorded in shareholders equity as additional
paid-in capital with an offsetting entry recorded to deferred
share-based compensation. Deferred share-based compensation is
amortized and charged to expense based on the vesting terms of
the underlying options.
F-13
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
If the compensation cost for the Groups
share-based compensation plan for employees had been determined
based on the estimated fair value on the grant dates for the
share option awards as prescribed by SFAS No. 123, as
allowed for nonpublic entities, the Companys net income
attributable to common shareholders and earnings per share would
have resulted in the pro forma amounts for the years ended
December 31, 2001, 2002, 2003, and the three-month periods
ended March 31, 2003 and 2004 as disclosed below:
The effects of applying SFAS No. 123
methodologies in this pro forma disclosure are not indicative of
future earnings or earnings per share. Additional share option
awards in future years are expected.
For the years presented, the Company calculated
the fair value of share options to employees on the date of
grant based on the minimum value method as allowed under SFAS
No. 123 for non-public entities, using the following
assumptions:
F-14
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
(n) Operating
leases
Leases where substantially all the rewards and
risks of ownership of assets remain with the leasing company are
accounted for as operating leases. Payments made under operating
leases, net of any incentives received by the Group from the
leasing company, are charged to the statements of operations and
comprehensive income on a straight-line basis over the lease
periods.
(o) Taxation
Deferred income taxes are provided using the
balance sheet liability method. Under this method, deferred
income taxes are recognized for the differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities by applying enacted statutory
rates applicable to future years in which the differences are
expected to reverse. The tax base of an asset or liability is
the amount attributed to that asset or liability for tax
purposes. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the
enactment date. A valuation allowance is provided to reduce the
amount of deferred tax assets if it is considered more likely
than not that some portion of, or all of, the deferred tax
assets will not be realized.
(p) Statutory
reserves
All Chinese subsidiaries and VIE subsidiaries
incorporated in the PRC except for Tech JV which is majority
owned by 51net, a BVI company, are required on an annual basis
to make an appropriation of retained earnings as statutory
common reserve fund equal to 10% of after-tax profit, calculated
in accordance with PRC accounting standards and regulations.
Appropriations are classified in the consolidated balance sheet
as statutory common reserves, and are recorded beginning in the
first period in which after-tax profits exceed all prior year
accumulated losses. Once the total statutory common reserve
reaches 50% of the registered capital of the respective
companies, further appropriations are discretionary. The
statutory common reserves can be used to increase the registered
capital and eliminate future losses of the respective companies.
The Groups statutory common reserve is not distributable
to shareholders except in the event of a liquidation. During the
years ended December 31, 2001, 2002, 2003, and the
three-month period ended March 31, 2003 and 2004, the Group
made total appropriations to their statutory common reserves of
nil, RMB580,847, RMB5,732,752, RMB772,571 and RMB2,168,286,
respectively.
In addition, the above subsidiaries are required
on an annual basis to set aside at least 5% of after-tax profit,
calculated in accordance with PRC accounting standards and
regulations, to the statutory common welfare fund, which can be
used for staff welfare of the Group. The Groups
subsidiaries made total appropriations to of nil, RMB290,423,
RMB2,866,376, RMB386,285 and RMB1,084,143 during the years ended
December 31, 2001, 2002, 2003 and the three-month periods
ended March 31, 2003 and 2004.
Tech JV is required on an annual basis to
make appropriations of retained earnings, calculated in
accordance with PRC accounting standards and regulations, to
non-distributable statutory reserves, comprising of enterprise
statutory reserve, employees bonus and welfare fund and
enterprise expansion fund. The percentages of the appropriation
are determined by the Board of Directors of Tech JV. During the
years ended December 31, 2001, 2002, 2003 and the
three-month periods ended March 31, 2003 and 2004, Tech JV
did not make any appropriation to these statutory reserves.
Appropriations to the statutory reserves and the
statutory common welfare fund are accounted for as a transfer
from retained earnings or accumulated deficit to statutory
reserves.
F-15
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
There are no legal requirements in the PRC to
fund these reserves by transfer of cash to any restricted
accounts, and the Group does not do so. These reserves are not
distributable as cash dividends.
(q) Earnings
per share
In accordance with SFAS No. 128,
Computation of Earnings Per Share (SFAS
No. 128) and EITF Issue 03-06,
Participating Securities and the Two-Class Method under
FASB Statement No. 128, basic earnings
(loss) per share is computed by dividing net income
(loss) attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during
the period using the two-class method. Under the two class
method, net income is allocated between common shares and other
participating securities based on their participating rights.
The Companys Series A Preference Shares (Note 9)
are participating securities. Diluted earnings (loss) per share
is calculated by dividing net income (loss) attributable to
ordinary shareholders as adjusted for the effect of dilutive
ordinary equivalent shares, if any, by the weighted average
number of ordinary and dilutive ordinary equivalent shares
outstanding during the period. Ordinary equivalent shares
consist of the ordinary shares issuable upon the conversion of
the convertible preference shares (using the if-converted
method) and ordinary shares issuable upon the exercise of
outstanding share options (using the treasury stock method).
(r) Segment
reporting
The Group operates and manages its business as a
single segment. As the Group primarily generates its revenues
from customers in the PRC, no geographical segments are
presented.
(s) Recent
accounting pronouncements
In November 2002, the EITF reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF No. 00-21). This issue
addresses how revenue arrangements with multiple deliverables
should be divided into separate units of accounting and how the
arrangement consideration should be allocated to the identified
separate accounting units. EITF No. 00-21 is effective for
fiscal periods beginning after June 15, 2003. The Group
does not believe the adoption of this EITF will have a
significant impact on its financial statements.
In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51
(FIN 46). In December 2003, the FASB issued a
revised version of FIN 46, or FIN 46-R, in an effort
to clarify the application of FIN 46. The interpretations
define variable interests and specify the circumstances under
which consolidation of entities will be dependent of such
interests. The Group has adopted FIN 46 for all periods
presented. For public entities, FIN 46-R is effective for
all interests in VIEs as of the end of the first reporting
period ending after March 15, 2004. However, early adoption
is permitted. The adoption of FIN 46-R will not have a
material effect on the Companys consolidated financial
statements.
In June 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS
No. 150). SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that
is within its scope as a liability (or as an asset in some
circumstances). It is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance
date of SFAS No. 150 and still in existence at the
beginning of the
F-16
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
interim period of adoption. Restatement is not
permitted. The adoption of SFAS No. 150 did not have a material
effect on the Groups financial position or results of
operations.
In March 2004, the EITF reached a consensus on
Issue No. 03-06, Participating Securities and the
Two-Class Method under FASB Statement No. 128
(EITF No. 03-06). EITF No. 03-06 provides
guidance regarding the computation of earnings per share by
companies that have issued securities other than common shares
that entitle the holder to participate in dividends and earnings
of the company. EITF No. 03-06 provides further guidance on
what constitutes a participating security and requires the
application of the two-class method in determining earnings per
share. EITF No. 03-06 is effective for the quarter ending
June 30, 2004. The Group has applied the guidance in this
EITF for the calculation of earnings per share in these
financial statements.
3. ACCOUNTS
RECEIVABLE
The Groups accounts receivable balances,
net of allowance for doubtful accounts, were RMB4,977,860,
RMB17,419,248 and RMB24,032,773 as of December 31, 2002,
2003 and March 31, 2004, respectively.
The movement of allowance for doubtful accounts
is analyzed as follows:
4. PREPAYMENTS AND OTHER
CURRENT ASSETS
F-17
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
5. PROPERTY AND
EQUIPMENT
6. INTANGIBLE
ASSETS
7. OTHER PAYABLES AND
ACCRUALS
8. TAXATION
Cayman
Islands
Under the current laws of Cayman Islands, the
Company and its subsidiaries that are incorporated in Cayman
Islands are not subject to tax on income or capital gain. In
addition, upon payments of dividends by those companies to their
shareholders, no Cayman Islands withholding tax will be imposed.
F-18
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
British
Virgin Islands
Under the current laws of British Virgin Islands,
the Companys subsidiary that is incorporated in British
Virgin Islands is not subject to tax on income or capital gain.
In addition, upon payments of dividends by that company to its
shareholders, no British Virgin Islands withholding tax will be
imposed.
Hong
Kong
The Companys subsidiary that is
incorporated in Hong Kong is subject to Hong Kong profits tax at
a rate of 17.5% on its assessable profit.
China
The Companys subsidiaries that are
incorporated in the PRC are subject to Enterprise Income Tax
(EIT) on the taxable income as reported in their
respective statutory financial statements adjusted in accordance
with the Enterprise Income Tax Law and the Income Tax Law of the
Peoples Republic of China Concerning Foreign Investment
Enterprises and Foreign Enterprises (collectively the PRC
Income Tax Laws), respectively. Pursuant to the PRC Income
Tax Laws, these companies are subject to EIT at a statutory rate
of 33% except for Tech JV, which is subject to EIT at a rate of
30% and AdCo Shenzhen Branch, which is subject to EIT at a rate
of 15%. In addition, AdCo and some of its subsidiaries are
granted by the local tax authorities a right to elect a two-year
EIT exemption on their taxable income, commencing from their
establishment, which principally began in 2002 and 2003. Total
tax benefit recognized as a result of the tax exemption was
RMB3,645,168, RMB16,127,096, RMB2,874,232 and RMB518,701 in
2002, 2003 and the three-month periods ended March 31, 2003
and 2004, respectively.
Composition
of income tax expense (benefit)
The current and deferred portion of income tax
expense (benefit) included in the consolidated statement of
operations for the years ended December 31, 2001, 2002, 2003 and
the three-month period ended March 31, 2004 are as follows:
F-19
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Reconciliation
of the differences between statutory tax rate and the effective
tax rate
Reconciliation between the statutory EIT rate in
the PRC and the Groups effective tax rate for the years
ended December 31, 2001, 2002, 2003 and the three-month
period ended March 31, 2004 are as follows:
F-20
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Significant components of deferred tax assets and
liabilities as of December 31, 2002, 2003 and
March 31, 2004 are as follows:
As of December 31, 2002, 2003 and
March 31, 2004, valuation allowances were provided on the
deferred tax assets to the extent that management believed it
was more likely than not that such deferred tax assets would not
have been realized in the foreseeable future. Valuation
allowances were provided because it was more likely than not
that the Group will not be able to utilize certain tax loss
carryforwards generated by certain subsidiaries or VIE
subsidiaries. As those entities continue to generate tax losses
and tax planning strategies are not available to utilize those
tax losses in other group companies, management believes it is
more likely than not that such losses will not be utilized
before they expire. However, certain valuation allowance was
reversed in 2002, 2003, and the three-month period ended
March 31, 2004 when the Group generated sufficient taxable
income to utilize the deferred tax assets. If events occur in
the future that prevent the Group from realizing some or all of
its deferred tax assets, an adjustment to the valuation
allowances will be recognized when such events occur. Tax loss
carryforwards in the amount of RMB27,620,852 as of
March 31, 2004 will expire beginning 2005. In the PRC, tax
loss carryforwards generally expire after five years.
F-21
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
The following represents a rollforward of the
valuation allowance for each of the periods:
9. SERIES A CONVERTIBLE
PREFERENCE SHARE
In June 2000, the Company entered into a
Series A Preference Shares Purchase Agreement, in which
(i) the Company authorized 8,000,000 of the Companys
Series A Convertible Preference Shares (Series A
Preference Shares), and (ii) the Company agreed to
sell and the investors agreed to purchase 7,668,658
Series A Preference Shares, subject to closing and
subscription, at an issuance price of US$1.0417 per share.
In October 2001, the Company entered into a new
Series A Preference Shares Purchase Agreement, in which
(i) the Company increased the authorized Series A
Preference Shares to 15,000,000 and (ii) the Company agreed
to sell and the investors agreed to purchase 5,999,808
Series A Preference Shares, subject to closing and
subscription, at an issuance price of US$1.0417 per share.
Based on the share purchase agreements, there
have been five closings of Series A Preference Shares as
follows:
Under the Companys Articles of Association,
the holders of Series A Preference Shares had various
rights and preferences as follows:
Voting
Holders of the outstanding Series A
Preference Shares, voting separately as a single class, shall be
entitled to elect two of the five directors to the
Companys Board of Directors. Holders of the outstanding
common shares, voting separately as a single class, shall be
entitled to elect two directors to the Companys Board of
Directors. The fifth director shall be elected as provided in
the Companys Articles of Association, as mutually agreed
by the directors elected by the Series A Preference
Shareholders and common shareholders.
Dividends
The holders of the Series A Preference
Shares were entitled to receive, out of any funds legally
available therefore, when and as declared by the board of
directors, dividends at a rate of eight percent (8%) per annum.
F-22
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
No dividends may be paid on the common shares of
the Company until all declared dividends on the preference
shares were paid, and no dividend may be paid on any common
shares unless a dividend is paid with respect to each
outstanding Series A Preference Share equal to or greater
than the amount of such dividend that would be payable on all
common shares into which such Series A Preference Share
could then be converted. Such dividend rights are not cumulative
and no right to such dividend accrues unless declared by the
board of directors.
In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the
holders of the Series A Preference Shares would be entitled
to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Company to the holders of
the common shares, the amount equal to US$1.0417 (the
Series A Preference Share Liquidation
Preference) for each shares held and, plus declared but
unpaid dividends.
Subject to the payment of all amounts due to the
holders of the Series A Preference Shares, the remaining
net assets shall be distributed pro rata amongst the holders of
the common shares and Series A Preference Shares on an
as-converted basis.
Each holder of Series A Preference Shares
were entitled to convert such preference shares at any time,
without the payment of any additional consideration, into common
shares at an initial conversion price of US$1.0417 (each
Series A Preference Share is convertible into one common
share).
The conversion price would be adjusted, in the
event the Company was to issue any common shares, or shares that
are convertible into common shares, except for certain cases,
including issuances of employees share options, less than the
conversion price in effect on the date immediately prior to such
issue (Dilutive Issuance). In the event of a
Dilutive Issuance, the then effective conversion price would be
reduced, concurrent with such issuance, to a price as determined
with reference to a formula specified in the Companys
Article of Association.
Each Series A Preference Share would be
automatically be converted into common shares at the then
effective conversion price upon the closing of a firm commitment
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, of the United States of America covering the offer and
sale of common shares to the public involving an aggregate
offering price to the public in respect of all the common shares
so offered of not less than US$10,000,000, at an offering price
of US$3.12 per common share or more, as adjusted for any
recapitalization.
Holders of the Series A Preference Shares
can request the Company to effect any registration,
qualification and compliance of its shares and also be included
in the Companys registration for a public offering. Future
registration rights are prohibited unless they are subordinate
to those given to Series A Preference Shareholders or 50%
or more of the holders of registrable securities as defined in
the investor rights agreement agree to equal or superior
registration rights.
F-23
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Holders of the Series A Preference Shares
have the right of first refusal to purchase a pro rata share of
any new securities issued by the Company, excluding securities
issued in connection with the Companys registration for a
public offering.
In the event of a sale of common shares or
additional Series A Preference Shares, existing holders of
the Series A Preference Shares have the right to sell a pro
rata share of his holdings at the same offered price.
In 2001, the Company issued to Recruit Company
Limited (Recruit) a warrant to purchase 10,000
Series A Preference Shares at exercise price of US$1.0417
in connection with obtaining access to an online recruiting
application developed by Recruit. The warrant was exercised
immediately and Recruit became a registered holder of 10,000
Series A Preference Shares as of May 2001.
In August 2002, in connection with share
repurchase from an executive officer (Note 12) the principal
Series A Preference shareholder received a warrant to
purchase an additional 380,000 Series A Preference Shares
at an exercise price of US$ 1.0417 per share for no
consideration. The fair value of the warrants, RMB1,233,659, as
determined based on the Black Scholes option pricing model, is
deducted from 2002 net income as a deemed dividend to arrive at
net income attributable to common shareholders for earnings per
share calculation. The warrant was exercised in March 2004.
On September 1, 2000, the Company adopted a
share option plan (2000 Option Plan) which provides
for the issuance of up to 4,010,666 common shares. The total
number of common shares reserved under the plan was increased to
5,530,578 in February 2004. Under the share option plan, the
directors may, at their discretion, issue share options to
purchase the Companys common shares to any senior
executives, directors, employees or consultants of the Group.
These share options can be exercised within six years from the
date of grant.
The following table summarizes the Companys
share option:
F-24
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
The following is additional information relating
to employee options outstanding as of December 31, 2003:
The following is additional information relating
to employee options outstanding as of March 31, 2004
(unaudited):
In connection with share option granted during
the years ended December 31, 2001, 2002, 2003 and
three-month period ended March 31, 2003 and 2004, the
Company recognized deferred share-based compensation totaling
RMB nil, RMB nil, RMB60,417,377, RMB9,609,771 and
RMB15,413,831, respectively, which is being amortized over the
vesting period.
In 2003, the Company extended the exercise period
for certain employees who were terminated during the year. The
modification to increase the life of the option results in a new
measurement date and an incremental share based compensation
expense of RMB9,899,198 recognized in 2003.
In February 2004, the Company issued 138,264
immediately exercisable share options to a certain director and
this director immediately purchased the common shares underlying
the options. This transaction resulted in the recognition of
share-based compensation expense of RMB5,699,236 in the
three-month period ended March 31, 2004.
Compensation expense recognized during the years
ended December 31, 2001, 2002, 2003 and three-month periods
ended March 31, 2003 and 2004, totaling RMB nil,
RMB nil, RMB14,079,097, RMB 9,609,771 and RMB9,258,697,
respectively.
F-25
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
The employees of the Companys subsidiaries
that are incorporated in the PRC are entitled to staff welfare
benefits including medical care, welfare subsidies, unemployment
insurance and pension benefits. These companies are required to
accrue for these benefits based on certain percentages of the
employees salaries in accordance with the relevant
regulations, and make contributions to the state-sponsored
pension and medical plans out of the amounts accrued for medical
and pension benefits. The total amounts charged to the
statements of operations and comprehensive income for such
employee benefits amounted to RMB6,139,060, RMB9,161,768,
RMB11,733,119, RMB2,420,885 and RMB3,589,375 for the years ended
December 31, 2001, 2002, 2003 and three-month periods ended
March 31, 2003 and 2004, respectively. The PRC government
is responsible for the medical benefits and ultimate pension
liability to these employees.
Balances with related parties for the periods
indicated are as follows:
The amounts due to principal shareholders as of
December 31, 2002, 2003 and the three-month period ended
March 31, 2004 mainly arose from the loans from certain
principal shareholders. These amounts are unsecured,
non-interest bearing and have no definite terms.
In August 2002 the Company agreed to repurchase
380,000 shares from Michael Lei Feng, an executive of the
Company, for aggregate consideration of US$57,000 (approximately
RMB471,806). As a result, in 2002 and 2003, the amount due
pursuant to this repurchase was recorded as due to principal
shareholders. This amount was paid in March 2004. In addition,
in August 2002, the Company agreed to pay to Michael Lei Feng
compensation of US$338,200 (approximately RMB2,799,180), payable
over ten years. The entire amount of this compensation was paid
in March 2004. As a result, the Group recognized compensation
expense of RMB89,122 in 2002, and RMB267,331 in 2003 and will
record compensation expense of RMB2,442,727 in 2004 related to
this payment. In connection with share repurchase, the Company
issued a warrant to DCM to purchase 380,000 Series A
preference shares for no consideration (Note 9).
The amount of advance for share options exercise
arose from the exercise of options by the Companys
directors and executive officers. During the periods presented,
certain directors and executive officers of the Company made
payments to exercise certain unvested options. In connection
with the early exercises, the Company has a call option to
repurchase the shares that are not yet vested if the employees
terminate prior to the options vesting at the original
exercise price. The early exercise of the options was not
considered a substantial exercise for accounting purposes on the
date of exercise, and the cash paid for the exercise price is
recognized as a liability and such common shares are not
considered issued. When the options are vested and the call
option expires, the shares are considered issued and cash paid
for the exercise is transferred to shareholders equity.
F-26
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
Basic earnings (loss) per share and diluted
earnings (loss) per share have been calculated for the
years ended December 31, 2001, 2002, 2003 and the
three-month periods ended March 31, 2003 and 2004 are as
follows:
Net income (loss), after deducting deemed
dividends to holders of preferred shares, has been allocated to
the common share and preferred share based on their respective
rights to share in dividends.
Potentially dilutive securities included the
Series A Preference Share, warrants and share options
granted to employees. For the year ended December 31, 2001,
potentially dilutive securities that were not included in the
computation of earnings (loss) per share because of its
anti-dilutive effect included the Series A Preference
Shares and share options. During the year ended
December 31, 2002, 2003 and the three-month periods ended
March 31, 2003 and 2004, potentially dilutive securities
that were not included in the computation of diluted earnings
per share because of its anti-dilutive effect include the
Series A Preference Shares.
F-27
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
14. COMMITMENTS AND
CONTINGENCIES
Operating lease
commitments
The Group has entered into non-cancelable
agreements with initial or remaining terms in excess of one year
for the publication of Career Post Weekly, the rental of office
premises and for the lease of computer and other equipment.
Future minimum payments with respect to these agreements as of
December 31, 2003 are as follows:
Future minimum payments with respect to these
agreements as of March 31, 2004 are as follows:
Rental expenses for the years ended
December 31, 2001, 2002, 2003 and three-month periods ended
March 31, 2003 and 2004 are RMB9,857,975, RMB9,699,130,
RMB10,456,277, RMB2,732,569 and RMB3,301,689, respectively.
Contingencies
There are uncertainties regarding the legal basis
of the Companys ability to operate the Internet content
service. Although the PRC has implemented a wide range of
market-oriented economic reforms, the telecommunication,
information and media industries as well as certain sectors of
the HR service industries remain highly regulated. Not only are
restrictions currently in place, but also regulations are
unclear regarding in what specific segments of these industries
companies with foreign investors, including the Company, may
operate. Therefore, the Company might be required to limit the
scope of its operations in the PRC, and this could have an
adverse effect on the Companys financial position, results
of operations and cash flows.
Tech JV obtained an advertising license in May
2000, when Tech JV was a 98% foreign owned entity, and a license
to conduct human resource services in September 2002, when Tech
JV was a 99% foreign owned entity. During the period from the
date Tech JV acquired these licenses to the date of the
Restructuring
F-28
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
(Note 1), Tech JV and its licensed PRC
subsidiaries conducted all of the advertising and human resource
related services. Following the acquisition of these licenses
and commencing these operations, the PRC government enacted laws
limiting foreign ownership in entities conducting advertising
and human resource related services.
The PRC government has not published an official
ruling with respect to the status of foreign ownership
arrangements that were established prior to the enactment of
these limitations and which may be above these limitations.
Prior to the Restructuring, the ownership percentage of Tech JV
was above the maximum foreign ownership permitted for an entity
conducting advertising and human resource operations. In
addition, there is uncertainty regarding the regulation of PRC
subsidiaries in which subsidiaries of foreign-owned PRC entities
invest, such as the subsidiaries of AdCo which are engaged in
advertising or trade businesses. The PRC government may
determine that the Groups ownership structure was
inconsistent with or insufficient for the proper operation of
the Groups businesses, or that the Groups business
licenses or other approvals were not properly issued or not
sufficient.
In the opinion of management, the likelihood of
loss in respect of the Groups current or past ownership
structure is remote.
15. UNAUDITED PRO FORMA BALANCE SHEET AND
EARNINGS PER SHARE
Each Series A Preference Share will
automatically convert into one common share at a 1:1 conversion
ratio upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, of the United States of
America covering the offer and sale of common shares to the
public involving an aggregate offering price to the public in
respect of all the common shares so offered of not less than
$10,000,000, at an offering price of $3.12 per common share
or more (appropriately adjusted for any recapitalization) or at
the option of the holder thereof. The unaudited pro forma
balance sheets as of December 31, 2003 and March 31,
2004 present as adjusted financial position as if conversion of
the Series A Preference Shares into common shares occurred
as of December 31, 2003 and March 31, 2004.
F-29
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
The unaudited pro forma earnings per share for
the year ended December 31, 2003 and the three-month period
ended March 31, 2004 giving effect to the conversion of the
Series A Preference Shares into common shares as of
January 1, 2003 are as follows:
16. FINANCIAL INSTRUMENTS
Financial instruments of the Group primarily
comprise investments, accounts receivable, accounts payable, due
to related parties, other payables and advance from customers.
As of December 31, 2002, 2003 and March 31, 2004,
their carrying values approximate their estimated fair values.
17. CERTAIN RISKS AND
CONCENTRATION
Financial instruments that potentially subject
the Group to significant concentrations of credit risk consist
primarily of cash and accounts receivable. As of
December 31, 2002, 2003 and March 31, 2004,
substantially all of the Groups cash was held in major
financial institutions located in the PRC and in Hong Kong which
management believes are of high credit quality. Accounts
receivable are typically unsecured and denominated in RMB, and
are derived from revenues earned from operations arising in the
PRC.
The Groups sales and purchase and expense
transactions are generally denominated in RMB and a significant
portion of the Groups assets and liabilities are
denominated in RMB. RMB is not freely convertible into foreign
currencies. In the PRC, foreign exchange transactions are
required by law to be transacted only by authorized financial
institutions at exchange rates set by the Bank of China.
Remittances in currencies other than RMB by the Group in the PRC
must be processed through the Bank of China or other
F-30
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
PRC foreign exchange regulatory bodies and
requires certain supporting documentation in order to effect the
remittance.
No individual customer accounted for more than
10% of net revenues during the years ended December 31,
2001, 2002, 2003 and the three-month periods ended
March 31, 2003 and 2004. No individual customer accounted
for more than 10% of accounts receivable as of December 31,
2002, 2003 and March 31, 2004.
18. SUBSEQUENT EVENTS
On April 8, 2004, two senior executives
established Shanghai Run An Lian Information
Consultancy Co., Ltd. (RAL). RAL holds a
permit issued by the Shanghai human resources bureau which
allows it to conduct human resource related business including
the collection and launch of, and consulting services related to
human resource supply and demand information (online human
resource service). RAL also obtained a permit from Shanghai
Municipal telecommunications administration bureau that allows
it to provide Internet information services that do not relate
to news, publishing, education, healthcare, medicine and medical
appliances. RAL will conduct the Groups other HR related
services and operate as an Internet content provider. Pursuant
to certain agreements and undertakings, RAL is considered a VIE.
The agreements and undertakings are substantially consistent as
those described in Note 2(b), and the Group is considered
the primary beneficiary of RAL. Accordingly, RALs results
will be consolidated in the Groups financial statements in
future periods. The Groups maximum exposure to loss as a
result of the Groups involvement with RAL is limited to
its original investment in RAL of RMB1,000,000.
F-31
Table of Contents
Table of Contents
Table of Contents
Estimated useful lives
Lesser of the lease period or
the estimated useful life
5 years
5 years
5 years
Table of Contents
Table of Contents
Table of Contents
For the
For the
three-month
three-month
period ended
period ended
2001
March 31, 2003
March 31, 2004
(unaudited)
2002
2003
(unaudited)
(unaudited)
RMB
RMB
RMB
RMB
RMB
(14,148,719
)
12,754,733
37,222,729
(2,814,055
)
8,720,059
14,079,097
9,609,771
9,258,698
(125,374
)
(113,316
)
(14,561,562
)
(9,924,673
)
(9,318,053
)
(14,274,093
)
12,641,417
36,740,264
(3,128,957
)
8,660,704
(0.50
)
0.27
0.89
(0.11
)
0.20
(0.50
)
0.27
0.87
(0.11
)
0.20
(0.50
)
0.27
0.88
(0.11
)
0.19
(0.50
)
0.27
0.87
(0.11
)
0.19
2001
March 31, 2004
(unaudited)
2002
2003
(unaudited)
2.65%
2.65%
2.65%
2.65%
4
4
4
4
0
0
0
0
0
0
0
0
RMB0.18
RMB0.18
RMB37.59
RMB42.46
Table of Contents
Table of Contents
Table of Contents
2001
March 31, 2004
(unaudited)
2002
2003
(unaudited)
RMB
RMB
RMB
RMB
889,430
889,430
1,318,528
1,147,934
485,243
(258,504
)
(56,145
)
889,430
889,430
1,318,528
1,318,528
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
1,388,386
1,372,053
1,439,430
1,447,198
3,057,713
3,051,848
181,526
2,172,835
516,519
1,471,971
2,029,925
1,197,418
1,655,420
950,799
3,967,289
448,260
1,623,071
1,005,020
3,800,363
8,657,133
16,519,185
Table of Contents
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
3,263,415
4,883,356
5,583,330
14,834,087
19,546,267
21,505,941
2,470,421
3,009,923
3,147,234
667,284
2,635,420
2,635,420
(7,547,686
)
(12,225,449
)
(13,708,029
)
13,687,521
17,849,517
19,163,896
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
6,061,910
9,000,380
10,543,479
3,049,274
3,049,274
3,049,274
941,725
1,568,808
1,568,808
(2,629,871
)
(5,905,867
)
(7,549,798
)
7,423,038
7,712,595
7,611,763
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
194,345
1,853,820
4,808,271
588,752
686,981
942,494
296,911
484,963
551,950
560,932
629,032
479,189
1,385,089
1,709,040
3,504,953
8,248,736
Table of Contents
For the three-
For the three-
month period
month period
2001
ended March 31,
ended March 31,
(unaudited)
2002
2003
2003 (unaudited)
2004 (unaudited)
RMB
RMB
RMB
RMB
RMB
928,426
3,230,664
684,404
9,301,177
(2,187,620
)
(38,653
)
(418,586
)
(1,741,675
)
(1,259,194
)
3,192,011
265,818
7,559,502
Table of Contents
For the three-
For the three-
month period
month period
2001
ended March 31,
ended March 31,
(unaudited)
2002
2003
2003 (unaudited)
2004 (unaudited)
RMB
RMB
RMB
RMB
RMB
33%
33%
33%
33%
33%
(32%
)
(40%
)
113%
(3%
)
(12%
)
9%
(7%
)
(2%
)
(1%
)
12%
(126%
)
19%
1%
(1%
)
6%
(21%
)
4%
(29%
)
(21%
)
(1%
)
0%
(11%
)
8%
(10%
)
46%
Table of Contents
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
1,793,997
3,309,012
5,949,367
331,352
827,768
1,352,345
343,201
501,014
501,013
2,468,550
4,637,794
7,802,725
(248,850
)
(225,371
)
(182,622
)
2,219,700
4,412,423
7,620,103
5,773,203
7,576,935
7,537,009
151,365
477,504
5,773,203
7,728,300
8,014,513
(5,773,203
)
(7,576,935
)
(7,537,009
)
151,365
477,504
2,219,700
4,563,788
8,097,607
(1,733,092
)
(3,935,220
)
(580,890
)
(194,439
)
(2,313,982
)
(4,129,659
)
(32,080
)
(23,533
)
(32,080
)
(2,337,515
)
(4,129,659
)
Table of Contents
2001
March 31, 2004
(unaudited)
2002
2003
(unaudited)
RMB
RMB
RMB
RMB
5,476,289
8,399,293
6,022,053
7,802,306
4,813,869
1,366,436
1,991,193
575,363
(1,890,865
)
(3,743,676
)
(210,940
)
(658,038
)
8,399,293
6,022,053
7,802,306
7,719,631
Closing dates
Shares subscribed
1,920,000
5,680,979
67,679
2,999,904
2,999,904
13,668,466
Table of Contents
Liquidation
Conversion
Registration rights
Table of Contents
Right of first refusal
Co-sale rights
Other Series A Preference Share
Issuances
10.
SHARE-BASED COMPENSATION
March 31,
March 31,
2001
2003
2004
(unaudited)
2002
2003
(unaudited)
(unaudited)
2,167,347
2,485,754
2,317,102
2,317,102
2,919,728
528,347
93,900
1,346,232
376,016
(90,240
)
(90,240
)
(467,334
)
(22,560
)
(213,331
)
(119,700
)
(172,312
)
(276,272
)
(8,650
)
(21,480
)
2,485,754
2,317,102
2,919,728
2,285,892
3,060,933
695,070
1,303,398
1,384,964
1,428,590
1,686,202
Table of Contents
Outstanding
Exercisable
Weighted-
Weighted-
average
average
Weighted-
remaining
Weighted-
remaining
Number
average
contractual life
Number
average
contractual life
Exercise prices
of shares
exercise price
(years)
of shares
exercise price
(years)
1,599,496
US$
0.15
2.95
1,384,964
US$
0.15
2.51
1,320,232
US$
0.50
5.61
US$
0.50
2,919,728
1,384,964
Outstanding
Exercisable
Weighted-
Weighted-
average
average
Weighted-
remaining
Weighted-
remaining
Number
average
contractual life
Number
average
contractual life
Exercise prices
of shares
exercise price
(years)
of shares
exercise price
(years)
1,556,249
US$
0.15
2.67
1,542,817
US$
0.15
2.48
1,266,932
US$
0.50
5.46
US$
0.50
237,752
US$
1.00
5.92
143,385
US$
1.00
5.92
3,060,933
1,686,202
Table of Contents
11.
EMPLOYEE BENEFITS
12.
RELATED PARTY TRANSACTIONS
March 31, 2004
2002
2003
(unaudited)
RMB
RMB
RMB
4,136,219
6,170,891
6,284,512
93,368
333,882
240,698
4,229,587
6,504,773
6,525,210
Table of Contents
13.
EARNINGS PER SHARE
For the three-
For the three-
month period ended
month period ended
2001
March 31, 2003
March 31, 2004
(unaudited)
2002
2003
(unaudited)
(unaudited)
RMB
RMB
RMB
RMB
RMB
(14,148,719
)
12,754,733
37,222,729
(2,814,055
)
8,720,059
(1,233,659
)
(3,727,244
)
(12,123,513
)
(2,824,089
)
(14,148,719
)
7,793,830
25,099,216
(2,814,055
)
5,895,970
(14,148,719
)
7,793,830
25,099,216
(2,814,055
)
5,895,970
28,504,540
28,464,783
28,318,423
28,304,781
28,821,560
67,605
1,815,967
213,300
28,504,540
28,464,783
28,599,328
28,304,781
30,637,527
(0.50
)
0.27
0.89
(0.10
)
0.20
(0.50
)
0.27
0.88
(0.10
)
0.19
Table of Contents
Publication
Office
fees
premises
Others
Total
RMB
RMB
RMB
RMB
46,750,183
11,873,512
648,522
59,272,217
15,278,333
9,470,002
24,748,335
3,560,833
6,332,600
9,893,433
833,333
833,333
600,000
600,000
67,022,682
27,676,114
648,522
95,347,318
Publication
Office
fees
premises
Others
Total
RMB
RMB
RMB
RMB
38,626,425
10,350,276
431,828
49,408,529
17,122,708
11,265,179
28,387,887
4,210,833
6,997,835
11,208,668
995,833
125,279
1,121,112
600,000
600,000
61,555,799
28,738,569
431,828
90,726,196
Table of Contents
Table of Contents
For the
three-month
period ended
2003
March 31, 2004
(unaudited)
(unaudited)
RMB
RMB
37,222,729
8,720,059
37,222,729
8,720,059
28,318,423
28,821,560
13,678,466
13,805,133
41,996,889
42,626,693
67,605
1,815,967
213,300
42,277,794
44,442,660
0.89
0.20
0.88
0.20
Table of Contents
Table of Contents
Table of Contents
Table of Contents
PART II
INFORMATION NOT REQUIRED IN THE
PROSPECTUS
Item 6.
Indemnification
of Directors and Officers
Cayman Islands law does not limit the extent to
which a companys articles of association may provide for
indemnification of officers and directors, except to the extent
any such provision may be held by the Cayman Islands courts to
be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime.
Under the Registrants fifth amended and
restated memorandum and articles of association to be adopted
upon the closing of this offering, the Registrant may indemnify
our directors, officers, employees and agents against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
persons in connection with actions, suits or proceedings to
which they are party or are threatened to be made a party by
reason of their acting as the Registrants directors,
officers, employees or agents. To be entitled to
indemnification, these persons must have acted in good faith and
in the best interest or not opposed to the interest of the
Registrant, and must not have acted in a manner willfully or
grossly negligent and, with respect to any criminal action, they
must have had no reasonable cause to believe their conduct was
unlawful. The Registrants fifth amended and restated
memorandum and articles of association also provides for
indemnification of such person in the case of a suit initiated
by the Registrant or in the right of the Registrant. Such
indemnification covers expenses (including attorneys fees)
actually and reasonably incurred in connection with the defense
or settlement of such suit. There are good faith and other
similar conduct requirements for such indemnification rights as
those imposed on other types of suits described above. However,
if such persons are successful in the merits of the actions,
suits or proceedings described above, including suits initiated
by or in the right of the Registrant, then they may be
indemnified for actual and reasonable expenses without having to
meet the conduct requirements.
The Registrant has entered into indemnification
agreements with each of the Registrants directors under
which the Registrant has agreed to indemnify each of them to the
fullest extent permitted by applicable law and the
Registrants articles of association, from and against all
costs, charges, expenses, liabilities and losses (including
attorneys fees) incurred in connection with any
litigation, suit or proceeding to which such director is or is
threatened to be made a party, witness or other participant.
Within 20 days after the Registrants receipt of a
written demand of such director, the Registrant will advance
funds for the payment of indemnification of these expenses.
Insofar as indemnification for liabilities
arising under Securities Act of 1933, as amended, or the
Securities Act, may be permitted to directors, officers or
persons controlling the Registrant under the foregoing
provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
Item 7.
Recent
Sales of Unregistered Securities
During the past three years, the Registrant has
issued and sold the securities listed below without registering
the securities under the Securities Act. None of these
transactions involved any underwriters underwriting
discounts or commissions, or any public offering. The Registrant
believes that each of the following issuances was exempt from
registration under the Securities Act in reliance on
Regulation D, Regulation S or Rule 701 under the
Securities Act or pursuant to Section 4(2) of the
Securities Act regarding transactions not involving a public
offering.
The following is a summary of the issuances of
common shares, Series A preference shares, warrants and
options of the Registrant during the three years ended
December 31, 2003 and the three months ended March 31,
2004:
In 2001, the Registrant granted to certain of its
directors, officers and other employees options to purchase an
aggregate of 528,347 common shares of the Registrant under
the 2000 stock option plan.
II-1
In 2002, the Registrant granted to certain of its
employees options to purchase an aggregate of 93,900 common
shares of the Registrant under the 2000 stock option plan.
In 2003, the Registrant granted to certain of its
officers and other employees options to purchase an aggregate of
1,346,232 common shares of the Registrant under the 2000
stock option plan.
For the three months ended March 31,
2004, the Registrant granted to certain of its directors and
employees options to purchase an aggregate of
376,016 common shares of the Registrant under the 2000
stock option plan.
In March 2001, the Registrant issued in a private
placement a warrant to Recruit Company Limited, or Recruit,
exercisable for the purchase of a total of 10,000 shares of
Series A preference shares of the Registrant at
US$1.0417 per share. Recruit has exercised the warrant in
accordance with its terms and is currently a holder of
10,000 Series A preference shares as of May 2001.
In October 2001, the Registrant issued in a
private placement to three entities affiliated with Doll Capital
Management, or DCM, an aggregate of 2,999,904 Series A
preference shares at US$1.0417 per share. The three
entities affiliated with DCM and their respective purchases are
as follows: DCM III, L.P. paid US$2,906,018 for
2,789,688 Series A preference shares,
DCM III-A, L.P. paid US$76,997 for
73,915 Series A preference shares and DCM Affiliates
Fund III, L.P. paid US$141,985 for 136,301
Series A preference shares. Upon the closing of this
offering, each Series A preference share will be converted
into one common share.
In January 2002, the Registrant issued in a
private placement to seven entities affiliated with DCM an
aggregate of 2,999,904 Series A preference shares at
US$1.0417 per share. The seven entities affiliated with DCM
and their respective purchases are as follows:
DCM III, L.P. paid US$1,743,611 for
1,673,812 Series A preference shares,
DCM III-A, L.P. paid US$46,198 for 44,349
Series A preference shares, DCM Affiliates
Fund III, L.P. paid US$85,191 for
81,781 Series A preference shares, Doll Technology
Investment Fund II, L.P. paid US$1,023,715 for
982,735 Series A preference shares, DCM Network
Fund, L.P. paid US$56,840 for 54,565 Series A
preference shares, DCM Internet Fund, L.P. paid US$105,137
for 100,928 Series A preference shares, and Doll
Technology Affiliates Fund II, L.P. paid US$64,308 for
61,734 Series A preference shares. Upon the closing of
this offering, each Series A preference share will be
converted into one common share.
In August 2002, the Registrant issued warrants to
entities affiliated with DCM for the purchase of 380,000
Series A preference shares. These warrants were issued for
no consideration, and, as a result, in 2002, the Registrant
recorded this issuance as a deemed dividend distribution to
these entities of RMB1.3 million. These warrants were
exercisable at US$1.0417 per Series A preference share. In
March 2004, all seven entities affiliated with DCM exercised
their warrants and became registered holders of an aggregate of
380,000 Series A preference shares. The seven entities
and the number of Series A preference shares that they
acquired in this warrant exercise are as follows:
DCM III, L.P., 124,708 Series A preference
shares, DCM III-A L.P., 3,304 Series A
preference shares, DCM Affiliates Fund III, L.P.,
6,093 Series A preference shares, Doll Technology
Investment Fund II, L.P., 201,381 Series A
preference shares, DCM Network Fund, L.P.,
11,181 Series A preference shares, DCM Internet
Fund, L.P., 20,682 Series A preference shares,
and Doll Technology Affiliates Fund II, L.P.,
12,651 Series A preference shares.
Item 8.
Exhibits
and Financial Statement Schedules
(a)
Exhibits
II-2
II-3
Item 9.
Undertakings
(c) Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 6, or
otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by
a registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-4
Table of Contents
Exhibit
Number
Description
1.1
Form of Underwriting Agreement.*
3.1
Amended and Restated Memorandum and Articles of
Association.
4.1
Specimen of Share Certificate.
Table of Contents
Exhibit
Number
Description
4.2
Specimen American Depositary Receipt (included in
Exhibit 4.3 hereof).*
4.3
Form of Deposit Agreement among the Registrant,
JPMorgan Chase Bank, as depositary, and Holders and Beneficial
Holders from time to time of American Depositary Shares
evidenced by American Depositary Receipts issued thereunder,
including the form of American Depositary Receipt.
(1)
*
5.1
Opinion of Maples and Calder Asia, Cayman Islands
counsel to the Registrant, as to the validity of the common
shares.*
5.2
Opinion of Jun He Law Offices, Peoples
Republic of China counsel to the Registrant, as to the legality
of the corporate structure of the Registrant and the validity of
the contractual arrangements among the Registrant, its
subsidiaries and affiliated entities.
8.1
Opinion of Maples and Calder Asia regarding
certain Cayman Islands tax matters (included in
Exhibit 5.1).*
8.2
Opinion of Shearman & Sterling LLP,
United States counsel to the Registrant, as to certain
United States tax matters.
10.1
2000 Stock Option Plan.
10.2
Form of Employment, Confidential Information and
Invention Assignment Agreement.
10.3
Form of Indemnification Agreement.
10.4
Lease Agreements between Shanghai Qianjin Culture
Communication Co., Ltd. and (1) Shanghai Wailao Property
Management Service Co., Ltd. (dated November 21, 2003),
(2) Shanghai Office of China Orient Asset Management
Corporation, or Orient Asset Management Corp. (dated
June 30, 2003) and (3) Orient Asset Management
Corp. (dated June 30, 2003).
10.5
Form of Investor Rights Agreement.
10.6
Code of Business Conduct and Ethics.
10.7
Technical and Consulting Service Agreement dated
as of May 3, 2004, as amended as of July 2, 2004,
between Shanghai Run An Lian Information Consultancy
Co., Ltd. and Qian Cheng Wu You Network Information
Technology (Beijing) Co., Ltd.
10.8
Technical and Consulting Service Agreement dated
as of May 3, 2004, as amended as of July 2, 2004,
between Beijing Qian Cheng Si Jin Advertising Co., Ltd. and
Qian Cheng Wu You Network Information Technology (Beijing)
Co., Ltd.
10.9
Equity Pledge Agreement dated as of May 3,
2004 among Michael Lei Feng, Tao Wang and Qian Cheng Wu You
Network Information Technology (Beijing) Co., Ltd.
10.10
Equity Pledge Agreement dated as of May 3,
2004 among Michael Lei Feng, Beijing Run An Information
Consultancy Co., Ltd. and Qian Cheng Wu You Network
Information Technology (Beijing) Co., Ltd.
10.11
Cooperation Agreement dated as of May 3,
2004 between Shanghai Run An Lian Information Consultancy
Co., Ltd. and Qianjin Network Information Technology
(Shanghai) Co., Ltd.
10.12
Domain Name License Agreement dated as of
May 3, 2004 between Shanghai Run An Lian Information
Consultancy Co., Ltd. and 51net.com Inc.
10.13
Call Option Agreement dated as of August 1,
2002, as supplemented and amended as of May 3, 2004,
between Beijing Qian Cheng Si Jin Advertising Co., Ltd. and
51net.com Inc.
10.14
Share Transfer Agreement dated as of
April 5, 2004 among Wuhan Mei Hao Qian Cheng Advertising
Co., Ltd., 51net.com Inc. and Beijing Qian Cheng Si
Jin Advertising Co., Ltd.
21.1
List of subsidiaries of the Registrant.
23.1
Consent of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company.
Table of Contents
Exhibit
Number
Description
23.2
Consent of Jun He Law Offices (included in
Exhibit 5.2).
23.3
Consent of Maples and Calder Asia (included in
Exhibit 5.1).*
23.4
Consent of Shearman & Sterling LLP (included
in Exhibit 8.2).
24.1
Powers of Attorney (contained in signature pages
to registration statement).
*
To be filed by amendment.
(1)
Incorporated by reference to the Registration
Statement on Form F-6 to be filed with the Securities and
Exchange Commission with respect to American Depositary Shares
representing common shares.
(b)
Financial Statements
(a)
The undersigned Registrant hereby undertakes to
provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b)
The undersigned Registrant hereby undertakes that:
(1)
For purposes of determining any liability under
the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement at the time it was
declared effective.
(2)
For the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial
bona fide
offering thereof.
Table of Contents
SIGNATURES
Under the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form F-1 and has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in Hong Kong, the Peoples Republic of China,
on July 7, 2004.
KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Rick Yan and Kathleen Chien, and each of them, his or her true
and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to
this Registration Statement and any and all related registration
statements pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Under the requirements of the Securities Act,
this Registration Statement has been signed by the following
persons on July 7, 2004, in the capacities indicated.
II-5
SIGNATURE OF AUTHORIZED REPRESENTATIVE OF THE
REGISTRANT
Under the Securities Act, the undersigned, the
duly authorized representative in the United States, of 51job,
Inc., has signed this Registration Statement or amendment
thereto in Newark, Delaware, on July 7, 2004.
II-6
51job, Inc.
By:
/s/ RICK YAN
Name: Rick Yan
Title: Chief Executive Officer
Signature
Title
/s/ DONALD L. LUCAS
Donald L. Lucas
Director, Chairman of the Board of Directors
/s/ RICK YAN
Rick Yan
Director, Chief Executive Officer and President
(Principal executive officer)
/s/ DAVID K. CHAO
David K. Chao
Director
/s/ SHAN LI
Shan Li
Director
/s/ CHARLES E. PHILLIPS, JR.
Charles E. Phillips, Jr.
Director
/s/ KATHLEEN CHIEN
Kathleen Chien
Chief Financial Officer (Principal financial and
accounting officer)
Table of Contents
Authorized U.S. Representative
By:
/s/ DONALD J. PUGLISI
Name: Donald J. Puglisi
Table of Contents
EXHIBIT INDEX
II-7
Exhibits
Description
1.1
Form of Underwriting Agreement.*
3.1
Amended and Restated Memorandum and Articles of
Association.
4.1
Specimen of Share Certificate.
4.2
Specimen American Depositary Receipt (included in
Exhibit 4.3 hereof).*
4.3
Form of Deposit Agreement among the Registrant,
JPMorgan Chase Bank, as depositary, and Holders and Beneficial
Holders from time to time of American Depositary Shares
evidenced by American Depositary Receipts issued thereunder,
including the form of American Depositary Receipt.
(1)
*
5.1
Opinion of Maples and Calder Asia, Cayman Islands
counsel to the Registrant, as to the validity of the common
shares.*
5.2
Opinion of Jun He Law Offices, Peoples
Republic of China counsel to the Registrant, as to the legality
of the corporate structure of the Registrant and the validity of
the contractual arrangements among the Registrant, its
subsidiaries and affiliated entities.
8.1
Opinion of Maples and Calder Asia regarding
certain Cayman Islands tax matters (included in
Exhibit 5.1).*
8.2
Opinion of Shearman & Sterling LLP,
United States counsel to the Registrant, as to certain United
States tax matters.
10.1
2000 Stock Option Plan.
10.2
Form of Employment, Confidential Information and
Invention Assignment Agreement.
10.3
Form of Indemnification Agreement.
10.4
Lease Agreements between Shanghai Qianjin Culture
Communication Co., Ltd. and (1) Shanghai Wailao Property
Management Service Co., Ltd. (dated November 21, 2003),
(2) Shanghai Office of China Orient Asset Management
Corporation, or Orient Asset Management Corp. (dated
June 30, 2003) and (3) Orient Asset Management Corp.
(dated June 30, 2003).
10.5
Form of Investor Rights Agreement.
10.6
Code of Business Conduct and Ethics.
10.7
Technical and Consulting Service Agreement dated
as of May 3, 2004, as amended as of July 2, 2004,
between Shanghai Run An Lian Information Consultancy
Co., Ltd. and Qian Cheng Wu You Network Information
Technology (Beijing) Co., Ltd.
10.8
Technical and Consulting Service Agreement dated
as of May 3, 2004, as amended as of July 2, 2004,
between Beijing Qian Cheng Si Jin Advertising Co., Ltd. and
Qian Cheng Wu You Network Information Technology (Beijing)
Co., Ltd.
10.9
Equity Pledge Agreement dated as of May 3,
2004 among Michael Lei Feng, Tao Wang and Qian Cheng Wu You
Network Information Technology (Beijing) Co., Ltd.
10.10
Equity Pledge Agreement dated as of May 3,
2004 among Michael Lei Feng, Beijing Run An Information
Consultancy Co., Ltd. and Qian Cheng Wu You Network
Information Technology (Beijing) Co., Ltd.
10.11
Cooperation Agreement dated as of May 3,
2004 between Shanghai Run An Lian Information Consultancy
Co., Ltd. and Qianjin Network Information Technology
(Shanghai) Co., Ltd.
10.12
Domain Name License Agreement dated as of
May 3, 2004 between Shanghai Run An Lian Information
Consultancy Co., Ltd. and 51net.com Inc.
Table of Contents
Exhibits
Description
10.13
Call Option Agreement dated as of August 1,
2002, as supplemented and amended as of May 3, 2004,
between Beijing Qian Cheng Si Jin Advertising Co., Ltd. and
51net.com Inc.
10.14
Share Transfer Agreement dated as of
April 5, 2004 among Wuhan Mei Hao Qian Cheng Advertising
Co., Ltd., 51net.com Inc. and Beijing Qian Cheng Si Jin
Advertising Co., Ltd.
21.1
List of subsidiaries of the Registrant.
23.1
Consent of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company.
23.2
Consent of Jun He Law Offices (included in
Exhibit 5.2).
23.3
Consent of Maples and Calder Asia (included in
Exhibit 5.1).*
23.4
Consent of Shearman & Sterling LLP (included
in Exhibit 8.2).
24.1
Powers of Attorney (contained in signature pages
to registration statement).
*
To be filed by amendment.
(1)
Incorporated by reference to the Registration
Statement on Form F-6 to be filed with the Securities and
Exchange Commission with respect to American Depositary Shares
representing common shares.
II-8
EXHIBIT 3.1
THE COMPANIES LAW (2003 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION
OF
51JOB, INC.
ADOPTED BY SPECIAL RESOLUTION PASSED ON
26th April 2004
1. The name of the Company is 51JOB, INC.
2. The Registered Office of the Company shall be at the offices of M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, or at such other place as the Directors may from time to time decide.
3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law (2003 Revision) or as the same may be revised from time to time, or any other law of the Cayman Islands.
4. The liability of each Member is limited to the amount from time to time unpaid on such Member's Shares.
5. The authorised share capital of the Company is US$50,000 divided into 500,000,000 common shares of a nominal or par value of US$0.0001 each. The Company has the power to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Companies Law (2003 Revision) and the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.
6. The Company has the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.
7. Capitalised terms that are not defined in this Amended and Restated Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company.
THE COMPANIES LAW (2003 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED ARTICLES OF ASSOCIATION
51JOB, INC.
ADOPTED BY SPECIAL RESOLUTION PASSED ON
26th April 2004
1. In these Articles Table A in the Schedule to the Law does not apply and, unless there is something in the subject or context inconsistent therewith,
"ADS" means an American Depositary Share, each representing 1 (one) Common Share.
"AFFILIATE" of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person.
"ARTICLES" means these Articles as originally framed or as from time to time altered by Special Resolution.
"AUDIT COMMITTEE" shall mean the audit committee established pursuant to Article 108.
"AUDITORS" means the persons for the time being performing the duties of auditors of the Company (if any).
"BOARD" means the Board of the Directors of the Company.
"THE CHAIRMAN" shall mean the Chairman presiding at any meeting of members or of the Board.
"COMPANY" means 51job, Inc.
"COMPENSATION COMMITTEE" means the compensation committee established pursuant to Article 108.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL with") means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise;
"DEBENTURE" means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets of the Company or not.
"DIRECTORS" means the directors for the time being of the Company.
"DIVIDEND" includes interim dividends and bonus dividends.
"ELECTRONIC RECORD" has the same meaning as in the Electronic Transactions Law (2003 Revision).
"FAMILY MEMBER" means a person's spouse, parents, children and siblings, whether by blood, marriage or adoption or anyone residing in such person's home.
"INDEPENDENT DIRECTOR" shall mean a Director who is an independent director as defined in the NASD Manual & Notices to Members as amended from time to time.
"THE LAW" shall mean the Companies Law (2003 Revision) of the Cayman Islands and any amendments thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor.
"MEMBER" shall bear the same meaning as in the Law.
"MEMORANDUM" means the memorandum of association of the Company as originally framed or as from time to time altered by Special Resolution.
"MONTH" means calendar month.
"NASDAQ" shall mean the Nasdaq National Market in the United States.
"NASDAQ RULES" means the relevant code, rules and regulations, as amended from time to time, applicable as a result of the original and continued quotation of any Shares or ADSs on Nasdaq, including without limitation the NASD Manual & Notices to Members and the Listing Rules.
"ORDINARY RESOLUTION" means a resolution passed by a simple majority of the Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting, and includes a unanimous written resolution. In computing the majority when a poll is demanded regard shall be had to the number of votes to which each Member is entitled by the Articles.
"PAID-UP" means paid-up and/or credited as paid-up.
"PERSON" means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, trust, association or entity or government, political subdivision, agency or instrumentality of a government.
"PRINCIPAL REGISTER" shall mean the register of members of the Company maintained at such place within or outside the Cayman Islands as the Board shall determine from time to time.
"REGISTER OF MEMBERS" means the register maintained in accordance with the Law and includes (except where otherwise stated) any duplicate Register of Members.
"REGISTERED OFFICE" means the registered office for the time being of the Company.
"RELATED PARTY" shall mean:
(a) any Director or executive officer of the Company;
(b) any nominee for election as a Director;
(c) any holder who is known to the Company to own of record or beneficially more than 5% of any class of the Company's voting securities;
(d) any Family Member of the foregoing persons; and
(e) any person that is an affiliate of any of the above.
"RELATED PARTY TRANSACTIONS" shall mean a transaction (other than a transaction of a revenue nature in the ordinary course of business) between the Company or any of its subsidiaries and a Related Party.
"SEAL" means the common seal of the Company and includes every duplicate seal.
"SEC" shall mean the US Securities and Exchange Commission.
"SECRETARY" includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company.
"SHARE" and "SHARES" means a share or shares in the Company and includes a fraction of a share.
"SHARE PREMIUM ACCOUNT" means the account of the Company which the Company is required by the Law to maintain, to which all premiums over nominal or par value received by the Company in respect of issues of Shares from time to time are credited.
"SPECIAL RESOLUTION" means (i) a resolution passed by a majority of not less than two-thirds of such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given, or (ii) a resolution which has been approved in writing by all of the Members entitled to vote at a general meeting of the company in one or more instruments each signed by one or more of the Members aforesaid, and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed.
"UNITED STATES" shall mean the United States of America, its territories, its possessions and all areas subject to its jurisdiction;
"US$" shall mean United States dollars, the lawful currency of the United States;
"WRITTEN" and "IN WRITING" include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record.
2. Words importing the singular number include the plural number and vice-versa.
Words importing the masculine gender include the feminine gender.
Words importing persons include corporations.
References to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time.
Any phrase introduced by the terms "including", "include", "in particular" or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.
Headings are inserted for reference only and shall be ignored in construing these Articles.
References in these Articles to a document being "executed" include references to its being executed under hand or under seal or by any other method authorised by the Company.
Any words or expressions defined in the Law will (if not inconsistent with the subject or context in which they appear) have the same meaning in these Articles, save that the word "company" includes any body corporate.
References to a meeting will not be taken as requiring more than one person to be present if any quorum requirement can be satisfied by one person.
Where these Articles refer to months or years, these are all calendar months or years.
Where these Articles give any power or authority to any person, this power or authority can be used on any number of occasions, unless the way in which the words are used does not allow this meaning.
SHARE CAPITAL
3. The authorised share capital of the Company is US$50,000 divided into 500,000,000 common shares of a nominal or par value of US$0.0001 each ("COMMON SHARES").
ISSUE OF SHARES
4. Subject to applicable law, rules, regulations, the Nasdaq Rules and the relevant provisions, if any, in the Memorandum and these Articles and to any direction that may be given by the Company in a general meeting and without prejudice to any special rights previously conferred on the holders of existing Shares, the Directors may allot, issue, grant options, rights or warrants over or otherwise dispose of Shares of the Company (including fractions of a Share) with or without preferred, deferred, qualified or other special rights or restrictions, whether with regard to
dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper provided that, where any issue of shares (which, for the avoidance of doubt, shall include any issue of Common Shares or any shares with preferred, deferred, qualified or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise ("PREFERRED SHARES")) is proposed and such shares proposed to be issued are equal to or exceed 20 per cent. by par value of the par value of all then issued shares (including Common Shares and any Preferred Shares and, in the case of any Preferred Shares, where appropriate whether considering such Preferred Shares before or after any conversion of such Preferred Shares to Common Shares in accordance with their terms), then the prior approval by Ordinary Resolution of the holders of the Common Shares, voting together as one class, shall be required. The Company shall not issue Shares in bearer form.
5. Upon approval of the Directors, such number of Common Shares, or other shares or securities of the Company, as may be required for such purposes shall be reserved for issuance in connection with an option, right, warrant or other security of the Company or any other person that is exercisable for, convertible into, exchangeable for or otherwise issuable in respect of such Common Shares or other shares or securities of the Company.
6. The holders of the Common Shares shall be:
(a) entitled to dividends in accordance with the relevant provisions of these Articles;
(b) entitled to and are subject to the provisions in relation to winding up of the Company provided for in these Articles;
(c) entitled to attend general meetings of the Company and shall be entitled to one vote for each Common Share registered in his name in the Register of Members, both in accordance with the relevant provisions of these Articles.
7. All Common Shares shall rank pari passu with each other in all respects.
REGISTER OF MEMBERS AND SHARE CERTIFICATES
8. The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be entitled without payment to receive within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) one certificate for all his Shares or several certificates each for one or more of his Shares upon payment of fifty cents (US$0.50) for every certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a Share or Shares held jointly by several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a Share to one of the several joint holders shall be sufficient delivery to all such holders.
9. The Board shall cause to be kept at such place within or outside the Cayman Islands as they deem fit a principal register of the Members and there shall be entered therein the particulars of the Members and the Shares issued to each of them and other particulars required under applicable law, rules or regulations or the Nasdaq Rules.
10. If the Board considers it necessary or appropriate, the Company may establish and maintain a branch register or registers of Members at such location or locations within or outside the Cayman Islands as the Board thinks fit. The principal register and the branch register(s) shall together be treated as the register for the purposes of these Articles.
11. The Board may, in its absolute discretion, at any time transfer any Share upon the principal register to any branch register or any Share on any branch register to the principal register or any other branch register.
12. The Company shall as soon as practicable and on a regular basis record in the principal register all transfers of Shares effected on any branch register and shall at all times maintain the principal register in such manner to show at all times the Members for the time being and the Shares respectively held by them, in all respects in accordance with the Law.
13. The register may be closed at such times and for such periods as the Board may from time to time determine, either generally or in respect of any class of Shares, provided that the register shall not be closed for more than 30 days in any year (or such longer period as the Members may by Ordinary Resolution determine provided that such period shall not be extended beyond 60 days in any year). The Company shall, on demand, furnish any person seeking to inspect the Register of Members or part thereof which is closed by virtue of this Article with a certificate under the hand of the Secretary stating the period for which, and by whose authority, it is closed.
14. Every certificate for Shares or debentures or representing any other form of security of the Company may be issued under the seal of the Company, which shall only be affixed with the authority of the Board or may be executed under hand by any two directors or as may otherwise be directed by the Board. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of Shares shall have been surrendered and cancelled.
15. Every Share certificate shall specify the number of Shares in respect of which it is issued and the amount paid thereon or the fact that they are fully paid, as the case may be, and may otherwise be in such form as the Board may from time to time prescribe.
16. The Company shall not be bound to register more than four persons as joint holders of any Share. If any Shares shall stand in the names of two or more persons, the person first named in the register shall be deemed the sole holder thereof as regards service of notices and, subject to the provisions of these Articles, all or any other matters connected with the Company, except the transfer of the Share.
17. If a Share certificate is defaced, lost or destroyed, it may be replaced on payment of such reasonable fee, if any, as the Board may from time to time prescribe and on such terms and conditions, if any, as to publication of notices, evidence and indemnity, as the Board thinks fit and where it is defaced or worn out, after delivery up of the old certificate to the Company for cancellation.
18. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of Shares shall have been surrendered and cancelled.
TRANSFER OF SHARES
19. The instrument of transfer of any Share shall be in writing in the usual or common form or any other form approved by the Board, and shall be executed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of a Share until the name of the transferee is entered in the register in respect thereof.
20. (a) The Board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any Share which is not fully paid up or upon which the Company has a lien.
(b) The Board may also decline to register any transfer of any Share unless:
(i) the instrument of transfer is lodged with the Company accompanied by the certificate for the Shares to which it relates (which shall upon registration of the transfer be cancelled) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
(ii) the instrument of transfer is in respect of only one class of Shares;
(iii) the instrument of transfer is properly stamped (in circumstances where stamping is required);
(iv) in the case of a transfer to joint holders, the number of joint holders to which the Share is to be transferred does not exceed four;
(v) the Shares concerned are free of any lien in favour of the Company;
(vi) a fee of such maximum amount as the Board may from time to time determine to be payable is paid to the Company in respect thereof;
(vii) The Company shall not be obligated to make any transfer to an infant or to a person in respect of whom an order has been made by a competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs or under other legal disability; and
(viii) Upon every transfer of Shares the certificate held by the transferor shall be given up to be cancelled, and shall forthwith be cancelled accordingly, and a new certificate shall be issued without charge to the transferee in respect of the Shares transferred to him, and if any of the Shares included in the certificate so given up shall be retained by the transferor, a new certificate in respect thereof shall be issued to him without charge. The Company shall also retain the instrument(s) of transfer.
21. The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always that such registration shall not be
suspended for more than forty-five days in any year. If the Board shall refuse to register a transfer of any Share, it shall, within two months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.
REDEEMABLE SHARES
22. (a) Subject to the provisions of the Law, the Nasdaq Rules and the Memorandum, Shares may be issued on the terms that they are, or at the option of the Company or the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the Shares, may by Special Resolution determine.
(b) Subject to the provisions of the Law, the Nasdaq Rules and the Memorandum, the Company may purchase its own Shares (including fractions of a Share), including any redeemable Shares, provided that the manner of purchase has first been authorised by the Company in a general meeting by Ordinary Resolution and may make payment therefor in any manner authorised by the Law and the Nasdaq Rules, including out of capital.
VARIATION OF RIGHTS OF SHARES
23. If at any time the share capital of the Company 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 and except where these Articles or the Law impose any stricter quorum, voting or procedural requirements in regard to the variation of rights attached to a specific class, be varied with the consent in writing of the holders of 75% of the issued Shares of that class, or with the sanction of a Special Resolution passed at a general meeting of the holders of the Shares of that class.
24. The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of Shares except that the necessary quorum shall be one person holding or representing by proxy at least one-third of the issued Shares of the class and that any holder of Shares of the class present in person or by proxy may demand a poll.
25. For purposes of this provision any particular issue of Shares not carrying the same rights (whether as to rate of dividend, redemption or otherwise) as any other Shares of the time being in issue, shall be deemed to constitute a separate class of Shares. 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. The rights of holders of Common Shares shall not be deemed to be varied by the creation or issue of Shares with preferred or other rights which may be effected by the Directors as provided in these Articles without any vote or consent of the holders of Common Shares.
COMMISSION ON SALE OF SHARES
26. The Company may in so far as the Law from time to time permits pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares of the Company. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also on any issue of Shares pay such brokerage as may be lawful.
NON-RECOGNITION OF TRUSTS
27. The Company shall not be bound by or compelled to recognise in any way (even when notified) any equitable, contingent, future, or partial interest in any Share, or (except only as is otherwise provided by these Articles or the Law) any other rights in respect of any Share other than an absolute right to the entirety thereof in the registered holder.
LIEN ON SHARES
28. The Company shall have a first and paramount lien on all Shares (whether fully paid-up or not) registered in the name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any Share to be wholly or in part exempt from the provisions of this Article. The registration of a transfer of any such Share shall operate as a waiver of the Company's lien thereon. The Company's lien on a Share shall also extend to any amount payable in respect of that Share.
29. The Company may sell, in such manner as the Directors think fit, any Shares on which the Company has a lien, if a sum in respect of which the lien exists is presently payable, and is not paid within fourteen days after notice has been given to the holder of the Shares or to the person entitled to it in consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the Shares may be sold.
30. To give effect to any such sale, the Directors may authorise any person to execute an instrument of transfer of the Shares sold to, or in accordance with the directions of, the purchaser. The purchaser or his nominee shall be registered as the holder of the Shares comprised in any such transfer, and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the sale or the exercise of the Company's power of sale under these Articles.
31. The net proceeds of such sale after payment of such costs, shall be applied in payment of such part of the amount in respect of which the lien exists as is presently payable and any residue, shall (subject to a like lien for sums not presently payable as existed upon the Shares before the sale) be paid to the person entitled to the Shares at the date of the sale.
CALL ON SHARES
32. (a) The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their Shares (whether on account of the nominal value of the Shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on the Shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by instalments.
(b) A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.
(c) The joint holders of a Share shall be jointly and severally liable to pay all calls in respect thereof.
33. If a sum called in respect of a Share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part.
34. Any sum which by the terms of issue of a Share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the Share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of these Articles as to payment of interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.
35. The Directors may, on the issue of Shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment.
36. (a) The Directors may, if they think fit, receive from any Member willing to advance the same, all or any part of the monies uncalled and unpaid upon any Shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent per annum, as may be agreed upon between the Directors and the Member paying such sum in advance.
(b) No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable.
FORFEITURE OF SHARES
37. (a) If a Member fails to pay any call or instalment of a call or to make any payment required by the terms of issue on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of the call, instalment or payment remains unpaid, give notice requiring payment of any part of the call, instalment or payment that is unpaid, together with any interest which may have accrued and all expenses that have been incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before the time appointed the Shares in respect of which such notice was given will be liable to be forfeited.
(b) If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited Share and not actually paid before the forfeiture.
(c) A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the Directors see fit.
38. A person whose Shares have been forfeited shall cease to be a Member in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the Shares together with interest thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the Shares.
39. A certificate in writing under the hand of one Director or the Secretary of the Company that a Share in the Company has been duly forfeited on a date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the Share. The Company may receive the consideration given for the Share on any sale or disposition thereof and may execute a transfer of the Share in favour of the person to whom the Share is sold or disposed of and he shall thereupon be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the Share.
40. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the nominal value of the Share or by way of premium as if the same had been payable by virtue of a call duly made and notified.
REGISTRATION OF EMPOWERING INSTRUMENTS
41. The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every grant of probate, letter of administration, certificate of death or marriage, power of attorney, or other instrument.
TRANSMISSION OF SHARES
42. In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the Shares, but nothing herein contained shall release the estate of any such deceased holder from any liability in respect of any Shares which had been held by him solely or jointly with other persons.
43. (a) Any person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter provided, elect either to be registered himself as holder of the Share or to make such transfer of the Share to such other person nominated by him as the deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by that Member before his death or bankruptcy as the case may be.
(b) If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.
44. A person becoming entitled to a Share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the Share, except that he shall not, before being registered as a Member in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided, however, that the Directors may at any time give notice requiring any such person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.
AMENDMENT OF MEMORANDUM OF ASSOCIATION,
ALTERATION OF CAPITAL & CHANGE OF LOCATION OF REGISTERED OFFICE
45. (a) The Company may by Ordinary Resolution:
(i) increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as the Company in general meeting may determine;
(ii) consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares;
(iii) by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than is fixed by the Memorandum of Association or into Shares without par value;
(iv) cancel any Shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.
(b) All new Shares created in accordance with the provisions of the preceding Article shall be subject to the same provisions of the Articles with reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the Shares in the original share capital.
(c) Subject to the provisions of the Statue and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution, the Company may by Special Resolution:
(i) change its name;
(ii) alter or add to these Articles;
(iii) alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and
(iv) reduce its share capital and any capital redemption reserve fund.
46. Subject to the provisions of the Law, the Company may by resolution of the Directors change the location of its Registered Office.
CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
47. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Directors of the Company may provide that the register of Members shall be closed for transfers for a stated period in accordance with Article 13 above. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members, such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members.
48. In lieu of or apart from closing the register of Members, the Directors may fix in advance or arrears a date as the record date for any such determination of Members entitled to notice of or to vote at a meeting of the Members or any adjournment thereof and for the purpose of determining the Members entitled to receive payment of any dividend. Such record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of the Members entitled to notice of or to vote at a meeting of Members shall apply to any adjournment of such meeting; provided, however, that the Directors may fix a new record date for the adjourned meeting.
49. If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof.
GENERAL MEETING
50. All general meetings other than annual general meetings shall be called extraordinary general meetings.
51. (a) The Company shall, if required by the Law, other applicable law, rules or regulations or the Nasdaq Rules, in each year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting for the election of directors of the Company, and for the transaction of such other business as may properly come before such meeting, shall be held at such time and place as the Directors shall appoint and if no other time and place is prescribed by them, it shall be held at the Registered Office on the second Wednesday in December of each year at ten o'clock in the morning, provided that the period between the date of one annual general meeting of the Company and that of the next shall not be longer than such period as applicable law, rules or regulations or the Nasdaq Rules permit.
(b) At these meetings the report of the Directors (if any) shall be presented.
52. (a) Extraordinary general meetings of Members for any purpose or purposes may be called by the Board of Directors pursuant to a resolution duly adopted by a majority of the members of the entire Board, to be held at such place, date and time as shall be designated in the notice or waiver of notice thereof.
(b) The Directors shall on a Members requisition forthwith proceed to convene an extraordinary general meeting of the Company.
(c) A Members requisition is a requisition of Members of the Company holding at the date of deposit of the requisition not less than ten per cent. in par value of the capital of the Company as at that date carries the right of voting at general meetings of the Company.
(d) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists.
(e) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of
them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days.
(f) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors.
53. General meetings of the Company may be held at such place, either within or without the Cayman Islands, as determined by the Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as follows:
(a) if authorised by the Directors in its sole discretion, and subject to such guidelines and procedures as the Directors may adopt, Members and proxies entitled to attend and vote but not physically present at a meeting of Members may, by means of remote communication:
(i) participate in a meeting of Members; and
(ii) be deemed present in person and vote at a meeting of Members whether such meeting is to be held at a designated place or solely by means of remote communication.
(b) if authorised by the Directors, any vote taken by written ballot may be satisfied by a ballot submitted by electronic transmission, provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorised by the Member or proxy.
NOTICE OF GENERAL MEETINGS
54. At least twenty (but not more than sixty) days' notice shall be given for any annual general meeting and any extraordinary general meeting calling for the passing of a special resolution, and at least fourteen (14) days' notice (but not more than sixty (60) days' notice) shall be given of any other extraordinary general meeting. Every notice shall be inclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify details as are required by applicable law, rules or regulations and the Nasdaq Rules, provided that a general meeting of the Company shall, whether or not the notice specified in this Article 54 has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if applicable law, rules or regulations and the Nasdaq Rules so permit and it is so agreed:
(a) in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat or their proxies; and
(b) in the case of an extraordinary general meeting by a majority in number of the Members (or their proxies) having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent in par value of the Shares giving that right.
55. The notice convening an annual general meeting or an extraordinary general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to all Members other than such as, under the provisions hereof or the terms of issue of the Shares they hold, are not entitled to receive such notice from the Company.
56. There shall appear with reasonable prominence in every notice of general meetings of the Company a statement that a Member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of him and that a proxy need not be a Member of the Company.
57. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting. In cases where instruments of proxy are sent out with notices, the accidental omission to send such instrument of proxy to, or the non-receipt of such instrument of proxy by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting.
58. No business may be transacted at any general meeting, other than business that is either (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Directors (or any duly authorised committee thereof), (B) otherwise properly brought before the annual general meeting by or at the direction of the Directors (or any duly authorised committee thereof) or (C) otherwise properly brought before the annual general meeting by any Member of the Company who (i) is a Member of record on both (x) the date of the giving of the notice provided for in Article 59 and (y) the record date for the determination of Members entitled to vote at such annual meeting and (ii) complies with the notice procedures set forth in Article 59.
59. In addition to any other applicable requirements, for business to be properly brought before an annual general meeting by a Member, such Member must have given timely notice thereof in proper written form to the Secretary of the Company.
(a) To be timely, a Member's notice shall be delivered to the Secretary at the principal executive offices of the Company not less than seven (7) days nor more than sixty (60) days prior to the first anniversary of the preceding year's annual general meeting; provided, however, that in the event that the date of the annual general meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the Member to be timely must be delivered not earlier than the sixtieth (60th) day prior to such annual general meeting and not later than the close of business on the later of the seventh (7th) day prior to such annual general meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made.
(b) To be in proper written form, a Member's notice to the Secretary must set forth as to each matter such Member proposes to bring before the annual general meeting (1) a brief description of the business desired to be brought before the annual general meeting and the reasons for conducting such business at the annual general meeting, (2) the name and record address of such Member, and (3) the class or series and number of Shares of the Company which are owned beneficially or of record by such Member.
(c) No business shall be conducted at the annual general meeting except business brought before the annual general meeting in accordance with the procedures set forth in this Article 59, provided, however, that, once business has been properly brought before the annual general meeting in accordance with such procedures, nothing in this Article 59 shall be deemed to preclude discussion by any Member of any such business. If the Chairman of an annual general meeting determines that business was not properly brought before the annual general meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
PROCEEDINGS AT GENERAL MEETINGS
60. For all purposes the quorum for a general meeting shall be one or more Members present in person or by proxy or corporate representative holding not less than 33-1/3% of the outstanding voting shares in the capital of the Company. No business (except the appointment of a Chairman of the meeting) shall be transacted at any general meeting unless the requisite quorum shall be present at the commencement of the business.
61. A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in person at that meeting.
62. A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by all Members for the time being entitled to receive notice of and to attend and vote at general meetings (or, being corporations, signed by their duly authorised representatives) shall be as valid and effective as if the resolution had been passed at a general meeting of the Company duly convened and held.
63. If a quorum is not present within half an hour from the time appointed for the meeting, the meeting, if convened upon the requisition of Members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week at the same time and place or to such other day, time or such other place as the Directors may determine. Members present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum.
64. The person chairing the meeting, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is no such Chairman, or if he shall not be present within thirty minutes after the time appointed for the holding of the meeting, or is unwilling to act, the Directors present shall elect one of their number to be Chairman of the meeting.
65. If no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the Members present shall choose one of their number to be Chairman of the meeting.
66. The Chairman may, with the consent of a meeting at which a quorum is present, (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; otherwise it shall not be necessary to give any such notice of an adjournment or of the business to be transacted at an adjourned general meeting. No business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place.
67. A resolution put to the vote of the meeting shall be decided on a show of hands unless before or on the declaration of the result of, the show of hands, the Chairman demands a poll, or any other Member or Members collectively present in person or by proxy and holding at least ten per cent. in par value of the Shares giving a right to attend and vote at the meeting demand a poll.
68. Unless a poll is duly demanded, a declaration by the Chairman that a resolution has been carried, or carried unanimously, or by a particular majority, or lost, or not carried by a particular majority, an entry to that effect in the minutes of the proceedings of the meeting shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.
69. The demand for a poll may be withdrawn.
70. Unless a poll is duly demanded, on the election of a Chairman or on a question of adjournment, a poll shall be taken as the Chairman directs and the result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded.
71. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman shall not be entitled to a second or casting vote.
72. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is contingent thereon may proceed pending the taking of the poll.
VOTES OF MEMBERS
73. Except as otherwise required by law or as set forth herein, the holder of each Share issued and outstanding shall have one vote for each Share held by such holder. No Member shall be entitled to engage in cumulative voting.
74. In the case of joint holders of record 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 Members.
75. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that court, and any such committee, receiver, curator bonis or other persons may vote by proxy.
76. No Member shall be entitled to vote at any general meeting unless he is registered as a Member of the Company on the record date for such meeting nor unless all calls or other sums presently payable by him in respect of Shares in the Company have been paid.
77. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairman of the general meeting whose decision shall be final and conclusive.
78. On a poll or on a show of hands votes may be given either personally or by proxy. A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting and may appoint one proxy to vote both in favour of and against the same resolution in such proportion as specified in the instrument appointing the proxy. Where a Member appoints more than one proxy the instrument of proxy shall state which proxy is entitled to vote on a show of hands.
PROXIES
79. The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in writing, or, if the appointor is a corporation under the hand of an officer or attorney duly authorised for that purpose. A proxy need not be a Member of the Company.
80. The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:
(a) not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or
(b) in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; and
(c) where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the Chairman or to the secretary or to any director;
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.
81. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a poll.
82. Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.
83. Any corporation or other non-natural person which is a Member may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.
84. Shares in the Company that are beneficially owned by the Company shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding Shares at any given time.
CORPORATE REPRESENTATIVES
85. Any corporation which is a Member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of members of any class of Shares of the Company and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which be represents as that corporation could exercise if it were an individual member of the Company and where a corporation is so represented, it shall be treated as being present at any meeting in person.
CLEARING HOUSES
86. If a clearing house (or its nominee) is a member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such person or persons as it
thinks fit to act as its representative or representatives at any general meeting of the Company or at any general meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of Shares in respect of which each such person is so authorised. A person so authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual member of the Company holding the number and class of Shares specified in such authorisation.
DIRECTORS
87. The number of Directors shall be five or such other number as shall be fixed from time to time by the Directors; provided, however, that so long as Shares or ADSs of the Company are quoted on Nasdaq, the Directors shall include such number of Independent Directors as applicable law, rules or regulations or the Nasdaq Rules require.
88. At each annual general meeting, all of the Directors for the time being shall retire from office, retaining office until the close of such meeting, and shall be eligible for re-election. If for any cause, the Directors shall not have been elected at an annual general meeting, they may be elected as soon thereafter as convenient at an extraordinary general meeting of the Members called for that purpose in the manner provided in these Articles.
89. Notwithstanding the foregoing provisions of Article 88, each Director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director.
90. Subject to Article 108, the remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to accrue from day to day. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other.
91. Subject to Article 108, the Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director.
92. Payment to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must first be approved by the Company in general meeting.
93. A Director or alternate Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine.
94. A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to remuneration for professional services as if he were not a Director or alternate Director.
95. A shareholding qualification for Directors may not be fixed by the Company in general meeting.
96. The Company shall keep at its Registered Office a register of Directors and officers containing their names and addresses and occupations and other particulars required by the Law and shall send to the Registrar of Companies of the Cayman Islands a copy of such register and shall from time to time notify to the Registrar of Companies of the Cayman Islands any change that takes place in relation to such Directors and officers as required by applicable law, rules or regulations or the Nasdaq Rules.
ALTERNATE DIRECTORS
97. A Director who expects to be unable to attend Directors' Meetings because of absence, illness or otherwise may appoint any person to be an alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same.
98. The appointment of an alternate Director shall determine on the happening of any event which, were he a Director, would cause him to vacate such office or if his appointor ceases to be a Director.
99. An alternate Director shall be entitled to receive and waive (in lieu of his appointor) notices of meetings of the Directors and shall be entitled to attend and vote as a Director and be counted in the quorum at any such meeting at which the Director appointing him is not 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 the provisions of these Articles shall apply as if he (instead of his appointor) were a Director. If he shall be himself a Director or shall attend any such meeting as an alternate for more than one Director, his voting rights shall be cumulative and he need not use all his votes or cast all the votes to uses in the same way. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this Article shall also apply mutatis mutandis to any meeting of any such committee
of which his appointor is a member. An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.
100. An alternate Director shall be entitled to contract and be interested in and benefit from contracts, arrangements or transactions and to be repaid expenses and to be indemnified to the same extent mutatis mutandis as if he were a Director, but he shall not be entitled to receive from the Company in respect of his appointment as alternate Director any remuneration except only such part (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct. The alternate Director, as well as the Director appointing such alternate Director, shall be responsible for the alternate Director's own acts and defaults.
101. In addition to the foregoing provisions of this Article, a Director may be represented at any meeting of the Board (or of any committee of the Board) by a proxy appointed by him, is which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. A proxy need not himself be a Director and the provisions of Articles 79 to 84 shall apply mutatis mutandis to the appointment of proxies by Directors save that an instrument appointing a proxy shall not become invalid after the expiration of twelve months from its date of execution but shall remain valid for such period as the instrument shall provide or, if no such provision is made in the instrument, until revoked in writing and save also that a Director may appoint any number of proxies although only one such proxy may attend in his stead at meetings of the Board).
POWERS AND DUTIES OF DIRECTORS
102. Subject to the provisions of the Law, the Memorandum and the Articles and to any directions given by Special Resolution, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. No alteration of the Memorandum or Articles and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. A duly convened meeting of the Directors at which a quorum is present may exercise all powers exercisable by the Directors.
103. The Directors may from time to time and at any time by power of attorney or otherwise appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorneys or authorised signatories as the Directors may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him.
104. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution determine.
105. The Directors shall cause minutes to be made in books provided for the purpose:
(a) of all appointments of officers made by the Directors;
(b) of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of any committee of the Directors;
(c) of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors.
106. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
107. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.
MANAGEMENT
108. (a) The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the next following paragraphs shall be without prejudice to the general powers conferred by this paragraph.
(b) The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration.
(c) The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.
(d) Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretions for the time being vested in them.
(e) Without prejudice to the freedom of the Directors to establish any other committees, for so long as the ADSs of the Company are listed or quoted on Nasdaq, it shall establish and maintain an Audit Committee as a committee of the board, the composition and responsibilities of which shall comply with applicable law, rules or regulations and the Nasdaq Rules.
(f) The Board shall adopt a formal written audit committee charter and review and assess the adequacy of the formal written charter on an annual basis. The charter shall comply with applicable law, rules or regulations and the Nasdaq Rules.
(g) Without prejudice to the freedom of the Directors to establish any other committees, the Board may establish a Compensation Committee to assist the board in reviewing and approving the compensation structure for the company's directors and officers. For so long as the ADSs of the Company are listed or quoted on Nasdaq, the composition and responsibilities of the Compensation Committee shall comply with applicable law, rules or regulations and the Nasdaq Rules.
(h) The Board shall adopt a formal written compensation committee charter and review and assess the adequacy of the formal written charter on an annual basis. The charter shall comply with applicable law, rules or regulations and the Nasdaq Rules.
(i) Without prejudice to the freedom of the Directors to establish any other committees, the Board may establish a Corporate Governance and Nomination Committee to assist the board in identifying qualified individuals to become board members and in determining the composition of the board and its committees. For so long as the ADSs of the Company are listed or quoted on Nasdaq, the composition and responsibilities of the Corporate Governance and Nomination Committee shall comply with applicable law, rules or regulations and the Nasdaq Rules.
(j) The Board shall adopt a formal written governance and nomination committee charter and review and assess the adequacy of the formal written charter on an annual basis. The charter shall comply with applicable law, rules or regulations and the Nasdaq Rules.
INTERESTED DIRECTORS
109. (i) No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise, (ii) nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in which any Director shall be a member or otherwise interested be capable on that account of being voidable or voided, (iii) nor shall any such contract or arrangement be voidable or voided solely because the Director is present at or participates in the meeting of the Directors or committee thereof which authorizes the contract or arrangement, or solely because the Directors' votes are counted for such purpose, and (iv) nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship, thereby established, provided that in each such case (a) such Director shall,
if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the Board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may subsequently be made by the Company and (b) if such contract or arrangement is a Related Party Transaction, such Related Party Transaction has been approved in accordance with applicable laws, rules, regulations and the Nasdaq Rules.
110. Any Director may continue to be or become a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any other company in which the Company may be interested and (unless otherwise agreed between the Company and the Director) no such Director shall be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any such other company. The Directors may exercise the voting powers conferred by the shares in any other company held or owned by the Company, or exercisable by them as directors of such other company in such manner in all respects as they think fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, managing directors, joint managing directors; deputy managing directors, executive directors, managers or other officers of such company) and any Director may vote in favour of the exercise of such voting rights in the manner aforesaid notwithstanding that he may be, or is about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in the manner aforesaid.
111. A Director may hold any other office or place of profit with the Company (except that of Auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profit or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article.
112. A general notice or disclosure to the Directors or otherwise contained in the minutes of a Meeting or a written resolution of the Directors or any committee thereof that a Director or alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 109 and after such general notice it shall not be necessary to give special notice relating to any particular transaction.
PROCEEDINGS OF DIRECTORS
113. Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors and
alternate Directors present at a meeting at which there is a quorum, the vote of an alternate Director not being counted if his appointor be present at such meeting.
114. The Chairman of the Board or any two Directors may, and the Secretary on the requisition of such persons, shall, at any time summon a meeting of the Directors by notice to each Director and alternate Director by telephone, facsimile, electronic email, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or by sending notice in writing to each Director and alternate Director by first class mail, charges prepaid, at least two (2) days before the date of the meeting, which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and provided further if notice is given in person, by telephone, facsimile, electronic email, telegraph or telex the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organisation as the case may be. The accidental omission to give notice of a meeting of the Directors to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall not invalidate the proceedings of that meeting.
115. The quorum necessary for the transaction of the business of the Directors shall be established if a majority of the Directors are present in person or by proxy. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for that meeting. For the purposes of this Article an alternate Director or proxy appointed by a Director shall be counted in a quorum at a meeting at which the Director appointing him is not present.
116. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose.
117. The Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting.
118. All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an alternate Director) shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director as the case may be.
119. Members of the Directors or of any committee thereof may participate in a meeting of the Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. Unless otherwise determined by the Directors the meeting shall be deemed to be held at the place where the Chairman is at the start of the meeting. A resolution in writing (in one or more
counterparts), signed by all the Directors for the time being or all the members of a committee of the Directors (an alternate Director being entitled to sign such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case may be duly convened and held.
120. A Director but not an alternate Director may be represented at any meetings of the Directors by a proxy appointed in writing by him. The proxy shall count towards the quorum and the vote of the proxy shall for all purposes be deemed to be that of the appointing Director.
VACATION OF OFFICE OF DIRECTOR
121. The office of a Director shall be vacated:
(a) if he gives notice in writing to the Company that he resigns the office of Director; or
(b) if all of the Directors (other than the one to be removed) pass a resolution or sign a notice effecting the removal of such one Director from his office as such; or
(c) if he is prohibited from being a Director under any applicable law, rules or regulations and the Nasdaq Rules; or
(d) if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office; or
(e) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; or
(f) if he is found to be or becomes of unsound mind.
APPOINTMENT AND REMOVAL OF DIRECTORS
122. The Company may by Ordinary Resolution appoint any person to be a Director and may by Ordinary Resolution remove any Director and may by Ordinary Resolution appoint another person in his stead.
123. The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors but so that the total amount of Directors (exclusive of alternate Directors) shall not at any time exceed the number fixed in accordance with these Articles. Any Director appointed in accordance with the preceding sentence shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.
124. Nothing in these Articles should be taken as depriving a Director removed under any provisions of these Articles of compensation or damages payable to him in respect of the termination of his appointment as Director or of any other appointment or office as a result of the termination of his appointment as Director or derived from any power to remove a Director which may exist apart from the provisions of these Articles.
PRESUMPTION OF ASSENT
125. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the Chairman or Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.
SEAL
126. (a) The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of the Directors authorised by the Directors. Every instrument to which the Seal has been affixed shall be signed by at least one person who shall be either a Director or some officer or other person appointed by the Directors for the purpose.
(b) The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile of the Common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.
(c) A Director or officer, representative or attorney may without further authority of the Directors affix the Seal over his signature alone to any document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or elsewhere wheresoever.
OFFICERS
127. The officers of the Company shall be the Chairman of the Board, the Chief Executive Officer, Chief Financial Officer and the Secretary and may include one or more Vice Presidents and one or more Assistant Secretaries and one or more Assistant Treasurers. Any two or more offices may be held by the same person.
128. All officers shall have such authority and perform such duties in the management of the Company as may be provided in these Articles or, to the extent not so provided, by resolution of the Board.
129. Each officer shall be appointed by the Board and shall hold office for such term as may be determined by the Board. Each officer shall hold office until his successor has been appointed and qualified or his earlier death or resignation or removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties.
130. Any officer may resign at any time by giving written notice to the Board, the Chairman, the Chief Executive Officer or the Secretary. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the Board, the Chairman, the Chief Executive Officer or the Secretary, as the case may be. Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.
131. All officers and agents appointed by the Board shall be subject to removal, with or without cause, at any time by the Board or by the action of the holders of record of a majority of the shares entitled to vote thereon.
132. Any vacancy occurring in any office of the Company, for any reason, shall be filled by action of the Board. Unless earlier removed pursuant to Article 122 hereof, any officer appointed by the Board to fill any such vacancy shall serve only until such time as the unexpired term of his predecessor expires unless reappointed by the Board.
DIVIDENDS, DISTRIBUTIONS AND RESERVE
133. Subject to the Law, the Directors may from time to time declare dividends (including interim dividends) and distributions on Shares of the Company outstanding and authorise payment of the same out of the funds of the Company lawfully available therefor.
134. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company.
135. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the Share Premium Account or as otherwise permitted by the Law.
136. Subject to the rights of persons, if any, entitled to Shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of Shares they shall be declared and paid according to the amounts paid or credited as paid on the Shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a Share in advance of calls shall be treated for the purpose of this Article as paid on the Share.
137. The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.
138. The Board may, with the sanction of the Members in general meeting, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, or in any one or more of such ways, and where any difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to the benefit of the Company, and may fix the value for distribution of such specific assets, or any part thereof, and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments of transfer and other documents on behalf of the persons entitled to the dividend and such appointment shall be effective. Where required, a contract shall be filed in accordance with the provisions of the Companies Law and the Board may appoint any person to sign such contract on behalf of the persons entitled to the dividend and such appointment shall be effective.
139. Unless otherwise directed by the Board, any dividend, interest or other sum payable in cash to a holder of Shares may be paid by cheque or warrant sent through the post to the registered address of the member entitled, or, in the case of joint holders, to the registered address of the person whose name stands first in the register in respect of the joint holding or to such person and to such address as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares and shall be sent at his or their risk, and the payment of any such cheque or warrant by the bank on which it is drawn shall operate as a good discharge to the Company in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or than any endorsement thereon has been forged.
140. The Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise its power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.
141. All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the exclusive benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof or be required to account for any money earned thereon. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the Board and shall revert to the Company and after such forfeiture no member or other person shall have any right to or claim in respect of such dividends or bonuses.
142. No dividend or distribution shall bear interest against the Company.
UNTRACEABLE SHAREHOLDERS
143. (a) The Company shall be entitled to sell any shares of a member or the shares to which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if and provided that:
(i) all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years;
(ii) the Company has not during that time or before the expiry of the three month period referred to in paragraph (iv) below received any indication of the whereabouts or existence of the member or person entitled to such shares by death, bankruptcy or operation of law;
(iii) during the 12-year period, at least three dividends in respect of the shares in question have become payable and no dividend during that period has been claimed by the member; and
(iv) upon expiry of the 12-year period, the Company has caused an advertisement to be published in the newspapers or by electronic communication in the manner in which notices may be served by the Company by electronic means as herein provided, giving notice of its intention to sell such shares, and a period of three months have elapsed since such advertisement.
The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former member for an amount equal to such net proceeds.
(b) To give effect to any sale contemplated by paragraph (a) the Company may appoint any person to execute as transferor an instrument of transfer of the said shares and such other documents as are necessary to effect the transfer, and such documents shall be as effective as if it had been executed by the registered holder of or person entitled by transmission to such shares and the title of the transferee shall not be affected by any irregularity or invalidity in the proceedings relating thereto. The net proceeds of sale shall belong to the Company which shall be obliged to account to the former member or other person previously entitled as aforesaid for an amount equal to such proceeds and shall enter the name of such former member or other person in the books of the Company as a creditor for such amount. No trust shall be created in respect of the debt, and no interest shall be payable in respect of the same and the Company shall not be required to account for any money earned on the net proceeds, which may be employed in the business of the Company or invested in such investments (other than shares or other securities in or of the Company or its holding company if any) or as the Board may from time to time think fit.
CAPITALISATION
144. Upon the recommendation of the Directors, the Company may by Ordinary Resolution authorise the Directors to capitalise any sum standing to the credit of any of the Company's reserve accounts (including Share Premium Account and capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate such sum to Members in the proportions in which such sum would have been divisible
amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full power to the Directors to make such provisions as they think fit for the case of Shares becoming distributable in fractions (including provisions whereby the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any agreement made under such authority shall be effective and binding on all concerned.
BOOKS OF ACCOUNT
145. The Directors shall cause proper books of account to be kept with respect to:
(a) all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to explain its transactions.
146. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Law or authorised by the Directors or by the Company in general meeting.
147. The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.
ANNUAL RETURNS AND FILINGS
148. The Board shall make the requisite annual returns and any other requisite filings in accordance with the Law.
AUDIT
149. The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration. Notwithstanding the above, for so long as the ADSs of the Company are listed or quoted on Nasdaq, the Audit Committee is directly responsible for the appointment, remuneration, retension and oversight of the Company's Auditors.
150. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors.
151. Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an ordinary company, and at the next extraordinary general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an exempted company, and at any time during their term of office, upon request of the Directors or any general meeting of the Members.
NOTICES
152. Notices shall be in writing and may be given by the Company to any Member in accordance with applicable law, rules or regulations and the Nasdaq Rules.
153. In the event that no such law, rules and regulations referred to in the above Article applies, notice to any Member shall be given either personally or by sending it by post, cable, telex, fax or e-mail to him or to his address as shown in the register of Members (or where the notice is given by e-mail by sending it to the e-mail address provided by such Member). Any notice, if posted from one country to another, is to be sent airmail.
154. (a) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter containing the notice, and shall be deemed to have been received on the fifth day (not including Saturdays or Sundays or public holidays) following the day on which the notice was posted.
155. (b) Where a notice is sent by cable, telex, or fax, service of the notice shall be deemed to be effected by properly addressing, and sending such notice and shall be deemed to have been received on the same day that it was transmitted.
156. (c) Where a notice is given by e-mail service shall be deemed to be effected by transmitting the e-mail to the e-mail address provided by the intended recipient and shall be deemed to have been received on the same day that it was sent, and it shall not be necessary for the receipt of the e-mail to be acknowledged by the recipient.
157. A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a Share or Shares in consequence of the death or bankruptcy of a Member in the same manner as other notices which are required to be given under these Articles and shall be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the same might have been given if the death or bankruptcy had not occurred.
158. Notice of every general meeting shall be given in any manner hereinbefore authorised to:
(a) every person shown as a Member in the register of Members on the record date for such meeting except that in the case of joint holders the notice shall be sufficient if given to the joint holder first named in the register of Members;
(b) every person upon whom the ownership of a Share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting;
(c) the Auditors;
(d) each Director and alternate Director; and
(e) Nasdaq.
No other person shall be entitled to receive notices of general meetings.
INFORMATION
159. No Member shall be entitled to require discovery of or any information in respect of any detail of the Company's trading or any which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public.
160. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the register of Members and transfer books of the Company.
WINDING UP
161. Subject to Article 136, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Law, divide amongst the Members 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 that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of
Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability.
162. If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions.
INDEMNITY
163. (a) The Company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith, in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company, in a manner that was not willfully or grossly negligent, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith, in a manner which the person reasonably believed to be in or not opposed to the best interests of the Company, in a manner that was willfully or grossly negligent, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful.
(b) The Company may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith, in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and in a manner that was not willfully or grossly negligent,
except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
(c) To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Article 163(a) or (b) above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under Article 163(a) or (b) above (unless ordered by a court) shall be made by the Company only as authorised in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances, including whether or not the person has met the applicable standard of conduct set forth in Article 163(a) or (b) above. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the Members of the Company.
(e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Company pursuant to this Article 163. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Company deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 163 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of Members or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.
(g) For purposes of this Article 163, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith, in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan and in a manner that was not willfully or grossly
negligent shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Article 163.
(h) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 163 shall, unless otherwise provided when authorised or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
164. The Board may, notwithstanding any interest of the Directors in such action, authorize the Company to purchase and maintain insurance on behalf of any person described in the above Article, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of the above Article.
FINANCIAL YEAR
165. Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and shall begin on 1st January in each year.
PENSION AND SHARE OPTION SCHEMES
166. The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or provident or superannuation funds or (with the sanction of an ordinary resolution) employee or executive share option schemes for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependents of any such persons. The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well-being of the Company or of any such other company as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. Any Director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.
167. For so long as the ADSs of the Company are quoted or listed on Nasdaq, a sanction of an ordinary resolution by the shareholders shall be obtained prior to any issuance of any equity or material amendment to any equity compensation plan as required by applicable rules of the NASD Manual and Notices to Members, as amended from time to time.
AMENDMENTS OF ARTICLES
168. Subject to the Law and to any quorum, voting or procedural requirements expressly imposed by these Articles in regard to the variation of rights attached to a specific class of Shares of the Company, the Company may at any time and from time to time by Special Resolution change the name of the Company or alter or amend these Articles or the Company's Memorandum of Association, in whole or in part.
TRANSFER BY WAY OF CONTINUATION
169. If the Company is exempted as defined in the Law, it shall, subject to the provisions of the Law and with the approval of a Special Resolution, have the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.
EXHIBIT 4.1
51JOB, INC.
Number Shares - [ ] - - [ ] -
INCORPORATED IN THE CAYMAN ISLANDS UNDER THE COMPANIES LAW
THIS IS TO CERTIFY THAT
is the registered holder of
___________________________________________ Common Shares fully paid and non-assessable, par value US$0.0001 per share, of 51job, Inc. (the "Company") subject to the Memorandum and the Articles of Association of the Company, and transferable only on the books of the Company by the holder hereof in person or by Attorney upon surrender of this certificate properly endorsed.
Given under the Common Seal of the said Company this ______ day of _________ 200__. The Common Seal of the Company was hereunto affixed in the presence of ___________________________________ _________________________________ __________, Secretary ______________, Director |
Exhibit 5.2
[LETTERHEAD OF JUN HE LAW OFFICES]
July 7, 2004
51job, Inc.
21st Floor, Wen Xin Plaza
755 Wei Hai Road
Shanghai 200041,
P.R. China
Re: 51job, Inc.
Dear Sirs,
We are qualified lawyers of the People's Republic of China ("PRC") and are qualified to issue an opinion on the laws and regulations of the PRC.
We have acted as the PRC counsel for 51job, Inc. (the "COMPANY"), a company incorporated under the laws of the Cayman Islands, in connection with (i) the Company's registration statement on Form F-1, including all amendments or supplements thereto ("REGISTRATION STATEMENT"), originally filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended, on July 7, 2004, relating to the offering by the Company and certain selling shareholders of the Company a certain number of American Depositary Shares ("ADRS"), each of which represents two common shares par value US$0.0001 per share, of the Company and (ii) the Company's proposed listing of its ADSs on the Nasdaq National Market. We have been requested to give this opinion on, inter alia, (a) the legal ownership structure of Qian Cheng Wu You Network Information Technology (Beijing) Company Limited ("WFOE"), Qianjin Network Information Technology (Shanghai) Company Limited ("TECH JV"), Shanghai Qianjin Culture Communication Company Limited ("ADCO"), Wuhan Meihao Qiancheng Advertising Company Limited ("WUHAN ADCO"), Dalian Meihao Advertising Company Limited, Hangzhou Meijin Advertising Company Limited, Chongqing Qiancheng Wuyou Advertising Company Limited, Kunming Meihao Qiancheng Advertising Company Limited and Hefei Wuyou Culture Communication Company Limited (together with Wuhan AdCo, collectively, "ADCO SUBSIDIARIES"), Shanghai Run An Lian Information Consultancy Company Limited ("RAL") and Beijing Qian Cheng Si Jin Advertising Company Limited ("QIAN CHENG"), and (b) the legality and validity of the agreements listed in Schedule I hereto (the "AGREEMENTS").
In so acting, we have examined the originals or copies certified or otherwise identified to our satisfaction, of documents provided to us by the Company and such other documents, corporate records, certificates issued by governmental authorities in the PRC and officers of the Company and other instruments as we have deemed necessary or advisable for the purposes of rendering this opinion, including and without limitation to, copies of the Agreements.
We summarize each of the Agreements below:
1. AGREEMENTS WITH RAL
1.1 RAL Technical and Consulting Service Agreement. WFOE has entered into RAL Technical and Consulting Service Agreement with RAL, pursuant to which WFOE will, as the exclusive technology provider of RAL, provide certain technical and consulting services to RAL. RAL will pay WFOE the service fees in accordance with the timing and amount specified in the bill issued by WFOE based on the quantity of the services with the price agreed by both parties. The term of the agreement is ten years and can only be terminated by WFOE. Such term may be extended subject to the written consent of WFOE and RAL.
1.2 RAL Equity Pledge Agreement. As security for RAL's obligations under RAL Technical and Consulting Service Agreement, the shareholders of RAL have pledged all of their equity interest in RAL to WFOE. Upon the occurrence of certain defaults by RAL as defined in RAL Equity Pledge Agreement, including any default by RAL in respect of any provisions of RAL Technical and Consulting Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, the right to sell the pledged equity. The pledge cannot be released until the discharge of all of RAL's obligations under RAL Technical and Consulting Service Agreement. Both parties have also agreed that WFOE is granted the option during the ten-year term of the agreement to purchase the equity interest in RAL to the maximum extent permitted under PRC laws and, upon the expiration of the term, if and to the extent the option has not been exercised, WFOE is obligated to purchase the equity interest in RAL to the extent permitted under PRC laws. In all cases, the purchase price shall be the lowest price permitted by PRC laws. In addition, the shareholders of RAL have agreed that:
- they shall not transfer, dispose the pledged equity or take any other actions that will prejudice WFOE's interest as the pledgee;
- they will not take any actions or omissions that will materially affect the assets, business and liabilities of RAL;
- without the prior written consent of WFOE, they will not make material decisions concerning the operation of RAL, including profit distributions, increase or decrease of the registered capital, issuance of bonds, merge, split up or any change in the form of the entity, any change of the business scope, modification of the articles of association, borrowing from any third party or otherwise incurrence of any liabilities for any indebtedness to any third party in the name of RAL; and appointment of the member of the board of directors of RAL; and
- WFOE has the right to recommend the general manager and other senor executive officers and they shall cause the board of directors to appoint the general manager and other senior executive officers only from those candidates recommended by WFOE.
1.3 Tech JV and RAL Cooperation Agreement. RAL and Tech JV have entered into the Cooperation Agreement, under which RAL will provide the human resource service to Tech JV's customers and post the human resource related information through its website (www.51job.com). Tech JV agrees to provide technical support to the development, construction and maintenance of RAL's website and to provide the technical support to RAL's human resource service in accordance with the customer's specific demand. In the event that RAL breaches the Cooperation Agreement or causes the breach of the three-party agreement entered into by RAL, Tech JV and the customer, RAL shall be liable for such breach and hold Tech JV harmless from such breach. Tech JV will pay RAL the service fee quarterly, with the amount equal to the direct operating costs plus 5% of such costs, to the maximum amount of RMB 300,000 per quarter. The term for the Cooperation Agreement is ten years and may be extended subject to the written consent of both parties.
1.4 Domain Name License Agreement. 51net has entered into the Domain Name License Agreement with RAL, under which 51net has granted RAL the right to use within the PRC, only in connection with RAL's operation of the website of http://www.51job.com for a license fee to be determined by both parties. RAL is not permitted to assign the right to use these domain names to any third party without the written consent of 51net. The term for the Domain
Name License Agreement is two years and may be extended subject to the consent of 51net.
2. AGREEMENTS WITH QIAN CHENG
2.1 Qian Cheng Technical and Consulting Service Agreement. WFOE has entered into Qian Cheng Technical and Consulting Service Agreement with Qian Cheng, pursuant to which WFOE will, as the exclusive technology provider of Qian Cheng, provide certain technical and consulting services to Qian Cheng. Qian Cheng will pay WFOE the service fees in accordance with the timing and amount specified in the bill issued by WFOE based on the quantity of the services with the price agreed by both parties. The term of agreement is ten years and can only be terminated by WFOE. Such term may be extended subject to the written consent of WFOE and Qian Cheng.
2.2 Qian Cheng Equity Pledge Agreement. As security for Qian Cheng's obligations under the Qiang Cheng Technical and Consulting Service Agreement, the shareholders of Qian Cheng have pledged all of their equity interest in Qian Cheng to WFOE. Upon the occurrence of certain defaults by Qian Cheng as defined in the Qian Cheng Equity Pledge Agreement, including any default by Qian Cheng in respect of any provisions of Qian Cheng Technical and Consulting Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, the right to sell the pledged equity. The pledge cannot be released until the discharge of all of Qian Cheng's obligations under Qian Cheng Technical and Consulting Service Agreement. Both parties have also agreed that WFOE is granted the option during the ten-year term of the agreement to purchase the equity interest in Qian Cheng to the maximum extent permitted under PRC laws and, upon the expiration of the term, if and to the extent the option has not been exercised, WFOE is obligated to purchase the equity interest in Qian Cheng to the extent permitted under PRC laws. In all cases, the purchase price shall be the lowest price permitted by PRC laws. In addition, the shareholders of Qian Cheng have agreed that:
- they shall not transfer, dispose the pledged equity or take any other actions that will prejudice WFOE's interest as the pledgee;
- they will not take any actions or omissions that will materially affect the assets, business and liabilities of Qian Cheng;
- without the prior written consent of WFOE, they will not make material decisions concerning the operation of Qian Cheng, including profit distributions, increase or decrease of the registered capital, issuance of bonds, merge, split up or any change in the form of the entity, any change of the business scope, modification of the articles of association, borrowing from any third party or otherwise incurrence of any liabilities for any indebtedness to any third party in the name of Qian Cheng; and appointment of the member of the board of directors of Qian Cheng; and
- WFOE has the right to recommend the general manager and other senor executive officers and they shall cause the board of directors to appoint the general manager and other senor executive officers only from those candidates recommended by WFOE.
2.3 51net and Qian Cheng Call Option Agreement. 51net has entered into the Call Option Agreement with Qian Cheng, as amended, under which Qian Cheng has irrevocably granted 51net an option for 51net or its designated party to purchase, if and when permitted by PRC laws, all of Qian Cheng's equity interest in Tech JV, AdCo and AdCo existing subsidiaries and future entities to be set up by Qian Cheng. During the effective term of the Call Option Agreement, Qian Cheng shall not transfer any of its equity interest in the foresaid entities without 51net's prior consent. The price for 51net to purchase all the equity interest of Qian Cheng in Tech JV and AdCo is RMB1.2 million or the lowest price as permitted by PRC laws if RMB1.2 million is not permissible under then applicable PRC laws, and the price for purchasing Qian Cheng's equity interest in AdCo's exiting subsidiaries and future entities will be the lowest price to the extent permitted by PRC laws. The term for the Call Option Agreement is ten years, and may be extended subject to the consent of both parties.
3. EQUITY TRANSFER AGREEMENT
51net has entered into the Equity Transfer Agreement with Wuhan AdCo, under which 51net transferred its 48% equity interest in Tech JV to Wuhan AdCo at a price of RMB 1 million. Under the agreement, 51net or its designated party will redeem such 48% equity interest in all or in part from Wuhan AdCo subject to PRC laws, approval of relevant government authorities and the redemption terms and price as required by 51net.
In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents submitted to us as copies. We have also assumed the Agreements as they were presented to us up to the date of this legal opinion and that none of the Agreements has been revoked, amended, varied or supplemented. We have further assumed the accuracy and completeness of all factual statements in the Agreements. Where important facts were not independently established to us, we have relied upon certificates issued by governmental agents and representatives of the Company with proper authority and upon representations, made in or pursuant to the Agreements.
As used herein, (i) "PRC LAWS" means all laws, regulations, statutes, orders,
decrees, guidelines, notices, judicial interpretations, subordinary legislations
of the PRC which are publicly available; (ii) "APPROVALS" means all approvals,
consents, waivers, sanctions, authorizations, filings, registrations,
exemptions, permissions, endorsement, annual inspections, qualifications and
licenses; (iii) "MATERIAL ADVERSE EFFECT" means a material adverse effect on the
condition (financial or other), business, properties or results of operations of
the Company and the PRC Group Companies (as defined below) taken as a whole; and
(iv) "PROSPECTUS" means the prospectus that forms a part of the Registration
Statement, as amended.
Based on the foregoing, we are of the opinion that:
1. WFOE, i.e., Qian Cheng Wu You Network Information Technology (Beijing) Company Limited, has been duly incorporated and is validly existing as a wholly foreign owned enterprise with legal person status in good standing under PRC Laws. All of the registered capital of WFOE has been fully paid and is owned by 51net Beijing ("51NET BEIJING") directly, to the best of our knowledge after making due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right.
2. RAL, i.e., Shanghai Run An Lian Information Consultancy Company Limited, has been duly incorporated and is validly existing as a privately owned enterprise with legal person status in good standing under PRC Laws. All of the registered capital of RAL has been fully paid and is 20%-owned by Mr. Tao Wang and 80%-owned by Mr. Michael Feng, directly and respectively, to the best of our knowledge after making due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right except for the pledge, restrictions on transfer, option and purchase obligation as set forth in the RAL Equity Pledge Agreement.
3. QIAN CHENG, i.e., Beijing Qian Cheng Si Jin Advertising Company Limited, has been duly incorporated and is validly existing as a privately owned enterprise with legal person status in good standing under PRC Laws. All of the registered capital of Qian Cheng has been fully paid and is 20%-owned by Beijing Run An Information Consultancy Company Limited (which is 20%-owned by Mr. Tao Wang and 80%-owned by Mr. Michael Feng, directly and respectively) and 80%-owned by Mr. Michael Feng, directly and respectively, to the best of our knowledge after making due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right except for the pledge, restrictions on transfer, option and purchase obligation as set forth in the Qian Cheng Equity Pledge Agreement.
4. TECH JV, i.e., Qianjin Network Information Technology (Shanghai) Company Limited, has been duly incorporated and is validly existing as a Sino-foreign equity joint venture company with legal person status in good standing under PRC Laws. All of the registered capital of Tech JV has been fully paid and is 51%-owned by 51net.com Inc. ("51NET"), 48%-owned by Wuhan AdCo and 1%-owned by Qian Cheng, directly and respectively, to the best of our knowledge after making due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right except for (i) the option granted with respect to Qian Cheng's interest in Tech JV as set forth in the 51net and Qian Cheng Call Option Agreement, as amended, and (ii) the redemption right granted with respect to Wuhan AdCo's interest in Tech JV as set forth in the Equity Transfer Agreement.
5. ADCO, i.e., Shanghai Qianjin Culture Communication Company Limited, has been incorporated and is validly existing as a privately owned enterprise with legal person status in good standing under PRC Laws. All of the registered capital of AdCo has been fully paid and is 80%- owned by Tech JV and 20%-owned by Qian Cheng, directly and respectively, to the best of our knowledge after making due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right except for the option granted with respect to Qian Cheng's interest in AdCo as set forth in the Call Option Agreement, as amended.
6. Each of the ADCO SUBSIDIARIES, i.e., Wuhan Meihao Qiancheng Advertising Company Limited, Dalian Meihao Advertising Company Limited, Hangzhou Meijin Advertising Company Limited, Chongqing Qiancheng Wuyou Advertising Company Limited, Kunming Meihao Qiancheng Advertising Company Limited and Hefei Wuyou Culture Communication Communication Limited, has been duly incorporated and
is validly existing as a privately owned enterprise with legal person status in good standing under PRC Laws. All of the registered capital of each AdCo Subsidiary has been fully paid, and, except for Wuhan AdCo which is 70%-owned by AdCo and 30%-owned by Qian Cheng, each AdCo Subsidiary is 90%-owned by AdCo and 10%-owned by Qian Cheng, directly and respectively, and in each case to the best of our knowledge after due and reasonable inquiries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity or any third party right except for the option granted with respect to Qian Cheng's interest in each of AdCo Subsidiaries as set forth in the Call Option Agreement, as amended.
7. All Approvals in the PRC required for the establishment and the maintenance of the enterprise legal person status of each of WFOE, RAL, Qian Cheng, Tech JV, AdCo and each of AdCo Subsidiaries (together, the "PRC GROUP COMPANIES") respectively have been duly issued and obtained and all such Approvals are valid and in full force and effect, have not been revoked, withdrawn, suspended or cancelled and are not subject to any condition other than the annual inspection conducted by relevant government authorities, except for the Approval for the establishment of AdCo which was not sufficient at the time when AdCo was established under the then applicable PRC Law, which lack of sufficient Approval however would not result in a Material Adverse Effect. Each of PRC Group Companies respectively has complied with all applicable registration and filing requirements under PRC Laws for its establishment and the maintenance of its status and existence as an enterprise legal person.
8. Each of PRC Group Companies has the power and authority and has satisfied
all conditions and done all things required by applicable PRC Laws
(including the obtaining and possessing of all necessary Approvals, if any)
in order for it to own, use, lease and operate its assets and to conduct
its existing business as described in the Prospectus, including proper
Approval for (A) Tech JV to engage in online advertising business, each of
AdCo and AdCo Subsidiaries to design, produce and act as an agent for the
domestic advertisements, and Qian Cheng to design, produce and publish
advertisements for Chinese and multinational companies in China, (B) RAL to
engage in human resources related services, including Internet human
resources services, and to engage in Internet information services
(excluding contents with respect to news, publishing, education, medical
and health care, medication, medical appliances, and billboard services, or
BBS), (C) WFOE to provide network and software related technical support
services, and (D) Tech JV to conduct its software development, multimedia
and network system design and information
technology, each as described in the Prospectus, and to enter into and perform its obligations under each of the Agreements to which it is a party. Such Approvals are in full force and effect and no violation exists in respect of any such Approvals. We are not aware, after due and reasonable inquiries, of any reason that will cause us to reasonably believe that such Approvals (including any that are subject to periodic renewal) will not be renewed by the relevant PRC authority.
9. Each of the PRC Group Companies can legally conduct its business as described in the Prospectus and, to the best of our knowledge after due and reasonable inquiries, none of the PRC Group Companies are in violation of any PRC Law, or in breach of or in default under their articles of association or other constitutional or organizational documents, their business licenses or in breach or default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument known to us after due and reasonable inquires and to which any of the PRC Group Companies is expressed to be a party or by which it or any of their respective properties is bound, which violation, breach or default has not been corrected, remedied, rectified or waived; and there exists no such violation, breach or default, the result of which would have a Material Adverse Effect.
10. Each of the PRC Group Companies, Mr. Michael Feng and Mr. Tao Wang has full power, authority and legal right to enter into, execute, adopt, assume, issue, deliver and perform their respective obligations under each of the Agreements to which they are expressed to be a party and such obligations constitute valid, legal and binding obligations enforceable in accordance with the terms of each of the Agreements (taken both individually and together as a whole) against each of them in accordance with the terms of each of the Agreements (taken both individually and together as a whole), subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights generally and to general equity principles.
11. No Approvals are required to be done or obtained for the performance of PRC Group Companies of their obligations and the transactions contemplated under the Agreements other than those already obtained, except for any exercise by relevant PRC Group Companies or Overseas Subsidiaries (as defined below) of their rights under the Agreements, as the case may be, will be subject to: (i) discretionary approval of and/or registration with the government for the resulting equity transfer; and (ii) in the case of that the transferee is a foreign company or individual, the exercise price for equity transfer under the Agreements must comply with
relevant PRC Laws, which currently require the exercise price for such equity transfer to reflect the appraised value at the time of exercise, as determined by an appraiser qualified to perform such appraisals.
12. Each of the PRC Group Companies, Mr. Michael Feng and Tao Wang has taken all necessary corporate and other actions and fulfilled and done all conditions and things required by applicable PRC Laws (including the obtaining and possessing of all relevant Approvals, if any), for the entering into, execution, adoption, assumption, issue, delivery or the performance of their respective obligations under each of the Agreements to which they are expressed to be a party, and the representatives of each of the PRC Group Companies (as the case may be) have been duly authorized to do so and no such Approval has been revoked or amended.
13. The execution, delivery and performance by each of PRC Group Companies, each of Mr. Michael Feng and Mr. Tao Wang, and each of 51net Beijing and 51net ("OVERSEAS SUBSIDIARIES") of their respective obligations under each of the Agreements to which they are expressed to be a party (taken both individually and together as a whole) does not and will not contravene or result in a breach or violation of (i) the articles of association of any of the PRC Group Companies; (ii) any PRC Laws; and (iii) any agreement, instrument, arbitration award or judgment, order or decree, known to us after due and reasonable inquiries, of any government authority or court in the PRC, having jurisdiction over any of the PRC Group Companies or Overseas Subsidiaries, to which is expressed to be a party or which is binding on them or any of their assets, it being understood that our opinion regarding contravention, breach or violation by any of the Overseas Subsidiaries of agreement or instrument is limited to agreements or instruments governed by PRC Laws.
14. Each of the Agreements is, and all the Agreements taken as a whole are legal, valid, enforceable and admissible as evidence under PRC Laws and is binding on the persons expressed to be parties thereto, except for any exercise by relevant PRC Group Companies or Overseas Subsidiaries of their rights under the Agreements, as the case may be, will be subject to approval or registration as described in Paragraph 11 above. No provisions in any of the Agreements (taken both individually and together as a whole) contravene in any way any applicable Laws of the PRC, including without limitations, the following provisions:
(a) the right of WFOE under each of RAL Equity Pledge Agreement and Qian Cheng Equity Pledge Agreement to approve the appointment of the board of directors of RAL and Qian Cheng, and to recommend the general manager and other senor executive officers to RAL and Qian Cheng, respectively; and
(b) the grant of the pledge by the respective shareholders of RAL and Qian Cheng of their equity interest under each of RAL Equity Pledge Agreement and Qian Cheng Equity Pledge Agreement, and the right of enforcement of such pledge of the equity interest by WFOE.
15. All registrations, filings and recordings have been fulfilled in order for each pledgee under each of the RAL Equity Pledge Agreement and Qian Cheng Equity Pledge Agreement to enjoy the first preemptive rights against any other secured or unsecured creditors of each pledgor under each Equity Pledge Agreement.
16. No Approvals are currently required in the PRC for the equity to be effectively pledged pursuant to each of RAL Equity Pledge Agreement and Qian Cheng Equity Pledge Agreement.
17. The summaries of each of the Agreements set out in this opinion are true and accurate.
18. None of PRC Group Companies is entitled to any immunity from any legal proceedings or other legal process or from enforcement, execution or attachment in respect of their obligations in the transactions contemplated under any of the Agreements.
19. The obligations undertaken by and the rights granted to each party to any of the Agreements are legally permissible under PRC Laws.
20. To the best of our knowledge after due and reasonable inquiries, no PRC Group Company is in breach of the terms and conditions of any Approvals, and, except for the licenses for human resource services and Internet information provision currently held by Tech JV which however would not result in a Material Adverse Effect, there are no circumstances existing which might lead to suspension, revocation or withdrawal of any such Approvals or any conditions attached thereto being adversely altered.
21. To the best of our knowledge after due and reasonable inquiries, none of the PRC Group Companies has taken any action nor have any steps been taken or legal or administrative proceedings been commenced or threatened for the winding up, dissolution or liquidation of any of the PRC Group Companies (as the case may be) or for the suspension, withdrawal, revocation or cancellation of any of their respective business licenses.
22. Each of the PRC Group Companies possesses such certificates, authorities or permits issued by the appropriate national, provincial, municipal local regulatory agencies or bodies necessary to conduct the business now
operated by it as described in the Prospectus, and none of PRC Group Companies has received any oral or written notice of proceedings relating to the suspension, revocation or modification of any such certificate, authority or permit.
23. Each of the PRC Group Companies possesses valid licenses in full force and effect or otherwise has the legal right to use the trademarks, service marks and other intellectual property, or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), other trademarks, service marks and trade names currently employed by them, and, to our knowledge, none of the PRC Group Companies has received any notice of infringement of asserted rights of others with respect to any of the foregoing that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in any Material Adverse Effect.
24. To the best of our knowledge after due and reasonable inquires, there are no Chinese legal or governmental proceedings pending or threatened to which the Company or any of PRC Group Companies or Overseas Subsidiaries is a party, or to which the property of any of them is subject, before or brought by any court or governmental agency or body in the PRC, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Agreements or the performance by the Company or any of the PRC Group Companies, Overseas Subsidiaries of their respective obligations thereunder.
25. The information under the captions "Risk Factors", "Corporate Structure", "Regulation", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" to the extent they constitute matters of PRC laws are correct in all material respects; and our opinion set forth under "Enforceability of Civil Liabilities" in the Prospectus is confirmed.
26. To the best of our knowledge after due and reasonable inquiries, except as disclosed in the Prospectus, there are no outstanding guarantees or contingent payment obligations by any PRC Group Company in respect of indebtedness of third parties which will result in a Material Adverse Effect.
27. The choice of PRC Laws as the governing law in relevant Agreements is a valid choice of governing law and will be binding on the parties to the relevant Agreement, and all conditions to which such Approvals have been fulfilled.
This opinion is limited to PRC Laws of general application as of the date of this opinion and is given on the basis that it will be governed by, and construed in accordance with, PRC Laws. We have made no investigation of, and do not express or imply any views on, the laws of any country other than the PRC.
The PRC Laws referred to herein are laws currently in force as of the date of the opinion and there is no guarantee that any of such Laws will not be changed, amended or revoked in the immediate future or in the longer term with or without retrospective effect.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the above-mentioned Registration Statement and to the reference to our name under the headings "Risk Factors", "Corporate Structure", "Regulation", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Enforceability of Civil Liabilities" and "Experts" in the prospectus included in such Registration Statement. In giving such consent, we do not thereby admit that we fall within the category of the person whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the regulations promulgated thereunder.
Yours faithfully,
/s/ Jun He Law Offices |
Schedule I
1. Call Option Agreement between 51net and Qian Cheng dated August 1, 2002, as amended and supplemented on May 3, 2004;
2. Cooperation Agreement between Tech JV and RAL dated May 3, 2004;
3. Domain Name License Agreement between 51net and RAL dated May 3, 2004;
4. Equity Transfer Agreement between 51net and Wuhan AdCo dated April 5, 2004;
5. Qian Cheng Equity Pledge Agreement between WFOE and the shareholders of Qian Cheng dated May 3, 2004;
6. RAL Equity Pledge Agreement between WFOE and the shareholders of RAL dated May 3, 2004;
7. Technical and Consulting Service Agreement between WFOE and Qian Cheng May 3, 2004, as amended on July 2, 2004; and
8. Technical and Consulting Service Agreement between WFOE and RAL dated May 3, 2004, as amended on July 2, 2004.
EXHIBIT 8.2
[Shearman & Sterling LLP Letterhead]
July 7, 2004
51job, Inc.
21st Floor, Wen Xin Plaza
755 Wei Hai Road
Shanghai 200041
People's Republic of China
Ladies and Gentlemen:
We are acting as counsel to 51job, Inc., a limited liability company incorporated in the Cayman Islands (the "Company") in connection with the preparation of the registration statement on Form F-1 (the "Registration Statement") and the related prospectus (the "Prospectus") with respect to Company American depositary shares (the "ADSs") representing Company common shares (the "Common Shares") to be offered in the Company's initial public offering. The Company is filing the Registration Statement with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). Any defined term used and not defined herein has the meaning given to it in the Prospectus.
For purposes of the opinion set forth below, we have, with the consent of the Company, relied upon the accuracy of the Registration Statement and the Prospectus.
Based upon and subject to the foregoing, and based upon the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder, judicial decisions, revenue rulings and revenue procedures of the Internal Revenue Service, and other administrative pronouncements, all as in effect on the date hereof, it is our opinion that, subject to the limitations set forth therein, the discussion contained in the Prospectus under the caption "Taxation - United States Federal Income Taxation" is an accurate summary of the material United States federal income tax consequences to U.S. Holders of the acquisition, ownership and disposition of the ADSs and the Common Shares under currently applicable law. We adopt such discussion as our opinion.
Our opinion is based on current United States federal income tax law and administrative practice, and we do not undertake to advise you as to any future changes in United States federal income tax law or administrative practice that may affect our opinion unless we are specifically retained to do so. Further, legal opinions are not binding upon the Internal Revenue Service and there can be no assurance that contrary positions may not be asserted by the Internal Revenue Service.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the reference to us in the Prospectus. In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act and the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ SHEARMAN & STERLING LLP L.E.C. |
EXHIBIT 10.1
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
2000 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Ordinary Shares are listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof.
(f) "Ordinary Shares" means the Ordinary Shares of the Company.
(g) "Company" means 51job, Inc. (fka 51net.com Cayman Islands Inc.), a Cayman Islands company.
(h) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the Company.
(j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such
leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of Ordinary Shares determined as follows:
(i) If the Ordinary Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Ordinary Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Ordinary Shares on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Ordinary Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to quality as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual option grant. The Option Agreement is subject to the tens and conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Ordinary Shares subject to an Option or a Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 2000 Stock Plan.
(x) "Restricted Stock" means shares of Ordinary Shares acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Service Provider" means an Employee, Director or Consultant.
(z) "Share" means a share of the Ordinary Shares, as adjusted in accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Ordinary Shares pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares which may be
subject to option and sold under the Plan is 4,010,666 Shares.
If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price and cancelled, such Shares (which will then be authorised but unissued Shares) shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but arc not limited to, the exercise price, the time or times when Options or Stock Purchase Rights maybe exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Ordinary Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Ordinary Shares;
(vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Ordinary Shares covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(1) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(2) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other then as required above pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20%, per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder to Officers and Directors shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Options at the time that such offer is made.
10. Non-Transferability of Company Stock Purchase Rights. The Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator.
(b) Purchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less then 20% per year over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Ordinary Shares covered by each outstanding Option or Stock Purchase Right, and the number of shares of Ordinary Shares which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Ordinary Shares covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Ordinary Shares resulting from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Ordinary Shares, or any other increase or decrease in the number of issued shares of Ordinary Shares effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Ordinary Shares subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exorcise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets the consideration (whether stock, cash or other securities or property) received in the merger or sale of assets by holders of Ordinary Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share consideration received by holders of Ordinary Shares in the merger or sale of assets.
13. Time of Granting Options and Stork Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
EXHIBIT 10.2
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
FORM OF EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with 51job, Inc. (fka 51net.com Cayman Islands Inc.), its subsidiaries, affiliates, successors or assigns (together the "Company"), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by Company, I agree to the following:
1. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that Employee's employment hereunder is and shall continue to be at-will (as defined under applicable law), and may be terminated at any time, with or without cause, at the option of either party. If Employee's employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as specifically provided by this Agreement, or as may otherwise be available pursuant to other written agreements entered into by and between the Company and the Employee. No provision of this Agreement shall be construed as conferring upon Employee a right to continue as an employee of the Company.
2. CONFIDENTIAL INFORMATION.
a. COMPANY INFORMATION. I agree at all times during the term of my employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. I understand that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. I further understand that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved.
b. FORMER EMPLOYER INFORMATION. I agree that I will not, during my employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.
c. THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive from third parties, including affiliated companies and subsidiaries of the Company, their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party.
3. INVENTIONS.
a. INVENTIONS RETAINED AND LICENSED. I have attached hereto, as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to my employment with the Company (collectively referred to as "Prior Inventions"), which belong to me, which relate to the Company's proposed business, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If in the course of my employment with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.
b. ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company (collectively referred to as "Inventions"), except as provided in Section 3(f) below. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectible by copyright are "works made for hire," as that term is defined in the United States Copyright Act.
c. INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign to the United States government all my right, title, and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.
d. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.
e. PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.
f. EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet the criteria in California Labor Code Section 2870 and not otherwise disclosed on Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to the Company.
5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to my employment with the Company or otherwise belonging to the Company, its successors or assigns. In the event of the termination of my employment, I agree to sign and deliver the "Termination Certification" attached hereto as Exhibit C.
6. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby grant consent to notification by the Company to my new employer about my rights and obligations under this Agreement.
7. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12) months immediately following the termination of my relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any
of the Company's employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for myself or for any other person or entity.
8. CONFLICT OF INTEREST GUIDELINES. I agree to diligently adhere to the Conflict of Interest Guidelines attached as Exhibit D hereto.
9. FOREIGN CORRUPT PRACTICES ACT. I agree to diligently adhere to the Foreign Corrupt Practices Act attached hereto as Exhibit E hereto.
10. REPRESENTATIONS. I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict herewith.
11. ARBITRATION AND EQUITABLE RELIEF.
a. ARBITRATION. EXCEPT AS PROVIDED IN SECTION 11(b) BELOW, I AGREE THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING TO, OR CONCERNING ANY INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS AGREEMENT, SHALL BE SETTLED BY ARBITRATION TO BE HELD IN SANTA CLARA COUNTY, CALIFORNIA, IN ACCORDANCE WITH THE RULES THEN IN EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR MAY GRANT INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. THE DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES TO THE ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT HAVING JURISDICTION. THE COMPANY AND I SHALL EACH PAY ONE-HALF OF THE COSTS AND EXPENSES OF SUCH ARBITRATION, AND EACH OF US SHALL SEPARATELY PAY OUR COUNSEL FEES AND EXPENSES.
THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT AS PROVIDED IN SECTION 11(b) BELOW), INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
i. ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
ii. ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE
OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq.;
iii. ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
b. EQUITABLE REMEDIES. I AGREE THAT IT WOULD BE IMPOSSIBLE OR INADEQUATE TO MEASURE AND CALCULATE THE COMPANY'S DAMAGES FROM ANY BREACH OF THE COVENANTS SET FORTH IN SECTIONS 2, 3, AND 5 HEREIN. ACCORDINGLY, I AGREE THAT IF I BREACH ANY OF SUCH SECTIONS, THE COMPANY WILL HAVE AVAILABLE, IN ADDITION TO ANY OTHER RIGHT OR REMEDY AVAILABLE, THE RIGHT TO OBTAIN AN INJUNCTION FROM A COURT OF COMPETENT JURISDICTION RESTRAINING SUCH BREACH OR THREATENED BREACH AND TO SPECIFIC PERFORMANCE OF ANY SUCH PROVISION OF THIS AGREEMENT. I FURTHER AGREE THAT NO BOND OR OTHER SECURITY SHALL BE REQUIRED IN OBTAINING SUCH EQUITABLE RELIEF AND I HEREBY CONSENT TO THE ISSUANCE OF SUCH INJUNCTION AND TO THE ORDERING OF SPECIFIC PERFORMANCE.
c. CONSIDERATION. I UNDERSTAND THAT EACH PARTY'S PROMISE TO RESOLVE CLAIMS BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT, RATHER THAN THROUGH THE COURTS, IS CONSIDERATION FOR OTHER PARTY'S LIKE PROMISE. I FURTHER UNDERSTAND THAT I AM OFFERED EMPLOYMENT IN CONSIDERATION OF MY PROMISE TO ARBITRATE CLAIMS.
12. GENERAL PROVISIONS.
a. GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement will be governed by the laws of the State of California. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any lawsuit filed there against me by the Company arising from or relating to this Agreement.
b. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
c. SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.
d. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.
Date: ___________________________
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
TITLE DATE IDENTIFYING NUMBER OR BRIEF DESCRIPTION ----- ---- --------------------------------------- ----- ---- --------------------------------------- ----- ---- --------------------------------------- |
____ No inventions or improvements
____ Additional Sheets Attached
Signature of Employee:
Print Name of Employee:
Date:
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS;
ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable."
EXHIBIT C
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to 51job, Inc. (fka 51net.com Cayman Islands Inc.), its subsidiaries, affiliates, successors or assigns (together, the "Company").
I further certify that I have complied with all the terms of the Company's
Employment Confidential Information and Invention Assignment Agreement signed by
me, including the reporting of any inventions and original works of authorship
(as defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.
I further agree that, in compliance with the Employment, Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not hire any employees of the Company and I will not solicit, induce, recruit or encourage any of the Company's employees to leave their employment.
Date: ______________________
EXHIBIT D
51JOB, INC. (51NET.COM CAYMAN ISLANDS INC.)
CONFLICT OF INTEREST GUIDELINES
It is the policy of 51job, Inc. (fka 51net.com Cayman Islands Inc.) to conduct its affairs in strict compliance with the letter and spirit of the law and to adhere to the highest principles of business ethics. Accordingly, all officers, employees and independent contractors must avoid activities which are in conflict, or give the appearance of being in conflict, with these principles and with the interests of the Company. The following are potentially compromising situations which must be avoided. Any exceptions must be reported to the President and written approval for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing confidential information. Unauthorized divulging of information is a violation of this policy whether or not for personal gain and whether or not harm to the Company is intended. (The Employment, Confidential Information and Invention Assignment Agreement elaborates on this principle and is a binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment, favors or payments which may be deemed to constitute undue influence or otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or punishment of employees or applicants where there is a family relationship or is or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social harassment of employees.
6. Investing or holding outside directorship in suppliers, customers, or competing companies, including financial speculations, where such investment or directorship might influence in any manner a decision or course of action of the Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary information or trade secrets of any former or concurrent employer or other person or entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets with competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to prices.
12. Improperly using or authorizing the use of any inventions which are the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the Company.
Each officer, employee and independent contractor must take every necessary action to ensure compliance with these guidelines and to bring problem areas to the attention of higher management for review. Violations of this conflict of interest policy may result in discharge without warning.
EXHIBIT E
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
THE FOREIGN CORRUPT PRACTICES ACT OF 1977
The Foreign Corrupt Practices Act of 1977 (the Act") amended the federal securities laws to expand the authority of the federal government to deal with improper business practices and, perhaps more significantly, to create new powers to determine just what constitutes such improper practices.
THE ACT
The Act, to which 51job, Inc. (fka 51net.com Cayman Islands Inc.) (the
"Company") will be subject once it becomes a publicly owned corporation, was
enacted to deter illegal corporate payments by: (1) prohibiting certain payments
or promises to foreign officials (anti-bribery provisions), (2) requiring
corporations to keep adequate records of the disposition of their assets, and
(3) making corporations responsible for internal monitoring of their accounting
practices. In summary, the provisions of the Act in each of these areas are as
follows:
ANTI-BRIBERY PROVISIONS
This portion of the Act makes it a criminal offense for an employee (or an
officer, director, agent or shareholder of the corporation) to make an
offer, payment or gift of any money or other item of value, directly or
indirectly, to (i) a foreign official, (ii) a foreign political party,
(iii) a party official or (iv) a candidate for foreign political office
for the "corrupt" purpose of obtaining or retaining business for the
Company or for the purpose of directing business to any other person. The
term "corrupt" is construed to prohibit any activity, including the
provision of meals, lodging or entertainment, which is meant to influence
the recipient and which is done for the stated illegal purposes. This
highly publicized provision carries with it prosecution of officers,
directors, employees or agents resulting in fines of up to $100,000 or
imprisonment of up to five years, or both.
The Act does provide a narrow exception for payments to a foreign official, foreign political party, or party official intended to hasten or secure the performance of a "routine governmental action." Such "routine governmental actions" are those ordinarily performed by a foreign official in:
(1) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;
(2) processing governmental papers, such as visas and work orders;
(3) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country;
(4) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or
(5) actions of a similar nature.
In addition, the Act provides two affirmative defenses to charges of violations. First, it is a defense to a charge if the payment or promise was lawful under the written laws and regulations of the country in which the recipient is located. Finally, "reasonable and bona fide expenditures" made to foreign officials do not violate the Act. For example, the Company may reimburse foreign officials for the cost of travel and lodging in connection with (i) the promotion, demonstration, or explanation of products or services, or (ii) the execution or performance of a contract with a foreign government.
RECORD-KEEPING PROVISIONS
Pursuant to Exchange Act Section 13(b)(2)(A), 51job, Inc. (fka 51net.com Cayman Islands Inc.) is required to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company. The purpose of this requirement is to prevent the occurrence of the following types of abuses:
A. Records that accurately record the existence of a transaction but which fail to reveal the illegal or improper purpose of the transaction.
B. Records that fail to record improper transactions.
C. Records that are falsified to conceal improper transactions which are otherwise correctly recorded.
INTERNAL ACCOUNTING CONTROL PROVISIONS
Pursuant to Exchange Act Section 13(b)(2)(B), the Company must devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the following objectives are achieved:
A. Transactions are executed in accordance with management's general and specific authorization.
B. Transactions are recorded in a way which will permit the preparation of proper financial statements and will maintain accountability for assets.
C. Access to assets is permitted only in accordance with management's general and specific authorizations.
D. Audits are conducted at reasonable intervals and appropriate action is taken with respect to any deficiencies in accountability for assets.
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
It is the policy of 51job, Inc. (fka 51net.com Cayman Islands Inc.) (the "Company") that:
1. The use of Company funds or assets for any unlawful or improper purpose is strictly prohibited. No payment shall be made to, or for the benefit of, government employees for the purpose of, or otherwise in connection with, the securing of sales to or obtaining favorable action by a government agency. Gifts of substantial value to or lavish entertainment of government employees are prohibited since they can be construed as attempts to influence government decisions in matters affecting the Company's operation. Any entertaining of public officials, or the furnishing of assistance in the form of transportation or other services should be of such nature that the official's integrity or reputation will not be compromised.
2. The offer, payment or promise to transfer in the future company funds or assets or the delivery of gifts or anything else of value to foreign officials, foreign political parties or officials or candidates of foreign political parties is strictly prohibited for the purpose of influencing any act or decision of any such person in his or her official capacity, including the decision to fail to perform his or her official functions or to use such persons or party's influence with a foreign government or instrumentality in order to affect or to influence any act or decision of such government or instrumentality in order to assist the Company in obtaining or retaining business for or with, or directing business to any person or entity.
3. All records must truly reflect the transactions they record. All assets and liabilities shall be recorded in the regular books of account. No undisclosed or unrecorded fund or asset shall be established for any purpose. No false or artificial entries shall be made in the books and records for any reason. No payment shall be approved or made with the intention or understanding that any part of such payment is to be used for any purpose other than that any part of such payment is to be used for any purpose other than that described by the document supporting the payment.
4. No political contribution shall be made, directly or indirectly, with corporate funds or assets regardless of whether the contributions are legal under the laws of the county in which they are made.
5. Any employee who learns of or suspects a violation of this Policy should promptly report the matter to the President, Chief Financial Officer or Internal Auditor, as appropriate in the circumstances. All managers shall be responsible for the enforcement of and compliance with this Policy, including the necessary distribution to insure employee knowledge and compliance.
EXHIBIT 10.3
51JOB, INC. (FKA 51NET.COM CAYMAN ISLANDS INC.)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the 28th day of February, 2004 between 51job, Inc. (fka 51net.com Cayman Islands Inc.), a Cayman Islands company (the "COMPANY") and [Name] ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitees to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) General Right to Indemnification. The Company shall indemnify to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or are threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a "CLAIM"), by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE EVENT"), and the Indemnitee shall be indemnified and held harmless by the Company to the fullest extent permitted by law, against any and all costs, charges, expenses, liabilities, losses, (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitees as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter "EXPENSES"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such indemnification shall continue as to the Indemnitee when the Indemnitee ceases to be a director, officer, employee, agent or fiduciary of the Company or any subsidiary of the Company (or to serve another entity at the request of the Company) and shall inure to the benefit of the Indemnitee's heirs, personal representatives and estate. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than twenty days after written demand by Indemnitees therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). The Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged thereon.
If there has not been a Change in Control (as defined in Section 10(c) hereof),
the Reviewing Party shall be selected by the Board of Directors, and if there
has been such a Change in Control (other than a Change in Control which has been
approved by a majority of the persons surviving as members of the Company's
Board of Directors who comprised the Company's Board of Directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referred to in Section 1(c) hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the persons surviving as members of the Company's Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitees to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law, and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 9 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any Claim, issue or matter covered by the Agreement, or in defense of any Claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee or on Indemnitee's behalf in connection therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than twenty days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. The Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Cayman Islands company to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the
event of any change in any applicable law, statute or rule which narrows the right of a Cayman Islands company to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification and advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the Companies Law of the Cayman Islands, as amended, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that if the Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company may be required to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium
costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.
8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under the Companies Law of the Cayman Islands, as amended, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act, or any similar successor statute if the Company is subject to the informational requirements of the Exchange Act.
9. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee
with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(c) hereof, who shall not have otherwise performed services for the Company or Indemnitees within the last three years (other than with respect to matters concerning the rights of Indemnitees under this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee are seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors.
10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.
11. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company's request.
12. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action was made in bad faith or was frivolous.
13. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee's address as set forth beneath Indemnitee's signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten days' advance written notice to the other party hereto.
14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.
15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.
17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.
18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.
20. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
____________________________, a Cayman Islands Company
By:__________________________
AGREED TO AND ACCEPTED BY:
EXHIBIT 10.4
BUILDING LEASE
SHANGHAI CITY CONTRACT
COMMERCIAL BUILDING ADVANCE LEASING
(CONTRACT NO: HONG DONG HU ZU LIN NO. 0302)
Parties to this Contract:
Lessor (Party A): Shanghai Office of China Orient Asset Management Corporation
Lessee (Party B): (Shanghai) Qianjin Culture Communication Co., Ltd.
Party A and Party B hereby enter into this Contract with respect to the leasing by Party B of the commercial building premise that Party A may lease legally after reaching an agreement through consultation on the basis of equality, willingness, fairness and good faith, and in accordance with Contract Law of the People's Republic of China and Rules on Leasing of Buildings in Shanghai City (hereinafter referred to as the "Rules").
I. Details of the Building to be Leased
1. The building premise to be leased to Party B by Party A is located at the whole fourteenth floor, No. 755, Weihai Rd, Jing'an District, Shanghai. The as- measured floorage of such building premise is 1614.87 square meters, which premise, in connection of usage, is a building premise used for office work, and, in connection of type, is an office premise. The structure of the premise is a composite steel-concrete structure. The layout of such premise is attached to this Contract as Annex 1. Party A has presented to Party B:
The Title Certificate of Building and Estate; [Serial number of the Certificate: hu fang di jing zi (2003) No. 005548].
2. As the title owner of such premise, Party A hereby enters into a lease relationship with Party B. Prior to the execution of this Contract, Party A has informed Party B that no mortgage has been created on such premise.
3. Party A and Party B have set forth in Annex 2 and Annex 3, respectively, the areas for public use or sharing, conditions and requirements, conditions of existing decoration, auxiliary facilities, and equipment, and the scope, standards and other matters that need to be agreed on by the Parties with respect to the decoration and addition of auxiliary equipment by Party B with the permission of Party A. Party A and Party B agree that such Annexes shall be used as the acceptance basis when Party A delivers the
premise to Party B and when Party B returns the premise to Party A upon termination of this Contract.
II. Purpose of the Lease
1. Party B hereby covenants to Party A that such leased premise shall be used as office space, and that it will comply with the state and municipal regulations on the use of building premises and property management.
2. Party B warrants that it will not use the premise for purposes other than as set forth above without the written consent of Party B and the approval by relevant authorities, if required.
III. Date of Delivery and Term of the Lease
1. Party A and Party B have agreed that Party A shall deliver the premise to Party B by July 1, 2003. The term of the lease shall begin on July 1, 2003, ending on December 31, 2006.
2. Upon the expiry of the term of the lease, Party A shall have the right to recall such premise, and Party B shall return the same on time. Where Party B needs to renew the lease of such premise, Party B shall deliver a written request to renew three months before the expiry of the term of the lease, and, when agreed by Party A, enter into a new lease contract with Party A.
IV. Rent, Payment Terms and Due Dates
1. Party A and Party B have agreed that, the rent per day per square meter of the floorage of this premise shall be (RMB) 2.15. The monthly rent shall be (RMB) 104,159 (RMB one hundred and four thousand, one hundred and fifty nine) in aggregate.
The rent of the premise shall remain unchanged for a period of three years.
2. Party B shall pay to Party A the rent by the fifteenth day of each month. In the event of payment delay, Party B shall pay a breach penalty of 0.3% of the daily rent for each day when such payment is delayed.
V. Deposit and other Expenses
1. Party A and Party B have agreed that, Party B shall pay a deposit on the lease of the premise, the amount of which shall equal 2 months' rent, i.e., (RMB) 208,318.
Party A shall issue a receipt certificate to Party B upon the receipt of such deposit.
Upon the termination of the lease relationship, Party A shall return the balance of the deposit without interest to Party B after setting off the expenses that shall be born by Party B as agreed in this contract.
2. During the term of the lease, expenses related to water, electricity, gas, communications, equipment, property management, and other expenses shall be born by Party B.
3. The calculation or allocation, payment terms and time for the above expenses born by Party B are set forth below: Party B shall make payments according to the rules of Shanghai Wenhui Xinmin Property Management Company.
VI. Requirements in Using the Premise and the Obligations to Repair
1. During the term of the lease, if Party B discovers any damage or failure in the premise or its auxiliary facilities, Party B shall notify Party A for repair on a timely basis. Party A shall conduct the repair within three days after the receipt of such notice from Party B. In the case of delay in repair, Party B may conduct the repair on Party A's behalf with all expenses born by Party A.
2. During the term of the lease, Party B shall properly use and protect such premise and its auxiliary facilities. In the case of any damage or failure in such premise or its auxiliary facilities due to improper or unreasonable use by Party B, Party B shall be responsible for the repair. If Party B refuses to repair, Party A may repair on Party B's behalf, with all expenses born by Party B.
3. During the term of the lease, Party B warrants to keep such premise and its auxiliary facilities under useable and safe conditions. Party A shall give Party B a notice of three days if it wishes to examine and conduct maintenance on the premise. Party B shall assist in such examination and maintenance. Party A shall minimize the effect on the use of the premise by Party B.
4. Other than as set forth in Annex 3 or this Contract, if Party B needs additional decoration or auxiliary facilities and equipment, Party B shall proceed only after it has obtained Party A's prior written consent, and, in the event that an approval from relevant authority is required, the approval from such authority after Party A reports to such authority. The ownership
and responsibilities of maintenance of the auxiliary facilities and equipment added by Party B shall be agreed by Party A and Party B in a separate written document.
VII. Condition of the Premise when Returned
1. Unless Party A agrees to the renew by Party B, Party B shall return such premise within three days after the expiry of the term of lease under this Contract. In the event of delay in returning the premise without Party A's consent, for each day that such return is delayed, Party B shall pay a fee of 3.0 yuan / square meter (RMB) for using the premise during period that it occupies such premise.
2. The premise returned by Party B shall be under a condition after ordinary use. When the premise is returned, it shall be inspected and accepted by Party A, and the Parties shall settle with each other payments of the expenses for their own account.
VIII. Sub-lease, Assignment and Exchange
1. Unless Party A has agreed that Party B may sub-lease in the supplementary provisions of this Contract, during the term of the lease, Party B may sub-lease any part or all of this premise to other parties only with the prior written consent of Party A. However, the same room for residence shall not be divided into portions for sub-lease.
2. To sub-lease such premise, Party B shall enter into a written sub-lease contract with the sub-lessee according to the regulations, and shall file such sub-lease with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system.
3. During the term of the lease, Party B shall obtain the prior written consent of Party A if Party B is to assign the lease of such premise to another party or exchange such premise with another premise leased by another party. After such assignment or exchange, the assignee of the lease obligations or the other party of the exchange shall enter into an amendment contract to change the party to this Contract and continue to perform this Contract.
4. During the term of the lease, Party A shall give Party B a notice of three months if it needs to sell such premise. Party B shall have the preemptive right under the same circumstances.
IX. Conditions of Termination of this Contract
1. Party A and Party B have agreed that, upon the occurrence of any of the following events, this Contract shall be terminated and none of the Parties shall be held liable to the other:
(1) the land use right covered by such premise shall have been recalled early by law;
(2) such premise shall have been expropriated for public interest;
(3) such premise shall have been included in the building demolition permitted by law due to the requirements of urban construction;
(4) such premise shall have been destroyed, disappeared or shall have been verified as a dangerous building;
2. Party A and Party B have agreed that, either Party may terminate this Contract by written notice to the other Party upon the occurrence of any of the following events. The breaching Party shall pay to the other Party a breach penalty of six times the monthly rent, and in the event that such breach has caused losses to the other Party, and the breach penalty paid is not sufficient to set off such losses, a compensation shall be made in the amount of the difference between the losses thus incurred and the amount of the breach penalty.
(1) Party A shall have failed to deliver such premise on time, and still haven't delivered within seven days after receipt of notice from Party B;
(2) The premise delivered by Party A shall have been incompliant with the agreements contained in this Contract, which shall have led to the failure to use the premise for the original purpose under the lease; or the premise delivered by Party A shall have born defects that threaten the safety of Party B;
(3) Party B shall have altered the usage of the premise without the written consent of Party A, which shall have caused damages to the premise;
(4) Damages to the main structure of the premise due to Party B's fault;
(5) Party B shall have, without permission, sub-leased such premise, assigned the lease of the premise or exchanged each other's leased premises with another party;
(6) Party B shall have failed to pay rent for 2 months cumulatively;
(7) Either Party A or Party B shall have material breach under other provisions of this Contract;
X. Liabilities of Breach of the Contract
1. In the event that the premise has defect when delivered, Party A shall repair the premise within seven days after the delivery, failing which, Party A agrees to decrease the rent or amend the relevant provisions on the rent.
2. In the event that Party A fails to inform Party B of the fact that such premise has been mortgaged or the transfer of the title of such premise is subject to restriction prior to the lease, which results in losses sustained by Party B, Party A shall indemnify Party B for such losses.
3. During the term of the lease, if Party A fails to perform its obligations under this Contract to repair or maintain the premise on a timely basis, which results in damages to the premise, property loss sustained by Party B or personal injuries, Party A shall be responsible for indemnification.
4. During the term of the lease, if Party A terminates this Contract and recalls the premise early other than as provided in this Contract, Party A shall pay to Party B a breach penalty in an amount 2 times of the rent for the number of days that the premise is recalled early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party B, Party A shall also indemnify Party B of such losses.
5. If Party B decorates the premise or add auxiliary facilities without the written consent of Party A or in addition to the scope consented by Party A, Party A may demand Party B to restore the premise to its original condition.
6. During the term of the lease, if Party B terminates the lease early at its sole discretion other than as provided in this Contract, Party B shall pay to Party A a breach penalty in an amount 2 times of the rent for the number of days that the lease is terminated early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party A, Party B shall indemnify Party A of such losses. Party A may set off the losses from the deposit. In the event that the deposit is not sufficient to set off the losses, Party B shall make additional payment of the amount that falls short.
XI. Miscellaneous
1. During the term of the lease, if Party A needs to mortgage such premise, it shall notify Party B of such mortgage in writing, and Party A warrants to Party B that it will consult Party A for its intention to purchase such premise thirty days prior to disposition of the premise by the parties to the mortgage by agreement through discount and selling off.
2. This Contract shall become effective after the company seals of the Parties are affixed hereto. Within 15 day after this Contract comes into effect, Party A shall be responsible for completing registration and filing
formalities with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system and obtaining the filing certificate of building lease. After the registration and filing of this Contract, in the event of amendment or termination of this Contract, Party A shall complete the registration and filing formalities of such amendment and termination with the original registration authority within 15 days after such amendment or termination. Party A shall be responsible for all legal disputes resulting from the failure of Party A to complete the registration and filing formalities of the building lease, the amendment hereto or the termination hereof.
3. Issues not covered in this Contract may be agreed by the Parties in supplementary provisions. The supplementary provisions and the annexes of this Contract constitute an integral part of this Contract. The handwriting filled in the blank in this Contract and its supplementary provisions and annexes shall have the same force and effect with the printed contents.
4. Party A and Party B fully understand their respective rights, obligations and responsibilities at the time of execution of this Contract, and are willing to perform this Contract in strict accordance with its provisions. In case of breach of this Contract by either Party, the other Party shall have the right to claim compensation from the breaching Party.
5. Disputes arising in the course of performance of this Contract by the Parties shall be settled through consultation, failing which, the Parties are willing to choose the first option set forth below:
(1) submission to Shanghai Arbitration Commission for arbitration;
(2) submission to the people's court for litigation according to law.
6. There are four counterparts of this Contract and its annexes. Party A and Party B shall each hold a counterpart, Jing'an District real estate trading center or the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system shall keep one copy, while each party shall keep back-up copy, all of which shall have the same force.
Lessor (Party A) Lessee (Party B) Shanghai Office of China Orient Asset Qianjin (Shanghai) Culture Communication Management Corporation Co., Ltd Nationality: Nationality: Legal Representative: Legal Representative: Registration Certificate/ID No. Registration Certificate/ID No. Address:18th floor, Ruijin Plaza, Address: No. 205 Maoming Nan Rd, Shanghai Post Code: 200020 Post Code: Tel: 64729268 Tel: Authorized Agent: Authorized Agent: Huang Lan Signature and Seal: Signature and Seal: Date: June 30, 2003 Date: June 30, 2003 Place: Shanghai Place: Name of the Brokerage Entity: |
Name of the Broker:
Qualification Certificate Number of the Broker:
SUPPLEMENTARY PROVISIONS TO THE LEASE CONTRACT
Party A and Party B hereby make the following supplementary provisions according to Article 11-3 of this Contract in connection with the issues not covered in this Contract. In the event of conflict between this Contract and the supplementary provisions, these supplementary provisions shall prevail.
Supplementary Provision 1
The term of the lease of this premise shall begin on July 1, 2003, ending on December 31, 2006, in which 60 days shall be the decoration period exempted from the rent. During this period, Party B is not required to pay the rent, provided however, Party B shall pay for property management fee, management fee on decoration, decoration deposit and miscellaneous expenses such as water, electricity and communication.
Supplementary Provision 2
1. If this Contract is terminated or dissolved for any reason prior to the expiry of the term of the lease, unless previously consented by Party A in writing, Party B shall restore the premise to its original condition (expect normal wear and tear) before returning the premise to Party A with the restoration expenses born by Party B.
2. If Party A agrees that Party B may return the premise without restoring it to its original condition, Party A shall not be obligated to pay any consideration for taking over the decoration, facilities and items left by Party B.
3. If Party B refuses to restore the premise to its original condition without the consent of Party A, Party A shall have the right to restore such premise to its original conditions without informing Party B. All decoration, facilities, equipment and items left by Party B in the premise, regardless of the value thereof, shall become Party A's belongs without costs, which may be dispose of at Party A's sole discretion. Party B shall not have the right to request Party A to set off Party B's payables with or to otherwise pay any consideration for the left-over decoration, facilities, equipment and items. Costs of demolition, removal and disposal of the above decoration, facilities, equipment and items by Party A shall be born by Party B.
Supplementary Provision 3
Upon the expiry of the term of the Lease or the termination or cancellation of this Contract for any reason, if Party B continues to occupy such premise without the consent of Party A, Party A shall have the right to charge Party B a fee for use and occupation of the premise in accordance with the provisions of Article VII of this Contract, and shall have the right to recover from Party B such losses it incurred as a result of Party B's failure to evacuate in time. Party A's claim of such remedy for breach shall not be deemed as Party A's consent to Party B's continued occupation of such premise.
Supplementary Provision 4
1. Upon the execution of this Contract, Party B shall pay a lease deposit to Party A, which is equal to two months' rent.
2. Party B shall pay the rent of current month by the fifteenth day of such month.
3. During the term of the lease, Party B shall bear the payment of property management fee and other miscellaneous expenses such as water, electricity and communications. Party B shall pay various fees on time according to the regulations of the Property Management Company of Wenxin Newspaper Plaza. Party B shall be solely liable for all consequences of its late payment of such fees. In the event that Party A is jointly held liable for such consequences, Party B shall bear all losses thus caused to Party A.
Supplementary Provision 5
Party B shall by itself apply for telephone lines and bear all costs related to application, installation and phone bills. Party A agrees to afford necessary assistance to Party A in its application for telephone lines.
Supplementary Provision 6
1. Party B shall pay a deposit equal to two months' rent to Party A concurrent with the execution of this Contract to secure its performance of all the provisions under this Contract.
2. Party A shall have the right to deduct and set off any rent, management fee and other fees payable but unpaid by Party B, or losses caused to Party A as a result of Party B's breach of Contract. Party A shall have the right to recover the amount short from Party B. When the deposit decreases, Party B shall promptly replenish the deposit within 7 days after receipt of Party A's notice, failing which, Party A shall have the right to deem it as one of the material breach events by Party B, and hold Party B liable for such breach according to the provisions of Article 9-2(7).
3. Upon the expiry of the term of the lease, if there is no default by Party B as contemplated in this Contract, Party A shall return the deposit to Party B within 14 days after Party B returns and Party A conducts the acceptance examination on the premise, and after Party B settles the payment of all rent, property management fee, fees for water, electricity, coal, communications during the term of the lease. There is no interest on the deposits returned to Party B.
Supplementary Provision 7
1. If Party B needs to decorate the premise after moving into the premise, Party B shall pay a decoration deposit of RMB 50,000 to Party A or Shanghai Wenhui Xinmin Property Management Company. Party B shall also pay for the decoration management fee, waste removal fee and other miscellaneous expenses (if any) in the decoration as required by the Property Management Company.
2. If Party B needs to decorate the premise after moving into the premise, Party B must submit the design drawing of the decoration to Party A prior to the commencement of the decoration, and shall not commence the decoration without the approval of Party A or relevant government authorities.
3. During the decoration, Party B shall compensate Party A for any damages it makes to any part of the premise.
Supplementary Provision 8
Party A and Party B shall pay their respective taxes and relevant fees on time according to the requirement of the laws and regulations. Party A shall bear the lease registration fee for this Contract.
Supplementary Provision 9
Party B shall itself purchase property insurance for all the properties that belong to it in the premise, and insurance for risk of theft and/or pilferage and risk of public liability. Party A shall not be responsible for any economic loss and risks of Party B in such premise.
Supplementary Provision 10
1. After the expiry of the term of the lease, Party B shall have the priority right to renew the lease under the same conditions based on the market situation.
2. Party A shall have the right to take clients to visit the premise during the last three months prior to the expiry of the Contract with reasonable advance notice and with the consent of Party B, provided however, Party A shall use its best efforts to minimize the effect on Party B.
3. Party A or the Property Management Company shall have the right to enter into the premise to rescue in case of emergency (e.g. fire, water pipe explosion).
Supplementary Provision 11
Supplement to Article VI
1. Party B agrees to be responsible for the maintenance and care of the interior of the premise during the term of the lease, and to keep such premise under good conditions, except for normal wear and tear. Any damage to the premise caused by the willful act or misconduct of Party B or its visitors shall be restored within reasonable time by a repair service provider retained by Party B, which repair service provider shall meet the requirements of the Property Management Company and have relevant professional qualification. If the damage is not restored within reasonable time, Party A may instead conduct the repair, while Party B shall reimburse Party A for all costs and expenses incurred for such repair.
2. Party B shall actively assist and cooperate with Party A in Party A's maintenance of the premise and its auxiliary facilities.
3. Upon the expiry of the term of the lease, or the termination or cancellation of this Contract for any reason, Party B shall not damage the structure of the premise when removing the facilities or equipment it added to the premise. Party B shall not undertake the formalities of terminating the lease until Party A has inspected and accepted the premise.
4. In the event of damage to the premise or losses caused to Party B due to force majeure, the Parties shall not be held liable for each other.
Supplementary Provision 12
Supplement to Article 9-2
In the event where Party A has the right to terminate the Contract as provided in the Contract, the Contract shall be automatically terminated upon the delivery of a written notice of termination or cancellation of the Contract to the premise by Party A. Party B shall promptly return the premise to Party A.
Supplementary Provision 13
Other Relevant Issues:
Party B shall comply with the Property Management Code of Wenxin Newspaper Plaza and other property management regulations during the term of the lease. Party B shall be liable for the damages to any part of the plaza, facilities or persons caused by Party B, its employees or visitors.
Supplementary Provision 14
All notices and vouchers issued according to this Contract and in connection with the performance of this Contract shall be made in writing and sent to the following address via facsimile or registered mail:
Party A: Shanghai Office of China Orient Asset Management Corporation
Address: 18th floor, Ruijin Plaza, No. 205 Maoming Nan Rd, Shanghai
Fax: 021-6445 7489
Party B: Qianjin (Shanghai) Culture Communication Co., Ltd
Address: 21st Floor, Wenxin Newspaper Plaza, No. 755 Weihai Rd, Shanghai
Fax: 021-6360 5788
The communication shall be deemed to have been effectively received upon the transmission if transmitted via facsimile, and three days after the delivery if delivered by registered mail. Any Party shall inform the other Party through registered mail of any change of its fax number or address and shall be responsible itself for all losses caused by its negligence in making the notification.
ANNEX 1
LAYOUT OF THE PREMISE
ANNEX 2
THE SCOPE, CONDITIONS AND REQUIREMENTS FOR
USE OF THE PORTION OF THE PREMISE UNDER THIS CONTRACT
As per the covenants contained in this Contract.
ANNEX 3
AGREEMENTS ON THE CONDITIONS OF THE CURRENT DECORATION, AUXILIARY FACILITIES AND EQUIPMENT, AND PARTY A'S CONSENT ON DECORATION OF THE PREMISE AND ADDITION OF AUXILIARY FACILITIES AND EQUIPMENT BY PARTY B
The conditions of the current decoration, auxiliary facilities and equipment are as set forth in the Hand-over List of Equipment and Premise executed by the Parties. Party A agrees that the decoration and addition of auxiliary facilities and equipment by Party B shall be as per the agreements contained in this Lease Contract.
BUILDING LEASE
SHANGHAI CITY CONTRACT
COMMERCIAL BUILDING ADVANCE LEASING
(CONTRACT NO:JJSW03023)
Parties to this Contract:
Lessor (Party A): Shanghai Wailao Property Management Service Co., Ltd.
Lessee (Party B): Shanghai Qianjin Culture Communication Co., Ltd
Party A and Party B hereby enter into this Contract with respect to the leasing by Party B of the building premise that Party A may lease legally after reaching an agreement through consultation on the basis of equality, willingness, fairness and good faith, and in accordance with Contract Law of the People's Republic of China and Rules on Leasing of Buildings in Shanghai City (hereinafter referred to as the "Rules").
I. Details of the Building to be Leased:
1. The building premise to be leased to Party B by Party A is located at the west wing of the seventh floor, 755 Weihai Rd, Jing'an District, Shanghai. The as- measured floorage of such building premise is 2609.81 square meters, which premise, in connection of usage, is a building premise used for office work, and, in connection of type, is an office premise. The structure of the premise is a frame-tube structure. The layout of such premise is attached to this Contract as Annex 1. Party A has presented to Party B:
The Title Certificate of Building and Estate. Serial number of the certificate: Hu Fang Di Jing Zi (2003) No. 004457.
2. As the trustee of such premise, Party A hereby enters into a lease relationship with Party B. Prior to the execution of this Contract, Party A has informed Party B that no mortgage has been created on such premise.
3. Party A and Party B have set forth in Annex 2 and Annex 3, respectively, the areas for public use or sharing, conditions and requirements, conditions of existing decoration, auxiliary facilities, and equipment, and the scope, standards and other matters that need to be agreed on by the Parties with respect to the decoration and addition of auxiliary equipment by Party B with the permission of Party A. Party A and Party B agree that such Annexes shall be used as the acceptance basis when Party A delivers the premise to Party B
and when Party B returns the premise to Party A upon termination of this Contract.
II. Purpose of the Lease
1. Party B hereby covenants to Party A that such leased premise shall be used as office space, and that it will comply with the state and municipal regulations on the use of building premises and property management.
2. Party B warrants that it will not use the premise for purposes other than as set forth above without the written consent of Party B and the approval by relevant authorities, if required.
III. Date of Delivery and Term of the Lease
1. Party A and Party B have agreed that Party A shall deliver the premise to Party B by December 1, 2003. The term of the lease shall begin on December 1, 2003, ending on December 31, 2006.
2. Upon the expiry of the term of the lease, Party A shall have the right to recall such premise, and Party B shall return the same on time. Where Party B needs to renew the lease of such premise, Party B shall deliver a written request to renew six months before the expiry of the term of the lease, and, when agreed by Party A, enter into a new lease contract with Party A.
IV. Rent, Payment Terms and Due Dates
1. Party A and Party B have agreed that, the rent per day per square meter of the floorage of this premise shall be (RMB) 2.0. The monthly rent shall be (RMB) 158,763.44 (RMB one hundred and fifty eight thousand, seven hundred and sixty three point forty four) in aggregate.
The rent of the premise shall remain unchanged for a period of three (years/months).
2. Party B shall pay to Party A the rent by the fifteenth day of each month. In the event of payment delay, Party B shall pay a breach penalty of 0.2% of the daily rent for each day when such payment is delayed.
3. The terms of payment by Party B are set forth as below: Payments shall be made with check or via wire transfer.
V. Deposit and other Expenses
1. Party A and Party B have agreed that, Party B shall pay a deposit on the lease of the premise, the amount of which shall equal 2 months' rent, i.e., (RMB) 317,526.88.
Party A shall issue a receipt certificate to Party B upon the receipt of such deposit.
Upon the termination of the lease relationship, Party A shall return the balance of the deposit without interest to Party B after setting off the expenses that shall be born by Party B as agreed in this contract.
2. During the term of the lease, expenses related to water, electricity, gas, communications, equipment, property management, and parking expenses shall be born by Party B. Other relevant expenses shall be born by Party A.
3. The calculation or allocation, payment terms and time for the above expenses born by Party B are set forth below: Deposit shall be paid to Party A within 3 day after the execution of this Contract, while other expenses shall be paid to Wenhui Xinmin Property Management Co., Ltd. on a monthly basis according its rules.
VI. Requirements in Using the Premise and the Obligations to Repair
1. During the term of the lease, if Party B discovers any damage or failure in the premise or its auxiliary facilities, Party B shall notify Party A for repair on a timely basis. Party A shall conduct the repair within three days after the receipt of such notice from Party B. In the case of delay in repair, Party B may conduct the repair on Party A's behalf with all expenses born by Party A.
2. During the term of the lease, Party B shall properly use and protect such premise and its auxiliary facilities. In the case of any damage or failure in such premise or its auxiliary facilities due to improper or unreasonable use by Party B, Party B shall be responsible for the repair. If Party B refuses to repair, Party A may repair on Party B's behalf, with all expenses born by Party B.
3. During the term of the lease, Party B warrants to keep such premise and its auxiliary facilities under useable and safe conditions. Party A shall give Party B a notice of three days if it wishes to examine and conduct maintenance on the premise. Party B shall assist in such examination and maintenance. Party A shall minimize the effect on the use of the premise by Party B.
4. Other than as set forth in Annex 3 or this Contract, if Party B needs additional decoration or auxiliary facilities and equipment, Party B shall proceed only after it has obtained Party A's prior written consent, and, in the event that an approval from relevant authority is required, the approval from such authority after Party A with Party B acting on its behalf reports to such authority. The ownership and responsibilities of maintenance of the auxiliary facilities and
equipment added by Party B shall be agreed by Party A and Party B in a separate written document.
VII. Condition of the Premise when Returned
1. Unless Party A agrees to the renew by Party B, Party B shall return such premise within seven days after the expiry of the term of lease under this Contract. In the event of delay in returning the premise without Party A's consent, for each day that such return is delayed, Party B shall pay a fee of 4.0 yuan / square meter (RMB) for using the premise during period that it occupies such premise.
2. The premise returned by Party B shall be under a condition after ordinary use. When the premise is returned, it shall be inspected and accepted by Party A, and the Parties shall settle with each other payments of the expenses for their own account.
VIII. Sub-lease, Assignment and Exchange
1. Unless Party A has agreed that Party B may sub-lease in the supplementary provisions of this Contract, during the term of the lease, Party B may sub-lease any part or all of this premise to other parties only with the prior written consent of Party A. However, the same room for residence shall not be divided into portions for sub-lease.
2. To sub-lease such premise, Party B shall enter into a written sub-lease contract with the sub-lessee according to the regulations, and shall file such sub-lease with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system.
3. During the term of the lease, Party B shall obtain the prior written consent of Party A if Party B is to assign the lease of such premise to another party or exchange such premise with another premise leased by another party. After such assignment or exchange, the assignee of the lease obligations or the other party of the exchange shall enter into an amendment contract to change the party to this Contract and continue to perform this Contract.
4. During the term of the lease, Party A shall give Party B a notice of three months if it needs to sell such premise. Party B shall have the preemptive right under the same circumstances.
IX. Conditions of Termination of this Contract
1. Party A and Party B have agreed that, upon the occurrence of any of the following events, this Contract shall be terminated and none of the Parties shall be held liable to the other:
(1) the land use right covered by such premise shall have been recalled early by law;
(2) such premise shall have been expropriated for public interest;
(3) such premise shall have been included in the building demolition permitted by law due to the requirements of urban construction;
(4) such premise shall have been destroyed, disappeared or shall have been verified as a dangerous building;
(5) the premise shall have been under disposal due to the mortgage created prior to the lease of the premise, Party B has been informed of which mortgage by Party A;
(6) the premise shall have been damaged and become useable due to a force majeure.
2. Party A and Party B have agreed that, either Party may terminate this Contract by written notice to the other Party upon the occurrence of any of the following events. The breaching Party shall pay to the other Party a breach penalty of two times the monthly rent, and in the event that such breach has caused losses to the other Party, and the breach penalty paid is not sufficient to set off such losses, a compensation shall be made in the amount of the difference between the losses thus incurred and the amount of the breach penalty.
(1) Party B shall have failed to deliver such premise on time, and still haven't delivered within ten days after receipt of notice from Party B;
(2) The premise delivered by Party A shall have been incompliant with the agreements contained in this Contract, which shall have led to the failure to use the premise for the original purpose under the lease; or the premise delivered by Party A shall have born defects that threaten the safety of Party B;
(3) Party B shall have altered the usage of the premise without the written consent of Party A, which shall have caused damages to the premise;
(4) Damages to the main structure of the premise due to Party B's fault;
(5) Party B shall have, without permission, sub-leased such premise, assigned the lease of the premise or exchanged each other's leased premises with another party;
(6) Party B shall have failed to pay rent for 2 months cumulatively;
X. Liabilities of Breach of the Contract
1. In the event that the premise has defect when delivered, Party A shall repair the premise within ten days after the delivery, failing which, Party A agrees to decrease the rent or amend the relevant provisions on the rent.
2. In the event that Party A fails to inform Party B of the fact that such premise has been mortgaged or the transfer of the title of such premise is subject to restriction prior to the lease, which results in losses sustained by Party B, Party A shall indemnify Party B for such losses.
3. During the term of the lease, if Party A fails to perform its obligations under this Contract to repair or maintain the premise on a timely basis, which results in damages to the premise, property loss sustained by Party B or personal injuries, Party A shall be responsible for indemnification.
4. During the term of the lease, if Party A terminates this Contract and recalls the premise early other than as provided in this Contract, Party A shall pay to Party B a breach penalty in an amount 2 times of the rent for the number of days that the premise is recalled early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party B, Party A shall also indemnify Party B of such losses.
5. If Party B decorates the premise or add auxiliary facilities without the written consent of Party A or in addition to the scope consented by Party A, Party A may demand Party B to indemnify Party A of losses.
6. During the term of the lease, if Party B terminates the lease early at its sole discretion other than as provided in this Contract, Party B shall pay to Party A a breach penalty in an amount 2 times of the rent for the number of days that the lease is terminated early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party A, Party B shall indemnify Party A of such losses. Party A may set off the losses from the deposit. In the event that the deposit is not sufficient to set off the losses, Party B shall make additional payment of the amount that falls short.
XI. Miscellaneous
1. During the term of the lease, if Party A needs to mortgage such premise, it shall notify Party B of such mortgage in writing.
2. This Contract shall become effective (upon signing by the Parties/ after signing by the Parties). Within 15 day after this Contract comes into effect, Party A shall be responsible for completing registration and filing formalities with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for buildings and estate
established by the municipal building and estate bureau in the
farming system and obtaining the filing certificate of building
lease. After the registration and filing of this Contract, in the
event of amendment or termination of this Contract, (Party A/Party
B) shall complete the registration and filing formalities of such
amendment and termination with the original registration authority
within 15 days after such amendment or termination. Party A shall be
responsible for all legal disputes resulting from the failure of
Party A to complete the registration and filing formalities of the
building lease, the amendment hereto or the termination hereof.
3. Issues not covered in this Contract may be agreed by the Parties in supplementary provisions. The supplementary provisions and the annexes of this Contract constitute an integral part of this Contract. The handwriting filled in the blank in this Contract and its supplementary provisions and annexes shall have the same force and effect with the printed contents.
4. Party A and Party B fully understand their respective rights, obligations and responsibilities at the time of execution of this Contract, and are willing to perform this Contract in strict accordance with its provisions. In case of breach of this Contract by either Party, the other Party shall have the right to claim compensation from the breaching Party.
5. Disputes arising in the course of performance of this Contract by the Parties shall be settled through consultation, failing which, the Parties are willing to choose the second alternative set forth below:
(1) submission to ______ Arbitration Commission for arbitration;
(2) submission to the people's court for litigation according to law.
6. There are four counterparts of this Contract and its annexes. Party A and Party B shall each hold two counterparts, all of which shall have the same force.
Lessor (Party A) Lessee (Party B) Shanghai Wailao Property Management Shanghai Qianjin Culture Communication Service Co., Ltd. Co., Ltd. Nationality: Nationality: Legal Representative: Shen, Zhiwei Legal Representative: Registration Certificate N./ID No. Registration Certificate N./ID No. Address: No 45, Anyuan R, Shanghai. Address: No. 755, Weihai Rd. Post Code: 200041 Post Code: 200041 Tel: 62774770 Tel: 32014688 Authorized Agent: Authorized Agent: Huang Lan Signature and Seal: Signature and Seal: Date: November 21, 2003 Date: November 21, 2003 Place: Place: Name of the Brokerage Entity: |
Name of the Broker:
Qualification Certificate Number of the Broker:
SUPPLEMENTARY PROVISIONS
Party A and Party B hereby make the following supplementary provisions in connection with the issues not covered in this Contract. The contents of this Contract and its supplementary provisions shall have the same legal effect. In the event of conflict between this Contract and the supplementary provisions, these supplementary provisions shall prevail.
1. Property Management and the Fees Thereof During the Term of the Lease
(1) The property management of the building shall be the responsibility of Shanghai Wenhui Xinmin Property Management Co., Ltd. (hereinafter referred to as the Property Company).
(2) During the term of the Lease, Party B shall comply with the property management rules of the Property Company, and shall affix its seal to the property management contract to assume the relevant responsibilities.
(3) Party B shall, in addition to payment of rent on a monthly basis to Party A, pay a property management fee to the Property Company. The property management fee shall be charged at 1.00 yuan/m(2)/day. The property management fee includes fees for water, electricity and 12 hours' use of air condition for normal office work. Party B shall pay for the over time use of air condition according to the rules of the Property Company.
(4) In the event of adjustment of property management fee during the term of the lease, Party B shall pay the fee according to the adjusted rate.
(5) If Party B wishes to add a separate generator room to increase the electricity for use beyond its normal office work, the expenses of installation of such additional generator room to increase electricity for use as well as such portion of the daily electricity consumption shall be paid for by Party B.
2. Delivery of the Premise and Decoration
(1) Party A shall deliver the premise to Party B with rough flooring in conditions as in the existing north wing of the seventh floor.
(2) Party B will decorate the existing premise prior to the use of the premise. Party A grants Party B a decoration period of 2 month with rent exemption, which shall begin on December 1, 2003, ending on January 21, 2004. During such period, Party B shall still pay the property management fee. Party B shall have the right to move in early upon the completion of the decoration.
(3) Party A shall provide Party B with the layout drawing of the premise, and shall assist Party B in completing the move-in formalities and approval formalities of the decoration.
(4) Party B shall not commence the decoration until the decoration plan has been examined and approved by Party A and the Property Company, as well as by the Fire Protection Bureau of Jinan District. The move-in shall be subject to the inspection and acceptance by the above parties upon the completion of the decoration. Party B shall provide Party A with the as-built drawing upon the completion of the decoration.
(5) After the decoration by Party B, the title of the fixed facilities and equipment attached to the building shall rest with Party A after the expiry of the term of the lease. During the term of the lease, Party B shall be responsible for the maintenance of the above facilities and equipment.
(6) Party A agrees to commission the inspection and repair of the discharge system of the condensed water tray for the air condition and the ceiling infiltration covered by the lease of Party B to the Property Company, to ensure that no leakage in the ceiling will occur in the air conditioning system when it is used next summer. The expenses of the inspection and repair shall be born by Party A, which inspection and repair shall be conducted at the same time with the decoration. Restoration and paining of the ceiling shall be completed by Party B during the decoration.
(7) Party A, Party B and Orient International Commercial (Group) Co., Ltd. shall jointly discuss with the Property Company the vertical removal plan to ensure the convenience and efficiency of the construction and to minimize the effect to the parties. Party B shall have the obligation to cause the construction company to conduct the construction in the manner to minimize the effect on the normal office work in the building. Party B shall bear losses caused by the construction.
3. Communication Expenses
(1) Party A agrees to pay for expenses in connection with connection of optical wires and use of bridge frame, totaling RMB 61,000. All expenses other than the above with respect to the connection fee, installation fee and equipment expenses for communication lines shall be born by Party B.
(2) Party B shall pay the fee of daily use of the communication lines on a monthly basis to the Property Company.
4. Parking Spaces
(1) During the term of the lease, Party A agrees to provide four parking spaces to Party B in basement 1 with no costs, numbered 152, 153, 154, and 155. Party A shall assist Party B to obtain parking certificates, with the property management fees for the parking spaces born by Party B.
(2) Party B shall comply with the parking rules of the Property Company. Party A shall be liable for compensation for damages to the parking facilities or other vehicles due to Party B's fault.
5. Renew, Return of the Premise and the Deposit Upon Expiry of the Term of the Lease
(1) If Party B wishes to renew the lease upon the expiry of the term of the lease, it shall submit a written request to Party A six months prior to the expiry. Party B shall have the preemptive right to renew the lease under the same circumstances. If Party B does not renew the lease, it shall cooperate with party A in Party A's efforts to let.
(2) Party B may return the premise to party A without restoring it to the original conditions prior to the decoration, provided however, Party B shall return the premise in complete and good condition without damages as it is after the decoration and when used by Party B, and shall maintain the property in an orderly and clean manner.
(3) After the expiry of the term of the lease, the balance of the deposit received by Party A shall be returned to Party B with no interest within 30 days after the premised has been inspected and recalled by Party A and after the expenses born by Party B as agreed in this Contract have been set off from the deposit.
6. Miscellaneous
(1) This Contract shall become effective when signed by the Parties and with the company seals of the Parties affixed hereto. Article 11-2 is hereby invalidated.
(2) All expenses of personal injuries or property damages caused not as a result of Party A's fault, or by any third person entering into the premise without Party A's permit shall be born by Party B, except those expenses to be born by the party involved as required by laws and regulations, and Party A shall not be liable for such expenses.
(3) Party B shall keep the favorable rent and conditions granted by Party A confidential without disclosure to any third party.
ANNEX 1
LAYOUT OF THE PREMISE
ANNEX 2
THE SCOPE, CONDITIONS AND REQUIREMENTS FOR
USE OF THE PORTION OF THE PREMISE UNDER THIS CONTRACT
The area shown in the layout drawing of this Contract may be decorated by Party B as needed before its use. The decoration plan shall be examined and approved by Party A and the Property Company.
ANNEX 3
AGREEMENTS ON THE CONDITIONS OF THE CURRENT DECORATION, AUXILIARY FACILITIES AND EQUIPMENT, AND PARTY A'S CONSENT ON DECORATION OF THE PREMISE AND ADDITION OF AUXILIARY FACILITIES AND EQUIPMENT BY PARTY B
1. Air conditions, lighting and ceiling have all been decorated and completed.
2. Re-decoration shall comply with the safety requirements of fire protection.
3. Users of the floor shall all have the right to share the use of existing public facilities of the floor.
BUILDING LEASE
SHANGHAI CITY CONTRACT
COMMERCIAL BUILDING ADVANCE LEASING
(CONTRACT NO: )
Parties to this Contract:
Lessor (Party A): Shanghai Xiesheng Industry Co., Ltd.
[Lease]
Lessee (Party B): Shanghai Qianjin Culture Communication Co., Ltd.
Party A and Party B hereby enter into this Contract with respect to the leasing by Party B of the commercial building premise that Party A may lease legally after reaching an agreement through consultation on the basis of equality, willingness, fairness and good faith, and in accordance with Contract Law of the People's Republic of China and Rules on Leasing of Buildings in Shanghai City (hereinafter referred to as the "Rules").
I. Details of the Building to be Leased or Leased in Advance:
1. The building premise to be leased to Party B by Party A is located at twenty-first floor, 755 Weihai Rd, Jing'an District, Shanghai. The as- measured floorage of such building premise is 1614.87 square meters, which premise, in connection of usage, is a building premise used for general purpose, and, in connection of type, is an office premise. The structure of the premise is constituted with structured shear walls. The layout of such premise is attached to this Contract as Annex 1. Party A has presented to Party B:
The serial number of the Title Certificate of Building and Estate:
(2002) No. 009869.
2. As the title owner of such premise, Party A hereby enters into a lease relationship with Party B. Prior to the execution of this Contract, Party A has informed Party B that no mortgage has been created on such premise.
3. Party A and Party B have set forth in Annex 2 and Annex 3, respectively, the areas for public use or sharing, conditions and requirements, conditions of existing decoration, auxiliary facilities, and equipment, and the scope, standards and other matters that need to be agreed on by the Parties with respect to the decoration and addition of auxiliary equipment by Party B with the permission of Party A. Party A and Party B agree that such Annexes shall be used as the acceptance basis when Party A delivers the premise to Party B and when Party B returns the premise to Party A upon termination of this Contract.
II. Purpose of the Lease
1. Party B hereby covenants to Party A that such leased premise shall be used as office space, and that it will comply with the state and municipal regulations on the use of building premises and property management.
2. Party B warrants that it will not use the premise for purposes other than as set forth above without the written consent of Party B and the approval by relevant authorities, if required.
III. Date of Delivery and Term of the Lease
1. Party A and Party B have agreed that Party A shall deliver the premise to Party B by January 1, 2004. The term of the lease shall begin on January 1, 2004, ending on December 31, 2006.
2. Upon the expiry of the term of the lease, Party A shall have the right to recall such premise, and Party B shall return the same on time. Where Party B needs to renew the lease of such premise, Party B shall deliver a written request to renew three months before the expiry of the term of the lease, and, when agreed by Party A, enter into a new lease contract with Party A.
IV. Rent, Payment Terms and Due Dates
1. Party A and Party B have agreed that, the rent per day per square meter of the floorage of this premise shall be (RMB) 2.2. The monthly rent shall be (RMB) 108,062 (RMB one hundred and eight thousand, sixty two) in aggregate.
The rent of the premise shall remain unchanged for a period of three (years/months).
2. Party B shall pay to Party A the rent by the fifteenth day of each month. In the event of payment delay, Party B shall pay a breach penalty of 0.1% of the daily rent for each day when such payment is delayed.
3. The terms of payment by Party B are set forth as below: The rent shall be paid on a monthly basis, and a sum equal to two months' rent shall be paid as deposit. Upon the expiry of the term of this contract, such deposit shall be returned to Party B within 10 business days without interest after the inspection and acceptance of the premise by Party A, less various expenses owed by Party B (including late payment penalty and breach penalty). Payments shall be made in RMB with check, or in cash, or with credit note, all of which are acceptable.
V. Deposit and other Expenses
1. Party A and Party B have agreed that, Party B shall pay a deposit on the lease of the premise, the amount of which shall equal 2 months' rent, i.e., (RMB) 216,124.
Party A shall issue a receipt certificate to Party B upon the receipt of such deposit.
Upon the termination of the lease relationship, Party A shall return the balance of the deposit without interest to Party B after setting off the expenses that shall be born by Party B as agreed in this contract.
2. During the term of the lease, expenses related to water, electricity, gas, communications, equipment, property management, and other expenses shall be born by Party B. Other relevant expenses shall be born by Party B.
3. The calculation or allocation, payment terms and time for the above
expenses born by Party B (Party A/ Party B) are set forth below:
Property management fee shall be paid to property management company
in the amount incurred by the fifteenth day of each month. Payments
shall be made in RMB with check, or in cash, or with credit note,
all of which are acceptable.
VI. Requirements in Using the Premise and the Obligations to Repair
1. During the term of the lease, if Party B discovers any damage or failure in the premise or its auxiliary facilities, Party B shall notify Party A for repair on a timely basis. Party A shall conduct the repair within three days after the receipt of such notice from Party B. In the case of delay in repair, Party B may conduct the repair on Party A's behalf with all expenses born by Party A.
2. During the term of the lease, Party B shall properly use and protect such premise and its auxiliary facilities. In the case of any damage or failure in such premise or its auxiliary facilities due to improper or unreasonable use by Party B, Party B shall be responsible for the repair. If Party B refuses to repair, Party A may repair on Party B's behalf, with all expenses born by Party B.
3. During the term of the lease, Party B warrants to keep such premise and its auxiliary facilities under useable and safe conditions. Party A shall give Party B a notice of seven days if it wishes to examine and conduct maintenance on the premise. Party B shall assist in such examination and maintenance. Party A shall minimize the effect on the use of the premise by Party B.
4. Other than as set forth in Annex 3 or this Contract, if Party B needs additional decoration or auxiliary facilities and equipment, Party B shall proceed only after it has obtained Party A's prior written consent, and, in the event that an
approval from relevant authority is required, the approval from such authority after Party A with Party B acting on its behalf reports to such authority.
VII. Condition of the Premise when Returned
1. Unless Party A agrees to the renew by Party B, Party B shall return such premise within seven days after the expiry of the term of lease under this Contract. In the event of delay in returning the premise without Party A's consent, for each day that such return is delayed, Party B shall pay a fee of 4.4 yuan / square meter (RMB) for using the premise during period that it occupies such premise.
2. The premise returned by Party B shall be under a condition after ordinary use. When the premise is returned, it shall be inspected and accepted by Party A, and the Parties shall settle with each other payments of the expenses for their own account.
VIII. Sub-lease, Assignment and Exchange
1. Unless Party A has agreed that Party B may sub-lease in the supplementary provisions of this Contract, during the term of the lease, Party B may sub-lease any part or all of this premise to other parties only with the prior written consent of Party A. However, the same room for residence shall not be divided into portions for sub-lease.
2. To sub-lease such premise, Party B shall enter into a written sub-lease contract with the sub-lessee according to the regulations, and shall file such sub-lease with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system.
3. During the term of the lease, Party B shall obtain the prior written consent of Party A if Party B is to assign the lease of such premise to another party or exchange such premise with another premise leased by another party. After such assignment or exchange, the assignee of the lease obligations or the other party of the exchange shall enter into an amendment contract to change the party to this Contract and continue to perform this Contract.
4. During the term of the lease, Party A shall give Party B a notice of three months if it needs to sell such premise. Party B shall have the preemptive right under the same circumstances.
IX. Conditions of Termination of this Contract
1. Party A and Party B have agreed that, upon the occurrence of any of the following events, this Contract shall be terminated and none of the Parties shall be held liable to the other:
(1) the land use right covered by such premise shall have been recalled early by law;
(2) such premise shall have been expropriated for public interest;
(3) such premise shall have been included in the building demolition permitted by law due to the requirements of urban construction;
(4) such premise shall have been destroyed, disappeared or shall have been verified as a dangerous building;
2. Party A and Party B have agreed that, either Party may terminate this Contract by written notice to the other Party upon the occurrence of any of the following events. The breaching Party shall pay to the other Party a breach penalty of ___times the monthly rent, and in the event that such breach has caused losses to the other Party, and the breach penalty paid is not sufficient to set off such losses, a compensation shall be made in the amount of the difference between the losses thus incurred and the amount of the breach penalty.
(1) Party B shall have failed to deliver such premise on time, and still haven't delivered within ____days after receipt of notice from Party B;
(2) The premise delivered by Party A shall have been incompliant with the agreements contained in this Contract, which shall have led to the failure to use the premise for the original purpose under the lease; or the premise delivered by Party A shall have born defects that threaten the safety of Party B;
(3) Party B shall have altered the usage of the premise without the written consent of Party A, which shall have caused damages to the premise;
(4) Damages to the main structure of the premise due to Party B's fault;
(5) Party B shall have, without permission, sub-leased such premise, assigned the lease of the premise or exchanged each other's leased premises with another party;
(6) Party B shall have failed to pay rent for 2 months cumulatively;
(7) Party B shall have failed to pay property management fee for 2 months cumulatively;
X. Liabilities of Breach of the Contract
1. In the event that the premise has defect when delivered, Party A shall repair the premise within _____days after the delivery, failing which, Party A agrees to decrease the rent or amend the relevant provisions on the rent.
2. In the event that Party A fails to inform Party B of the fact that such premise has been mortgaged or the transfer of the title of such premise is subject to restriction prior to the lease, which results in losses sustained by Party B, Party A shall indemnify Party B for such losses.
3. During the term of the lease, if Party A fails to perform its obligations under this Contract to repair or maintain the premise on a timely basis, which results in damages to the premise, property loss sustained by Party B or personal injuries, Party A shall be responsible for indemnification.
4. During the term of the lease, if Party A terminates this Contract and recalls the premise early other than as provided in this Contract, Party A shall pay to Party B a breach penalty in an amount 2 times of the rent for the number of days that the premise is recalled early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party B, Party A shall also indemnify Party B of such losses.
5. If Party B decorates the premise or add auxiliary facilities without the written consent of Party A or in addition to the scope consented by Party A, Party A may demand Party B to indemnify Party A of losses.
6. During the term of the lease, if Party B terminates the lease early at its sole discretion other than as provided in this Contract, Party B shall pay to Party A a breach penalty in an amount 2 times of the rent for the number of days that the lease is terminated early. In the event that the breach penalty is not sufficient to set off the losses sustained by Party A, Party B shall indemnify Party A of such losses. Party A may set off the losses from the deposit. In the event that the deposit is not sufficient to set off the losses, Party B shall make additional payment of the amount that falls short.
XI. Miscellaneous
1. During the term of the lease, if Party A needs to mortgage such premise, it shall notify Party B of such mortgage in writing, and Party A warrants to Party B that it will consult Party A for its intention to purchase such premise fifteen days prior to disposition of the premise by the parties to the mortgage by agreement through discount and selling off.
2. This Contract shall become effective (upon signing by the Parties/ after signing by the Parties) when signed by the Parties and with the company seals of the Parties affixed hereto. Within 15 day after this Contract comes into effect, Party A shall be responsible for completing registration and filing formalities with the real estate trading center of the district or county where the premise is located, or with the registration and acceptance office for
buildings and estate established by the municipal building and estate bureau in the farming system and obtaining the filing certificate of building lease. After the registration and filing of this Contract, in the event of amendment or termination of this Contract, Party A (Party A/Party B) shall complete the registration and filing formalities of such amendment and termination with the original registration authority within 15 days after such amendment or termination. Party A shall be responsible for all legal disputes resulting from the failure of Party A to complete the registration and filing formalities of the building lease, the amendment hereto or the termination hereof.
3. Issues not covered in this Contract may be agreed by the Parties in supplementary provisions. The supplementary provisions and the annexes of this Contract constitute an integral part of this Contract. The handwriting filled in the blank in this Contract and its supplementary provisions and annexes shall have the same force and effect with the printed contents.
4. Party A and Party B fully understand their respective rights, obligations and responsibilities at the time of execution of this Contract, and are willing to perform this Contract in strict accordance with its provisions. In case of breach of this Contract by either Party, the other Party shall have the right to claim compensation from the breaching Party.
5. Disputes arising in the course of performance of this Contract by the Parties shall be settled through consultation, failing which, the Parties are willing to choose the ____th alternative set forth below:
(1) submission to Shanghai Arbitration Commission for arbitration;
(2) submission to the people's court for litigation according to law.
6. There are two counterparts of this Contract and its annexes. Party A and Party B shall each hold a counterpart, (Shanghai City / ______District/County) real estate trading center the registration and acceptance office for buildings and estate established by the municipal building and estate bureau in the farming system shall keep one copy, while ________shall keep one copy each, all of which shall have the same force.
Lessor (Party A) Lessee (Party B) Shanghai Xiesheng Industry Co., Ltd. Shanghai Qianjin Culture Communication Co., Ltd. Nationality: Nationality: Legal Representative: Legal Representative: Registration Certificate N./ID No. Registration Certificate N./ID No. |
Address: Bldg. 2, No.888, Dongdaming Rd. Address:
Post Code: 200082 Post Code: Tel: 55100355 Tel: Authorized Agent: Authorized Agent: Signature and Seal: Signature and Seal: Date: June 3, 2003 Date: Place: Place: Name of the Brokerage Entity: |
Name of the Broker:
Qualification Certificate Number of the Broker:
SUPPLEMENTARY CONTRACT IN CONNECTION WITH THE LEASE FOR PREMISE ON
THE 21ST FLOOR
Party A: Shanghai Xiesheng Industry Co., Ltd.
Party B: Shanghai Qianjin Culture Communication Co., Ltd.
Party A and Party B entered into a Building Premise Lease Contract on June 3, 2003 for the premise on the 21st floor of "Wenxin Newspaper Plaza". The Parties agreed on the rent as set forth below:
1. The rent for the period from January 1, 2004 to December 31, 2004 shall be RMB 2.2/day/m(2);
2. The rent for the period from January 1, 2005 to December 31, 2005 shall be RMB 2.31/day/m(2);
3. The rent for the period from January 1, 2006 to December 31, 2006 shall be RMB 2.42/day/m(2);
This Supplementary Contract shall have the same legal effect as the Shanghai Building Premise Lease Contract entered into by the Parties.
There are two counterparts of this Supplementary Contract, with Party A and Party B holding one counterpart each.
Party A: Shanghai Xiesheng Industry Party B: Shanghai Qianjin Culture Co., Ltd. Communication Co., Ltd. Seal: Seal: Authorized Agent: Authorized Agent: Huang Lan Date: June 12, 2003 |
EXHIBIT 10.5
FORM OF INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is made as of June 5, 2000, among 51job, Inc. (fka 51net.com Cayman Islands Inc.), a Cayman Islands corporation (the "Company"), each of the investors that executes a counterpart of the Investor Signature Page hereto (each Investor, individually, the "Investor" and collectively, the "Investors"), and each of the founders that executes a counterpart of the Founder Signature Page hereto (individually, the "Founder" and collectively, the "Founders").
Background
The Company and each Investor intend to enter into a Series A Preference Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which the Investors will purchase 100% of the authorized shares of the Company's Series A Preference Stock (such shares purchased under the Stock Purchase Agreement, the "Series A Shares").
NOW THEREFORE, the parties agree as follows:
SECTION 1: COVENANTS.
1.1 FINANCIAL REPORTING; INSPECTIONS.
(a) So long as the Investor holds at least 25% of the Series A Shares, the Company shall deliver to the Investor: (i) annual, audited and consolidated financial statements, no later than 120 days after the end of the Company's fiscal or calendar year, as applicable; (ii) the Company's annual budget and business plan, within 30 days of completion thereof; (iii) quarterly, unaudited financial statements, no later than 45 days after the end of the Company's first, second and third calendar quarters; and (iv) monthly, management-prepared reports, in a format to be agreed to between the Company and the Investors, no later than 30 days after the end of each month.
(b) So long as the Investor holds at least 25% of the Series A Shares, the Company shall permit the Investor to visit and inspect any of the properties of the Company, including its books of account and other records (and make copies thereof) and to discuss its affairs, finances and accounts with the Company's officers and its independent public accountants, all at such reasonable times and as often as the Investor may reasonably request.
1.2 CONFIDENTIAL INFORMATION.
(a) "Confidential Information" means any information, technical data, or know-how, including research, products, software, services, development, inventions, processes, designs, drawings, engineering, marketing, or finances, disclosed by any party hereto (for purposes of this Section, the "disclosor") to any other party hereto and all transferees of shares in the Company from any such party (for purposes of this Section, the "recipient"), directly or indirectly, in writing, orally, or by drawings or inspection of parts or equipment. "Confidential Information" does not include information, technical data, or know-how that: (i) is in the recipient's possession at the time of disclosure to it, as shown by its files and records immediately before the time of disclosure; (ii) is part of public knowledge (not as a result of any action or inaction of the recipient) before or after it has been disclosed to the recipient; or (iii) is approved for release by the disclosor's written authorization.
(b) Prohibition on Use of Confidential Information. The recipient shall refrain from using Confidential Information for its own use or for any purpose except to evaluate its equity investment in the Company. The recipient shall not disclose Confidential Information to any third parties. The recipient shall treat Confidential Information in a manner consistent with the treatment of its own proprietary information and shall protect the confidentiality of, and use reasonable best efforts to prevent disclosure of, the Confidential Information to prevent it from falling into the public domain or the possession of unauthorized persons. Each transferee of the recipient who receives Confidential Information shall agree to be bound by these provisions.
(c) Exceptions. The provisions of this Section shall not apply:
(i) to the extent that the recipient is required to disclose Confidential
Information under any law, statute or regulation, or any order of any court or
other governmental authority; or (ii) to the disclosure of Confidential
Information to the recipient's counsel, accountants, or other professional
advisors.
(d) Injunctive Relief. The parties acknowledge that it will be impossible to measure in money the damage to the disclosor caused by any failure to comply with the covenants set forth in this Section, that each such covenant is material, and that in the event of any such failure the disclosor will not have an adequate remedy at law or in damages. Therefore, the recipient consents to the issuance of an injunction or the enforcement of other equitable remedies against it, without bond or other security, to compel performance of all of the terms of this Section, and waive the defense of the availability of relief in damages.
SECTION 2: RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
2.1 RESTRICTIONS ON TRANSFERABILITY. The Series A Shares and the Conversion Stock (as defined below) shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 2, which conditions are intended to ensure compliance with the provisions of the Securities Act. All holders of Restricted Securities shall cause any proposed purchaser, assignee, transferee or pledgee of any such shares held by it to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2.
2.2 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings:
(a) "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
(b) "Conversion Stock" means the Ordinary Shares issued or issuable pursuant to conversion of the Series A Shares.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(d) "Founders Shares" means any Ordinary Shares held by any Founder.
(e) "Holder" means the Investor or Founder holding Registrable Securities, and any other person holding Registrable Securities to whom registration rights under this Section 2 have been transferred in accordance with Section 2.13 hereof.
(f) "Initiating Holders" mean (i) with respect to Section 2.5 hereof (demand registration), the holders of at least 30% of the Registrable Securities; and (ii) with respect to Section 2.7 hereof (S-3 registration), the holders of at least 20% of the Registrable Securities.
(g) "Registrable Securities" mean: (i) the Conversion Stock and any Ordinary Shares of the Company issued or issuable in respect of the Conversion Stock upon any stock split, stock dividend, recapitalization, or similar event, or any Ordinary Shares otherwise issuable with respect to the Conversion Stock, and (ii) the Founders Shares and any Ordinary Shares issued in respect of the Founders Shares upon any stock split, stock dividend, recapitalization or similar event, or any Ordinary Shares otherwise issued or issuable with respect to the Founders Shares. Shares of Ordinary Shares or other securities shall only be treated as Registrable Securities if and so long as they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or sold or are available for sale in a single sale in the opinion of counsel for the Company in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act (other than a sale under Rule 144(k) promulgated under the Securities Act) so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale.
(h) "Register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.
(i) "Registration Expenses" mean all expenses, except as otherwise stated below, incurred by the Company in complying with this Section 2, including all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, 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) and the reasonable fees and disbursements of one special counsel for Holders (not to exceed $35,000).
(j) "Restricted Securities" mean the securities of the Company required to bear the legend set forth in Section 2.3 hereof.
(k) "Securities Act" means the Securities Act of 1933, as amended, any similar federal statute and the rules and regulations of the Commission thereunder, or the securities laws of such other jurisdiction as may be applicable, all as the same shall be in effect at the time.
(l) "Selling Expenses" mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and, except as set forth above, all reasonable fees and disbursements of counsel for such Holders.
2.3 RESTRICTIVE LEGENDS. Each certificate representing (i) Series A Shares, (ii) the Conversion Stock and (iii) any other securities issued in respect of the Series A Shares or the Conversion Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 2.4 below) be stamped or otherwise imprinted with a legend in the following form, and such other legends required by the Company:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") OR OTHER APPLICABLE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT IS IN EFFECT AS TO SUCH TRANSFER OR (B) PURSUANT TO RULE 144 OR OTHER APPLICABLE SECURITIES LAWS, OR (C) IN THE OPINION OF THE COMPANY, REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR SUCH OTHER APPLICABLE SECURITIES LAWS."
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF CERTAIN DOCUMENTS, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
All holders of Restricted Securities consent to the Company making a notation on its records and giving instructions to any transfer agent of the Series A Shares or the Ordinary Shares in order to implement the restrictions on transfer established in this Section 2.
2.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, (ii) in transactions
involving the distribution without consideration of Restricted Securities by the
holder to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners, or (iii) in transactions in compliance with
Rule 144), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense by either
(i) an unqualified written opinion of legal counsel who shall be, and whose
legal opinion shall be, reasonably satisfactory to the Company addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
2.3 above, except that such certificate shall not bear such restrictive legend
if, in the opinion of counsel for such holder and the Company, such legend is
not required in order to establish compliance with any provision of the
Securities Act.
2.5 REQUESTED REGISTRATION.
(a) Request for Registration. In case the Company shall receive from Initiating Holders on an aggregated basis, a written request that the Company effect any registration, qualification or compliance with respect to Registrable Securities and the anticipated aggregate offering price, net of underwriting discounts and commissions would exceed $7,500,000, the Company will:
(i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders, if any; and
(ii) as soon as practicable, use its best efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder joining in such request as are specified in a written request received by the Company within 20 days after receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2.5:
(1) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(2) Prior to 3 months after the effective date of the Company's first registered public offering of its stock or the third anniversary of the date of the initial purchase of Series A Shares by the Investor, whichever is earlier;
(3) During the period starting with the date 60 days prior to the Company's estimated date of filing of, and ending on the date 6 months immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective;
(4) After the Company has effected two such registrations pursuant to this Section 2.5(a), and such registrations have been declared or ordered effective (provided however that for any registration for which the holders of 50% or more of the Series A Shares have affirmatively refused to initiate as Initiating Holders, such registration shall not be counted against such two demand registrations with respect to the holders of the Series A Shares); or
(5) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its members for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 2.5 shall be deferred for a period not to exceed 120 days from the date of receipt of
written request from the Initiating Holders, provided that the Company may not exercise this deferral right more than once per twelve month period.
Subject to the foregoing clauses (1) through (5), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 2.5 is for a registered public offering involving an underwriting, the
Company shall so advise each Holder as part of the notice given pursuant to
Section 2.5(a)(i). In such event, the right of any Holder to registration
pursuant to Section 2.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 2.5, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders, but subject to the Company's reasonable approval. Notwithstanding any other provision of this Section 2.5, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated, among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in the event that any such underwriter cutback will cause the cutback of 50% or more of the Registrable Securities of the holders of the Series A Shares requested to be included in such registration, then the holders of the Series A Shares may elect to have excluded from such registration the Registrable Securities of all holders of Series A Shares. Such election shall be by the affirmative vote of the holders of 50% or more of the Series A Shares and shall be effective for all holders of Series A Shares. In such case, the number of demand registrations available to the holders of Series A Shares shall not be reduced by such registration.
If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to 90 days after the effective date of such registration, or such other shorter period of time as the underwriters may require.
2.6 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder,
other than: (x) a registration relating solely to employee benefit plans, or (y) a registration relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all Registrable Securities specified in a written request or requests, made within 20 days after receipt of such written notice from the Company, by the Holders thereof.
(b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice above. In such event the right of the Holders to registration shall be conditioned upon their participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. Holders proposing to distribute securities through such underwriting shall (together with the Company and the other persons distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration: (i) in the case of the Company's initial public offering, to zero, and (ii) in the case of any other offering, to an amount no less than 30% of all shares to be included in such offering. The Company shall so advise the Holders and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the Registration Statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest 100 shares. If the Holder disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to 90 days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2 prior to the effectiveness of such registration whether or not a
Holder has elected to include securities in such registration.
2.7 REGISTRATION ON FORM S-3.
(a) Two S-3 Requests. If Initiating Holders request that the Company file a registration statement on Form S-3 (or any successor form) for a public offering of shares of the Registrable Securities the reasonably anticipated aggregate price to the public of which, net of underwriting discounts and commissions, would equal at least $500,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts to cause such Registrable Securities to be registered for the offering on such form and to cause such Registrable Securities to be qualified in such jurisdictions as a Holder
may reasonably request. The Company shall not be required to effect more than 2 registrations pursuant to this Section 2.7 in any 12 month period. The Company shall inform other Holders, if any, of the proposed registration and offer them the opportunity to participate.
(b) Underwriting. The substantive provisions of Section 2.5(b) shall be applicable to each registration initiated under this Section 2.7.
(c) Exceptions to S-3 Requirement. Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 2.7: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within 10 days of the receipt of the request of the Initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within 90 days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities); (iii) during the period starting with the date 60 days prior to the Company's estimated date of filing of, and ending on the date 6 months immediately following, the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Company shall furnish to such Holder a certificate signed by the President or CEO of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for registration statements to be filed in the near future, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed 120 days from the receipt of the request to file such registration by the Holder, provided that the Company may not exercise this deferral right more than once per 12 month period.
2.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with all registrations pursuant to this Section 2 shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by them pro rata on the basis of the number of shares so registered.
2.9 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 2, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least 180 days or until the distribution described in the Registration Statement has been completed.
(b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities.
2.10 INDEMNIFICATION. The Company will indemnify each Holder, each of its officers, directors, trustees and partners, and each person controlling the Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any state securities law or any rule or regulation promulgated thereunder applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse the Holder, each of its officers, trustees and directors, and each person controlling the Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by the Holder, controlling person or underwriter and stated to be specifically for use therein; and provided, further, that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus on file with the Commission at the time the registration statement becomes effective or the amended prospectus filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any underwriter or any holder, if there is no underwriter, if a copy of the Final Prospectus was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.
(a) Each Holder will, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other Holder, each of its officers, trustees and directors and each person controlling it within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any 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 will reimburse the Company, such Holders, such directors, officers, trustees, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus on file with the Commission at the time the registration statement becomes effective or in the Final Prospectus, such indemnity agreement shall not inure to the benefit of any underwriter or any Holder, if there is no underwriter, if a copy of the Final Prospectus was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. Notwithstanding the foregoing, the liability of the Holder under this Section shall be limited in an amount equal to the initial public offering price of the shares sold by such Holder.
(b) Each party entitled to indemnification under this Section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and the Indemnifying Party shall have the option to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or separate and different defenses. No claim may be settled without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld). 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.
2.11 INFORMATION BY HOLDERS. Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding them, the Registrable Securities held by them and the distribution proposed by them as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 2.
2.12 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of Restricted Securities to the public without registration, after such time as a public market exists for the Ordinary Shares of the Company, the Company agrees to use its best efforts 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 that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission 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 Restricted Securities to furnish to it forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any such securities without registration.
2.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted the Investor under this Section 2 may be assigned to a transferee reasonably acceptable to the Company in connection with any transfer or assignment of Registrable Securities provided that: (i) such transfer may otherwise be effected in accordance with applicable securities laws, (ii) such assignee or transferee agrees to be bound by the terms and conditions of this Agreement, (iii) such assignee or transferee acquires at least 25% of the outstanding Registrable Securities; and (iv) such assignee or transferee is not a competitor of the Company, as determined in the Company's reasonable discretion.
2.14 STANDOFF AGREEMENT. In connection with the Company's initial public offering of the Company's securities, the Holder agrees, upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the underwriters; provided that the founders, officers and directors of the Company who own shares of the Company also agree to such restrictions.
2.15 TERMINATION. The rights to cause the Company to register securities granted to Holders under this Section 2 shall expire upon the earlier of 7 years after the consumation of a firm commitment underwritten public offering of the Company's Ordinary Shares registered under the Secuities Act which results in aggregate net proceeds to the Company of at least US$10,000,000 and a price per share of at least US$3.12; or, for a particular Holder, at such time as such Holder is able to dispose of all such securities in one 3-month period pursuant to Rule 144.
2.16 FUTURE REGISTRATION RIGHTS. The Company hereby covenants that it shall not grant registration rights in respect of any capital stock of the Company to any person or entity other than as set forth herein, unless such registration rights are subordinate to the registration rights granted to the Holders hereunder, or unless 50% or more of Holders consent in writing to such grant of equal or superior registration rights.
2.17 NON-U.S. REGISTRATIONS. In connection with any registration requiring compliance with the laws of any jurisdiction outside the United States, Company shall use commercially reasonable efforts to comply with all applicable laws and to satisfy such requirements or obligations as may exist in accordance with custom in such jurisdiction and shall comply with all obligations equivalent to those specified in this Section 2.
SECTION 3: RIGHT OF FIRST REFUSAL FOR ISSUE OF NEW SECURITIES.
3.1 INVESTORS' RIGHT OF FIRST REFUSAL. The Company hereby grants to the Investor the right of first refusal to purchase a Pro Rata Share of any New Securities (as defined in this Section) which the Company may, from time to time, propose to sell and issue. A "Pro Rata Share," for purposes of this right of first refusal, is the ratio that the sum of the number of Ordinary Shares then held by the Investor and the number of Ordinary Shares issuable upon conversion of the Series A Shares then held by the Investor bears to the sum of the total number of Ordinary Shares then outstanding and the number of Ordinary Shares issuable upon conversion of the then outstanding Preference Stock, assuming the exercise of all outstanding options, warrants and other rights and the issuance of all shares reserved for issuance to employees under any equity plan.
3.2 NEW SECURITIES. Except as set forth below, "New Securities" shall
mean any shares of capital stock of the Company including Ordinary Shares and
Preference Shares, whether now authorized or not, and rights, options or
warrants to purchase said shares of Ordinary Shares or Preference Shares, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Ordinary Shares or Preference Shares. Notwithstanding the foregoing,
"New Securities" does not include (i) shares to be issued to employees and
directors pursuant to plans, agreements and arrangements approved by the Board
of Directors; (ii) shares issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions; (iii) the Series A Shares, including Conversion Stock; (iv)
securities offered to the public generally pursuant to a registration statement
under the Securities Act; (v) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company or its shareholders own
not less than 51% of the voting power of the surviving or successor corporation;
(vi) stock issued pursuant to any rights or agreements including without
limitation convertible securities, options and warrants, provided that the
rights of first offer established by this Section apply with respect to the
initial sale or grant by the Company of such rights or agreements; and (vii)
stock issued in connection with any stock split, stock dividend or similar
transactions by the Company.
3.3 NOTICE. In the event the Company proposes to undertake an issuance of New Securities, it shall give the Investor written notice of its intention, describing the type of New Securities, and the price and terms upon which the Company proposes to issue the same. The Investor shall have 15 days from the date of receipt of any such notice to agree to purchase up to its Pro Rata Share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.
3.4 INVESTOR'S FAILURE TO EXERCISE RIGHT. If the Investor fails to exercise the right of first refusal within said 15 day period, the Company shall have 90 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 60 days from the date of said agreement) to sell the New Securities not elected to be
purchased by the Investor at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities within said 90 day period (or sold and issued New Securities in accordance with the foregoing within 60 days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities, without first offering such securities in the manner provided above.
3.5 NO ASSIGNMENTS. The right of first refusal hereunder is not assignable except to a purchaser that acquires 100% of the Investor's Series A Shares and Conversion Stock.
3.6 COMPANY'S FAILURE TO GIVE NOTICE. If the Company has not given notice to the Investor prior to the issuance of New Securities as provided above, then the Company shall give notice to the Investor within 20 days after the issuance of New Securities. Such notice shall describe the type, price and terms of the New Securities. The Investor shall have 15 days from the date of receipt of such notice to elect to purchase its Pro Rata Share of New Securities. The Pro Rata Shares shall be calculated giving effect to the sale of the New Securities. The closing of such sale shall occur within 30 days of the date of notice to the Investor.
SECTION 4: TERMINATION.
This Agreement shall terminate and be of no force or effect upon: (i) the effectiveness of the Company's initial underwritten public offering of at least $10,000,000 at an offering price of at least $3.12; or (ii) upon an acquisition of the Company by merger or other reorganization whereby the Company's shareholders, directly or indirectly, own less than 51% of the voting power of the surviving or successor corporation. Notwithstanding the foregoing, the provisions of Section 2 (with respect to restrictions on transfer and registration) shall terminate as set forth in Section 2. Section 1.2 (confidential information) shall survive termination of this Agreement.
SECTION 5: MISCELLANEOUS
5.1 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid in the U.S. or by overnight courier to overseas, or otherwise delivered by hand or by messenger, (i) addressed to the Investor or the holder of shares subject to this Agreement, at such person's address of record as it appears on the books of the Company or at such other address as such person shall have furnished to the Company in writing, or until any such person so furnishes an address to the Company, then to the address of the last holder of such shares who has so furnished an address to the Company, or (ii) if to the Company, to its principal executive office.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally or by overnight courier, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid.
5.2 WAIVERS AND AMENDMENTS. This Agreement and all its terms may be changed, waived, discharged or terminated solely in writing signed by the parties to such waiver or amendment. No delay or omission to exercise any right, power or remedy accruing under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver or
acquiescence, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.
5.3 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Delaware, without reference to conflicts of laws principles thereof.
5.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
5.5 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof.
5.6 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
5.7 COUNTERPARTS. This Agreement may be executed in counterparts, all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
By:______________________________ Name:
Title:
* INVESTOR RIGHTS AGREEMENT *
INVESTOR SIGNATURE PAGE
IN WITNESS WHEREOF, Investor has read and understands the Investor Rights Agreement to which this Investor Signature Page is attached, and has executed this Investor Rights Agreement this ______________, 2000.
By:______________________________
Name:
Title:
FOUNDER SIGNATURE PAGE
IN WITNESS WHEREOF, Founder has read and understands the Investor Rights Agreement to which this Founder Signature Page is attached, and has executed this Investor Rights Agreement this ______________, 2000.
EXHIBIT 10.6
51JOB, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
I. INTRODUCTION
This Code of Business Conduct and Ethics helps ensure compliance with legal requirements and our standards of business conduct. All directors, officers and other employees (collectively, the "Covered Persons") are expected to read and understand this Code of Business Conduct and Ethics, uphold these standards in day-to-day activities and comply with all applicable policies and procedures.
Because the principles described in this Code of Business Conduct and Ethics are nonexhaustive and general in nature, you should also review all applicable Company policies and procedures for more specific instruction.
Nothing in this Code of Business Conduct and Ethics, in any Company policies and procedures, or in other related communications (verbal or written) creates or implies an employment contract or term of employment.
We are committed to continuously reviewing and updating our policies and procedures. Therefore, this Code of Business Conduct and Ethics is subject to modification. This Code of Business Conduct and Ethics supersedes all other such codes, policies, procedures, instructions, practices, rules or written or verbal representations to the extent they are inconsistent.
Please sign the acknowledgment form at the end of this Code of Business Conduct and Ethics and return the form to the Chief Compliance Officer indicating that you have received, read, understand and agree to comply with the Code of Business Conduct and Ethics. The signed acknowledgment form will be located in your personnel file.
II. YOUR RESPONSIBILITIES TO THE COMPANY AND ITS STOCKHOLDERS
A. GENERAL STANDARDS OF CONDUCT
The Company expects all Covered Persons to exercise good judgment to ensure the safety and welfare of the Company and the Covered Persons and to maintain a cooperative, efficient, positive, harmonious and productive work environment and business organization. These standards apply while working on our premises, at offsite locations where our business is being conducted, at Company-sponsored business and social events, or at any other place where you are a representative of the Company. Covered Persons who engage in misconduct or whose performance is unsatisfactory may be subject to corrective action, up to and including termination. You should review our employment handbook for more detailed information.
B. APPLICABLE LAWS
All Covered Persons must comply with all applicable laws, regulations, rules and regulatory orders of any relevant jurisdiction. Company employees located outside of the United States must comply with laws, regulations, rules and regulatory orders of the United States, including without limitation the Foreign Corrupt Practices Act, in addition to applicable local laws. Each employee, agent and contractor must acquire appropriate knowledge of the requirements relating to his or her duties sufficient to enable him or her to recognize potential dangers and to know when to seek advice from the Chief Compliance Officer on specific Company policies and procedures. Violations of laws, regulations, rules and orders may subject the employee, agent or contractor to individual criminal or civil liability, as well as to discipline by the Company. Such individual violations may also subject the Company to civil or criminal liability or the loss of business.
C. CONFLICTS OF INTEREST
Each of us has a responsibility to the Company, our stockholders and each other. Although this duty does not prevent us from engaging in personal transactions and investments, it does demand that we avoid situations where a conflict of interest might occur or appear to occur. The Company is subject to scrutiny from many different individuals and organizations. We should always strive to avoid even the appearance of impropriety.
What constitutes a conflict of interest? A conflict of interest exists where the interests or benefits of one person or entity conflict with the interests or benefits of the Company. Examples include:
(i) EMPLOYMENT/OUTSIDE EMPLOYMENT. In consideration of your employment with the Company, you are expected to devote your full attention to the business interests of the Company. Subject to the terms of your employment contract with the Company and except where applicable laws, rules or regulations otherwise provide, you are prohibited from engaging in any activity that interferes with your performance or responsibilities to the Company or is otherwise in conflict with or prejudicial to the Company. Our policies prohibit any employee from accepting simultaneous employment with a Company supplier, customer, developer or competitor, or from taking part in any activity that enhances or supports a competitor's position. Additionally, you must disclose to the Company any interest that you have that may conflict with the business of the Company. If you have any questions on this requirement, you should contact your supervisor or the Chief Compliance Officer.
(ii) OUTSIDE DIRECTORSHIPS. It is a conflict of interest to serve as a director of any company that competes with the Company. Although you may serve as a director of a Company supplier, customer, developer, or other business partner, our policy requires that you first obtain approval from the Chief Compliance Officer and the Nominating and Corporate Governance Committee before accepting a directorship. Any compensation you receive should be commensurate to your responsibilities. Such approval may be conditioned upon the completion of specified actions.
(iii) BUSINESS INTERESTS. If you are considering investing in a Company customer, supplier, developer or competitor, you must first take great care to ensure that these investments do not compromise your responsibilities to the Company. Many factors should be considered in determining whether a conflict exists, including the size and nature of the investment; your ability to influence the Company's or the other company's decisions; your access to confidential information of the Company or of the other company; and the nature of the relationship between the Company and the other company.
(iv) RELATED PARTIES. As a general rule, you should avoid conducting Company business with related parties, that is, with a relative or significant other, or with a business in which a relative or significant other is associated in any significant role. Relatives include spouse, sister, brother, daughter, son, mother, father, grandparents, aunts, uncles, nieces, nephews, cousins, step relationships, and in-laws. Significant others include persons living in a spousal (including same sex) or familial fashion with an employee. Related parties also include organizations and entities with which the Company's executive officers or directors have a material relationship or affiliation ("Affiliates"). Because the possibility that a conflict of interest may exist is greatest when executive officers or directors or their Affiliates are involved in a business transaction with the Company, the Company generally discourages the conduct of the Company's business with such parties.
If such a related party transaction is unavoidable, you must fully disclose the nature of the related party transaction to the Company's Chief Compliance Officer. If determined to be material to the Company by the Chief Compliance Officer, the Chief Compliance Officer and the Nominating and Corporate Governance Committee must review and approve in writing in advance such related party transactions. The most significant related party transactions, particularly those involving the Company's executive officers or directors or their Affiliates, must be reviewed and approved in writing in advance by the Chief Compliance Officer and the Nominating and Corporate Governance Committee. The Company must report all such material related party transactions under applicable accounting rules, Federal securities laws, SEC rules and regulations, and securities market rules. Any dealings with a related party must be conducted in such a way that no preferential treatment is given to such dealings.
The Company also discourages the employment of relatives and significant others in positions or assignments within the same department and prohibits the employment of such individuals in positions that have a financial dependence or influence (e.g., an auditing or control relationship, or a supervisor/subordinate relationship). The purpose of this policy is to prevent the organizational impairment and conflicts that are a likely outcome of the employment of relatives or significant others, especially in a supervisor/subordinate relationship. If a question arises about whether a relationship is covered by this policy, the Chief Compliance Officer is responsible for determining whether an applicant's or transferee's acknowledged relationship is covered by this policy. The Chief Compliance Officer shall advise all affected applicants and transferees of this policy. Willful withholding of information regarding a prohibited relationship/reporting arrangement may be subject to corrective action, up to and including termination. If a prohibited relationship exists or develops between two employees, the employee in the senior position must bring this to the attention of his/her supervisor. The Company retains the prerogative to separate the individuals at the earliest possible time, either by reassignment or by termination, if necessary.
(v) OTHER SITUATIONS. Because other conflicts of interest may arise, it would be impractical to attempt to list all possible situations. If a proposed transaction or situation raises any questions or doubts in your mind you should consult the Chief Compliance Officer.
D. CORPORATE OPPORTUNITIES
Officers, directors and employees owe a duty to the Company to advance the Company's legitimate interests to the best of their abilities. Covered Persons may not exploit for their own personal gain opportunities that are discovered through the use of corporate property, information or position or which arise as a result of his or her position within the Company unless the opportunity is disclosed fully in writing to the Company's Board of Directors and the Board of Directors declines to pursue such opportunity.
E. OBLIGATIONS UNDER SECURITIES LAWS - "INSIDER" TRADING AND OTHER MARKET MISCONDUCT
Obligations under the U.S. securities laws on insider trading apply to everyone. In the normal course of business, the Covered Persons may come into possession of significant, sensitive information. This information is the property of the Company -- you have been entrusted with it. You may not profit from it by buying or selling securities yourself, or passing on the information to others to enable them to profit or for them to profit on your behalf. The purpose of this policy is both to inform you of your legal responsibilities and to make clear to you that the misuse of sensitive information is contrary to Company policy and U.S. securities laws.
Under U.S. securities laws, insider trading is a crime, penalized by fines of up to US$5,000,000 and 20 years in jail for individuals. In addition, the SEC may seek the imposition of a civil penalty of up to three times the profits made or losses avoided from the trading. Insider traders must also disgorge any profits made, and are often subjected to an injunction against future violations. Finally, insider traders may be subjected to civil liability in private lawsuits.
Employers and other controlling persons (including supervisory personnel) are also at risk under U.S. securities laws. Controlling persons may, among other things, face penalties of the greater of US$5,000,000 or three times the profits made or losses avoided by the trader if they recklessly fail to take preventive steps to control insider trading.
Thus, it is important both to you and the Company that insider-trading violations not occur. You should be aware that stock market surveillance techniques are becoming increasingly sophisticated, and the chance that U.S. federal or other regulatory authorities will detect and prosecute even small-level trading is significant. Insider trading rules are strictly enforced, even in instances when the financial transactions seem small. You should contact the Chief Compliance Officer if you are unsure as to whether or not you are free to trade.
The Company has imposed a trading blackout period on members of the Board of Directors, executive officers and certain designated employees who, as a consequence of their position with the Company, are more likely to be exposed to material nonpublic information about the Company. These directors, executive officers and employees generally may not trade in Company securities during the blackout period.
F. PROHIBITION AGAINST SHORT SELLING OF COMPANY STOCK
No Covered Person, directly or indirectly, sell any equity security, including derivatives, of the Company if he or she (1) does not own the security sold, or (2) if he or she owns the security, does not deliver it against such sale (a "short sale against the box") within twenty days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation. No Covered Person may engage in short sales. A short sale, as defined in this policy, means any transaction whereby one may benefit from a decline in the Company's stock price. While employees who are not executive officers or directors are not prohibited by law from engaging in short sales of Company's securities, the Company has adopted a policy that employees may not do so.
G. USE OF COMPANY'S ASSETS
(i) GENERAL. Protecting the Company's assets is a key fiduciary responsibility of every employee, agent and contractor. Care should be taken to ensure that assets are not misappropriated, loaned to others, or sold or donated, without appropriate authorization. All Covered Persons are responsible for the proper use of Company assets, and must safeguard such assets against loss, damage, misuse or theft. Covered Persons who violate any aspect of this policy or who demonstrate poor judgment in the manner in which they use any Company asset may be subject to disciplinary action, up to and including termination of employment or business relationship at the Company's sole discretion. Company equipment and assets are to be used for Company business purposes only. Covered Persons may not use Company assets for personal use, nor may they allow any other person to use Company assets. Employees who have any questions regarding this policy should bring them to the attention of the Chief Compliance Officer.
(ii) PHYSICAL ACCESS CONTROL. The Company has and will continue to develop procedures covering physical access control to ensure privacy of communications, maintenance of the security of the Company communication equipment, and safeguard Company assets from theft, misuse and destruction. You are personally responsible for complying with the level of access control that has been implemented in the facility where you work on a permanent or temporary basis. You must not defeat or cause to be defeated the purpose for which the access control was implemented.
(iii) COMPANY FUNDS. Every Company employee is personally responsible for all Company funds over which he or she exercises control. Company agents and contractors should not be allowed to exercise control over Company funds. Company funds must be used only for Company business purposes. Every Company employee, agent and contractor must take reasonable steps to ensure that the Company receives good value for Company funds spent, and must maintain accurate and timely records of each and every expenditure. Expense reports must be accurate and submitted in a timely manner. Covered Persons must not use Company funds for any personal purpose.
(iv) COMPUTERS AND OTHER EQUIPMENT. The Company strives to furnish employees with the equipment necessary to efficiently and effectively do their jobs. You must care for that equipment and use it responsibly only for Company business purposes. If you use
Company equipment at your home or off site, take precautions to protect it from theft or damage, just as if it were your own. If the Company no longer employs you, you must immediately return all Company equipment. While computers and other electronic devices are made accessible to employees to assist them to perform their jobs and to promote Company's interests, all such computers and electronic devices, whether used entirely or partially on the Company's premises or with the aid of the Company's equipment or resources, must remain fully accessible to the Company and, to the maximum extent permitted by law, will remain the sole and exclusive property of the Company.
Covered Persons should not maintain any expectation of privacy with respect to information transmitted over, received by, or stored in any electronic communications device owned, leased, or operated in whole or in part by or on behalf of the Company. To the extent permitted by applicable law, the Company retains the right to gain access to any information received by, transmitted by, or stored in any such electronic communications device, by and through its employees, agents, contractors, or representatives, at any time, either with or without an employee's or third party's knowledge, consent or approval.
(v) SOFTWARE. All software used by employees to conduct Company business must be appropriately licensed. Never make or use illegal or unauthorized copies of any software, whether in the office, at home, or on the road, since doing so may constitute copyright infringement and may expose you and the Company to potential civil and criminal liability. In addition, use of illegal or unauthorized copies of software may subject the employee to disciplinary action, up to and including termination. The Company's IT staff will inspect Company computers periodically to verify that only approved and licensed software has been installed. Any non-licensed/supported software will be removed.
(vi) ELECTRONIC USAGE. The purpose of this policy is to make certain that employees utilize electronic communication devices in a legal, ethical, and appropriate manner. This policy addresses the Company's responsibilities and concerns regarding the fair and proper use of all electronic communications devices within the organization, including computers, e-mail, connections to the Internet, intranet and extranet and any other public or private networks, voice mail, video conferencing, facsimiles, and telephones. Posting or discussing information concerning the Company's products or business on the Internet without the prior written consent of the Chief Compliance Officer is prohibited. Any other form of electronic communication used by employees currently or in the future is also intended to be encompassed under this policy. It is not possible to identify every standard and rule applicable to the use of electronic communications devices. Employees are therefore encouraged to use sound judgment whenever using any feature of our communications systems.
H. FAIR AND TIMELY DISCLOSURE IN PUBLIC REPORTING AND COMMUNICATIONS
The Company's principal executive officer, principal financial officer, principal accounting officer or controller, and any other officer involved in the preparation of the Company's financial statements, public reports or communications (collectively, the "Senior Financial Officers"), are responsible for ensuring that such financial statements, public reports or communications contain disclosure that is full, fair, accurate, timely and understandable. In that
regard, the Senior Financial Officers are responsible for establishing and maintaining effective disclosure controls and procedures and internal controls and procedures for financial reporting.
I. MAINTAINING AND MANAGING RECORDS
The purpose of this policy is to set forth and convey the Company's business and legal requirements in managing records, including all recorded information regardless of medium or characteristics. Records include paper documents, CDs, computer hard disks, email, floppy disks, microfiche, microfilm or all other media. The Company is required by local, state, federal, foreign and other applicable laws, rules and regulations to retain certain records and to follow specific guidelines in managing its records. Civil and criminal penalties for failure to comply with such guidelines can be severe for the Covered Person, and failure to comply with such guidelines may subject the Covered Person to disciplinary action, up to and including termination of employment or business relationship at the Company's sole discretion.
J. PAYMENT PRACTICES
(i) ACCOUNTING PRACTICES. The Company's responsibilities to its stockholders and the investing public require that all transactions be fully and accurately recorded in the Company's books and records in compliance with all applicable laws. False or misleading entries, unrecorded funds or assets, or payments without appropriate supporting documentation and approval are strictly prohibited and violate Company policy and the law. Additionally, all documentation supporting a transaction should fully and accurately describe the nature of the transaction and be processed in a timely fashion.
(ii) POLITICAL CONTRIBUTIONS. The Company reserves the right to communicate its position on important issues to elected representatives and other government officials. It is the Company's policy to comply fully with all applicable laws, rules and regulations regarding political contributions. The Company's funds or assets must not be used for, or be contributed to, political campaigns or political practices under any circumstances without the prior written approval of the Company's Chief Compliance Officer and, if required, the Board of Directors.
(iii) PROHIBITION OF INDUCEMENTS. Under no circumstances may any Covered Person offer to pay, make payment, promise to pay, or issue authorization to pay any money, gift, or anything of value to customers, vendors, consultants, etc. that is perceived as intended, directly or indirectly, to improperly influence any business decision, any act or failure to act, any commitment of fraud, or opportunity for the commission of any fraud. Inexpensive gifts, infrequent business meals, celebratory events and entertainment, provided that they are not excessive or create an appearance of impropriety, do not violate this policy. Questions regarding whether a particular payment or gift violates this policy should be directed to the Chief Compliance Officer.
K. FOREIGN CORRUPT PRACTICES ACT
The Company requires full compliance with the U.S. Foreign Corrupt Practices Act ("FCPA") by all Covered Persons.
The anti-bribery and corrupt payment provisions of the FCPA make illegal any corrupt offer, payment, promise to pay, or authorization to pay any money, gift, or anything of value to any foreign official, or any foreign political party, candidate or official, for the purpose of: influencing any act or failure to act, in the official capacity of that foreign official or party; or inducing the foreign official or party to use influence to affect a decision of a foreign government or agency, in order to obtain or retain business for anyone, or direct business to anyone.
Therefore, all Covered Persons whether located in the United States or abroad, are responsible for FCPA compliance and the procedures to ensure FCPA compliance. All managers and supervisory personnel are expected to monitor continued compliance with the FCPA to ensure compliance with the highest moral, ethical and professional standards of the Company. FCPA compliance includes the Company's policy on Maintaining and Managing Records in Section III.I of this Code of Business Conduct and Ethics.
Laws in most countries outside of the United States also prohibit or restrict government officials or employees of government agencies from receiving payments, entertainment, or gifts for the purpose of winning or keeping business. No contract or agreement may be made with any business in which a government official or employee holds a significant interest, without the prior approval of the Chief Compliance Officer.
IV. RESPONSIBILITIES TO OUR CUSTOMERS
A. CUSTOMER RELATIONSHIPS
If your job puts you in contact with any Company customers or potential customers, it is critical for you to remember that you represent the Company to the people with whom you are dealing. Act in a manner that creates value for our customers and helps to build a relationship based upon trust. The Company and its employees have provided products and services for many years and have built up significant goodwill over that time. This goodwill is one of our most important assets, and the Covered Persons must act to preserve and enhance our reputation.
B. PAYMENTS OR GIFTS FROM OTHERS
Under no circumstances may Covered Persons accept any offer, payment, promise to pay, or authorization to pay any money, gift, or anything of value from customers, vendors, consultants, etc. that is perceived as intended, directly or indirectly, to influence any business decision, any act or failure to act, any commitment of fraud, or opportunity for the commission of any fraud. Inexpensive gifts, infrequent business meals, celebratory events and entertainment, provided that they are not excessive or create an appearance of impropriety, do not violate this policy. Questions regarding whether a particular payment or gift violates this policy are to be directed to the Chief Compliance Officer.
Gifts given by the Company to suppliers or customers or received from suppliers or customers should always be appropriate to the circumstances and should never be of a kind that could create an appearance of impropriety. The nature and cost must always be accurately recorded in the Company's books and records.
C. GOVERNMENT RELATIONS
It is the Company's policy to comply fully with all applicable laws and regulations governing contact and dealings with government employees and public officials, and to adhere to high ethical, moral and legal standards of business conduct. This policy includes strict compliance with all local, state, federal, foreign and other applicable laws, rules and regulations. If you have any questions concerning government relations you should contact the Chief Compliance Officer.
V. REPORTING AND ACCOUNTABILITY
Ethical business conduct is critical to our business. As a Covered Person, your responsibility is to respect and adhere to these practices. Many of these practices reflect legal or regulatory requirements. Violations of these laws and regulations can create significant liability for you, the Company, its directors, officers, and other employees.
As a Covered Person, you must:
- annually affirm to the Board of Directors that you have complied with the requirements of this Code of Business Conduct and Ethics;
- not retaliate against any employee or Covered Person or their affiliated persons for reports of potential violations that are made in good faith;
- notify the Chief Compliance Officer of the Company promptly if you know of any violation of this Code of Business Conduct and Ethics. Failure to do so is itself a violation of this Code of Business Conduct and Ethics; and
- report at least annually any change in your affiliations from the prior year.
The Chief Compliance Officer is responsible for applying this Code of Business Conduct and Ethics to specific situations in which questions are presented under it and has the authority to interpret this Code of Business Conduct and Ethics in any particular situation. However, notwithstanding the foregoing, the Board of Directors is responsible for granting waivers and determining sanctions, as appropriate, and any approvals, interpretations or waivers sought by the Company's principal executive officers or directors will be considered by the Board of Directors as provided below.
The Company will follow these procedures in investigating and enforcing this Code of Business Conduct and Ethics:
- the Chief Compliance Officer will take any action he considers appropriate to investigate any actual or potential violations reported to him;
- if, after such investigation, the Chief Compliance Officer believes that no violation has occurred, the Chief Compliance Officer shall meet with the person reporting the violation for the purposes of informing such person of the reason for not taking action;
- any matter that the Chief Compliance Officer believes is a violation will be reported to the Board of Directors;
- if the Board of Directors concurs that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; a recommendation to dismiss the Covered Person; or dismissal of the Covered Person as an officer of the Company;
- the Board of Directors will be responsible for granting waivers, as appropriate; and
- any changes to or waivers of this Code of Business Conduct and Ethics will, to the extent required, be disclosed as provided by SEC rules.
The Board of Directors, in determining whether waivers should be granted and whether violations have occurred, and the Chief Compliance Officer, in rendering decisions and interpretations and in conducting investigations of potential violations under this Code of Business Conduct and Ethics, may, at their discretion, consult with such other persons as they may determine to be appropriate, including, but not limited to, adviser or its subadviser of the Company, counsel to the Company, independent auditors or other consultants, subject to any requirement to seek pre-approval from the Company's Audit Committee for the retention of independent auditors to perform permissible non-audit services.
VI. DISCLOSURE OF WAIVERS
Any waiver of any provision of this Code of Business Conduct and Ethics for a member of the Company's Board of Directors or an executive officer must be approved in writing by the Company's Board of Directors and any such waiver, including the reasons for such waiver, must be promptly disclosed publicly to stockholders, as required by law. Any waiver of any provision of this Code of Business Conduct and Ethics with respect to any other employee, agent or contractor must be approved in writing by the Chief Compliance Officer.
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VII. ACKNOWLEDGMENT OF RECEIPT OF CODE OF BUSINESS CONDUCT AND ETHICS
I have received and read the Company's Code of Business Conduct and Ethics. I understand the standards and policies contained in the Company's Code of Business Conduct and Ethics and understand that there maybe additional policies or laws specific to my job. I further agree to comply with the Company's Code of Business Conduct and Ethics.
If I have questions concerning the meaning or application of the Company's Code of Business Conduct and Ethics, any Company policies, or the legal and regulatory requirements applicable to my job, I know I should consult my manager or the Chief Compliance Officer, knowing that my questions or reports to these sources will be maintained in confidence.
Please sign and return this form to the Chief Compliance Officer
EXHIBIT 10.7
TECHNICAL AND CONSULTING SERVICE AGREEMENT
by and between
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
and
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING)
COMPANY LIMITED
MAY 3, 2004
ARTICLE 1 COOPERATION..................................................................... 4 ARTICLE 2 TECHNICAL AND CONSULTING SERVICES OF PARTY B.................................... 4 ARTICLE 3 SERVICE FEES.................................................................... 5 ARTICLE 4 COPYRIGHT OWNERSHIP............................................................. 5 ARTICLE 5 TERM AND TERMINATION............................................................ 5 ARTICLE 6 LIABILITY FOR BREACH OF CONTRACT................................................ 6 ARTICLE 7 WAIVER.......................................................................... 6 ARTICLE 8 NOTICE.......................................................................... 7 ARTICLE 9 GOVERNING LAW AND DISPUTES RESOLUTION........................................... 7 ARTICLE 10 MISCELLANEOUS................................................................... 8 |
TECHNICAL AND CONSULTING SERVICE AGREEMENT
This Technical and Consulting Services Agreement ("AGREEMENT") is made and entered into May 3, 2004 by and between the following parties:
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED, a limited liability company duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Room 753, 710 Changping Road, Shanghai, China ("PARTY A").
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED, a wholly foreign owned enterprise duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Unit D, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing, China ("PARTY B").
(hereinafter referred to as to a "PARTY" individually, and the "PARTIES" collectively)
WHEREAS:
1. Party A is a company engaged in the provision of human resources services,
which is qualified and licensed in Shanghai human resource market to
collect and publish information on demand and availability of human
resource, and provide human resource consulting services, including
Internet human resource services. Party A currently owns and operates a
website specializing the provision of Internet human resource services,
i.e., www.51job.com ("HR WEBSITE");
2. Party B is a company engaged in the development and provision of services in connection with Internet technology with technical expertise and practical experiences related to Internet, having extended experiences and personnel with respect to information technology software for Chinese website, technology of sorting in Chinese and platform design;
3. Party A and Party B intend to explore the respective advantages of both Parties to cooperate with each other to develop Internet human resource services and the relevant professional technical services within the respective business scope of Parties.
NOW THEREFORE, Party A and Party B hereby agree to enter into this Agreement under the following terms and conditions and to perform this Agreement according to such terms and conditions:
ARTICLE 1 COOPERATION
1.1 Party A shall provide human resource services to the customers relying on its human resource qualification and HR Website. Party A hereby agrees to engage Party B and Party B agrees to be engaged by Party A as the exclusive technology provider for Party A in light of Party B's technical expertise and experiences related to the Internet.
1.2 Party A agrees that, during the term of this Agreement, Party A shall not engage any third party as Party A's technology provider without the consent of Party B, excluding Party B's affiliates.
1.3 Party A agrees that Party B shall have the right to provide the same or similar technical services under this Agreement to other world wide web operators and it shall also have the right to delegate other company or individual to perform Party B's obligations to provide technical services under this Agreement.
ARTICLE 2 TECHNICAL AND CONSULTING SERVICES OF PARTY B
2.1 Party B shall be responsible for the development, design, and production of database software to be used to store human resource information, software for the end-user platform, and other relevant technologies, and license the right to use the same to Party B.
2.2 Party B shall be responsible for the system maintenance of the HR Website and the human resource database, including promptly inputting employment information of the customers into the human resource database, or updating the database in a timely manner and updating the user platform based on the recruitment/job-seeking information provided by Party A from time to time, and providing other technical services.
2.3 Party B shall provide Party A with the technical consulting services and technical services for the development of Internet technology of Party A, including without limitation, system design, and installation and calibration of the system, as well as system trial operation.
2.4 Party B shall provide the consulting services to Party A for procurement of relevant equipments, software and hardware system required for the operation of Internet services by Party A, including but not limited to provision of consulting advice on the selection of various software tools, software application, and technical platform, installation and calibration of system and the selection and purchase, model and performance of various
associated hardware facilities.
2.5 Party B shall provide appropriate training and technical support and assistance to the staff of Party A, including but not limited to providing the appropriate training to Party A and its staff (including trainings related to, among other things, customer services, technology); introducing to Party A and its staff knowledge and experience in the installation and operation of the systems and equipment and assisting Party A in solving any problems which may arise at any time in the course of installation and operation of the equipment; and providing Party A with consultations and advice on on-line editing of platforms and application of software and assisting Party A in editing and collecting various information.
2.6 Other technical and consulting services necessary for Party A's businesses and operations.
ARTICLE 3 SERVICE FEES
Party B shall issue the bill to Party A based on workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill. Party A and Party B may otherwise make other arrangement for the payment of service fees based on the actual circumstances.
ARTICLE 4 COPYRIGHT OWNERSHIP
The ownership of the intellectual property rights of Party A and Party B from or in connection with the cooperation shall be determined as follows: Party B owns the copyright for the database software and other relevant software designed by Party B, and the intellectual property rights of and any other rights derived from the results of development and research through the research and development under this Agreement and other agreements entered into by both Parties shall be owned by Party B, including without limitation right to apply for patent, copyright for the software, technical documents and technical information as the carrier, or other intellectual property rights, and the right to license the foresaid intellectual property rights to other parties or to transfer the foresaid intellectual property rights.
ARTICLE 5 TERM AND TERMINATION
5.1 This Agreement shall become effective from the date of execution hereof by the respective authorized representatives of Parties with the company seals of
the Parties affixed hereto, and shall remain effective for ten (10) years.
5.2 During the term of this Agreement, in the event of a breach of this Agreement by Party A, Party B may send a written notice of such breach to Party A. Notwithstanding any contrary provision of applicable laws, this Agreement may be, and may only be, terminated by Party B by written notice if Party A fails to cure such breach within fourteen (14) days of its receipt of Party B's notice of such breach.
5.3 This Agreement may be extended to any term agreed by the Parties in writing.
ARTICLE 6 LIABILITY FOR BREACH OF CONTRACT
6.1 In the event of default by any Party hereto on its obligations provided in this Agreement, the defaulting party shall, upon the receipt of a written notice from the non-defaulting party requesting the correction, immediately refrain from the default, and shall compensate the non-defaulting Party for all losses and damages thus caused to the non-defaulting party within fourteen (14) days of the notice.
6.2 In the event that the Parties hereto are both at fault, then they shall bear the respective liabilities for the breach in accordance with the actual faults committed by parties.
ARTICLE 7 WAIVER
7.1 Except for the obligation of compensation provided herein, no Party shall be liable for any contingent, consequential, special or punitive damages or other damages of the other Party arising from or in connection with this Agreement, whether or not alleged to be the result of contracts or infringement (including negligence or strict liability), or other circumstances, and whether or not the other Party has been informed of the possibilities of such damages to such other Party.
7.2 The rights and obligations under this Agreement shall apply to the respective successors, permitted assigns, executor, and manager of both Parties to the extent possible. Any Party may transfer the services which it shall provide under this Agreement to any of its affiliates or successors, regardless whether such succession is resulted from merger, acquisition, asset purchase or otherwise.
7.3 The invalidity, nullity and unenforceability of any provision hereof shall not
affect or prejudice the validity, effectiveness and enforceability of other provisions hereof. However, the Parties hereto shall cease the performance of such invalid, null and unenforceable provision and shall amend such provision only to the extent that it will be valid, effective and enforceable with respect to such specific facts and situations in a manner that most closely reflect the original intention of such provision.
7.4 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one Party in connection with the other Party's default or delay shall not be deemed as a waiver by such Party of its rights and shall not prejudice, affect or restrict any of the rights which such Party shall be entitled to under this Agreement and relevant PRC laws and regulations.
ARTICLE 8 NOTICE
Any notice hereunder shall be delivered by personal delivery or via facsimile or by registered airmail to the following addresses and numbers or to any other addresses and numbers which have been notified in writing by one Party to the other Party. Notices sent by registered airmail shall be deemed to be effectively served on the fifth day after the date of dispatch. Notices delivered by personal delivery or via facsimile shall be deemed to be effectively served on the next day after the delivery or transmission. If transmitted via facsimile, the original copy of the notices shall be sent by registered airmail or by personal delivery to the other Party immediately after the transmission.
PARTY A: Shanghai Run An Lian Information Consultancy Company Limited Address: Room 753, 710 Changping Road, Shanghai, China Attention: Mr. FENG Lei PARTY B: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited. Address: Unit D, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing Attention: Mr. WANG Tao |
ARTICLE 9 DISPUTES RESOLUTION AND GOVERNING LAW
9.1 The execution, effectiveness, performance and interpretation of this Agreement shall be governed by the laws of the People's Republic of China.
9.2 Any disputes arising from or in connection with the execution, performance, interpretation and dispute settlement of this Agreement shall be settled by both Parties through friendly consultations. If the Parties fail to settle the disputes through friendly consultations, either Party may submit the dispute to China International Economy and Trade Arbitration Commission (hereinafter referred to as "CIETAC") for arbitration in Beijing in accordance with the then applicable arbitration rules of CIETAC.
9.3 During the arbitration, the Parties shall continue to perform their obligations under this Agreement not subject to the arbitration.
9.4 The arbitral award shall be final and binding upon the Parties.
ARTICLE 10 MISCELLANEOUS
10.1 This Agreement may not be revised, modified, supplemented or dissolved unless by written agreements between the Parties signed by the authorized representatives. 10.2 Appendixes attached to this Agreement shall be an integral part of this Agreement. The Parties may, from time to time, revise, add to and adjust the Appendixes hereto during the term of this Agreement. 10.3 This Agreement is written in Chinese in two counterparts, with each Party holding one counterpart. |
(No Body Text on this Page)
PARTY A: SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
PARTY B: QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
AMENDMENT TO TECHNICAL AND CONSULTING SERVICE AGREEMENT
Shanghai Run An Lian Information Consultancy Company Limited ("Party A") and Qian Cheng Wu You Network Information Technology (Beijing) Company Limited ("Party B") made and entered into the Technical and Consulting Service Agreement ("Technical Service Agreement") on May 3, 2004. Party A and Party B hereto agree to enter this agreement as an amendment to the Technical Service Agreement ("Amendment Agreement") as of July 2, 2004, as follows:
1. Article 3.1 of the Technical Service Agreement provided that "Party B shall issue the bill to Party A based on workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill. Party A and Party B may otherwise make other arrangement for the payment of service fees based on the actual circumstances."
The Parties hereby agree that the above provision should be amended as:
"Party B shall issue the bill to Party A based on workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill."
2. Other provisions under the Technical Service Agreement shall remain effective.
3. This Amendment Agreement is a part of the Technical Service Agreement and shall have the same legal effect.
4. This Amendment Agreement becomes effective upon the day of execution by the respective authorized representative of Party A and Party B.
Party A: Shanghai Run An Lian Information Consultancy Company Limited
By: _____________________
Name:
Title:
Party B: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited.
By: _____________________
Name:
Title:
EXHIBIT 10.8
TECHNICAL AND CONSULTING SERVICE AGREEMENT
by and between
BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED
and
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING)
COMPANY LIMITED
MAY 3, 2004
ARTICLE 1 COOPERATION..................................................................... 3 ARTICLE 2 TECHNICAL AND CONSULTING SERVICES OF PARTY B.................................... 4 ARTICLE 3 SERVICE FEES.................................................................... 4 ARTICLE 4 COPYRIGHT OWNERSHIP............................................................. 4 ARTICLE 5 TERM AND TERMINATION............................................................ 5 ARTICLE 6 LIABILITY FOR BREACH OF CONTRACT................................................ 5 ARTICLE 7 WAIVER.......................................................................... 5 ARTICLE 8 NOTICE.......................................................................... 6 ARTICLE 9 GOVERNING LAW AND DISPUTES RESOLUTION........................................... 7 ARTICLE 10 MISCELLANEOUS................................................................... 7 |
TECHNICAL AND CONSULTING SERVICE AGREEMENT
This Technical and Consulting Service Agreement ("AGREEMENT") is made and entered into on May 3, 2004 by and between the following parties:
BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED, a limited liability company duly organized and validly existing under the laws of the People's Republic of China, with its registered address at the premises of the Government of Yujiawu Hui Nationality Township, Tongzhou District, Beijing, China ("PARTY A").
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED, a wholly foreign owned enterprise duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Unit D, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing, China ("PARTY B").
(hereinafter referred to as a "PARTY" individually, and the "PARTIES" collectively)
WHEREAS:
1. Party A is a company specializing in the advertising business, which has extended experience and strength in the areas of design, production, and publishing of advertisements, and acting as agent for domestic and foreign companies in advertising;
2. Party B is a company specializing in the technical services, which has technical expertise and experiences in the design and development of software, and also has extended experience and personnel with respect to information technology;
3. Party A and Party B intend to explore the respective advantages of both Parties to fully utilize platform media, and hereby agree to cooperate with each other to develop advertising services and the relevant technical services.
NOW THEREFORE, Party A and Party B hereby agree to enter into this Agreement under the following terms and conditions and to perform this Agreement according to such terms and conditions:
ARTICLE 1 COOPERATION
1.1 Whereas Party B has technical expertise and experiences in the software and information technology, Party A hereby agrees to engage Party B and Party B agrees to be engaged by Party A as the exclusive technology provider for Party A.
1.2 Party A agrees that, during the term of this Agreement, Party A shall not
engage any third party as Party A's technology provider without the consent of Party B, excluding Party B's affiliates.
1.3 Party A agrees that Party B shall have the right to provide other advertising companies the same or similar technical services under this Agreement and it shall also have the right to delegate other company or individual to perform Party B's obligations to provide technical services under this Agreement.
ARTICLE 2 TECHNICAL AND CONSULTING SERVICES OF PARTY B
2.1 Party B shall be responsible for providing Party A with the entire or partial design scheme of the advertisement project, software design and production in connection with graphics and web page, and other relevant technical services (including installation and testing of the software), and technical consulting services, and for updating periodically the foresaid design and production.
2.2 Upon the request of Party A, Party B shall be responsible to develop, design and produce the design software and technology for Party A required in the advertising business, and Party B shall license Party A the right to use such software and technology.
2.3 Party B shall provide appropriate training and technical support and assistance to the staff of Party A, including but not limited to providing the appropriate training to Party A and its staff (including trainings related to, among other things, customer services and technology).
2.4 Other technical and consulting services necessary for Party A's businesses.
ARTICLE 3 SERVICE FEES
Party B shall issue the bill to Party A based on the workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill. Party A and Party B may otherwise make other arrangement for the payment of service fees based on the actual circumstances.
ARTICLE 4 COPYRIGHT OWNERSHIP
The ownership of the intellectual property rights of Party A and Party B from or in connection with the cooperation shall be determined as follows: Party B owns the
copyright for the software and other relevant software designed by Party B, and the intellectual property rights of and any other rights derived from the results of development and research through the research and development under this Agreement and other agreements entered into by both Parties shall be owned by Party B, including without limitation the right to apply for patent, copyright for the software, technical documents and technical information as the carrier or other intellectual property rights, and the right to license the foresaid intellectual property rights to other parties or to transfer the foresaid intellectual property rights.
ARTICLE 5 TERM AND TERMINATION
5.1 This Agreement shall become effective from the date of execution hereof by
the respective authorized representatives of Parties with the company
seals of the Parties affixed hereto, and shall remain effective for ten
(10) years.
5.2 During the term of this Agreement, in the event of a breach of this Agreement by Party A, Party B may send a written notice of such breach to Party A. Notwithstanding any contrary provision of applicable laws, this Agreement may be, and may only be, terminated by Party B by written notice if Party A fails to cure such breach within fourteen (14) days of its receipt of Party B's notice of such breach.
5.3 This Agreement may be extended to any term agreed by the Parties in writing.
ARTICLE 6 LIABILITY FOR BREACH OF CONTRACT
6.1 In the event of default by any Party hereto on its obligations provided in this Agreement, the defaulting party shall, upon the receipt of a written notice from the non-defaulting party requesting the correction, immediately refrain from such default, and shall compensate the non-defaulting Party for all losses and damages thus caused to the non-defaulting party within fourteen (14) days of the notice.
6.2 In the event that the Parties hereto are both at fault, then they shall bear the respective liabilities for the breach in accordance with the actual faults committed by parties.
ARTICLE 7 WAIVER
7.1 Except for the obligation of compensation provided herein, no Party shall be
liable for any contingent, consequential, special or punitive damages or other damages of the other Party arising from or in connection with this Agreement, whether or not alleged to be the result of contracts or infringement (including negligence or strict liability), or other circumstances, and whether or not the other Party has been informed of the possibilities of such damages to such other Party.
7.2 The rights and obligations under this Agreement shall apply to the respective successors, permitted assigns, executor, and manager of both Parties to the extent possible. Any Party may transfer the services which it shall provide under this Agreement to any of its affiliates or successors, regardless whether such succession is obtained from merger, acquisition, asset purchase or otherwise.
7.3 The invalidity, nullity and unenforceability of any provision hereof shall not affect or prejudice the validity, effectiveness and enforceability of other provisions hereof. However, the Parties hereto shall cease the performance of such invalid, null and unenforceable provision and shall amend such provision only to the extent that it will be valid, effective and enforceable with respect to such specific facts and situations in a manner that most closely reflect the original intentions of such provision.
7.4 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one Party in connection with the other Party's default or delay shall not be deemed as a waiver by such Party of its rights and shall not prejudice, affect or restrict any of the rights which such Party shall be entitled to under this Agreement and relevant PRC laws and regulations.
ARTICLE 8 NOTICE
Any notice hereunder shall be delivered by personal delivery or via facsimile or by registered airmail to the following addresses and numbers or to any other addresses and numbers which have been notified in writing by one Party to the other Party. Notices sent by registered airmail shall be deemed to be effectively served on the fifth day after the date of dispatch. Notices delivered by hand or sent via facsimile shall be deemed to be effectively served on the next day after the delivery or transmission. If transmitted via facsimile, the original copy of the notices shall be sent by registered airmail or by personal delivery to the other Party immediately after the transmission.
PARTY A: Beijing Qian Cheng Si Jin Advertising Company Limited Address: Premises of the Government of Yujiawu Hui Nationality Township, Tongzhou District, Beijing Attention: Mr. FENG Lei 6 |
PARTY B: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited Address: Unit D, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing Attention: Mr. WANG Tao |
ARTICLE 9 DISPUTES RESOLUTION AND GOVERNING LAW
9.1 The execution, effectiveness, performance and interpretation of this Agreement shall be governed by the laws of the People's Republic of China.
9.2 Any disputes arising from or in connection with the execution, performance, interpretation and dispute settlement of this Agreement shall be settled by both Parties through friendly consultations. If Parties fail to settle the disputes through friendly consultations, either Party may submit the dispute to China International Economy and Trade Arbitration Commission (hereinafter referred to as "CIETAC") for arbitration in Beijing in accordance with the then applicable arbitration rules of CIETAC.
9.3 During the arbitration, the Parties shall continue to perform their obligations under this Agreement not subject to the arbitration.
9.4 The arbitral award shall be final and binding upon the Parties
ARTICLE 10 MISCELLANEOUS
10.1 This Agreement may not be revised , modified, supplemented or dissolved unless by written agreements between the Parties signed by the authorized representatives. 10.2 Appendixes attached to this Agreement shall be an integral part of this Agreement. The Parties may, from time to time, revised, add to and adjust the Appendixes hereto during the term of this Agreement. 10.3 This Agreement is written in Chinese in two counterparts, with each Party holding one counterpart. |
(No Body Text on this Page)
PARTY A: BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
PARTY B: QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
AMENDMENT TO TECHNICAL AND CONSULTING SERVICE AGREEMENT
Beijing Qian Cheng Si Jin Advertising Company Limited ("Party A") and Qian Cheng Wu You Network Information Technology (Beijing) Company Limited ("Party B") made and entered into the Technical and Consulting Service Agreement ("Technical Service Agreement") on May 3, 2004. Party A and Party B hereto agree to enter this agreement as an amendment to the Technical Service Agreement ("Amendment Agreement") as of July 2, 2004, as follows:
1. Article 3.1 of the Technical Service Agreement provided that "Party B shall issue the bill to Party A based on workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill. Party A and Party B may otherwise make other arrangement for the payment of service fees based on the actual circumstances."
The Parties hereby agree that the above provision should be amended as:
"Party B shall issue the bill to Party A based on workload for the technical services to Party A in accordance with the price agreed by both Parties. Party A shall pay relevant service fees to Party B in accordance with the date and amounts as set out on the bill."
2. Other provisions under the Technical Service Agreement shall remain effective.
3. This Amendment Agreement is a part of the Technical Service Agreement and shall have the same legal effect.
4. This Amendment Agreement becomes effective upon the day of execution by the respective authorized representative of Party A and Party B.
Party A: Beijing Qian Cheng Si Jin Advertising Company Limited
By: _____________________
Name:
Title:
Party B: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited.
By: _____________________
Name:
Title:
EXHIBIT 10.9
EQUITY PLEDGE AGREEMENT
between
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING)
COMPANY LIMITED
and
FENG LEI AND WANG TAO
May 3, 2004
ARTICLE 1 CREATION OF PLEDGE ON THE PLEDGED EQUITIES.......................................... 3 ARTICLE 2 COVERAGE OF SECURITY................................................................ 4 ARTICLE 3 PLEDGED EQUITIES.................................................................... 4 ARTICLE 4 REPRESENTATIONS AND WARRANTIES BY PARTY B........................................... 4 ARTICLE 5 SPECIAL AGREEMENTS.................................................................. 6 ARTICLE 6 DISPOSAL OF THE PLEDGED EQUITIES.................................................... 8 ARTICLE 7 REGISTRATIONS....................................................................... 9 ARTICLE 8 TERM AND TERMINATION OF PLEDGE...................................................... 9 ARTICLE 9 TAXES AND FEES...................................................................... 9 ARTICLE 10 LIABILITIES FOR BREACH OF CONTRACT.................................................. 9 ARTICLE 11 FORCE MAJEURE....................................................................... 10 ARTICLE 12 NOTICE.............................................................................. 10 ARTICLE 13 DISPUTES RESOLUTIONS................................................................ 11 ARTICLE 14 MODIFICATIONS AND AMENDMENTS........................................................ 11 ARTICLE 15 SEVERABILITY........................................................................ 11 ARTICLE 16 JOINT AND SEVERABLE LIABILITY....................................................... 11 ARTICLE 17 APPENDIX............................................................................ 11 ARTICLE 18 MISCELLANEOUS....................................................................... 12 APPENDIX I PARTICULARS......................................................................... 13 APPENDIX II SHAREHOLDERS MEETING RESOLUTION..................................................... 14 APPENDIX III SHAREHOLDERS LIST FOR SHANGHAI RUN AN LIAN INFORMATION CONSULTING COMPANY LIMITED... 15 |
EQUITY PLEDGE AGREEMENT
This EQUITY PLEDGE AGREEMENT (hereinafter referred to as "AGREEMENT") is made and entered into on the 3rd day of May, 2004 by and between the following parties:
PLEDGEE: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited, a wholly foreign owned enterprise duly established and validly existing under the laws of the People's Republic of China, with its registered address at Unit D, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing ("PARTY A"); and
PLEDGOR: Mr. FENG LEI ("MICHAEL FENG")and Mr. WANG TAO ( FENG Lei and WANG Tao
hereinafter referred to as "PARTY B" collectively)
WHEREAS:
1. Party B are shareholders of Shanghai Run An Lian Information Consultancy Company Limited ("RUN AN LIAN"), in where FENG Lei holds 80% equity interest and WANG Tao holds 20% equity interest;
2. According to the Technical and Consulting Service Agreement entered into by and between Party A and Run An Lian on May 3, 2004 (hereinafter referred to as the "MASTER AGREEMENT"), Run An Lian shall engage Party A as its exclusive technology provider, and shall pay the relevant service fee to Party A. The term for the Master Agreement is ten (10) years;
3. In order to secure the performance of the obligations of Run An Lian under the Master Agreement, Party B will pledge to Party A all the equity interest it holds in Run An Lian, and Party A agrees to accept such pledge.
NOW THEREFORE, with respect to the aforesaid pledge of equity, the Parties to this Agreement hereby mutually agree through consultations as follows:
ARTICLE 1 CREATION OF PLEDGE ON THE PLEDGED EQUITIES
As a security for Run An Lian to perform all of its obligations under the Master Agreement, Party B agrees to pledge to Party A 100% of the equity of Run An Lian held by Party B ("PLEDGED EQUITIES"), and Party A agrees to accept from Party B such pledge.
ARTICLE 2 COVERAGE OF SECURITY
The pledge provided by Party B as a security shall cover the obligations under the Master Agreement, penalties, compensations, the expenses for exercise of the right of pledge, and all other payments payable.
ARTICLE 3 PLEDGED EQUITIES
Particulars for Party B, Run An Lian and the Pledged Equities are set out in Appendix I hereto.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
4.1 Party A represents and warrants that:
4.1.1 Party A is a company incorporated and registered and duly existing under the PRC laws; 4.1.2 Party A has the power and authorization to execute and perform this Agreement. The execution and performance by Party A of this Agreement are in compliance with the business scope, and the articles of association or other incorporation documents of Party A. Party A has obtained all necessary and appropriate approvals and authorizations to execute and perform this Agreement; 4.1.3 The execution and performance by Party A of this Agreement are not against any law or regulation, or any government approval, authorization, notice or other government document, which is binding upon or affects Party A, nor are such execution and performance against any agreement concluded by Party A and any third party, or any covenant made by Party A to any third party; and 4.1.4 Upon the execution of this Agreement, this Agreement shall constitute valid obligations of Party A which are enforceable against Party A. |
4.2 Party B represents and warrants that:
4.2.1 Run An Lian is a limited liability company organized and registered and duly existing under the PRC laws, and has the authorization to provide human resources service and Internet content service; 4 |
4.2.2 Party B has the power and authorization to execute and perform this Agreement, and Party B has obtained all necessary and appropriate approvals and authorizations to execute and perform this Agreement; 4.2.3 Party B has obtained a resolution required for the execution of this Agreement from the shareholders meeting of Run An Lian , which resolution is attached hereto as Appendix II; 4.2.4 The execution and performance by Party B of this Agreement are not against any law or regulation, or any government approval, authorization, notice or other government document, which is binding upon or affects Party B, nor are such execution and performance against any agreement concluded by Party B and any third party, or any covenant made by Party B to any third party; 4.2.5 Upon the execution of this Agreement, this Agreement shall constitute valid obligations of Party B enforceable against Party B; 4.2.6 Party B has fully paid up all required capital contributions according to the law in connection with the Pledged Equities and has obtained the capital verification report issued by a qualified accounting firm regarding the capital contributions; 4.2.7 As of the execution date of this Agreement, no currently valid mortgage, pledge or any other security arrangements has been created on the Pledged Equities; 4.2.8 As of the execution date of this Agreement, there is no offer made by Party B to any third party to transfer the Pledged Equities hereunder, nor is there any covenant made by Party B with respect to any offer made by any third party to purchase the Pledged Equities hereunder; 4.2.9 As of the execution date of this Agreement, there is no agreement entered into by and between Party B and any third party to transfer the Pledged Equities hereunder. 4.2.10 As of the execution date of this Agreement, there is no dispute, litigation, arbitration, administrative procedures or any other legal procedures in connection with Party B, Run An Lian and/or the Pledged Equities, nor is there any potential dispute, litigation, arbitration, administrative procedures or any other legal procedures in connection with Party B, Run An Lian and/or the Pledged Equities. |
ARTICLE 5 SPECIAL AGREEMENTS
5.1 From the date of this Agreement to the date when Run An Lian fully performs its obligations under the Master Agreement (hereinafter referred to as "PLEDGE TERMINATION DATE"), Party B shall not conduct any of the following without the prior written consent of Party A:
5.1.1 create any mortgage, pledge or other security arrangement on the Pledged Equities; 5.1.2 take any actions which may hamper Party A's rights against the Pledged Equities or any of Party A's rights under this Agreement; 5.1.3 Party B shall not transfer the Pledged Equities or otherwise dispose of any rights in the Pledged Equities without the written consent of Party A; or 5.1.4 Party B undertakes that, without the prior written consent of Party A, Party B shall not take any actions or omissions that may materially affect the assets, business or liabilities of Run An Lian. |
5.2 To avoid any depreciation of the Pledged Equities due to the operation of Run An Lian, before Party B decides on any of the following matters, a prior written consent shall be obtained from Party A:
5.2.1 profit distributions; 5.2.2 increase or decrease of the registered capital; 5.2.3 issuance of bonds; 5.2.4 merge, split up or any change in the form of the entity; 5.2.5 dissolution and liquidation; 5.2.6 any change of the business scope; 5.2.7 amendment of the articles of association; 5.2.8 borrowing from any third party or assumption of any indebtedness to any third party in the name of Run An Lian; and 5.2.9 appointment of the member of the board of Run An Lian. |
Party B further agrees that Party A shall recommend the candidates of the general manager and other senior executives of Run An Lian and Party B shall cause the board of directors to appoint the general manager and other senior executives only from those candidates recommended by Party A.
5.3 Party B hereby irrevocably grants Party A and/or the company or individual designated by Party A the option to purchase Party B's equity interest in Run An Lian ("OPTION") as follows:
5.3.1 To the extend permitted under PRC laws, Party A and/or the company or individual designated by Party A shall exercise the Option, in whole or in part, at any time during the term of this Agreement to acquire from Party B and hold the equity interest of Run An Lian. Upon the full exercise of the Option, Party A and/or the company or individual designated by Party A will acquire from Party B and hold 100% of the equity . In the event that the then applicable PRC laws prohibit Party A and/or the company or individual designated by Party A from fully exercising the Option, Party A and/or the company or individual designated by Party A shall exercise the Option to the fullest extent permitted by the applicable law. The Option price shall be the lowest price permitted under the applicable laws. 5.3.2 Upon the exercise of the Option by Party A and/or the company or individual designated by Party A, Party B is obligated to transfer the relevant equity to Party A and/or the company or individual designated by Party A. 5.3.3 Party B hereof agrees that, without the written consent of Party A, it will not grant a third party the same or similar option. 5.3.4 Party A and/or the company or individual designated by Party A shall exercise the Option in a manner permitted by law at any time after the date of this Agreement. To the extent permitted under PRC laws, Party A and/or the company or individual designated by Party A may exercise the Option, in whole or in part, and at one time or otherwise purchase the equity that it has the right to purchase under this Agreement. 5.3.5 When Party A and/or the company or individual designated by Party A exercises the Option, it shall issue Party B an Option Notice with respect to the exercise of such Option. Once the Option Notice is issued, Party B shall promptly perform its obligation to transfer such equity to Party A and/or the company or individual designated by Party A. 7 |
5.3.6 Party B shall, within 60 days following the issuance of the Option Notice by Party A and/or the company or individual designated by Party A to Party B, complete all procedures and formalities necessary for Party A and/or the company or individual designated by Party A to acquire the relevant equity and become the legal holder of such equity . |
ARTICLE 6 DISPOSAL OF THE PLEDGED EQUITIES
6.1 In case of occurrence of any one or several of the following events during the term of the pledge hereunder, Party A shall have the right to dispose of the Pledged Equities under this Agreement in accordance with the law and this Agreement:
6.1.1 Run An Lian is in default under the Master Agreement; 6.1.2 Run An Lian breaches any provisions contained herein, 6.1.3 Pledgor breaches any representation, warranty or covenant it makes under Article 4 and Article 5 hereof; 6.1.4 Run An Lian suspends its operations or is dissolved, or is ordered to suspend its operations or to dissolve, or is declared insolvent; 6.1.5 Run An Lian is involved in any dispute, litigation, arbitration, administrative procedures or any other legal procedures which, in the opinion of Party A, are capable of affecting the performance of the Master Agreement and/or this Agreement; or 6.1.6 other occurrences stipulated by relevant laws and regulations. |
6.2 Upon the occurrence of any one or several of the above events, and subject to the relevant laws and regulations, Party A shall have the right to dispose of the Pledged Equities in any one or several of the following manners:
6.2.1 convert the Pledged Equities into value; 6.2.2 auction or sale of the Pledged Equities; 6.2.3 in other manners permitted by the relevant laws and regulations. |
6.3 The proceeds received by Party A by disposing of the Pledged Equities hereunder according to the foregoing provisions shall be used in the following priority:
6.3.1 to pay for all necessary taxes and fees incurred due to the disposal of the Pledged Equities; 8 |
6.3.2 to pay for amounts payable by Run An Lian to Party A under the Master Agreement within the coverage set forth in Article 2 hereof, and amounts payable to Party A due to breach of this Agreement by Party B; and 6.3.3 the remaining proceeds after all the above payments have been made shall be refunded to Party B. |
6.4 At the time of the disposal of the Pledged Equities by Party A and upon request of Party A, Party B shall provide all relevant documents requested by Party A and Party A's agents, complete and assist Party A in completing the procedures for all approvals of and registration with the government authority in connection with the disposal of the Pledged Equities.
ARTICLE 7 REGISTRATIONS
At the same time of the execution of this Agreement, the Pledged Equities under this Agreement shall be recorded on the shareholders list of the Run An Lian as set out in Appendix III hereto.
ARTICLE 8 TERM AND TERMINATION OF PLEDGE
8.1 The Pledge Term shall commence on the effective date of this Agreement, ending on the day when Run An Lian complete sthe performance of all of its obligations under the Master Agreement.
8.2 The pledge of the Pledged Equities shall be automatically terminated upon the expiration of the aforesaid Pledge Term. The termination of the pledge shall be recorded on the shareholders list of Run An Lian.
ARTICLE 9 TAXES AND FEES
All taxes and fees incurred by the Parties hereto due to the execution and performance of this Agreement shall be borne by the Parties in accordance with the relevant provisions of PRC laws.
ARTICLE 10 LIABILITIES FOR BREACH OF CONTRACT
10.1 In the event of any loss suffered by one Party hereto due to any breach of this Agreement by the other Party, such defaulting Party shall be liable pursuant to 9 |
the law for all losses thus caused to the non-defaulting Party. 10.2 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one Party in connection with the other Party's default or delay shall not be deemed as a waiver by such Party of any of its rights. ARTICLE 11 FORCE MAJEURE 11.1 For the purpose of this Agreement, a force majeure event shall refer to government act, fire, explosion, typhoon, flood, earthquake, tide, lightning, war, or any event which is unforeseeable by and beyond the control of any Party (hereinafter referred to as a "FORCE MAJEURE EVENT"). If any Force Majeure Event occurs to any Party hereto, such Party shall notify the other Party in a timely manner. 11.2 In the event of any Force Majeure Event, no Party shall be held liable for any damage, loss or increased cost caused by its failure of or delay in the performance of this Agreement due to such Force Majeure Event, and such failure of or delay in the performance of this Agreement due to any Force Majeure Event shall not be deemed as a breach of this Agreement. The Party affected by a Force Majeure Event shall take appropriate measures to set off or minimize the effects of such Force Majeure Event, and shall exert its best efforts to perform any of its obligation the performance of which has been prevented or delayed due to such Force Majeure Event. The Parties hereto agree that, upon termination of such Force Majeure Event, they shall exert their best efforts to perform this Agreement. |
ARTICLE 12 NOTICE
All notices hereunder shall be either delivered by personal delivery or via facsimile or registered mail. A notice, if sent by registered mail, shall be deemed to have been served on the date of the receipt as specified on the return receipt of the registered mail, or if sent by personal delivery or via facsimile, shall be deemed to have been served on the date immediately following the date on which such notice is sent. If a notice is sent via facsimile, the original of such notice shall be sent by registered mail or by personal delivery immediately after the transmission.
ARTICLE 13 DISPUTES RESOLUTIONS
13.1 If any dispute arises from the interpretation and performance of this Agreement, the Parties hereto shall first settle such dispute through friendly consultations. Should such dispute fail to be settled through the consultations, either Party may submit such dispute to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration. The arbitration shall be conducted in Beijing according to the then applicable arbitration rules of CIETAC. The arbitration award shall be final and binding upon both Parties. 13.2 In the event of any dispute arising out of the interpretation and performance hereof or if any such dispute is under arbitration, each Party hereto shall continue to exercise its other rights and perform its other obligations under this Agreement not subject to the disputes. |
ARTICLE 14 MODIFICATIONS AND AMENDMENTS
This Agreement may be modified or supplemented by written agreement between the Parties hereof. Any amendment agreement and/or supplementary agreement concluded between the Parties hereto regarding this Agreement shall be an integral part of this Agreement and shall have the same force.
ARTICLE 15 SEVERABILITY
The invalidity of any provisions under this Agreement shall not affect the validity of other provisions hereunder.
ARTICLE 16 JOINT AND SEVERABLE LIABILITY
FENG Lei and WANG Tao shall, jointly and severally, be liable for the obligations under this Agreement.
ARTICLE 17 APPENDIX
Appendixes attached to this Agreement shall constitute an integral part of this Agreement and shall have the same force.
ARTICLE 18 MISCELLANEOUS
The Parties have caused their respective duly authorized representatives to execute this Agreement and affixed their respective company seal hereto on the day and year first written above. This Agreement shall become effective on the date when the pledge has been recorded on the shareholders list of Run An Lian. This Agreement shall be written in three (3) counterparts, each of Party A and Party B shall hold one counterpart. All counterparts shall have the same force.
PARTY A (PLEDGEE): QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED
Authorized representative: ____________________
PARTY B (PLEDGOR): FENG LEI
FENG LEI
WANG TAO
APPENDIX I PARTICULARS
Pledgor: FENG Lei
Nationality: China
Address: Apt.#2003, Building 10 Fangchengyuan I Area, Fengtai District, Beijing
Telephone: 8610-13901189904
Pledgor: WANG Tao
Nationality: China
Address: Apt# 18F, Building 9 Century Town, Yuanda Road, Haidian District, Beijing
Telephone: 8610-13910688175
Run An Lian:
Enterprise Name: Shanghai Run An Lian Information Consultancy Company Limited
Establishment Date: April 8, 2004
Registered Address: Room 735, 710 Changping Road, Shanghai, China
Shareholders: Mr. FENG Lei and Mr. WANG Tao, where Mr. FENG Lei holds 80% equity interest of Run An Lian, and Mr. WANG Tao holds 20% equity interest.
APPENDIX II RESOLUTION OF SHAREHOLDERS MEETING OF SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
The shareholders meeting of Shanghai Run An Lian Information Consultancy Company Limited (the "Company") made this resolution as follows with unanimous vote with respect to the Equity Pledge Agreement entered into by and between the shareholders of the Company and Qian Cheng Wu You Network Information Technology (Beijing) Company Limited on May 3, 2004.
Resolved and approved that the shareholders of the Company pledge 100% equity of the Company to Qian Cheng Wu You Network Information Technology (Beijing) Company Limited.
This Shareholders Meeting Resolution is executed by and submitted to the following shareholders on May 3, 2004:
SHAREHOLDER:
SHAREHOLDER:
APPENDIX III SHAREHOLDERS LIST FOR SHANGHAI RUN AN LIAN INFORMATION
CONSULTING COMPANY LIMITED
Proportionate Shareholder Contribution Particulars of Shareholder Shareholder Pledge Registration ----------- ------------- ----------------------------------------------------- ------------------------------------------------ FENG Lei 80% Nationality: China In accordance with the Equity Pledge Agreement entered into by and between FENG Lei and WANG Address: Apt.#2003, Building 10 Fangchengyuan I Area, Tao and Qian Cheng Wu You Network Information Fengtai District, Beijing Technology (Beijing) Company Limited. dated May 3, 2004, FENG Lei has pledged all of his Telephone: 8610-13901189904 equity in Run An Lian to Qian Cheng Wu You Network Information Technology (Beijing) Company Limited. The registration date for the Equity Pledge shall be the execution date of such Equity Pledge Agreement. WANG Tao 20% Nationality: China In accordance with the Equity Pledge Agreement entered into by and between FENG Lei and WANG Address: Apt# 18F, Building 9 Century Town, Tao and Qian Cheng Wu You Network Information Yuanda Road, Haidian District, Beijing Technology (Beijing) Company Limited. dated as of May 3, 2004, WANG Tao has pledged all of his equity in Run An Lian to Qian Cheng Wu You Telephone: 8610-13910688175 Network Information Technology (Beijing) Company Limited. The registration date for the Equity Pledge Agreement shall be the execution date of such Equity Pledge Agreement. |
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED (SEAL)
LEGAL REPRESENTATIVE: ___________________________
SHAREHOLDER: ____________________________________
SHAREHOLDER: ___________________________________
DATE: MAY 3, 2004
EXHIBIT 10.10
EQUITY PLEDGE AGREEMENT
between
QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED
and
BEIJING RUN AN INFORMATION CONSULTANCY COMPANY LIMITED
and
FENG LEI
May 3, 2004
ARTICLE 1 CREATION OF PLEDGE ON THE PLEDGED EQUITIES...................................... 3 ARTICLE 2 COVERAGE OF THE SECURITY........................................................ 4 ARTICLE 3 PLEDGED EQUITIES................................................................ 4 ARTICLE 4 REPRESENTATIONS AND WARRANTIES BY PARTY B....................................... 4 ARTICLE 5 SPECIAL AGREEMENTS.............................................................. 6 ARTICLE 6 DISPOSAL OF THE PLEDGED EQUITIES................................................ 8 ARTICLE 8 TERM AND TERMINATION OF PLEDGE.................................................. 9 ARTICLE 9 TAXES AND FEES.................................................................. 9 ARTICLE 10 LIABILITIES FOR BREACH OF CONTRACT.............................................. 9 ARTICLE 11 FORCE MAJEURE................................................................... 10 ARTICLE 12 NOTICE.......................................................................... 10 ARTICLE 13 DISPUTES RESOLUTIONS............................................................ 11 ARTICLE 14 MODIFICATIONS AND AMENDMENTS.................................................... 11 ARTICLE 15 SEVERABILITY.................................................................... 11 ARTICLE 16 JOINT AND SEVERABLE LIABILITY................................................... 11 ARTICLE 17 APPENDIX........................................................................ 11 ARTICLE 18 MISCELLANEOUS................................................................... 12 APPENDIX I PARTICULARS..................................................................... 14 APPENDIX II SHAREHOLDERS MEETING RESOLUTION................................................. 15 APPENDIX III SHAREHOLDERS LIST FOR QIAN CHENG SI JIN ADVERTISING (BEIJING) COMPANY LIMITED... 16 |
EQUITY PLEDGE AGREEMENT
This EQUITY PLEDGE AGREEMENT (hereinafter referred to as "AGREEMENT") is made and entered into on the 3rd day of May, 2004 by and between the following parties:
PLEDGEE: Qian Cheng Wu You Network Information Technology (Beijing) Company Limited ("PARTY A"); and
PLEDGOR: Beijing Run An Information Consultancy Company Limited ("RUN AN") and FENG Lei ("MICHAEL FENG") (Run An and FENG Lei hereinafter referred to as "PARTY B" collectively.)
WHEREAS:
1. Run An and FENG Lei have established Beijing Qian Cheng Si Jin Advertising Company Limited ("QIANCHENG ADVERTISING") in Beijing under the laws of the People's Republic of China on February 12, 1999, in which Run An holds 20% equity interest and FENG Lei holds 80% equity interest;
2. Party A and Qiancheng Advertising entered into a Technical and Consulting Service Agreement on May 3, 2004 (the "MASTER AGREEMENT"), according to which, Qiancheng Advertising shall engage Party A as its exclusive technology provider, and shall pay the relevant service fee to Party A. The term for the Master Agreement is ten (10) years;
3. In order to secure the performance of the obligations of Qiancheng Advertising under the Master Agreement, Run An and Mr. FENG Lei agree to pledge to Party A all the equity interest they held in Qiancheng Advertising, and Party A agrees to accept such pledge.
NOW THEREFORE, with respect to the aforesaid pledge of equity, the Parties to this Agreement hereby mutually agree through consultations, as follows:
ARTICLE 1 CREATION OF PLEDGE ON THE PLEDGED EQUITIES
As a security for Qiancheng Advertising to perform all of its obligations under the Master Agreement, Party B agrees to pledge to Party A 100% of the equity of Qiancheng Advertising held by Party B ("PLEDGED EQUITIES"), and Party A agrees to accept from Party B such pledge.
ARTICLE 2 COVERAGE OF THE SECURITY
The pledge provided by Party B as a security shall cover the obligations under the Master Agreement, penalties, compensations, the expenses for exercise of the right of pledge, and all other payments payable.
ARTICLE 3 PLEDGED EQUITIES
3.1 Particulars for Party B, Qiancheng Advertising and the Pledged Equities are set out in Appendix I hereto.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
4.1 Party A represents and warrants that:
4.1.1 Party A is a company incorporated and registered and duly existing under the PRC laws; 4.1.2 Party A has the power and authorization to execute and perform this Agreement. The execution and performance by Party A of this Agreement are in compliance with the business scope, and the articles of association or other incorporation documents of Party A. Party A has obtained all necessary and appropriate approvals and authorizations to execute and perform this Agreement; 4.1.3 The execution and performance by Party A of this Agreement are not against any law or regulation, or any government approval, authorization, notice or other government document, which is binding upon or affects Party A, nor are such execution and performance against any agreement concluded by Party A and any third party, or any covenant made by Party A to any third party; and 4.1.4 Upon the execution of this Agreement, this Agreement shall constitute valid obligations of Party A which are enforceable against Party A. |
4.2 Party B represents and warrants that:
4.2.1 Qiancheng Advertising is a limited liability company organized and registered and duly existing under the PRC laws, and has the authorization to design and produce advertisement and act as an agency to represent companies for advertising within China; 4 |
4.2.2 Party B has the power and authorization to execute and perform this Agreement, and Party B has obtained all necessary and appropriate approvals and authorizations with respect to the execution and performance of this Agreement; 4.2.3 Party B has obtained a resolution required for the execution of this Agreement from the shareholders meeting of Qiancheng Advertising, which resolution is attached hereto as Appendix II; 4.2.4 The execution and performance by Party B of this Agreement are not against any law or regulation, government approval, authorization notice or other government document, which is binding upon or affects Party B, nor are such execution and performance against any agreement concluded by Party B and any third party, or any covenant made by Party B to any third party; 4.2.5 Upon the execution of this Agreement, this Agreement shall constitute valid obligations of Party B, which are enforceable against Party B; 4.2.6 Party B has fully paid up all required capital contributions according to the law in connection with the Pledged Equities and has obtained the capital verification report issued by a qualified accounting firm regarding the capital contributions; 4.2.7 As of the execution date of this Agreement, there is no currently valid mortgage, pledge or any other security arrangements has been created on the Pledged Equities. 4.2.8 As of the execution date of this Agreement, there is no offer made by Party B to any third party to transfer the Pledged Equities hereunder, nor is there any covenant made by Party B with respect to any offer made by any third party to purchase the Pledged Equities hereunder; 4.2.9 As of the execution date of this Agreement, there is no agreement entered into by and between Party B and any third party to transfer the Pledged Equities hereunder. 4.2.10 As of the execution date of this Agreement, there is no dispute, litigation, arbitration, administrative procedures or any other legal procedures in connection with Party B, Qiancheng Advertising and/or the Pledged Equities, nor is there any potential dispute, litigation, arbitration, administrative procedures or any other legal procedures in connection with Party B, Qiancheng Advertising and/or the Pledged Equities. |
ARTICLE 5 SPECIAL AGREEMENTS
5.1 From the date of this Agreement to the date when Qiancheng Advertising fully performs its obligations under the Master Agreement (hereinafter referred to as "PLEDGE TERMINATING DATE"), Party B shall not conduct any of the following without the prior written consent of Party A:
5.1.1 create any mortgage, pledge or other security arrangements on the Pledged Equities; 5.1.2 take any actions which may hamper Party A's rights against the Pledged Equities or any of Party A's rights under this Agreement; 5.1.3 Party B shall not transfer the Pledged Equities or otherwise dispose of any rights in the Pledged Equities without the written consent of Party A; 5.1.4 Party B undertakes that, without the prior written consent of Party A, Party B shall not take any actions or omissions that may materially affect the assets, business or liabilities of Qiancheng Advertising. |
5.2 To avoid any depreciation of the Pledged Equities due to the operation of Qiancheng Advertising, before Party B decides on any of the following matters, the prior written consent shall be obtained from Party A:
5.2.1 profit distributions; 5.2.2 increase or decrease of the registered capital; 5.2.3 issuance of bonds; 5.2.4 merger, split up or any change in the form of the entity; 5.2.5 dissolution and liquidation 5.2.6 any change of the business scope; 5.2.7 amendment of the articles of association; 5.2.8 borrowing from any third party or assumption of any indebtedness to any third party in the name of Qiancheng Advertising; and 5.2.9 appointment of the member of the board of Qiancheng Advertising.. |
Party B further agrees that Party A shall recommend the candidates of the general manager and other senior executives of Qiancheng Advertising and Party B shall cause the board of directors to appoint the general manager and other senior executives only from those candidates recommended by Party A.
5.3 Party B hereby irrevocably grants Party A and/or the company or individual designated by Party A the option to purchase Party B's equity in Qiancheng Advertising ("OPTION") as follows:
5.3.1 To the extend permitted under PRC laws, Party A and/or the company or individual designated by Party A shall exercise the Option, in whole or in part, at any time during the term of this Agreement to acquire from Party B and hold the equity of Qiancheng Advertising. Upon the full exercise of the Option, Party A and/or the company or individual designated by Party A will acquire from Party B and hold 100% of the equity. In the event that the then applicable PRC laws prohibit Party A and/or the company or individual designated by Party A from fully exercising the Option, Party A and/or the company or individual designated by Party A shall exercise the Option to the fullest extent permitted by applicable law. The Option price shall be the lowest price permitted under the applicable laws. 5.3.2 Upon the exercise of the Option by Party A and/or the company or individual designated by Party A, Party B is obligated to transfer the relevant equity to Party A and/or the company or individual designated by Party A. 5.3.3 Party B hereof agrees that, without the written consent of Party A, it will not grant a third party the same or similar option. 5.3.4 Party A and/or the company or individual designated by Party A shall exercise the Option in a manner permitted by law at any time after the date of this Agreement. To the extent permitted under PRC laws, Party A and/or the company or individual designated by Party A may exercise the Option, in whole or in part, and at one time or otherwise purchase the equity that it has the right to purchase under this Agreement. 5.3.5 When Party A and/or the company or individual designated by Party A decides to exercise the Option, it shall issue Party B an Option Notice with respect to the exercise of such Option. Once the Option Notice is issued, Party B shall promptly perform its obligation to transfer such equity to Party A and/or the company or individual designated by Party A. 5.3.6 Party B shall, within 60 days following the issuance of the Option Notice 7 |
by Party A and/or the company or individual designated by Party A to Party B, complete all procedures and formalities necessary for Party A and/or the company or individual designated by Party A to acquire the relevant equity and become the legal holder of such equity . |
ARTICLE 6 DISPOSAL OF THE PLEDGED EQUITIES
6.1 In case of occurrence of any one or several of the following events during the term of the pledge hereunder, Party A shall have the right to dispose of the Pledged Equities under this Agreement in accordance with the law and this Agreement:
6.1.1 Qiancheng Advertising is in default under the Master Agreement; 6.1.2 Qiancheng Advertising breaches any provisions contained herein 6.1.3 Pledgor breaches any representation, warranty or covenant it made under Article 4 and Article 5 hereof; 6.1.4 Qiancheng Advertising suspends its operations or is dissolved, or is ordered to suspend its operations or to dissolve, or is declared insolvent; 6.1.5 Qiancheng Advertising is involved in any dispute, litigation, arbitration, administrative procedures or any other legal procedures which, in the opinion of Party A, are capable of effecting the performance of the Master Agreement and/or this Agreement; or 6.1.6 other occurrences stipulated by relevant laws and regulations. |
6.2 Upon the occurrence of any one or several of the above events, and subject to the relevant laws and regulations, Party A shall have the right to dispose of the Pledged Equities in any one or several of the following manners:
6.2.1 convert the Pledged Equities into value; 6.2.2 auction or sale of the Pledged Equities; 6.2.3 in other manners permitted by the relevant laws and regulations. |
6.3 The proceeds received by Party A by disposing of the Pledged Equities hereunder according to the foregoing provisions shall be used in the following priority:
6.3.1 to pay for all necessary taxes and fees incurred due to the disposal of the Pledged Equities; 6.3.2 to pay for amounts payable by Qiancheng Advertising to Party A under 8 |
the Master Agreement within the coverage set forth in Article 2 hereof, and amounts payable to Party A due to breach of this Agreement by Party B; and 6.3.3 the remaining proceeds after all the above payments have been made shall be refunded to Party B. |
6.4 At the time of the disposal of the Pledged Equities by Party A and upon request of Party A, Party B shall provide all relevant documents requested by Party A and Party A's agents, complete and assist Party A in completing the procedures for all approvals of and registration with the government authority in connection with the disposal of the Pledged Equities.
ARTICLE 7 REGISTRATIONS
At the same time of the execution of this Agreement, the Pledged Equities under this Agreement shall be recorded on the shareholders list of the Qiancheng Advertising as set out in Appendix III hereto.
ARTICLE 8 TERM AND TERMINATION OF PLEDGE
8.1 The Pledge Term shall commence on the effective date of this Agreement, ending on the day when Qiancheng Advertising completes the performance of all of its obligations under the Master Agreement.
8.2 The pledge of the Pledged Equities shall be automatically terminated upon the expiration of the aforesaid Pledge Term. The termination of the pledge shall be recorded on the shareholders list of Qiancheng Advertising.
ARTICLE 9 TAXES AND FEES
All taxes and fees incurred by the Parties hereto due to the execution and performance of this Agreement shall be borne by the Parties in accordance with the relevant provisions of PRC laws.
ARTICLE 10 LIABILITIES FOR BREACH OF CONTRACT
10.1 In the event of any loss suffered by one Party hereto due to any breach of this Agreement by the other Party, such defaulting Party shall be liable pursuant to 9 |
the law for all losses thus caused to the non-defaulting party. 10.2 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one Party in connection with the other Party's default or delay shall not be deemed as a waiver by such Party of any of its rights. ARTICLE 11 FORCE MAJEURE 11.1 For the purpose of this Agreement, a force majeure event shall refer to government act, fire, explosion, typhoon, flood, earthquake, tide, lightning or war, or any event which is unforeseeable by and beyond the control of any Party (hereinafter referred to as a "FORCE MAJEURE EVENT"). If any Force Majeure Event occurs to any Party hereto, such Party shall notify the other Party in a timely manner. 11.2 In the event of any Force Majeure Event, no Party shall be held liable for any damage, loss or increased cost caused by its failure of or delay in the performance this Agreement due to such Force Majeure Event, and such failure of or delay in the performance of this Agreement due to any Force Majeure Event shall not be deemed as a breach of this Agreement. The Party affected by a Force Majeure Event shall take appropriate measures to off set or minimize the effects of such Force Majeure Event, and shall exert its best efforts to perform any of its obligation the performance of which has been prevented or delayed due to such Force Majeure Event. The Parties hereto agree that, upon termination of such Force Majeure Event, they shall exert their best efforts to perform this Agreement. |
ARTICLE 12 NOTICE
All notices hereunder shall be either delivered by personal delivery or via facsimile or by registered mail. A notice, if sent by registered mail, shall be deemed to have been served on the date of the receipt as specified on the return receipt of the registered mail, or if sent by personal delivery or via facsimile, shall be deemed to have been served on the date immediately following the date on which such notice is sent. If a notice is sent via facsimile, the original of such notice shall be sent by registered mail or by personal delivery immediately after the transmission.
ARTICLE 13 DISPUTES RESOLUTIONS
13.1 If any dispute arises from the interpretation and performance of this Agreement, the Parties hereto shall first settle such dispute through friendly consultations. Should such dispute fail to be settled through the consultations, either Party may submit such dispute to China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration. The arbitration shall be conducted in Beijing according to the then applicable arbitration rules of CIETAC. The arbitration award shall be final and binding upon both Parties. 13.2 In the event of any dispute arising out of the interpretation and performance hereof or if any such dispute is under arbitration, each Party hereto shall continue to exercise its other rights and perform its other obligations under this Agreement not subject to the disputes. |
ARTICLE 14 MODIFICATIONS AND AMENDMENTS
This Agreement may be modified or supplemented by written agreement between the Parties hereof. Any amendment agreement and/or supplementary agreement concluded between the Parties hereto regarding this Agreement shall be an integral part of this Agreement and shall have the same force.
ARTICLE 15 SEVERABILITY
The invalidity of any provisions under this Agreement shall not affect the validity of other provisions hereunder.
ARTICLE 16 JOINT AND SEVERABLE LIABILITY
Run An and FENG Lei shall be liable, jointly and severally, for the obligations under this Agreement.
ARTICLE 17 APPENDIX
Appendixes attached to this Agreement shall constitute an integral part of this Agreement and shall have the same force.
ARTICLE 18 MISCELLANEOUS
The Parties have caused their respective duly authorized representatives to execute this Agreement and affixed their respective company seals hereto on the day and year as first written above. This Agreement shall become effective on the date when the pledge has been recorded on the shareholders list of Qiancheng Advertising. This Agreement shall be written in three (3) counterparts, each of Party A and Party B shall hold one counterpart. All counterparts shall have the same force.
PARTY A (PLEDGEE): QIAN CHENG WU YOU NETWORK INFORMATION TECHNOLOGY (BEIJING) COMPANY LIMITED
Authorized representative: ________
PLEDGOR: BEIJING RUN AN INFORMATION CONSULTANCY COMPANY LIMITED
Authorized representative: ________
PLEDGOR: FENG LEI
APPENDIX I PARTICULARS
Party B:
Beijing Run An Information Consultancy Company Limited
Establishment Date: January 29, 1997
Registered address: Unit F, 32/F, China Merchant Tower, 118 Jian Guo Road, Chao Yang District, Beijing
Business Scope: strategic design of corporate identity, market investigation and analysis and economic information consulting services
Registered capital: RMB1,000,000.00
FENG Lei:
Nationality: China
Address: Apt.#2003, Building 10 Fangchengyuan I Area, Fengtai District, Beijing
Telephone: 8610-13901189904
Qiancheng Advertising:
Enterprise Name: Beijing Qian Cheng Si Jin Advertising Company Limited Establishment Date: February 12, 1999 Registered Address: Premises of the Government of Yujiawu Hui Nationality |
Township, Tongzhou District, Beijing
Registered Capital: RMB100,000.00
Shareholders: Run An and FENG Lei, where Run An holds 20% equity of Qiancheng Advertising, and FENG Lei holds the other 80% equity of Qiancheng Advertising.
APPENDIX II RESOLUTION OF SHAREHOLDERS MEETING OF BEIJING QIAN CHENG SI JIN
ADVERTISING COMPANY LIMITED
The shareholders meeting of Beijing Qian Cheng Si Jin Advertising Company Limited (the "Company") made this resolution with unanimous vote with respect to the Equity Pledge Agreement entered into by and between the shareholders of the Company and Qian Cheng Wu You Network Information Technology (Beijing) Company Limited on May 3, 2004. The shareholders meeting adopts and agrees the following:
Resolved and approved that the shareholders of the Company pledge 100% equity of the Company to Qian Cheng Wu You Network Information Technology (Beijing) Company Limited.
This Shareholders Meeting Resolution is executed by and submitted to the following shareholders on May 3, 2004:
SHAREHOLDER: BEIJING RUN AN INFORMATION CONSULTANCY COMPANY LIMITED
Authorized Representative
SHAREHOLDER: FENG LEI
APPENDIX III SHAREHOLDERS LIST FOR QIAN CHENG SI JIN ADVERTISING (BEIJING)
COMPANY LIMITED
PROPORTIONATE SHAREHOLDER CONTRIBUTION PARTICULARS OF SHAREHOLDER SHAREHOLDER PLEDGE REGISTRATION ----------- ------------- ------------------------------------------------- ------------------------------------------------- FENG Lei 80% Nationality: China In accordance with the Equity Pledge Agreement entered into by and between Beijing Run An Address: Apt.#2003, Building 10 Information Consultancy Company Limited. and Fangchengyuan I Area, Fengtai District, Beijing FENG Lei and Qian Cheng Wu You Network Information Technology (Beijing) Company Telephone: 8610-13901189904 Limited. dated May 3, 2004, FENG Lei has pledged all of his equity in Qiancheng Advertising to Qian Cheng Wu You Network Information Technology (Beijing) Company Limited. The registration date for the equity pledge shall be the execution date of such Equity Pledge Agreement. Beijing Run 20% Establishment Date: January 29, 1997 In accordance with the Equity Pledge Agreement An entered into by and between Beijing Run An Information Registered address: Unit F, 32/F, China Merchant Information Consultancy Company Limited and FENG Consulting Tower, 118 Jian Guo Road, Chao Yang District, Lei and Qian Cheng Wu You Network Information Company Beijing Technology (Beijing) Company Limited. dated May Limited 3, 2004, Beijing Run An Information Consultancy Business Scope: provide consulting services to Company Limited has pledged all of its equity in entities, provide marketing analysis services Qiancheng Advertising to Qian Cheng Wu You and information consulting services Network Information Technology (Beijing) Company Limited The registration date for the equity pledge shall be the execution date of such Equity Pledge Agreement. |
BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED (SEAL)
LEGAL REPRESENTATIVE: ___________________________
SHAREHOLDER: BEIJING RUN AN INFORMATION CONSULTANCY COMPANY LIMITED
SHAREHOLDER: FENG LEI
DATE: MAY 3, 2004
EXHIBIT 10.11
COOPERATION AGREEMENT
by and between
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
and
QIANJIN NETWORK INFORMATION TECHNOLOGY (SHANGHAI) COMPANY LIMITED
MAY 3, 2004
COOPERATION AGREEMENT
This COOPERATION AGREEMENT ("AGREEMENT") is made and entered into on May 3, 2004 by and between the following parties:
PARTY A: Shanghai Run An Lian Information Consultancy Company Limited, a limited liability company duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Room 753, 710 Changping Road, Shanghai, China; and
PARTY B: Qianjin Network Information Technology (Shanghai) Company Limited, a Sino-foreign joint venture duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Suite 2307 Lucky Mansion, 660 Shangcheng Road, Pudong New District, Shanghai, China.
WHEREAS:
1. Party A is a company specializing in the provision of human resources services, which has obtained a Shanghai human resources service license and is qualified to provide human resource service, including online human resource service and Internet content provision service; Party A currently owns and operates a website specializing in the provision of Internet human resource service, i.e., www.51job.com ("HR Website");
2. Party B is a company with the software technology, multi-media technology and Internet system technology, specializing in the design and production of Internet advertisement with a advertising license for publishing Internet advertisement on HR Website; and
3. Party B has certain customer resources, and such customers need the technical and consulting services and human resource service in connection with recruitment. Party B is capable of providing such technical and consulting services, and holds a license to publish Internet advertisement. Due to fact that Party B no longer provides any human resource service, Party B intends to engage Party A and Party A intends to be engaged by Party B to provide relevant human resource service and to provide services in connection with publishing information on the HR Website to Party B's customers.
NOW THEREFORE, Party A and Party B hereby agree on the following terms and conditions and agree to perform this Agreement according to such terms and conditions:
ARTICLE 1 GENERAL PRINCIPLE OF SERVICES
Party A shall provide to the customers of Party B human resource service and services of publishing information through the HR Website relying on its qualification to provide human resources services and the HR Website; Through its Internet technology, Party B shall provide technical and consulting services with respect to the development, construction, and maintenance of the HR Website, and shall provide the technical and consulting services related to the human resource services at the special request of the customers.
ARTICLE 2 SERVICES AND OBLIGATIONS OF PARTY A
Party A, together with Party B, shall enter into a Three Party Service Agreement with the recruiting company ("Customer"), and Party A shall conduct the following:
1. liaison with the Customer, collecting background information and hiring criteria from the Customer, and prepare hiring plans;
2. searching for qualified candidates for the Customers, communicating with the candidates, and arranging negotiation, interview, and execution of employment contracts and other matters between the Customers and the candidates; and
3. publishing recruiting information and advertisement bar of the Customer and creating a hyperlink between the advertisement bar and the recruitment page of Customer's website.
In the event that Party A breaches this Agreement and causes the breach of the Three Parties Service Agreement by and among Party A, Party B and the Customer or other similar agreement , then Party A shall be responsible for the settlement of disputes with the Customer, compensate the Customer for any losses and hold Party B harmless from such breach.
ARTICLE 3 SERVICE FEES
For the purpose of this Agreement, Party B shall pay service fees to Party A. The service fees shall be settled quarterly, which shall be paid within 45 days following the end of each quarter. Service fees shall be the amount of the direct operation costs incurred in the previous quarter plus 5% of such operation costs, provided that the service fees shall not exceed RMB300,000 per quarter. If it is shorter than three months at the time of fee settlement, the service fees shall be calculated based on the actual days involved and in accordance with the same formula as set out in this provision.
ARTICLE 4 COPYRIGHT OWNERSHIP
The ownership of the intellectual property rights of Party A and Party B arising from or in connection with the cooperation shall be determined as follows: Party B owns the copyright for the database software and other relevant software designed by Party B, and the intellectual property rights of and any other rights derived from the results of development and research through the research and development under this Agreement and other agreements entered into by both Parties shall be owned by Party B, including without limitations the right to apply for patent, copyright for the software, technical documents and technical information as the carrier or other intellectual property rights, and the right to license the foresaid intellectual property rights to other parties or to transfer the foresaid intellectual property rights.
ARTICLE 5 TERM AND TERMINATION
5.1 This Agreement shall become effective from the date of execution hereof by
the respective authorized representatives of Parties with the company
seals of the Parties affixed hereto, and shall remain effective for ten
(10) years.
5.2 During the term of this Agreement, in the event of breach of this Agreement by any Party, the other Party may terminate this Agreement by written notice if the breaching Party fails to cure the breach within fourteen (14) days of the receipt of the written notice from such other Party.
5.3 This Agreement may be extended to any term agreed by the Parties in writing.
ARTICLE 6 LIABILITY FOR BREACH OF CONTRACT
6.1 In the event of default by any Party hereto on its obligations provided in this Agreement, the defaulting party shall, upon the receipt of a written notice from the non-defaulting party requesting the correction, immediately refrain from such default and shall compensate the non-defaulting Party for all losses and damages thus caused to the non-defaulting party within fourteen (14) days of the notice. Should the defaulting party continue the breach or fails to perform its obligations, the non-defaulting Party shall have the right, in addition to the right to claim for compensation for its losses due to such beach of contract, to the early termination of this Agreement.
6.2 In the event that the Parties hereto are both at fault, then they shall bear the respective liabilities for the breach in accordance with the actual faults committed by parties.
ARTICLE 7 WAIVER
7.1 Except for the obligation of compensation provided herein, no Party shall be liable for any contingent, consequential, special or punitive damages or other damages of the other Party arising from or in connection with this Agreement, whether or not alleged to be the result of contracts or infringement (including negligence or strict liability), or other circumstances, and whether or not the other Party has been informed of the possibilities of such damages to such other Party.
7.2 The rights and obligations under this Agreement shall apply to the respective successors, permitted assigns e, executor, and manager of both Parties to the extent possible. Any Party may transfer the services which it shall provide under this Agreement to any of its affiliates or successors, regardless whether such succession results from merger, acquisition, asset purchase or other circumstances.
7.3 The invalidity, nullity and unenforceability of any provision hereof shall not affect or prejudice the validity, effectiveness and enforceability of other provisions hereof. However, the Parties hereto shall cease the performance of such invalid, null and unenforceable provision and shall amend such provision only to the extent that it will be valid, effective and enforceable with respect to such specific facts and situations in a manner that most closely reflect the original intentions of such provision.
7.4 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one Party in connection with the other Party's default or delay shall not be deemed as a waiver by such Party of its rights and shall not prejudice, affect or restrict any of the rights which such Party shall be entitled to under this Agreement and relevant PRC laws and regulations.
ARTICLE 8 NOTICE
All notices hereunder shall be either delivered by personal delivery or via facsimile or registered airmail. A notice, if sent via registered airmail, shall be deemed to have been serviced on the fifth day of the dispatch of the registered mail, or if sent via facsimile or by personal delivery, shall be deemed to have been serviced on the date immediately following the date of the dispatch or transmission. If a notice is sent via facsimile, the original copy shall be sent via registered airmail or by personal delivery after the transmission.
ARTICLE 9 DISPUTES RESOLUTION AND GOVERNING LAW
9.1 The execution, effectiveness, performance and interpretation of this Agreement shall be governed by the laws of the People's Republic of China.
9.2 Any disputes arising from or in connection with the execution, performance, interpretation and dispute settlement of this Agreement shall be settled by both Parties through friendly consultations. If Parties fail to settle the disputes through friendly consultations, either Party may submit the dispute to China International Economy and Trade Arbitration Commission (hereinafter referred to as "CIETAC") for arbitration in Beijing in accordance with the then applicable arbitration rules of CIETAC.
9.3 During the arbitration, the Parties shall continue to perform their obligations under this Agreement not subject to the arbitration.
9.4 The arbitral award shall be final and binding upon the Parties.
ARTICLE 10 MISCELLANEOUS
10.1 This Agreement may not be revised, modified, supplemented or dissolved unless by written agreements between the Parties signed by the authorized representatives. 10.2 Appendixes attached to this Agreement shall be an integral part of this Agreement. The Parties may, from time to time, revised, add to or adjust the Appendixes hereto during the term of this Agreement. 10.3 This Agreement is written in Chinese in two counterparts, with each Party holding one counterpart. |
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective duly authorized representatives on the date and year first written above.
PARTY A: SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
PARTY B: QIANJIN NETWORK INFORMATION TECHNOLOGY (SHANGHAI) COMPANY LIMITED
SIGNED BY: ___________________
AUTHORIZED REPRESENTATIVE:
TITLE:
EXHIBIT 10.12
DOMAIN NAME LICENSE AGREEMENT
between
51NET.COM INC.
and
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
May 3, 2004
ARTICLE I LICENSE...................................................... 3 ARTICLE II LICENSE FEES.................................................. 4 ARTICLE III OWNERSHIP..................................................... 4 ARTICLE IV CONFIDENTIALITY............................................... 4 ARTICLE V REPRESENTATIONS AND WARRANTIES................................ 5 ARTICLE VI RIGHTS AND OBLIGATIONS........................................ 6 ARTICLE VII QUALITY OF 51NET WEBSITE..................................... 6 ARTICLE VIII COMPETITIVE DOMAIN NAME...................................... 7 ARTICLE IX EFFECTIVE DATE, EFFECTIVENESS AND EXTENSION................... 7 ARTICLE X TERMINATION................................................... 7 ARTICLE XI EFFECTIVENESS OF TERMINATION.................................. 7 ARTICLE XII TAXES......................................................... 8 ARTICLE XIII INDEMNIFY.................................................... 8 ARTICLE XIV FORCE MAJEURE EVENT.......................................... 8 ARTICLE XV NOTICE....................................................... 8 ARTICLE XVI TRANSFER; PLEDGE............................................. 9 ARTICLE XVII GOVERNING LAW................................................ 9 ARTICLE XVIII DISPUTES RESOLUTION.......................................... 9 ARTICLE XIX MODIFICATION AND AMENDMENTS.................................. 9 ARTICLE XX SEVERABILITY................................................. 9 ARTICLE XXI MISCELLANEOUS................................................ 10 |
DOMAIN NAME LICENSE AGREEMENT
This Domain Name License Agreement ("AGREEMENT") is made and entered into on May 3, 2004 by and between:
51NET.COM INC., a company organized under the laws of the British Virgin Islands, with its registered office at c/o Offshore Incorporation Centre, P.O. Box 957, Road Town, Tortola, British Virgin Islands ("LICENSOR"), and
SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED, a limited liability company duly organized and validly existing under the laws of the People's Republic of China, with its registered address at Room 753, 710 Changping Road, Shanghai, PRC ("LICENSEE").
WHEREAS:
1. Licensor is a company organized under the laws of the British Virgin Islands and has legally obtained and owns the domain name under this Agreement; and
2. Licensor agrees to grant to Licensee the license to use the foresaid domain name in accordance with the terms and conditions of this Agreement, and Licensee agrees to accept such license in accordance with the same terms and conditions.
NOW THERFORE, the parties hereof agree as follows:
ARTICLE I LICENSE
1.1 Grant of Domain Name License
In accordance with this Agreement, Licensor agrees to grant to Licensee and the Licensee agrees to accept the license ("DOMAIN NAME LICENSE") to use the domain name www.51job.com ("51NET DOMAIN NAME")
1.2 Territories of the Domain Name License
a. Domain Name License granted hereunder shall be effective only on the 51net website operated by Licensee, i.e., http://www.51job.com ("51NET WEBSITE"). Licensee hereby agrees that it shall not use or authorize others to use 51net Domain Name, directly or indirectly, in any means other than as provided in this Agreement.
b. Domain Name License granted under this Agreement is effective only within the territory of China (excluding Hong Kong, Macau and Taiwan). Licensee agrees that it shall not use or authorize others to use 51net Domain
Name, directly or indirectly, in other countries or areas.
ARTICLE II LICENSE FEES
2.1 Licensee agrees to pay Domain Name License fees to Licensor for Domain Name License granted under this Agreement and for use of 51net Domain Name, and the parties shall separately determine the specific fee amount.
ARTICLE III OWNERSHIP
3.1 The ownership of 51net Domain Name shall rest with Licensor. Licensee hereby acknowledges the value of the goodwill related to 51net Domain Name. Licensee hereby confirms that, the value in connection with 51net Domain Name, including the value of goodwill related to 51net Domain Name which has been formed as of the date of this Agreement and the value of goodwill in connection with 51net Domain Name arising from the use of 51net Domain Name by Licensee and the operation of 51net Website by Licensee during the effective term of this Agreement, shall be owned by Licensor.
ARTICLE IV CONFIDENTIALITY
4.1 Licensee shall keep confidential any and all confidential data and information that Licensee learned or accessed due to its acceptance of the foresaid Domain Name License ("Confidential Information").
4.2 Upon the termination of this Agreement, Licensee shall return any and all documents, information or software containing the Confidential Information to Licensor at the request of Licensor, or destroy the same or delete any Confidential Information from any relevant memory device, and it shall not continue to use such Confidential Information.
4.3 Without prior written consent of Licensor, Licensee shall not disclose the Confidential Information to any third party.
4.4 Without prior written consent of Licensor, Licensee shall not use the Confidential Information for purposes other than this Agreement.
4.5 The Parties agree that, this confidentiality provision shall survive the modification, dissolution or termination of this Agreement.
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1 Licensor hereby undertakes and warrants that:
a. Licensor is a company registered and organized and duly existing under the laws of the British Virgin Islands;
b. Licensor has the power and authorization to execute and perform this Agreement, and the execution and performance of this Agreement by Licensor conform to the stipulations in its business scope, articles of association and other incorporation documents, and Licensor has obtained all necessary and appropriate approvals and authorizations for the execution and performance of this Agreement;
c. the execution and performance of this Agreement by Licensor do not violate any laws and regulations or governmental approval, authorization, notice or other government documents, which is binding upon or affects Licensor, or constitutes any default to any agreement entered into by Licensor and any third party or any undertaking to any third party; and
d. this Agreement constitutes a legal and valid obligation enforceable against Licensor upon the execution of this Agreement.
5.2 Licensee hereby undertakes and warrants that:
a. Licensee is a company registered and organized and duly existing under the PRC laws;
b. Licensee has the power and authorization to execute and perform this Agreement, and the execution and performance of this Agreement by Licensee conform to the stipulations in its business scope, articles of association and other incorporation documents, and Licensee has obtained all necessary and appropriate approvals and authorizations for the execution and performance of this Agreement;
c. the execution and performance of this Agreement by Licensor do not constitute any default or violation to any agreement entered into by Licensee and any third party or any undertaking to any third party;
d. this Agreement constitutes legal and valid obligations enforceable against Licensee upon the execution of this Agreement;
e. Licensee has obtained all governmental approvals, licenses, authorizations or permits to conduct Internet human resources services and Internet
information provision business within China; and
f. Licensee shall use 51net Domain Name and operate 51net Website in strict accordance with relevant PRC laws and regulations and government requirements, and shall complete legal formalities with regard to government approvals and licenses of, and registration and filing with the authorities in connection with the use of 51net Domain Name and the operation of 51net Website (if applicable).
ARTICLE VI RIGHTS AND OBLIGATIONS
6.1 During the effective term of this Agreement, Licensor shall complete all legal procedures related to 51net Domain Name in accordance with the administrative regulations and requirements of the agency that 51net Domain Name is registered with, including without limitation the annual examination, and shall pay all expenses and fees in connection with 51net Domain Name.
6.2 Licensee shall not infringe any of Licensor's rights to 51net Domain Name within the term of this Agreement or afterwards, and it shall not challenge the validity of 51net Domain Name and this Agreement.
6.3 Licensee agrees that it shall use its best efforts to assist Licensor to protect the Licensor's rights to 51net Domain Name. To protect the rights of Licensor to the 51net Domain Name from infringement, Licensor may file a claim or litigation in its own name, or in the name of Licensee or in the name of both Licensor and Licensee, and Licensor may respond to any claims or litigations in its own name, or in the name of Licensee or in the name of both Licensor and Licensee.
6.4 Licensee agrees that, once it becomes aware of any infringement of the rights of Licensor to 51net Domain Name, Licensee shall immediately notice Licensor in writing, and it is Licensor's decision as to whether any action should be taken against such infringement.
6.5 Licensee agrees that it shall only use 51net Domain Name in accordance with this Agreement and it shall not use 51net Domain Name in any manner which, in the opinion of Licensor, is fraudulent, misleading or otherwise detrimental to 51net Domain Name.
ARTICLE VII QUALITY OF 51NET WEBSITE
7.1 Licensee shall use its best endeavors to improve the quality of 51net Website
during the operation of the website so as to maintain and improve the goodwill and reputation represented by 51net Domain Name.
ARTICLE VIII COMPETITIVE DOMAIN NAME
8.1 In the event that the domain names currently used or to be used by Licensee or its affiliates conflict with 51net Domain Name hereunder, Licensor has the right to terminate this Agreement with a prior written notice of thirty (30) days to Licensee.
ARTICLE IX EFFECTIVE DATE, EFFECTIVENESS AND EXTENSION
9.1 This Agreement shall be executed on and become effective as of the date first written above. Unless otherwise terminated early pursuant to this Agreement, the term of this Agreement shall be two (2) years.
9.2 This Agreement may be extended upon the written consent of Licensor.
ARTICLE X TERMINATION
10.1 This Agreement shall be terminated upon the expiration of the term of this Agreement, unless extended in accordance with this Agreement. 10.2 In the event that any party violates this Agreement and fails to remedy such violations within thirty (30) days of the receipt of a written notice from the other party requesting the remedy, the non-defaulting party may terminate this Agreement by written notice to the defaulting party. 10.3 Article 4 hereof shall survive the termination of this Agreement. ARTICLE XI EFFECTIVENESS OF TERMINATION 11.1 Immediately upon the termination of this Agreement, Licensee shall return to Licensor all the rights granted by Licensor to Licensee under this Agreement and Licensor shall have the right to grant others the license to use 51net Domain Name and Licensee shall not use 51net Domain Name in any way. |
ARTICLE XII TAXES
12.1 Any taxes incurred due to the execution and performance of this Agreement shall be borne by parties respectively in accordance with relevant laws and regulations. ARTICLE XIII LIABILITIES OF BREACH OF AGREEMENT 13.1 In the event that any breach of this Agreement by a party causes losses and damages to the other party, the defaulting party shall be liable and compensate the non-defaulting party for all losses and damages. 13.2 Any allowance, grace period and deferred exercise of the rights entitled under this Agreement granted by one party in connection with the other party's default or delay shall not be construed as a waiver of the same of the right of such party. ARTICLE XIV FORCE MAJEURE EVENT 14.1 The Force Majeure Event hereunder refers to governmental act, fire, explosion, typhoon, flood, earthquake, tide, lightning, war or any other events which are unforeseeable by and beyond the control of any party hereto. In the event of a Force Majeure Event, the party affected by such event shall immediately notice the other party. 14.2 In the event of occurrence of Force Majeure Event, no party shall be held liable for the damages, losses or increased expenses arising from such party's failure of or delay in the performance of this Agreement due to the Force Majeure Event, and the failure of or delay in the performance of the Agreement due to the Force Majeure Event shall not be deemed as a breach of this Agreement. The party affected by the Force Majeure Event shall take all appropriate measures to set off or minimize the effect of the Force Majeure Event, and it shall use the best efforts to continue to perform the obligations the performance of which has been suspended or delayed. After the Force Mejeure Event is eliminated, both parties agree that they shall use their best endeavors to continue to perform this Agreement. ARTICLE XV NOTICE 15.1 Any notice made under this Agreement shall be delivered to the other party by personal delivery, via facsimile or by registered mail. A notice, if sent by registered mail, shall be deemed to have been served on the date recorded on the 8 |
return receipt, if sent by personal delivery or via facsimile, shall be deemed to have been served on the date immediately following the date on which such notice is sent. In the event that the notice is sent via facsimile, the original of such notice shall be sent by registered mail or by personal delivery immediately after the transmission. ARTICLE XVI TRANSFER; PLEDGE 16.1 Without the prior written consent of Licensor, Licensee shall not transfer, sublicense, or pledge any of its rights and obligations (including but not limited to Domain Name License) under this Agreement or otherwise impose any security interests upon the same. ARTICLE XVII GOVERNING LAW 17.1 The parties hereto agree that this Agreement shall be governed by the PRC laws. ARTICLE XVIII DISPUTES RESOLUTION 18.1 All disputes arising from or in connection with this Agreement shall be resolved through friendly consultation between the parties hereto, failing which, either party may submit the dispute to China International Economic and Trade Arbitration Commission ("CIETAC") in Beijing for arbitration in accordance with then effective arbitration rules of CIETAC. The arbitration award shall be final and binding upon both parties hereto. 18.2 In the event that any disputes occur due to interpretation and performance of this Agreement or any disputes are under the arbitration, both parties hereto shall continue to perform their respective duties and obligations under this Agreement not subject to the disputes. ARTICLE XIX MODIFICATION AND AMENDMENTS 19.1 Both parties may modify or supplement this Agreement by written agreement. Any modification of and/or supplement to this Agreement constitute an integral part of this Agreement, and shall have the same legal effect with this Agreement. |
ARTICLE XX SEVERABILITY
20.1 The invalidity of any provision under this Agreement shall not affect the effect and validity of other provisions hereunder. ARTICLE XXI MISCELLANEOUS 21.1 The parties hereto have caused their respective authorized representatives to execute and affix their respective company seals to this Agreement on the date first written above, on which date this Agreement shall become effective. This Agreement shall be written in two (2) counterparts, one for Licensor and one for Licensee. Both counterparts shall have the same legal effect. |
LICENSOR: 51NET.COM INC.
Authorized representative:
LICENSEE: SHANGHAI RUN AN LIAN INFORMATION CONSULTANCY COMPANY LIMITED
Authorized representative:
EXHIBIT 10.13
CALL OPTION AGREEMENT
Between
BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED
and
51NET.COM INC.
Call Option Agreement
This Call Option Agreement (the "AGREEMENT") is made and entered into as of August 1, 2002 by and between:
(1) BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED, a limited liability company organized and existing under the PRC Law, with its registered office at the premises of the Government of Yujiawu Hui Nationality Township, Tongzhou District, Beijing, PRC (the "PARTY A"); and
(2) 51NET.COM INC., a company organized and existing under the laws of the British Virgin Islands, with its registered office at c/o Offshore Incorporation Centre, P.O. Box 957, Road Town, Tortola, British Virgin Islands (the "PARTY B").
WHEREAS:
(1) Qianjin Network Information Technology (Shanghai) Company Limited ("TECH JV"), a Chinese-Foreign joint venture company organized and existing under the PRC Law, and its business scope is to design and develop software, multi-media and network system, related applications and relevant information services, design and produce Internet advertisements, launch Internet advertisements through www.51job.com, and provide career services and human resources (HR) services (operated with licenses, if required);
(2) Shanghai Qianjin Culture Communication Company Limited ("ADCO"), a limited liability company organized and existing under the PRC Law, and its business scope is to design and produce all kinds of advertisements, and represent as agency for domestic advertisement (operated with licenses);
(3) Party A owns 1% of the total issued and outstanding shares of Tech JV, and 20% of the total issued and outstanding shares of AdCo; and
(4) Party A desires to sell to Party B and/or a company or person designated by Party B and Party B and/or a company or person designated by Party B desires to purchase from Party A 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo subject to the PRC laws.
NOW THERFORE, upon friendly consultations and based on a principle of equality and mutual benefits, Party A and Party B hereof agree as follows:
ARTICLE I DEFINITIONS
1.1 Unless otherwise defined hereof, the following terms shall have the following meanings:
"APPROVAL" any approval, consent, license, permit obtained from and/or issued by any PRC administrative authority in accordance with the PRC Law, including without limitations the approval of government authority of foreign trade and economy regarding the establishment of foreign investment enterprises ("FIE") and any change accordingly; "OPTION" the right of Party B and/or the company or person designated by Party B to acquire from Party A 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo in accordance with the terms and conditions of this Agreement; "PRC" the Peoples' Republic of China, for purposes of this Agreement, excluding Hong Kong, Macao and Taiwan; "PRC LAW" all the laws, regulations and decisions made and promulgated by any PRC legislature, and all the administrative regulations, rules and measures and other official documents legally binding (on the parties hereto); "REGISTRATION" any legal registration with relevant PRC authorities upon the application in accordance with the PRC Law, including without limitations the registration with relevant administration for industry and commerce for the establishment and change of the FIEs; "SHARES" the equity interests which investor holds by contributing to the registered capital of the company or purchasing or otherwise lawfully acquiring the capital contribution from the original investor of the company. The percentage of the equity shares held by a shareholder in the company shall be equal to his or her proportionate contribution to the registered capital of the company. |
ARTICLE II OPTION
2.1 Party A hereby irrevocably grants Party B the Option, after which Party B shall have the right to purchase from Party A 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo held by Party A.
2.2 Subject to the PRC Law, Party B and/or a company or person designated by
Party B shall have the right to exercise the Option under the terms and conditions of this Agreement at any time during the term of this Agreement to acquire from Party A 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo.
2.3 Upon the request of Party B and/or a company or person designated by Party B to exercise the Option, Party A is obligated to transfer the Shares to Party B and/or the company or person designated by Party B.
ARTICLE III PRICE
3.1 Party A and Party B hereof agree that, for the Option granted by Party A and for the 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo acquired from Party A, Party B will pay Party A in the total amount of RMB1.2 Million as a consideration.
3.2 Party B and/or the company or person designated by Party B exercise all the Option, and acquire 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo from Party A. Regarding the foresaid share transfer, Tech JV and AdCo shall have gone through the formalities of approval and registration. Within five (5) days following the issuance of a new Approval Certificate and a Business License for Enterprise Legal Person from the approval and registration authorities (or the issuance of relevant approval and registration certificates by the authority in charge of the exercise of the Option), Party B shall deliver the full payment as stipulated in Article 3.1 hereof in a lump sum.
ARTICLE IV EXERCISE OF OPTION
4.1 Party A and Party B hereof agree that no entity or person other than Party B and/or the company or person designated by Party B shall have the right to exercise the Option.
4.2 Party B and/or the company or person designated by Party B shall have the right to exercise the Option by the means as permitted by law at any time after this Agreement becomes effective.
4.3 Subject to the PRC Law, Party B and/or the company or person designated by Party B shall be entitled to exercise the Option in whole or in part, and on one or more occasions pursuant to this Agreement.
4.4 When Party B and/or the company or person designated by Party B decides to
exercise the Option, it shall issue to Party A an OPTION NOTICE (which form is attached as Appendix 2). Once the Option Notice is issued, Party A shall transfer to Party B and/or the company or person designated by Party B the Shares as stipulated on the Option Notice pursuant to this Agreement and the Option Notice.
4.5 Party A shall, within 60 days following the issuance of the Option Notice, assist Party B and/or the company or person designated by Party B to assist Party B and/or the company or person designated by Party B in completing all the Approval and the Registration procedures necessary for the transfer of the Shares from Party A to Party B and/or the company or person designated by Party B.
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1 Party A hereof represents and warrants to Party B and/or the company or person designated by Party B that as at the date of this Agreement and at the time when Party B and/or the company or person designated by Party B exercises the Option in accordance with this Agreement:
5.1.1 Party A is a limited liability company organized and existing under the PRC Law;
5.1.2 Party A has gone through all necessary corporate procedures and has obtained all necessary authorizations and consents for the execution and performance of this Agreement;
5.1.3 Party A has paid up all its proportionate capital contribution in Tech JV and AdCo and Party A owns 1% of the total issued and outstanding equity interest in Tech JV and 20% of the total issued and outstanding equity interest in AdCo, and Party B has no obligation to contribute any contributions to Tech JV or AdCo after Party B acquires the Shares;
5.1.4 Party A represents and warrants that, the Shares it owns in Tech JV and AdCo are free from any option, pledge, or any other security interests or encumbrance with the same legal effect, or any undertakings or obligations of the foresaid encumbrance, and no option, pledge, or any other security interests or encumbrance with the same legal effect, or any undertakings or obligations of the foresaid encumbrance may be set on such Shares Party B's written consent; and without Party B's written consent, Party A shall not transfer any of the Shares it owns in Tech JV or AdCo to any third party;
51.5 the execution and performance of this Agreement will not cause Party A to violate any of its obligations in any legal binding documents that Party A is a party, or constitutes a violation of the PRC Law and/or any injunction or order or decree of any court, arbitration tribunal or administrative agency; and
5.1.6 no litigation, arbitration, governmental investigation, penalty or other similar material events is pending upon or is threatened to be initiated against Party A, which has or would have an adverse effect upon the matters stipulated hereof.
5.2 Party B hereof represents and warrants to Party A that as at the date of this Agreement:
5.2.1 Party B is a limited liability company organized and existing under the laws of the British Virgin Islands; and
5.2.2 the execution and performance of this Agreement will not cause Party B to violate any of its obligations in any legal binding documents that Party B is a party, or constitutes a violation of any injunction or order or decree of any court, arbitration tribunal or administrative agency.
ARTICLE VI INDEMNITY
6.1 If Party B hereto discovers, after the Shares have been transferred to Party B and/or the company or person designated by Party B in accordance with this Agreement, that any of the representations and warranties made by Party A under this Agreement is false or inaccurate, then Party B has the right to request Party A to correct or cure the false or inaccurate circumstance so that the non-conforming circumstance is consistent with the applicable representations and warranties hereof. In the event that Party A is unable to correct or cure such non-conforming circumstance by then, Party B shall have the right to cure the foresaid situation and any costs and expenses incurred shall be borne by Party A, and Party A shall also be liable for any and all losses and costs that Party B and/or the company or person designated by Party B has suffered in connection with or arising from the aforementioned false or inaccurate representation and/or warranties made by Party A.
6.2 If any party hereto defaults or violates any of its obligations hereof, the defaulting party shall compensate the non-defaulting party for any loss incurred or suffered by the non-defaulting party in connection with or arising from the aforementioned defaults or violations.
ARTICLE VII CONFIDENTIALITY
7.1 Unless otherwise stipulated hereof, Party A and Party B shall use their best endeavors to keep the following information in confidential, (1) any business information in connection with the other party which was obtained from the execution and performance of this Agreement, (2) any contents hereof and (3) matters in connection with any potential cooperation the parties may have. Any Party hereof shall limit its employees, agents and others to obtain the foresaid information only when it is necessary to perform the responsibilities and obligations of this Agreement.
7.2 Parties hereof shall cause its directors, officers and other employees and the directors, officers and other employees of any of its affiliates to abide by this clause.
ARTICLE VIII FORCE MAJEURE EVENT
8.1 Force Majeure Event shall refer to any uncontrollable, unforeseeable or unpreventable event of either party or both parties hereof, occurred after the date of this Agreement, which caused any party hereof unable to perform all or part of this Agreement, including without limitation explosion, fire, flood, earthquake, or other God act, and war, riots, or government act.
8.2 In the event of occurrence of Force Majeure Event, the party affected by the event shall promptly notify the other party without any delay and shall, within fifteen (15) days of the occurrence of the Force Majeure Event, provide a detailed report evidencing the same. The party affected by the Force Majeure Event shall take all appropriate means to eliminate the effect of the Force Majeure Event or minimize the loss to the other party. Both parties shall decide to postpone or terminate the performance of the Agreement, or waive part or all obligations and responsibilities of the affected party based on the effect of the Force Mejeure Event.
ARTICLE IX GOVERNING LAW
9.1 The execution, effectiveness, interpretation and performance of this Agreement and the disputes resolution in connection with this Agreement shall be governed by the PRC Law.
ARTICLE X DISPUTES RESOLUTION
10.1 All disputes arising from or in connection with this Agreement shall be resolved through friendly consultation between both parties hereof. If such dispute has not been settled within thirty (30) days after the consultation, either party may submit the dispute to China International Economic and Trade Arbitration Commission ("CIETAC") in Beijing for arbitration in accordance with then effective arbitration rules of CIETAC. The arbitration award shall be final and binding upon both parties hereto. 10.2 CIETAC as stipulated in Article 10.1 shall decide on which party bears the arbitration costs. 10.3 During the disputes, both parties hereto shall continue to perform the duties and obligations under this Agreement not the subject of the disputes. ARTICLE XI EFFECTIVENESS 11.1 This Agreement shall become effective upon the date when the respective authorized representative of Party A and Party B executes and signs on this Agreement. The term of this Agreement is ten (10) years. Upon a written agreement between both parties, this term may be extended afterwards. ARTICLE XII NOTICE 12.1 Any notice made under this Agreement shall be delivered to the other party by hand, facsimile or registered airmail. Seven (7) days of the postmark shall be deemed to be the date of the receipt if delivered by airmail, and the date of the delivery of a notice if delivered by hand. In the event that the notice is sent by facsimile, after the notice is sent by facsimile, the original copy shall be delivered to the other party by registered airmail or by hand. ARTICLE XIII LANGUAGE, COUNTERPARTS AND MISCELLANEOUS 13.1 This Agreement may not be changed, modified or amended in any way except by a written agreement agreed and signed by both parties. 13.2 In the event that any provision under this Agreement becomes ineffective, invalid or otherwise unenforceable, the effectiveness, validity and enforceability of other provisions hereunder shall not be affected or otherwise damaged, provided that both parties hereto shall immediately cease the performance of such ineffective, invalid or unenforceable provision, and correct 7 |
such provision, to the extend that such correction is the most close to the original intent of such provision, until such provision becomes effective, valid and enforceable. 13.3 This Agreement shall be written in two (2) counterparts in Chinese, one (1) for Party A and one (1) for Party B. 13.4 Party A and Party B shall cause their respective authorized representative to execute and sign on this Agreement as of the day and year first above written. |
PARTY A
BEIJING QIAN CHENG SI JIN ADVERTISING COMPANY LIMITED
By:__________________________
Name: Feng Lei
PARTY B
51NET.COM INC.
By:______________________
Name: Rick Yan
APPENDIX I CONFIRMATION LETTER
To: Beijing Qian Cheng Si Jin Advertising Company Limited ("Party A") 51net.com Inc. ("Party B")
Whereas, Party A and Party B has executed and signed on the Call Option Agreement, in which Party A grants to Party B and/or the company or person designated by Party B the option to acquire 20% equity interest in Shanghai Qianjin Culture Communication Communication Company Limited ("AdCo") owned by Party A ("Option"), and we, Qianjin Network Information Technology (Shanghai) Company Limited as a shareholder holding 80% equity interests in AdCo hereof confirm the following:
1. we agree that Party A grants to Party B and/or the company or person designated by Party B the option to acquire 20% equity interests in AdCo;
2. in the event that Party B exercises or designates other company or person rather than us to exercise the Option, we hereby waive the first right of refusal;
3. if, when Party B exercises the Option, the PRC Law requires Party B to hold at least 25% equity interests in AdCo, then we hereof agree transfer part of the equity interests we owned in AdCo to satisfy such requirement;
4. we hereof undertakes that, in order to adjust the equity ratio of all shareholders in AdCo, we will sign share transfer agreements and other documents with Party B and/or other company or person designated by Party B who exercise the Option;
5. we will use our best efforts to cause AdCo to obtain any approval from the relevant PRC authorities regarding the share transfer, and complete the registration in change at the administration for industry and commerce; and
6. after the execution of the Option Agreement, we will not, without Party B's written consent, (i) transfer the Shares to any third party or impose any pledge on the Shares, or otherwise dispose the Shares; (ii) conduct any acts or nonfeasance which may cause any loss to the Option and/or any decrease in value of the equity interests held by Party A; (iii) establish or otherwise cooperate with others as a dormant partner or in a different name to establish a company conducting same or similar business with the business of AdCo.
Shareholder:
Qianjin Network Information Technology (Shanghai) Company Limited
Date:
APPENDIX II OPTION NOTICE
To: Beijing Qian Cheng Si Jin Advertising Company Limited
To Whom It May Concern:
In accordance with the Call Option Agreement entered into by and between Beijing Qian Cheng Si Jin Advertising Company Limited and us, 51net.com Inc., we hereof inform that we decide to exercise / designate [ ] to exercise [all] or [(__)% of] the Option.
51net.com Inc.
By: ________________________
Authorized representative:
Title:
Date:
AMENDMENT TO CALL OPTION AGREEMENT
Beijing Qian Cheng Si Jin Advertising Company Limited ("Party A") and 51net.com Inc. ("Party B") made and entered into the Call Option Agreement ("Option Agreement") on August 1, 2002 and the Supplement to Call Option Agreement ("Supplemental Agreement") on May 3, 2004. Party A and Party B hereto agree to enter this agreement as an amendment to the Option Agreement and the Supplemental Agreement ("Amendment Agreement") as of May 3, 2004, as follows:
1. Article 3.1 of the Option Agreement provided that "Party A and Party B hereof agree that, for the Option granted by Party A and for the 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo acquired from Party A, Party B will pay Party A in the total amount of RMB1.2 Million as consideration"
The Parties hereby agree that the above provision should be amended as:
"Party A and Party B hereof agree that, for the Option granted by Party A and for the 1% of the total issued and outstanding shares of Tech JV and 20% of the total issued and outstanding shares of AdCo acquired from Party A, Party B will pay Party A an aggregate amount of RMB1.2 Million as consideration. If Party B and/or its designated company or individual fails to obtain the approval to acquire the foresaid shares at such price under the then applicable PRC laws, the Parties agree that Party B and/or its designated company or individual will purchase the foresaid shares at the lowest price to the extent permitted by the then applicable PRC laws."
2. Other provisions under the Option Agreement and the Supplemental Agreement shall remain effective.
3. This Amendment Agreement is a part of the Option Agreement and the Supplemental Agreement and shall have the same legal effect.
4. This Amendment Agreement becomes effective upon the day of execution by the respective authorized representative of Party A and Party B.
Party A: Beijing Qian Cheng Si Jin Advertising Company Limited
By: ______________________________
Name:
Title:
Party B: 51net.com Inc.
By: ______________________________
Name:
Title:
SUPPLEMENT TO CALL OPTION AGREEMENT
Beijing Qian Cheng Si Jin Advertising Company Limited ("Party A") and 51net.com Inc. ("Party B") made and entered into the Call Option Agreement ("Option Agreement") on August 1, 2002. Party A and Party B hereto agree to enter this agreement as a supplement to the Option Agreement ("Supplemental Agreement") as follows:
1. Party A agrees to grant Party B and/or the company or individual designated by Party B the option to purchase all the equity interest held by Party A in the following companies: (i) 30% equity interest in Wuhan Mei Hao Qian Cheng Advertising Company Limited, (ii) 10% equity interest in each of the following companies: Dalian Mei Hao Qian Cheng Advertising Company Limited, Hangzhou Mei Jin Advertising Company Limited, Chongqing Qian Cheng Wu You Advertising Company Limited, Kunming Mei Hao Qian Cheng Advertising Company Limited, Shanghai Cheng An Human Resources Company Limited, Shanghai Wang Cai Trading Company Limited, and Hefei Wu You Culture Communication Company Limited, (iii) all equity interest to be held by Party A in any entities which Party A may establish in the future.
2. Party A and Party B hereto agree that the price to be paid by Party B and/or the company or individual designated by Party B in consideration of the equity interest set forth in clause 1 above shall be the lowest price permitted under the laws.
3. All the provisions under the Option Agreement shall apply to all matters hereunder, unless otherwise provided herein.
4. Shanghai Qianjin Culture Communication Company Limited, another shareholder of the companies listed in (1) and (2) in Clause 1 above, has agreed to the grant of option to Party B by Party A in accordance with the Option Agreement and this Supplemental Agreement. The confirmation issued by Shanghai Qianjin Culture Communication Communication Company Limited is attached hereto as Appendix A.
5. This Supplementary Agreement is a part of the Option Agreement and shall have the same legal effect.
6. This Supplementary Agreement becomes effective upon the day of execution by the respective authorized representative of Party A and Party B.
Party A: Beijing Qian Cheng Si Jin Advertising Company Limited
By: ______________________________
Name:
Party B: 51net.com Inc.
By: ______________________________
Name:
APPENDIX A CONFIRMATION
To: Beijing Qian Cheng Si Jin Advertising Company Limited ("Party A") 51net.com Inc. ("Party B")
Whereas, Party A and Party B entered into the Call Option Agreement on August 1, 2002, and the Supplemental Agreement on May 3, 2004 (hereinafter referred to collectively as the "Agreement"), whereby Party A grants Party B and/or the company or individual designated by Party B the option to purchase all the equity interest held by Party A in the following companies: (i) 30% equity interest in Wuhan Mei Hao Qian Cheng Advertising Company Limited, (ii) 10% equity interest in each of the following companies: Dalian Mei Hao Qian Cheng Advertising Company Limited, Hangzhou Mei Jin Advertising Company Limited, Chongqing Qian Cheng Wu You Advertising Company Limited, Kunming Mei Hao Qian Cheng Advertising Company Limited, Shanghai Cheng An Recruitment Services Company Limited, Shanghai Wang Cai Trading Company Limited, and Hefei Wu You Culture Communication Company Limited, and (iii) all equity interest to be held by Party A in any entities which Party A may establish in the future.
NOW, THEREFORE, as the shareholder of the foresaid companies ("Subsidiaries") listed in Items (1) and (2) above, we, Shanghai Qianjin Culture Communication Company Limited hereof confirm the following:
1. we agree to the grant of the foresaid option by Party A to Party B and/or the company or individual designated by Party B;
2. in the event that Party B exercises or designates other company or individual other than us to exercise the option, we hereby waive the first right of refusal to purchase such equity interest;
3. we hereby undertake that, in order to adjust the equity ratio of the shareholders in such Subsidiaries, we will enter into share transfer agreements and other documents with Party B and/or other company or individual designated by Party B who exercise the option;
4. we will use our best efforts to cause such Subsidiaries to obtain the approval of relevant PRC authorities regarding the share transfer, and complete the registration procedures for any change with the administration for industry and commerce; and
5. we will not, without Party B's written consent, (i) transfer the equity interest to any third party or create any pledge on the equity interest, or otherwise dispose of the equity interest; (ii) conduct any acts or omissions which may hamper the option and/or decrease the value of the equity interest held by Party A.
Shareholder: Shanghai Qian Jin Culture Communication Company Limited By: ______________________________ Date: May 3, 2004
EXHIBIT 10.14
EQUITY INTEREST TRANSFER AGREEMENT
This Equity Interest Transfer Agreement ("AGREEMENT") is made and entered into as of April 5, 2004 by and between:
51NET.COM, INC. ("TRANSFEROR"), a company organized under the laws of the British Virgin Islands, with its registered office at c/o P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands, and its legal representative as ZHEN Rong Hui;
WUHAN MEI HAO QIAN CHENG ADVERTISING COMPANY LIMITED ("TRANSFEREE"), a company organized under the laws of the People's Republic of China, with its registered office at Room 4202 World Trade Building, 344 Jie Fang Avenue, Jianghan District, Wuhan, and its legal representative as FENG Lei, and a part of equity interests of the Transferee controlled, indirectly, by Qian Jin Network Information Technology (Shanghai) Company Limited.
WHEREAS:
1. Qian Jin Network Information Technology (Shanghai) Company Limited ("COMPANY"), a Chinese-Foreign joint venture company organized under the laws of the People's Republic of China by the Transferor and Beijing Qian Cheng Si Jin Advertising Company Limited ("QIAN CHENG SI JIN"), of which the registered capital is US$5,000,000.00, with its registered office at Suite 2307 Lucky Mansion, 660 Shangcheng Road, Pudong New District, Shanghai, China, with its business license number of Qihehupuzongfuji No.314997 (Pudong), with its legal representative of ZHEN Ronghui, and the Transferor and Qian Cheng Si Jin owns 99% and 1% equity interests of the Company, respectively;
2. Transferor agrees to transfer to the Transferee, and the Transferee agrees to accept 48% equity interests of the Company owned by the Transferor;
3. Qian Cheng Si Jin has waived its first right of refusal for the aforesaid 48% equity interests of the Company, and agrees that the Transferee may purchase the aforesaid equity interests as set out in the Consent Letter provided in Appendix I;
4. After the Transferee obtains the aforesaid equity interests from the Transferor, upon the approval of relevant approval authorities and the terms, conditions, and of the transaction comply with the requirements of the Transferor, then subject to the laws of the PRC the Transferor has the right to redeem the aforesaid equity interests obtained by the Transferee in accordance with this Agreement, and the Transferee shall warrant to the Transferor that it will transfer the aforesaid equity interests to the Transferor by then.
NOW THERFORE, in accordance with the relevant PRC laws and regulations, through friendly consultations, and based on a principle of mutual benefits, the parties hereof agree as follows:
ARTICLE I DEFINITION
1.1 Unless otherwise defined above or below, the following terms shall have the following meanings:
"SHARE" or "EQUITY INTEREST" means the equity interest which investor holds by contributing to the registered capital of the company or purchasing or otherwise lawfully acquiring the capital contribution of the original investor of the company. The percentage of the equity shares held by a shareholder in the Company shall be equal to his or her proportionate contribution to the registered capital of the company;
"REDEMPTION" means, after the Transferor transfers the 48% equity interests of the Company in accordance with this Agreement, Transferor and/or its designee redeems the aforesaid equity interests transferred to Transferee in accordance with this Agreement, upon the approval of the relevant approval authorities and subject to PRC laws;
"PRC LAWS" means all the laws, regulations and decisions made and promulgated by any PRC legislature, and all the administrative regulations, rules and measures and other binding official documents;
"APPROVAL" means any approval, consent, license, permit obtained from and/or issued by any PRC administrative authority in accordance with the PRC Law, including but not limited to the approval of the administration for commerce regarding the establishment of foreign invested enterprises ("FIE") and any changes thereof;
"REGISTRATION" means any application in accordance with PRC Law for legal registration with relevant PRC authorities, including but not limited to the registration with a relevant administration for industry and commerce for the establishment and change of the FIEs;
"PRC" means the People's Republic of China;
"US DOLLAR" or "US$" or "USD" means the legal currency of the United States;
"RENMINBI" or "RMB" means the legal currency of the People's Republic of China;
"PARTY" means any party of this Agreement and "PARTIES" mean the Transferor and
the Transferee collectively.
1.2 Unless otherwise defined, references to articles, clauses, and Appendix are to the articles, clauses of and appendix to, this Agreement.
1.3 Headings are for ease of reference only and shall not affect the interpretation of this Agreement.
ARTICLE II SHARE TRANSFER
2.1 Transferor hereof agrees to transfer 48% equity interests of the Company and the relevant rights and benefits attached to the Shares to the Transferee in accordance with the terms and conditions hereof, and the Transferee agrees to accept such Shares. After the completion of the Share transfer, the Transferor will hold 51% equity interests of the Company and Qian Cheng Si Jin will hold 1% equity interest of the Company.
ARTICLE III TRANSFER PRICE AND REGISTERED CAPITAL
3.1 Parties hereof agree that, for the 48% equity interests transferred to the Transferee, Transferee shall pay Transferor RMB1,000,000.00. After the completion of the transfer, the registered capital of the company will remain the same.
ARTICLE IV COMPLETION AND PAYMENT
4.1 Parties hereof agree that, upon the date when all the conditions as provided hereunder are fulfilled, the Transferee will hold the 48% equity interests originally owned by the Transferor, after which the Transferor holds 51% equity interests, and the Transferee holds 48% equity interests of the Company, and the Parties shall enjoy the respective rights and bear respective responsibilities in accordance with their proportionate equity interest ratio:
(a) Approval regarding this Agreement having been issued by the relevant approval authority;
(b) relevant industry and commerce administration registration procedures regarding the Share transfer as provided hereof having been completed.
4.2 Transferee agrees that it will submit the entire transfer price as provided in Article 3.1 within three (3) months upon the execution of this Agreement.
ARTICLE V REDEMPTION OBLIGATION UPON COMPLETION
5.1 Parties hereof agree that, after the Transferee obtains 48% equity interests of the Company from the Transferor in accordance with this Agreement, subject to PRC Law and upon the Approval of the relevant authority, Transferor and/or its designee shall, at any time within the effective term of this Agreement, redeem the 48% equity interests from the Transferee in a lump sum or in installments in accordance with this Agreement and other agreements entered into by the Parties, in the event that Transferor is satisfied with the terms and conditions of the transaction. Transferee warrants to agree to transfer the Share to the Transferor and/or its designee.
5.2 Upon the redemption described above by the Transferor and/or its designee, the Transferor and/or its designee shall issue a written notice for the Share Redemption. Upon the issuance of the notice, Transferee shall transfer the Shares as set out in the notice to the Transferor and/or its designee in accordance with this Agreement, the notice and other agreements entered into by the Parties.
5.3 Transferee shall, within 60 days of the issuance of the written Redemption notice of the Transferor and/or its designee, assist the Transferor and/or its designee to complete all necessary Approval and Registration procedures for the Redemption of Shares that are held by the Transferee.
ARTICLE VI REPRESENTATIONS AND WARRANTIES
6.1 Transferor hereof undertakes and warrants that:
(a) it is a company duly organized and validly existing under the laws of the British Virgin Islands;
(b) at the time of the execution of this Agreement, it owns 99% equity interests of the Company, and it has full right, power and authorization to execute and perform this Agreement;
(c) at the time of the execution of this Agreement, the equity interests it owns in the Company are free from any mortgage, pledge, or any other security interests or encumbrance in other forms, or any undertakings of similar third party interests;
(d) after its authorized representative executes this Agreement, the provisions hereof shall constitute the legal, effective and enforceable
obligations upon the Transferor;
(e) neither the execution of this Agreement, nor the performance of the obligations under this Agreement, conflicts or violates any laws and regulations or any governmental or administrative approval, or any agreement entered into between Transferor and any third party;
(f) to its knowledge, no litigation, arbitration, or governmental, administrative or other investigation, or governmental investigation is pending or is threatened to be initiated, which is related to the matters hereof, or would have an adverse effect upon the execution or the performance of this Agreement; and
(g) it has disclosed all the documents related to the transaction stipulated hereof which are owned and controlled by the Transferor, and the documents it provided do not contain any false statements and representations or omissions as to the material matters.
6.2 Transferee hereof undertakes and warrants that:
(a) it is a company duly organized and validly existing under the PRC laws;
(b) it has full right, power and authorization to execute and perform this Agreement, and it has all the right, authorization, and approvals to fully perform each of its obligations under this Agreement;
(c) after its authorized representative executes this Agreement, the provisions hereof shall constitute the legal, effective and enforceable obligations upon the Transferee;
(d) neither the execution of this Agreement, nor the performance of the obligations under this Agreement, conflicts or violates any laws and regulations or any governmental or administrative approval, or any agreement entered into between Transferee and any third party;
(e) to its knowledge, no litigation, arbitration, or governmental, administrative or other investigation, or governmental investigation is pending or is threatened to be initiated, which is related to the matters hereof, or would have an adverse effect upon the execution or the performance of this Agreement; and
(f) it has disclosed all the documents related to the transaction stipulated hereof which are owned and controlled by the Transferee, and the
documents it provided do not contain any false statements and representations or omissions as to the material matters.
ARTICLE VII LIABILITIES FOR BREACH OF CONTRACT
7.1 Occurrence of any of the following circumstances constitutes a breach to this Agreement:
(a) breaching of any provisions hereof;
(b) violation of any statements, warranties or undertakings made in this Agreement, or the making of any false or inaccurate representations, warranties or undertakings hereof; and
(c) transfer any rights and obligations under this Agreement without the other Party's prior written consent.
7.2 Except as stipulated in Article 7.3 hereof, in the event that any Party commits any default or breach of the provisions in Article 7.1, the other Party has the right to request the breaching Party for the compensation for any losses and damages caused by such breach.
7.3 Except as stipulated in Article 7.2, if the Transferee fails to fulfill its obligations for the entire payment of the transfer price as stipulated in Article 3.1 hereof, then the Transferor shall have the right to either redeem the Share as provided in Article 5 hereof, or terminate this Agreement without any compensation to the Transferee, which shall not affect the Transferor's rights to request compensation from the Transferee for any losses caused by the Transferee's breach.
ARTICLE VIII CONFIDENTIALITY
8.1 Either Party shall be obligated to keep confidential all the commercial information in any form whatsoever in connection with the other Party obtained from the other Party for the execution and performance of this Agreement, including any content of this Agreement and other cooperation matters proposed by the Parties. Either Party may disclose the aforesaid information to its employee, agent, distributor, supplier, and advisor (including its accountant and attorneys) as necessary to perform its obligations under this Agreement.
8.2 This clause does not apply to the disclosure of the following commercial information:
(a) that which is available and accessible to the public at the time of disclosure;
(b) that which is available and accessible to the public after disclosure for any reason other than the receiving party's fault;
(c) that which the receiving party can prove was in the possession of the receiving party prior to the disclosure of such information, and not obtained directly or indirectly from the other party; or
(d) that which is obligated to be disclosed to relevant government authorities, or stock exchange market in accordance with the laws, or disclosed to its immediate attorneys or financial advisors as needed in the ordinary course of business.
8.3 Parties shall cause its director, officer, and other employee and the director, officer and other employee of its subsidiary (if any) to comply with the obligations under this confidentiality clause, and shall request certain key employees to execute confidentiality agreements.
ARTICLE IX FORCE MAJEURE EVENT
9.1 The Force Majeure Event refers to events uncontrollable or unforeseeable by either Party hereof, or foreseeable but unpreventable by either Party, and which occurs after the date of execution of this Agreement causing either Party to be unable to completely or partially fulfill any stipulation hereof. The Force Majeure Event includes but is not limited to strike, riot, explosion, fire, earthquake, and other acts of God, war, civil disturbance, vandalism, expropriation, confiscation, governmental acts, any change in law, or failure to obtain the approval from the government authority for any reason other than the fault of either Party, and other major or sudden event.
9.2 In the event of a Force Majeure Event, the party affected by such event shall immediately notify the other party, and shall provide a detailed written report within fifteen (15) days of the occurrence of the event. The party affected by the event shall take all appropriate measures to eliminate or minimize the effect of the Force Majeure Event and minimize the loss to the over party arising thereof. Parties shall, in accordance with the effects of the event upon the performance of this Agreement, determine whether to terminate this Agreement, or postpone the performance of this Agreement, or waive in part or whole the obligations of the party affected under this Agreement.
ARTICLE X EFFECTIVENESS
10.1 This Agreement shall become effective after the respective authorized representative execute this Agreement and/or affix the company seals on this Agreement and upon the approval of relevant competent authorities. The term of this Agreement is ten (10) years, and it may be extended upon the agreement of the Parties in writing. ARTICLE X TERMINATION 11.1 This Agreement shall terminate upon the occurrence of any of the following |
circumstances:
(a) in the event that Parties reach the agreement in writing;
(b) in the event that either Party ("Defaulting Party") violate any provision hereunder, and upon the receipt of a default notice from the other Party ("Non-Defaulting Party"), the violation has not been cured within the time stipulated by the notice;
(c) in the event of any false or inaccurate statement and representation by either party;
(d) in the event that this Agreement becomes void and null, or unenforceable, or is announced to be void and null, or enforceable, or is required to be amended by any government authority and such amendment is not acceptable to either Party;
(e) in the event that the Transferee fails to pay the entire transfer price in accordance with Article 3.1 and 4.2, or in the event of any bankruptcy, liquidation, dissolution, suspension or cessation of business, or insolvency occurring to Transferee;
(f) in the event that the occurrence or effect of a force majeure event
adversely affects the ability of either Party to perform this Agreement, and the Parties fail to find a reasonable solution to solve the matter within thirty (30) days of the occurrence of the force majeure event. 11.2 In the event of an occurrence stipulated in Article 11.1(a), (b), (e) or (g), any Party has the right to terminate this Agreement with a written notice to the other Party; in the event of the occurrence stipulated in the foresaid Article 8 |
11.1(c), or (d), then only the Non-Defaulting Party has the right to terminate this Agreement with a written notice to the other Party; and in the event of the occurrence of the foresaid Article 11.1(f), then only the Transferor has the right to terminate this Agreement with a written notice to the other Party. 11.3 The termination notice becomes effective on the fifteen (15) days after the notice is served to the noticed party as stipulated in Article 13. 11.4 In the event of the termination of this Agreement for a reason as set out in this Article 11, then: (a) either Party shall return any shares or share transfer price obtained from the other Party as a result of the performance of this Agreement; (b) the Party at fault shall compensate the other Party for any losses caused due to its fault, and in the event that both Parties are at fault, each Party shall compensate the other Party to the extent of its respective fault liability. 11.5 The right to termination this Agreement under this Article 11 shall not adversely affect any other rights or remedies available under this Agreement to the party requesting the termination. ARTICLE XII GOVERNING LAW AND DISPUTES RESOLUTION 12.1 The execution, effectiveness, interpretation, performance, and enforceability of this Agreement, and dispute resolution in connection with this Agreement shall be governed by PRC Law. 12.2 Any disputes arising from the interpretation or performance of this Agreement shall be resolved through friendly consultations between the Parties hereof. If such dispute has not been settled within sixty (60) days after commencement of friendly consultation, or within a longer period of time as agreed to by the Parties, either Party may submit the dispute to China International Economic and Trade Arbitration Commission ("CIETAC") in Beijing for arbitration in accordance with then effective arbitration rules of CIETAC. The arbitration award shall be final and binding upon both parties hereto. During the course of any dispute or arbitration of any dispute, both parties hereto shall continue to perform the duties and obligations under this Agreement not the subject of the disputes. |
ARTICLE XIII NOTICE
13.1 Any notice hereunder shall be delivered by hand or via facsimile or registered airmail to the following addresses and numbers, unless a Party has notified the other Party of its changed addresses and numbers. Notices sent by registered airmail shall be deemed as being effectively served on the fifth day after the date dispatched. Notices delivered by hand or sent via facsimile shall be deemed as being effectively served on the next day after the delivery or transmission. If transmitted by facsimile, the original copy of the notices shall be sent by registered airmail or delivered by hand to the other Party immediately after the transmission. TRANSFEROR: 51NET.COM INC. Address: Suite 2602, The Center, 99 Queen's Road Central, Hong Kong Attention: Rick Yan Phone Number: 852-29077880 Facsimile: 852-29077881 TRANSFEREE: WUHAN MEI HAO QIAN CHENG ADVERTISING COMPANY LIMITED Attention: Mr. FENG Lei Address: c/o Zhaoshangju Building 32F, 118 Jianguo road, Chaoyang District, Beijing Postal Code: 100022 Phone Number: 8610-65669393 |
Facsimile: 8610-65669199
ARTICLE XIV MISCELLANEOUS
14.1 This Agreement may not be changed, modified or amended without the written agreements between the Parties signed by the authorized representatives, after which the amendment shall become an integral part of this Agreement and shall have the same legal effect upon the approval from the original approval authority. 14.2 Any tolerance or allowance granted by one Party to the other Party for any breach caused by the other Party, or any postponement in the exercise of a right or power enjoyed hereunder by one Party for the breach caused by the other Party, shall not be deemed as a waiver of such Party's rights and power and shall not prejudice, affect or otherwise restrict other rights and power enjoyable by such Party in accordance with this Agreement and relevant PRC 10 |
laws and regulations. Any separate or partial exercise of any rights, power or remedies enjoyed by one Party hereunder shall not prejudice such Party's further exercise of such right, power or remedy, and shall not prejudice such Party's exercise of other rights, powers or remedies. 14.3 The invalidity, nullity and unenforceability of any provision hereof shall not affect or prejudice the validity, effectiveness and enforceability of other provisions hereof. However, the Parties hereto shall cease the performance of such invalid, null and unenforceable provision and shall avoid the effects of such invalidity, nullity, and unenforceability to this Agreement to the maximum extent, as in accordance with the purposes of this Agreement. 14.4 This Agreement shall be transcribed in Chinese, written in five (5) counterparts, each Party shall hold one counterpart and the remaining copies shall be submitted to the approval authorities. |
IN WITNESS WHEREOF, the Parties or their respective authorized representative execute and sign this Agreement as of the day and year first above written.
TRANSFEROR: 51NET.COM, INC.
By: _____________________________
Authorized representative:
TRANSFEREE: WUHAN MEI HAO QIAN CHENG ADVERTISING COMPANY LIMITED
By: _____________________________
Authorized representative:
APPENDIX I CONSENT LETTER
To: 51net.com Inc.
Wuhan Mei Hao Qian Cheng Advertising Company Limited
Regarding the 48% equity interests of Qian Jin Network Information Technology (Shanghai) Company Limited owned and transferred by 51net.com Inc., we as a shareholder of the joint venture company hereof waive our first right of refusal for the aforesaid 48% equity interests, and we hereof agree for Wuhan Mei Hao Qian Cheng Advertising Company Limited to purchase such shares.
Beijing Qian Cheng Si Jin Advertising Company Limited (seal)
Date: April 5, 2004
EXHIBIT 21.1
51net.com Inc.
51net HR
51net Beijing
Wang Jin Information Technology (Shanghai) Co., Ltd.
Qianjin Network Information Technology (Shanghai) Co., Ltd.
Shanghai Qianjin Culture Communication Co., Ltd.
Wuhan Mei Hao Qian Cheng Advertising Co., Ltd.
Hangzhou Meijin Advertising Co., Ltd.
Kunming Mei Hao Qian Cheng Advertising Co., Ltd.
Dalian Mei Hao Qian Cheng Advertising Co., Ltd.
Chongqing Qian Cheng Wu You Advertising Co., Ltd.
Hefei Wu You Culture Communication Co., Ltd.
Ningbo Qianjin Culture Communication Co., Ltd.
Shanghai Wang Cai Trading Co., Ltd.
Shanghai Cheng An Human Resources Co., Ltd.
Beijing Qian Cheng Si Jin Advertising Co., Ltd.
Beijing Run An Information Consultancy Co., Ltd.
Shanghai Run An Lian Information Consultancy Co., Ltd.
Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form F-1 of our reports dated May 4, 2004 relating to the financial statements of 51job, Inc., which appear in such Registration Statement. We also consent to the references to us under the headings "Experts", "Summary Consolidated Financial and Operating Data" and "Selected Consolidated Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company Shanghai, People's Republic of China July 7, 2004 |