Option Agreement - Sohu ITC Information Technology (Beijing) Co. Ltd., Charles Zhang, Jinmei He
Execution Copy
--------------------------------------------------------------------------------
Option Agreement
--------------------------------------------------------------------------------
among
Sohu ITC Information Technology (Beijing) Co., Ltd.
and
Charles Zhang
and
Jinmei He
TransAsia Lawyers
June , 2000
<PAGE>
THIS OPTION AGREEMENT ("Agreement") is made on this day of June 2000 in
Beijing, People's Republic of China ("PRC")
among
(1) Sohu ITC Information Technology (Beijing) Co., Ltd., with its registered
address at Suite 1519, Tower 2, Bright China Chang An Building, 7
Jianguomennei Avenue, Beijing 100005, PRC ("Party A")
and
(2) Charles Zhang, a PRC citizen whose passport number is 2729176, and whose
residential address is Hui Hao Ge Apartments, Henderson Centre, 18
Jianguomennei Avenue, Beijing 100005, PRC ("Party B")
and
(3) Jinmei He, a PRC citizen whose PRC identification number is 510103700307736
and whose residential address is Room 2-301, Gan Xiu Building,
Zhuangjiabing Technology Institute, Fengtai District, Beijing 100072, PRC
("Party C")
and
(4) TransAsia Lawyers, with its registered address at Suite 752 Media Center,
11B Fuxing Road, Beijing 100038, PRC, as Escrow Agent ("Escrow Agent")
(individually a "Party" and collectively the "Parties").
WHEREAS
-------
A. Party A is a wholly foreign-owned enterprise, duly established and
registered in Beijing under the laws of the PRC. Party A's business scope
includes the development and production of computer software and hardware,
the development and provision of technical services relating to Internet
portal technology, e-commerce technology and electronic publishing
technology, the provision of related technical consulting services and the
sale of self-produced products.
B. Party B and Party C established Beijing Sohu Online Internet Information
Service, Ltd. ("Beijing Sohu") on 21 October 1998 in accordance with PRC
law to engage in computer software development, technology development and
services.
--------------------------------------------------------------------------------
-1-
<PAGE>
C. Party B and Party C, jointly hold the registered capital of Beijing Sohu
(the "Shares") in its entirety.
D. Sohu.com Inc., Party A's parent company, intends to license to Beijing Sohu
the right to use the word ".." in Beijing Sohu's company name.
E. In connection with the development of Beijing Sohu's business activities,
Party B and Party C received support from Party A in many areas, including
intellectual property rights, technology, capital, operational experience
and the training of personnel. The Parties desire to continue to develop
their existing relationship.
F. Party B and Party C have agreed to grant exclusively to Party A an option
to purchase the Shares (the "Option"), subject to the terms and conditions
set forth below.
THE PARTIES THEREFORE AGREE AS FOLLOWS:
ARTICLE 1: GRANT OF THE OPTION
-------------------------------
1.1 Purchase Option
---------------
Each of Party B and Party C hereby grants to Party A the Option to purchase
their respective Shares at the purchase price of RMB twenty thousand
(20,000) per one (1) percent of the registered capital of Beijing Sohu.
1.2 Term
----
This Agreement shall take effect as of the date of signing by the Parties
and shall remain in full force and effect until the earlier of (i) the date
on which all of the Shares have been purchased by Party A and (ii) the
twentieth anniversary of the date hereof.
ARTICLE 2: EXERCISE OF THE OPTION AND ITS CLOSING
--------------------------------------------------
2.1 Timing of Exercise
------------------
2.1.1 Each of Party B and Party C agrees that Party A may at any time,
and from time to time after the date hereof, exercise the Option,
in whole or in part, for an unlimited number of times, to acquire
all or a portion of their respective Shares, subject only to
applicable laws of the PRC, including any restrictions on foreign
investment.
--------------------------------------------------------------------------------
-2-
<PAGE>
2.1.2 For the avoidance of doubt, each of Party B and Party C hereby
agrees that Party A shall be entitled to exercise the Option for
an unlimited number of times, until all of the Shares have been
acquired by Party A.
2.1.3 Party B and Party C agree that Party A may designate any third
party to exercise the Option on its behalf, in which case Party A
shall provide written notice to Party B and Party C ten (10) days
in advance of any such exercise.
2.2 Transfer
--------
Party B and Party C agree that the Option shall be freely transferable, in
whole or in part, by Party A to any third party, and that, upon such
transfer, the Option may be exercised by such third party upon the terms
and conditions set forth herein, as if such third party were a party to
this Agreement, and that such third party shall assume the rights and
obligations of Party A hereunder.
2.3 Notice Requirement
------------------
2.3.1 If Party A wishes to exercise the Option, it shall send an
irrevocable written notice to Party B and Party C by no later
than ten (10) days prior to each Closing Date (as defined below),
specifying therein:
2.3.1.1 the date of the effective closing of such purchase
(a "Closing Date");
2.3.1.2 the name of the person in which the Shares shall be
registered;
2.3.1.3 the amount of Shares to be purchased from each of
Party B and Party C;
2.3.1.4 the mode of payment; and
2.3.1.5 a letter of authorisation, where a third party has
been designated to exercise the Option.
2.3.2 For the avoidance of doubt, it is expressly agreed among the
Parties that Party A shall have the right to exercise the Option
and elect to register the Shares in the name of another person.
2.4 Closing
-------
--------------------------------------------------------------------------------
-3-
<PAGE>
On each Closing Date, Party A shall pay to Party B and Party C the
applicable purchase price for the shares to be purchased on such Closing
Date on such Closing Date as provided in Article 1 above.
ARTICLE 3: COMPLETION
---------------------
3.1 Assignment Agreement
--------------------
Concurrently with the execution and delivery of this Agreement, and from
time to time upon the request of Party A, each of Party B and Party C shall
execute and deliver one or more assignments, each substantially in the form
set forth in Annex A hereto (each an "Assignment"), together with any other
documents necessary to give effect to the transfer to Party A or its
nominee of all or part of the Shares upon an exercise of the Option by
Party A (the "Ancillary Documents"). Each Assignment and the Ancillary
Documents are to be held in escrow by the Escrow Agent in accordance with
the procedures set forth in this Agreement. On each Closing Date following
the exercise of the Option by Party A, upon the payment of the applicable
purchase price for the Shares to be purchased on such Closing Date, the
Escrow Agent shall promptly release to Party A or its nominee the relevant
Assignments and Ancillary Documents relating to such Shares.
3.2 Board Resolution
----------------
Notwithstanding Section 3.1 above, concurrently with the execution and
delivery of this Agreement, and from time to time upon the request of Party
A, each of Party B and Party C shall execute and deliver one or more
resolutions of the board of directors and / or shareholders of Beijing
Sohu, each substantially in the form set forth in Annex B hereto (each a
"Resolution"), approving the following:
3.2.1 the transfer in the name of Party A or its nominee of all or part of
the Shares; and
3.2.2 any other matters as Party A may reasonably request.
Each Resolution is to be held in escrow by the Escrow Agent in accordance
with the procedures set forth in this Agreement. On each Closing Date
following the exercise of the Option by Party A, upon the payment of the
applicable purchase price for the Shares to be purchased on such Closing
Date, the Escrow Agent shall promptly release to Party A or its nominee the
relevant Resolution relating to such Shares.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES
------------------------------------------
--------------------------------------------------------------------------------
-4-
<PAGE>
4.1 Representations and Warranties
------------------------------
Each of Party B and Party C severally represents and warrants to Party A
that:
4.1.1 it has the full power and authority to enter into this Agreement;
4.1.2 its signing of this Agreement or fulfilling of any of its
obligations hereunder does not violate any laws, regulations and
contracts to which it is bound, or require any government
authorisation or approval;
4.1.3 there is no lawsuit, arbitration or other legal or government
procedures pending which, based on its knowledge, shall
materially and adversely affect this Agreement and the
performance thereof;
4.1.4 it has disclosed to Party A all documents issued by any
government department that might cause a material adverse effect
on the performance of its obligations under this Agreement;
4.1.5 it has not been declared bankrupt by a court of competent
jurisdiction;
4.1.6 its equity shareholding in Beijing Sohu is free and clear from
all liens, encumbrances and third party rights;
4.1.7 its equity shareholding will remain free and clear from all
liens, encumbrances and third party rights; it will not transfer,
donate, pledge, or otherwise dispose of its equity shareholdings
in any way;
4.1.8 the Option granted to Party A shall be exclusive, and neither
Party B nor Party C shall grant the Option or any similar rights
to a third party by any means whatsoever; and
4.1.9 neither Beijing Sohu's legal liabilities nor its financial
liabilities exceed RMB 50,000 in total.
Party B further represents and warrants to Party A that it owns 80% of the
Shares of Beijing Sohu, and Party C further represents and warrants to
Party A that it owns 20% of the Shares of Beijing Sohu. The Parties hereby
agree that representations and warranties set forth in Sections 4.1.1,
4.1.2, 4.1.3, 4.1.4, 4.1.5, 4.1.6, 4.1.7 and 4.1.8 shall be deemed to be
repeated as of each Closing Date as if such representations and warranties
were made on and as of such Closing Date.
4.2 Covenants and Undertakings
--------------------------
--------------------------------------------------------------------------------
-5-
<PAGE>
Each of Party B and Party C covenants and undertakes to Party A that:
4.2.1 it will bear all costs arising from executing each Assignment, the
Ancillary Documents and any other relevant documents required
therefor, and will complete all such formalities as are necessary to
make Party A or its nominee a full and proper shareholder of Beijing
Sohu. Such formalities include, but are not limited to, assisting
Party A with the submission of the Assignment to the relevant
administrative department of industry and commerce for the purpose
of amending the Articles of Association, changing the list of
shareholders and undertaking any other changes.
4.2.2 for a period of two (2) years from the date on which all of the
Shares are acquired by Party A:
4.2.2.1 it will not, either directly or indirectly, engage or be
engaged in or make investment in business which is the
same or similar to that of Beijing Sohu or Party A within
the PRC or any other jurisdictions wherein Beijing Sohu
operates;
4.2.2.2 it will not take employment with any person who is
engaged by Beijing Sohu or Party A, or with any person
directly or indirectly assisting any such person with
technical, commercial or professional advice;
4.2.2.3 it will not be engaged or otherwise involved as
principal, shareholder, employee or agent, whether
directly or indirectly, in any company, firm or business
which, with regards to any goods or services, is a
supplier to or a customer of Beijing Sohu or Party A; and
4.2.2.4 it will not at any time either on its own account or for
any person solicit business from any person who has dealt
with Beijing Sohu or Party A.
ARTICLE 5: TAXES
----------------
Each of the Parties undertakes to pay its portion of any taxes and duties
that might arise from the execution and performance of this Agreement.
ARTICLE 6: BREACH
-----------------
6.1 Generally
---------
--------------------------------------------------------------------------------
-6-
<PAGE>
In the event of a breach by any Party of its respective representations,
warranties, covenants or obligations under this Agreement, the breaching
Party shall compensate the non-breaching Parties for any actual losses
arising therefrom.
6.2 Default of Party B or Party C
-----------------------------
6.2.1 Notwithstanding Article 6.1 above, where Party B or Party C has
committed a breach of the relevant provisions of Article 1 or 4
above, Party A shall be entitled to
6.2.1.1 subject to the applicable laws of the PRC, including
any restrictions on foreign investment,
6.2.1.1.1 promptly exercise the Option, or designate
a third party to exercise the Option on
Party A's behalf, in part or in full in the
sole discretion of Party A for an unlimited
number of times, for the purchase price of
RMB twenty thousand (20,000) per one (1)
percent of the registered capital of
Beijing Sohu (the "Default Purchase
Price");
6.2.1.1.2 pay the relevant Default Purchase Price for
the Shares to be purchased pursuant to sub-
clause (i) above by wire transfer to a bank
account designated in writing by the Escrow
Agent (the "Escrowed Funds"), it being
understood that the Escrowed Funds are to
be held in escrow by the Escrow Agent for
each of Party B and Party C; and
6.2.1.1.3 instruct the Escrow Agent to release to
Party A all Assignments, Ancillary
Documents and Resolutions relating to the
Shares,
6.2.1.2 promptly disallow Beijing Sohu from using the word
"Sohu" in its name.
Upon the receipt of Party A's instruction set forth in
sub-clause (iii) above, the Escrow Agent covenants and
agrees to promptly release to Party A all Assignments,
Ancillary Documents and Resolutions relating to the
Shares, and upon the release of all such Assignments,
Ancillary Documents and Resolutions and the
consummation of the transfer of the ownership of the
Shares from each of Party B and Party C to Party A or
its nominee, the
--------------------------------------------------------------------------------
-7-
<PAGE>
Escrow Agent shall promptly release the Escrowed Funds
to B and Party C.
6.2.2 The remedies provided for in this Article 6 are not exclusive and
shall not limit any rights or remedies which may otherwise be
available to any Party by law.
ARTICLE 7: GOVERNING LAW AND DISPUTE SETTLEMENT
-----------------------------------------------
7.1 Governing Law
-------------
The execution, effectiveness, interpretation and performance of this
Agreement shall be governed by the laws of the PRC.
7.2 Friendly Consultation
---------------------
If a dispute arises in connection with the interpretation or performance of
this Agreement, the Parties shall attempt to resolve such dispute through
friendly consultations between them or mediation by a neutral third party.
If the dispute cannot be resolved in the aforesaid manner within thirty
(30) days after the commencement of such discussions, either Party may
submit the dispute to arbitration.
7.3 Arbitration
-----------
Any dispute arising in connection with this Agreement shall be submitted to
the China International Economic and Trade Arbitration Commission in
Beijing for arbitration in accordance with its rules. The arbitral award
shall be final and binding upon the Parties.
ARTICLE 8: CONFIDENTIALITY
--------------------------
8.1 Confidential Information
------------------------
The contents of this Agreement and the Annexes hereof shall be kept
confidential. No Party shall disclose any such information to any third
party (except for the purpose described in Article 2.2 and by a prior
written agreement among the Parties).
8.2 Exceptions
----------
--------------------------------------------------------------------------------
-8-
<PAGE>
If a disclosure is explicitly required by law, any courts, arbitration
tribunals, or administrative authorities, such a disclosure by any Party
shall not be deemed a violation of Article 8.1 above.
ARTICLE 9: MISCELLANEOUS
------------------------
9.1 Extension
---------
The Parties may enter into discussions regarding any extension of this
Agreement one (1) month prior to its expiration.
9.2 Entire Agreement
----------------
9.2.1 This Agreement constitutes the entire agreement and understanding
among the Parties in respect of the subject matter hereof and
supersedes all prior discussions, negotiations and agreements
among them. This Agreement shall only be amended by a written
instrument signed by all the Parties.
9.2.2 The Annexes attached hereto shall constitute an integral part of
this Agreement and shall have the same legal effect as this
Agreement.
9.3 Notices
-------
9.3.1 Unless otherwise designated by the other Party, any notices or
other correspondences among the Parties in connection with the
performance of this Agreement shall be delivered in person, by
express mail, e-mail, facsimile or registered mail to the
following correspondence addresses and fax numbers:
Party A : Sohu ITC Information Technology (Beijing)
Co., Ltd.
Address : Suite 1519, Tower 2 Bright China Chang An
Building, 7 Jianguomennei Avenue, Beijing,
PRC
Zip code : 100005
Telephone : (86 10) 6510 2160
Facsimile : (86 10) 6510 2159
Contact : Chief Financial Officer
person
Party B : Charles Zhang
Address : Hui Hao Ge Apartments, Henderson Centre, 18
Jianguomennei Avenue, Beijing, PRC
Zip code : 100005
Telephone : (86 10) 6510 2158
--------------------------------------------------------------------------------
-9-
<PAGE>
Facsimile : (86 10) 6510 2583
Party C : Jinmei He
Address : Room 2-301, Gan Xiu Building, Zhuangjiabing
Technology Institute, Fengtai District,
Beijing, PRC
Zip code : 100072
Telephone : (86 10) 6510 2162 ext. 236
9.3.2 Notices and correspondences shall be deemed to have been
effectively delivered:
9.3.2.1 at the exact time displayed in the corresponding
transmission record, if delivered by facsimile,
unless such facsimile is sent after 5:00 pm or on a
non-business day in the place where it is received,
in which case the date of receipt shall be deemed to
be the following business day;
9.3.2.2 on the date that the receiving Party signs for the
document, if delivered in person (including express
mail);
9.3.2.3 on the fifteenth (15th) day after the date shown on
the registered mail receipt, if sent by registered
mail;
9.3.2.4 on the successful printing by the sender of a
transmission report evidencing the delivery of the
relevant e-mail, if sent by e-mail.
9.4 Binding Effect
--------------
This Agreement shall be binding on the Parties and their successors and
assigns.
9.5 Language and Counterparts
-------------------------
This Agreement shall be executed in four (4) originals in English, with one
(1) original for Party A, one (1) original each for Party B and Party C,
and one (1) original for the Escrow Agent.
9.6 Days and Business Day
---------------------
A reference to a day herein is to a calendar day. A reference to a business
day herein is to a day on which commercial banks are open for business in
the PRC.
--------------------------------------------------------------------------------
-10-
<PAGE>
9.7 Headings
--------
The headings contained herein are inserted for reference purposes only and
shall not affect the meaning or interpretation of any part of this
Agreement.
9.8 Singular and Plural
-------------------
Where appropriate, the plural includes the singular and vice versa.
9.9 Unspecified Matter
------------------
Any matter not specified in this Agreement shall be handled through
discussions among the Parties and resolved in accordance with PRC law.
9.10 Survival of Representations, Warranties, Covenants and Obligations
------------------------------------------------------------------
The respective representations, warranties, covenants and obligations of
the Parties, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Party, and shall survive the
delivery and payment for the Shares.
--------------------------------------------------------------------------------
-11-
<PAGE>
This Agreement has been signed by the Parties or their duly authorised
representatives on the date first specified above.
FOR PARTY A :
Sohu ITC Information Technology (Beijing) Co., Ltd.
By (Name): ________________
Signature: ________________
Seal:
FOR PARTY B :
Charles Zhang
Signature: _______________
FOR PARTY C :
Jinmei He
Signature: _______________
FOR ESCROW AGENT :
TransAsia Lawyers
By : Qu Zhe
Signature : __________________
--------------------------------------------------------------------------------
-12-
<PAGE>
Annex A
------------------------
Assignment
------------------------
among
Mr Charles Zhang
and
Ms Jinmei He
and
[ the Assignee ]
TransAsia Lawyers
June , 2000
<PAGE>
--------------------------------------------------------------------------------
THIS ASSIGNMENT ("Assignment") is made on this [ ] day of [ ] in
Beijing, People's Republic of China ("PRC")
among
(1) Charles Zhang ("Party A"), a PRC citizen whose passport number is 2729176
and whose residential address is [ ]
and
(2) Jinmei He ("Party B"), a PRC citizen whose passport number is [ ],
and whose residential address is [ ]
and
(3) [ ] and [ ] (collectively "the Assignee"), [ ]
(individually a "Party" and collectively the "Parties").
WHEREAS
-------
A. Party A and Party B established Beijing Sohu Information Technology Co.,
Ltd. ("Beijing Sohu") on 21 October 1998 in accordance with the laws of the
PRC.
B. Party A and Party B, jointly hold the registered capital of Beijing Sohu
(the "Shares") in its entirety.
C. The total amount of Beijing Sohu's registered capital is RMB two million
(2,000,000), of which Party A contributed RMB one million six hundred
thousand (1,600,000), representing eighty percent (80.0%) of the same, and
Party B contributed RMB four hundred thousand (400,000), representing
twenty-five percent (20%) of the same.
D. Pursuant to an Option Agreement dated June , 2000 among Sohu ITC
Information Technology (Beijing) Co., Ltd. ("Sohu ITC"), Party A, Party B
and TransAsia Lawyers, as Escrow Agent, Party A and Party B agree to assign
to the Assignee, and the Assignee is willing to accept from each of Party A
and Party B its respective portion of the Shares, subject to the following
terms and conditions set forth below.
THE PARTIES THEREFORE AGREE AS FOLLOWS:
ARTICLE 1 : REPRESENTATIONS AND WARRANTIES
------------------------------------------
--------------------------------------------------------------------------------
-1-
<PAGE>
--------------------------------------------------------------------------------
Each of Party A and Party B represents and warrants that it lawfully holds 80.0%
and 20.0% respectively of the Shares, and that the same are free and clear from
any charges, liens, encumbrances and third party rights.
ARTICLE 2 : ASSIGNMENT
----------------------
2.1 Assignment
----------
In consideration of the payment by Sohu ITC to Party A and Party B of an
aggregate sum of RMB [ ], each of Party A and Party B hereby assigns
to the Assignee with immediate effect [ ] Shares, together with all
the rights and interests thereof, free and clear from any charges, liens,
encumbrances or other third party rights.
2.2 Debts
-----
This Assignment shall not reduce or cancel any existing debts of Beijing
Sohu.
2.3 Taxation
--------
Each of the Parties shall be responsible for the payment of its portion of
any taxes and duties that might arise in connection with this Assignment.
ARTICLE 3 : CONSENTS
--------------------
Each of Party A and Party B consents to promptly execute all such further
documents and take all actions as are necessary to give effect to this
Assignment, including, but not limited to assisting Beijing Sohu to complete the
procedures for securing on Beijing Sohu's behalf the necessary approval for the
Assignment and for amending its registration with the relevant administration
for industry and commerce.
ARTICLE 4 : BREACH
------------------
In the event of breach by any Party of its respective obligations under this
Assignment, it shall be liable to the other Parties for any actual losses that
may arise therefrom.
--------------------------------------------------------------------------------
HONGKONG: 37764.2
-2-
<PAGE>
--------------------------------------------------------------------------------
ARTICLE 5 : GOVERNING LAW AND DISPUTE SETTLEMENT
------------------------------------------------
5.1 Governing Law
-------------
The execution, validity, interpretation and implementation of this
Assignment shall be governed by the laws of the PRC.
5.2 Friendly Consultation
---------------------
If any dispute arises in connection with the interpretation or
implementation of this Assignment, the Parties shall first attempt to
resolve such dispute through friendly consultation among themselves and/or
through mediation by a neutral third party. If the dispute cannot be
resolved in the aforementioned manner within thirty (30) days after the
commencement of discussions, either Party may submit the dispute to
arbitration.
5.3 Arbitration
-----------
Any dispute shall be submitted to the China International Economic and
Trade Arbitration Commission in Beijing for arbitration in accordance with
its rules. The arbitral award shall be final and binding on the Parties.
ARTICLE 6 : MISCELLANEOUS
-------------------------
6.1 Effective Date
--------------
This Assignment shall become effective when it has been duly signed by the
Parties and procedures amending the registration have been completed with
the relevant administration for industry and commerce.
6.2 Entire Agreement
----------------
This Assignment constitutes the entire agreement among the Parties in
respect of the subject matter hereof and supersedes all prior discussions,
negotiations and agreements among them. This Assignment may only be amended
by a written instrument signed by the Parties.
6.3 Language and Counterparts
--------------------------
This Assignment is executed in seven (8) originals (2) originals in Chinese
shall be for the relevant authorities to complete the registration
amendment procedures.
6.4 Days
----
--------------------------------------------------------------------------------
HONGKONG: 37764.2
-3-
<PAGE>
--------------------------------------------------------------------------------
A reference to a day herein is to a calendar day.
6.5 Headings
--------
The headings contained herein are inserted for reference purposes
only and shall not affect the meaning or interpretation of any part of this
Assignment.
6.6 Singular and Plural
-------------------
Where appropriate, the plural includes the singular and vice versa; words
importing one gender include both genders and the neuter.
This Agreement has been signed by the Parties or their duly authorised
representatives on the date first specified above.
For Party A For Party B
Name : Charles Zhang Name : Jinmei He
Signature : Signature :
---------------- -----------------
For the Assignee
Name : [ ]
Signature :
-----------------
Name : [ ]
Signature :
-----------------
--------------------------------------------------------------------------------
-4-