WangYong_TermSheet by dandanhuanghuang


									                                           NDA Venture Partners, L.P.

                           SERIES A PREFERRED SHARE FINANCING

                                                 TERM SHEET

                                                 August 24, 2006
The intent of this Term Sheet is to describe, for negotiation purposes only, some key terms of
the proposed investment agreement by and among NDA Venture Partners, L.P. and its
associated entities (“NDA”), and Wangyong Holdings, Ltd. (“Holdco”), a limited liability
Cayman Islands company.

This Term Sheet is not a legally binding agreement between the Series A Investor, the Group
and the Founders and Senior Management with respect to the subject matter hereof, except
for the paragraphs below under the headings of “Confidentiality”, “Legal Jurisdiction” and
“Exclusivity.” A legally binding agreement between the parties will not occur unless and
until all necessary corporate approvals have been obtained by the parties hereof (as
applicable) and the parties have negotiated, approved, executed and delivered the appropriate
definitive agreements. Until execution and delivery of such definitive agreements, the parties
shall have the absolute right to terminate all negotiations for any reason without liability

Issuer:                                    Wangyong Holdings, Ltd. (“Holdco”), a Cayman Islands
                                           registered company. Holdco directly or indirectly owns,
                                           controls or has the exercisable option to obtain the controlling
                                           stake of a group of companies having their main business
                                           operations in the People’s Republic of China, including, but not
                                           limited to, Shanghai Wangyong Software Co., Ltd., and
                                           ______________ (“WFOE”) (collectively, “WANGYONG”,
                                           and together with Holdco known as the “Group”).
Series A Investor:                         NDA Venture Partners, L.P. and its associated entities (“NDA”).
Existing Shareholders:                     Prior to the issuance of the Series A Preferred, the existing
                                           shareholders own Common Shares in Holdco, as follows:
                                           Zhang Jinsong – [65]%
                                           Zhang Chunlei – [35]%
Amount of Financing:                       $2,000,000 (unless otherwise indicated, all dollar references are
                                           to U.S. dollars)
Type of Security:                          A certain number of shares of Series A Preferred Stock (“Series
                                           A Preferred”), initially convertible into an equal number of
                                           shares of common stock of the Holdco (“Common Shares”).
Series A Preferred                         The post-money valuation on a fully diluted basis will be a
Valuation:                                 maximum of $10,000,000 subject to Performance-based
                                           Valuation Adjustment Mechanism (as defined below).

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Restructuring:                           Prior to or upon the final closing, Group shall complete the
                                         restructuring as described in Appendix 1, and any other changes
                                         to the shareholding structure as may be deemed necessary during
                                         the legal due diligence process to the satisfaction of the Series A
Target Signing and Closing Both parties agree to use their best efforts to sign the final legal
Date:                      documents by October 15, 2006 (“Signing”) and to close the
                           transaction by November 15, 2006 (“Closing”), provided that
                           such Singing and Closing dates are subject to change.
Use of Proceeds:                         To be discussed and agreed as part of the Business Plan as
                                         described in the Conditions Precedent section below.

Dividend Rights:                         No dividends shall be declared or paid without a Supermajority
                                         Vote by the Board.
Key Persons                              Each senior management team member,to be further identified
                                         (“Key Persons”) shall enter into a new Employment Contract
                                         with Holdco and/or WANGYONG (terms to be established and
                                         agreed upon prior to the Signing of the legal documents to
                                         satisfaction of the Series A Investor).
Qualified IPO                            A "Qualified IPO" is defined as an initial public offering and
                                         listing on an internationally recognized stock exchange ("IPO")
                                         by Holdco with a pre-money valuation of at least $[200] million,
                                         with the offering representing at least 25% of the pro forma
                                         shares outstanding of the issuer on a fully diluted basis after the
                                         The Series A Preferred shall automatically be converted into
Automatic Conversion:
                                         Common Shares, at the then applicable Conversion Ratio, upon
                                         the closing of a Qualified IPO.
Liquidation Preference:                  In the event of any liquidation, dissolution or winding up of the
                                         Holdco (“Liquidation”), the holders of the Series A Preferred
                                         shall be entitled to receive, prior to any distribution to the
                                         holders of the Common Shares, an amount equal to 200% of the
                                         investment cost plus all declared but unpaid dividends thereon
                                         (the “Preference Amount”). Thereafter, the holders of Series A
                                         Preferred shall be pari passu with holders of Common Shares.
                                         A merger or consolidation of Group in which its shareholders do
                                         not retain a majority of the voting power in the surviving
                                         corporation, or a sale of all or substantially all of Group’s assets
                                         shall each be deemed to be a Liquidation. Liquidation
                                         Preference will be waived if the Liquidation results in the
                                         holders of the Series A Preferred receiving cash proceeds, net of
                                         transaction costs, greater than 200% of the Series A Investor’s
                                         investment cost.

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Redemption Rights:                       The holders of Series A Preferred may, at any time, subject to
                                         applicable laws and regulations, require Group to redeem (in
                                         whole, but not in part) any outstanding Series A Preferred (the
                                         “Series A Redemption Option”) for any one of the following
                                         events (“Redemption Triggering Events”):
                                         a) a Qualified IPO has not been completed by the end           of 36th
                                            month from the Closing of the Investment;
                                         b) NDA Director (as defined below) votes in favor              of the
                                            Holdco’s pursuing an IPO and such IPO is rejected           by the
                                            directors appointed by the Existing Shareholders at         a duly
                                            convened meeting of the Board of Directors.
                                         The redemption price, payable in US Dollars, shall be equal to,
                                         such price that provides the holders of the Series A Preferred
                                         with an internal rate of return of 15% (based on the Investment
                                         Amount and the date of the Closing of the Investment). All
                                         calculations shall be made in US Dollars. (“Redemption Price”)
                                         If the holders of the Series A Preferred elect to exercise the
                                         Redemption Option, the Existing Shareholders will take all
                                         actions within their power to cause WANGYONG to declare
                                         dividends at least equivalent to the higher of: (i) accumulated
                                         IAS audited net income of WANGYONG; and (ii) the maximum
                                         allowable dividends according to then prevailing law or
                                         regulations. All dividends paid by WANGYONG to Holdco
                                         shall be paid to the Series A Preferred until the Redemption
                                         Price has been paid in full. If such payments cannot fully satisfy
                                         the Redemption Price in the year of exercise, the Existing
                                         Shareholders will continue to take all actions within their power
                                         to cause WANGYONG to pay the higher of (i) 70% of all future
                                         net income as dividends and (ii) the maximum allowable
                                         dividends according to prevailing law or regulations. All
                                         dividends paid by WANGYONG to Holdco shall be paid to
                                         holders of Series A Preferred until the Redemption Price has
                                         been paid in full.
                                         The exact mechanics of the redemption shall be defined in the
                                         final documentation.
Management Undertaking The management team guarantees to generate revenue of no less
& Valuation Adjustment than $2,000,000 each year for the first three years of business
Mechanism:             operations (“Performance Target”). If the company fails to
                       achieve the performance target, the post-money valuation on a
                       fully-diluted basis will be adjusted (such adjustment to be further
                       defined based on Series A Investor’s due diligence and
                       subsequent negotiations).
Anti-dilution Provisions:                The Conversion Ratio shall be subject to standard anti-dilution
                                         protection rights and shall be adjusted on a full-ratchet basis for
                                         any issuance of equity securities at a valuation below the Series
                                         A Preferred Valuation.
Corporate Governance:                    The Board of Directors of Holdco shall consist of three (3)

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                                         directors, of which two (2) directors shall be appointed by the
                                         existing shareholders, and one (1) director shall be appointed by
                                         NDA (“NDA Director”).
                                         Board meetings will be held on as frequent a basis as is required
                                         to oversee the business, but no less frequently than once a
                                         All decisions of the Board and the Shareholders will be
                                         approved by a simple majority, except for certain "Major
                                         Actions" (listed below) which will require an affirmative vote
                                         by the NDA Director (“Supermajority Vote”). In the event of a
                                         deadlock, the Chairman of the Board shall have the right to vote
                                         and break the deadlock.
                                         After Closing, the Board of Directors of all WANGYONG
                                         entities shall operate exactly the same as the Board of Directors
                                         of Holdco, including but not limited to, NDA having the right to
                                         appoint one director to each WANGYONG entity’s Board of
Major Actions Requiring a Any Group entity shall be required to obtain the approval of a
Supermajority Vote:       Supermajority Vote for any action involving:
                                         (a)         change of articles of association;
                                         (b)         mergers, liquidation, change of control, sale or transfer of
                                                     assets or equity interests;
                                         (c)         change in registered capital; change in share capital
                                                     including any acquisition;
                                         (d)         change of Series A Preferred Shares’ rights.
                                         (e)         change or expansion of the scope of business (“Business
                                                     Scope”) for any of the Group’s entities;
                                         (f)         any transactions not considered to be in the ordinary
                                                     course of business
                                         (g)         any acquisition, investment or establishment of any joint
                                                     venture, partnership, company or any subsidiary;
                                         (h)         dividend policy and dividend distribution;
                                         (i)         any related party transactions;
                                         (j)         appointment and change of auditors and changes in
                                                     accounting policies and procedures;
                                         (k)         determination of the stock exchange, timing, and
                                                     valuation of an IPO
                                         (l)         approval of the business plan and the budget for each
                                                     financial year;
                                         (m)         any loan, debt, liability (including off balance-sheet
                                                     liability) exceeding RMB[1,000,000] on an accumulated

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                                         (n)         appointment of CEO, COO, CFO and other key
                                                     management staff;
                                         (o)         entering into, termination or approval of (i) an
                                                     employment agreement with the key management (and
                                                     any related compensation plan) and (ii) the terms of any
                                                     stock option plan for senior management;
                                         (p)         determination of compensation, incentive, welfare and
                                                     benefits schemes for the management staff, purchase and
                                                     provision of company cars and housing;
                                         (q)         establishment of an employee stock option program
                                                     (“ESOP”) and issuance of any options to employees; and
                                         (r)         any other actions that customarily require a
                                                     Supermajority Vote in similar private equity transactions.

Representations &                        Customary representations and warranties provisions shall be
Warranties:                              provided and will survive for a period of [three (3)] years
                                         secured by the pledged shares of Existing Shareholders offshore
                                         in Holdco and Existing Shareholders onshore in WANGYONG.
Founder and Existing                     Founder and Existing Shareholders shall not sell any shares of
Shareholders’ Lock-Up:                   the Holdco until after the Series A Investor has disposed of
                                         [80%] its ownership in the Holdco.
                                         If there is a Qualified IPO before the Series A Investor has
                                         disposed of [80%] of its ownership in the Holdco, Founders
                                         agree not to sell any shares within 365 days of the completion of
                                         the Qualified IPO.
Right of First Refusal, Co-              For each holder of Series A Preferred, common shareholders
Sale Agreement                           will enter into a Co-Sale Agreement which will give the holders
                                         of the Series A Preferred first refusal rights and co-sale rights
                                         providing that any common shareholders who proposes to sell all
                                         or a portion of his or her shares to a third party must permit the
                                         holders of the Series A Preferred hereunder at their option (i) to
                                         purchase such stock on the same terms as the proposed
                                         transferee, or (ii) sell a proportionate part of their shares on the
                                         same terms offered by the proposed transferee.
Drag-Along Rights                        Prior to a Qualified IPO, the holders of Series A Preferred, shall
                                         have the right to “drag-along” all other shareholders to approve
                                         and complete the sale of all the shares of Group provided that
                                         the implied company valuation is at least $50,000,000.

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Financial Reporting:                     For so long as the Series A Investors hold Series A Preferred,
                                         Group will deliver to holders of Series A Preferred:
                                         (i) audited consolidated annual financial statements within 90
                                               days after the end of each fiscal year;
                                         (ii) unaudited consolidated monthly financial statements within
                                               15 days from the end of each month; and
                                         (iii) an annual budget within 30 days prior to the start of each
                                               fiscal year.
                                         All financial statements to include an income statement, balance
                                         sheet and cash flow statement prepared in accordance with
                                         IFRS. All audits to be performed by an international “Big Four”
                                         accounting firm. Each holder of Series A Preferred will have
                                         standard inspection rights. These information and inspection
                                         rights will terminate upon the occurrence of a Qualified IPO.
Transaction Expenses:                    1. In the event that the closing of the purchase of the Series A
                                            Preferred occurs, Group shall pay for all third-party fees and
                                            expenses incurred by Series A Investors, including but not
                                            limited to all accounting, legal, and other out-of-pocket
                                            expenses incurred in connection with the sale of the Series A
                                            Preferred (“Transaction Expenses”).
                                         2. In the event that the closing of the purchase of the Series A
                                            Preferred fails to occur, the Series A Investor and Group
                                            each agrees to pay their own expenses for third-party costs
                                            incurred in connection to the sale of the Series A Preferred
                                            provided that Group shall pay for any accounting costs
                                            incurred for performing audits of any Group entity, and
                                            provided further that Group shall pay for all Transaction
                                            Expenses if the failure to conclude the transaction is due to:
                                            (i) material adverse change of the business;
                                            (ii) Group or Existing Shareholders are found to
                                                  misrepresent the business prospects of the Holdco or
                                                  fabricate business and financial information; or
                                            (iii) Group or Existing Shareholders committing a breach of
                                                  the Exclusivity terms and selling shares to another
                                                  investor or other investors before November 15, 2006
                                                  under investment terms that are substantially the same as
                                                  those offered by the Series A Investor.
Pre-Emptive, Registration Customary terms.
and Transfer Rights:

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Exclusivity:                             From the date hereof until the earliest of (a) the mutual
                                         agreement of the parties not to pursue the transaction, or (b)
                                         November 15, 2006, Group shall:
                                         (i) not directly or indirectly negotiate with any other party to sell
                                         or transfer any shares of capital stock of Holdco or any Group
                                         company; and
                                         (ii) terminate any existing activities or discussions with any
                                         party other than the Series A Investor, if any.
                                         The exclusivity period may be extended by mutual written

Conflict of Interest:                    Full disclosure by Group, Founders and Senior Management of
                                         any conflict of interest and potential conflict of interest. Full
                                         disclosure of all measures to prevent and address existing and
                                         potential conflict of interest.

Confidentiality:                         The terms of this investment, and the identity of the Investor and
                                         its constituent entities, will be kept strictly confidential by all
                                         parties unless the Investor consents to the release of any such
                                         information in writing or unless Group is obligated by law or
                                         existing contracts to disclose such information.
Conditions Precedent:                    The conditions precedent to Signing (“Signing Conditions”),
                                         including but without limitation to:
                                          (a)        Series A Investor’s satisfaction at its absolute discretion
                                                     with the results of due diligence reviews;
                                          (b)        Series A Investor obtaining formal approval from its
                                                     Investment Committee;
                                          (c)        Establishment of Accounting Policies and Cash
                                                     Management System satisfactory to the Series A
                                          (d)        Written Business Plan (including details of the use of
                                                     proceeds) and FY2007 Budget to the satisfaction of the
                                                     Series A Investor; and
                                          (e)        Execution Employment Agreements by Key Persons.

                                         The definitive legal agreements required to effect the
                                         transactions contemplated herein will set forth certain customary
                                         conditions to Closing (“Closing Conditions”), including but
                                         without limitation to:
                                          (a)        Completion of the Restructuring;
                                          (b)        Legal review and legal opinion satisfactory to the Series
                                                     A Investor;
                                          (c)        Establishment of Audit Committee in which NDA will
                                                     have the right to appoint an Audit Committee member;

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                                          (d)        No material adverse change in the business of any entity
                                                     in the Group as determined by the Series A Investor at
                                                     their sole discretion, including a review of 2006 year-to-
                                                     date financial results and closing financial position;
                                          (e)        Receipt by the Series A Investor of evidence that
                                                     WANGYONG has obtained and maintains appropriate
                                                     and complete relevant regulatory and legal approval for
                                                     telecom value-added services;
                                          (f)        Receipt by Group of all government approvals and
                                                     relevant third party consents;
                                          (g)        Other customary conditions precedent.
                                         The pro forma capitalization of the Holdco on a fully-diluted
                                         basis is as follows (assuming the Series A Investor’s investment
                                         to be $2 million and subject to Valuation Adjustment
                                                                                               $ Per        $          % Fully
                                           Types of Securities & Rounds           Shares       Unit      Raised        Diluted

                                                     Series A Preferred
                                           NDA                                     250,000              $2,000,000     20.00%
                                           Subtotal - Series A Preferred Shares    250,000              $2,000,000     20.00%
                                                     Common Shares
                                           Zhang Jinsong                           650,000                             52.00%
                                           Zhang Chunlei                           350,000                             28.00%
                                           Subtotal - Common Shares               1,000,000                            80.00%

                                           ESOP                                            0                            0.00%
                                           Warrants & Others                               0                            0.00%

                                           Total Fully-diluted                    1,250,000             $2,000,000   100.00%

Legal Jurisdiction                       Law of Hong Kong SAR

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By NDA Venture GP I Company Limited, its general partner

By: _____________________________
Title: Authorized Signatory

Wangyong Holdings, Ltd.

Title: CEO

                                                                                   Signature Page for
                                                                  Series A Preferred Share Financing
                                                            Term Sheet between NDA and Wangyong
                                                                         Dated as of August 24, 2006

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Appendix 1: Structure

    Zhang Jinsong                          Zhang Chunlei              NDA VC

                52%                                 28%                   20%


                         WangYong Holdings Ltd.(Cayman Isands)


    境内                                              100%

              术                                  (WOFE)
              家               Shanghai Wangyong Software Co., Ltd.,

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